• APAC stocks took impetus from the strong rally on Wall Street (SPX +3.06%, NDX +4.58%) after Fed Chair Powell’s speech.
• Fed Chair Powell said it makes sense to moderate the pace of interest rate hikes, adding he does not want to over-tighten but cutting rates is not something to do soon.
• Chinese Vice Premier Chunlan noted that the country’s fight against COVID is entering a new phase, while Caixin Manufacturing PMI topped forecasts.
• European equity futures were positive with the Euro Stoxx 50 future up 1.2% after the cash market closed with gains of 0.8% yesterday.
• DXY was pressured post-Powell with DXY on a 105 handle, JPY leads G10 FX, EUR/USD reclaimed 1.04.
• Looking ahead, highlights include German Retail Sales, EZ, UK & US Final Manufacturing PMI, US ISM, IJC, PCE Price Index, EU Council President Michel visits China, Speeches from Fed's Barr, Bowman & Logan, ECB's Lane & Elderson, Supply from Spain, UK & France.

US TRADE

• US stocks rallied in the wake of a dovish speech from Fed chair Powell, who suggested that the December FOMC meeting may be the time to downshift to a moderate pace of rate hikes which was understood by markets to be 50bps rather than 75bps, while desks also noted markets were hawkishly positioning into Powell's speech and accordingly, the stock upside may be a function of a short squeeze.
• SPX +3.06% at 4,080, NDX +4.58% at 12,030, DJIA +2.17% at 34,587, RUT +2.72% at 1,886
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed Chair Powell said it makes sense to moderate the pace of interest rate hikes and the time to moderate the pace of hikes may come as soon as December, while he added it seems likely that rates must ultimately go somewhat higher than what was thought in the September SEPs. Powell also said they have made substantial progress towards sufficiently restrictive policy but have more ground to cover and they will likely need to hold policy at a restrictive level for some time. Fed Chair Powell commented during the Q&A that the Fed at some point will "call it" regarding QT and want to stop at a safe place, while he added that he does not want to over-tighten but cutting rates is not something to do soon.
• Fed's Cook (voter) said it is prudent for the Fed to hike in smaller steps as it moves forward and how far the Fed goes with hikes depends on how the economy responds. Cook added that inflation is still too high and the Fed's main focus is on lowering price pressures, while she is seeing some early signs of improvement in inflation data but noted it is too soon to say that the inflation trend turning more friendly yet.
• Fed's Beige Book stated economic activity was about flat or up slightly and employment grew modestly in most districts, while consumer prices rose at a moderate or strong pace in most districts.
• US House voted 290-137 in support of the bill to block the rail workers' strike, as expected.

APAC TRADE

EQUITIES

• APAC stocks took impetus from the strong rally on Wall Street after Fed Chair Powell’s speech which signalled the Fed is ready to slow the pace of rate increases as soon as the December meeting, with sentiment in the region also helped by China reopening optimism and with Chinese Caixin PMI data not as bad as feared.
• ASX 200 was firmer with outperformance in the mining industry amid the heightened global risk appetite and as participants shrugged off the mixed-to-softer domestic data releases.
• Nikkei 225 was boosted at the open after Japanese firms' recurring profits hit a record for Q3 although the index moved off its highs after hitting resistance just shy of the 28,500 level.
• Hang Seng and Shanghai Comp advanced after several large Chinese cities relaxed some COVID controls and Vice Premier Sun Chunlan noted that the country’s fight against the virus is entering a new phase, while the latest Caixin Manufacturing PMI data topped forecasts although remained in contraction territory.
• US equity futures marginally extended (ES +0.2%) on the firm gains from the dovish reaction to Powell's comments.
• European equity futures were positive with the Euro Stoxx 50 future up 1.2% after the cash market closed with gains of 0.8% yesterday.

FX

• DXY weakened in the aftermath of Fed Chair Powell's speech in which he essentially cemented a 50bps rate hike for December and implied the terminal rate may be closer than previously thought but also suggested the likelihood that rates will likely surpass what they thought in the September SEPs and that they still have more ground to cover.
• EUR/USD benefitted from the weaker greenback and continued to extend above 1.0400 as all focus centred on Powell, while recent Eurozone inflation data showed a slight easing of inflationary pressures but remained elevated.
• GBP/USD was firmer with the upside driven by Powell's speech and briefly reclaimed the 1.2100 handle.
• USD/JPY continued its retreat to below 137.00 owing to the dollar weakness and with the Japanese currency supported by narrowing US-Japan yield differentials.
• Antipodeans held on to their gains amid the constructive mood and despite mixed Australian data.
• PBoC set USD/CNY mid-point at 7.1225 vs exp. 7.1231 (prev. 7.1769)

FIXED INCOME

• 10yr UST futures rallied with the March contract above the 114.00 level following the dovish remarks from Fed Chair Powell which reversed the early bear flattening seen following yesterday’s slew of data releases.
• Bund futures strengthened alongside the bid in global fixed income markets.
• 10yr JGB futures tracked global counterparts higher with price action also facilitated by stronger results at the 10yr JGB auction which attracted the highest b/c since 2005.

COMMODITIES

• Crude traded sideways above USD 80/bbl and held on to the prior day's gains which were helped by bullish inventory data which showed a larger-than-expected drawdown in crude, while some desks also suggested the possibility that OPEC+ could make deeper cuts to production in January although many analysts noted that this was uncertain.
• OPEC November oil output fell 710k BPD from October to 29.10mln BPD after the OPEC+ production cut decision, while quota-bound members complied with 163% of pledged cuts in November, according to a Reuters OPEC survey.
• Spot gold gained as the dollar weakened and yields softened.
• Copper benefitted from the positive risk tone and after China hinted at a softer approach COVID approach.

CRYPTO

• Bitcoin took a breather after the prior day's strength in which prices climbed above the USD 17,000 level.
• Sam Bankman-Fried said the FTX US platform is fully funded and he believes withdrawals could be opened, while he denied committing fraud and said that FTX had huge management failures.

NOTABLE ASIA-PAC HEADLINES

• Beijing is to allow some low-risk COVID patients to home isolate which represents a major COVID policy shift, while COVID protests and stretched infrastructure were said to have led to the change, according to Bloomberg.
• BoJ Board Member Noguchi said the BoJ must maintain monetary easing and keep interest rates at low levels now as achievement of the 2% inflation target remains uncertain. Noguchi noted that they cannot say that Japan has stably and sustainably achieved the BoJ's 2% inflation target, while he added that consumer inflation is likely to fall back below 2% once cost-push factors dissipate.

DATA RECAP

• Chinese Caixin Manufacturing PMI (Nov) 49.4 vs. Exp. 48.9 (Prev. 49.2)
• Japanese Company Profits Y/Y (Q3) 18.3% vs Exp. 16.1% (Prev. 17.6%)
• Japanese Company Sales Y/Y (Q3) 8.3% vs Exp. 10.8% (Prev. 7.2%)
• Japanese Business Capex (MOF) YY* (Q3) 9.8% vs Exp. 6.4% (Prev. 4.6%)
• Australian Manufacturing PMI (Nov F) 51.3 (Prev. 51.5)
• Australian Capital Expenditure (Q3) -0.6% vs. Exp. 1.5% (Prev. -0.3%)
• Australian Private Capital Expenditure 2022-2023 (AUD)(Est. 4) 155.7B (Prev. 146.4B)

GEOPOLITICS

RUSSIA-UKRAINE

• US is considering a dramatic expansion in the training the US military provides to Ukraine including instructing as many as 2,500 Ukrainian soldiers a month in a US base in Germany, according to CNN citing sources.
• Chinese President Xi told European Council President Michel China will continue to strengthen strategic coordination with the EU and hopes EU will establish an objective and correct perception of China. Xi added that China and EU should strengthen macroeconomic policy coordination and complementary advantages and jointly create new growth engines, and should jointly ensure the safety, stability, and reliability of industrial supply chains. Xi said China will remain open to European companies and hope EU can provide a fair and transparent business environment for Chinese firms, according to Bloomberg.

OTHER

• Israel’s Netanyahu said he is no longer ruling out the use of tactical nuclear weapons and said that a relationship with Russian President Putin is important for security interests, according to Bloomberg.
• US Defence Secretary Austin informed his Turkish counterpart of his strong opposition to a new Turkish military operation in Syria, according to Reuters.
• US lawmakers are poised to back as much as USD 10bln to bolster Taiwan's defences against growing tensions and threats from China as part of a compromise annual defence authorisation bill, according to Bloomberg.
• Japanese Chief Cabinet Secretary Matsuno said they informed China and Russia through diplomatic channels of severe concerns regarding frequent joint air force activities around Japan, while they are closely monitoring increasing military cooperation between China and Russia with concern, according to Reuters.