• The Fed left rates unchanged as expected whilst revising the dot plots higher which are now indicative of two more 25bp hikes this year.
• Fed Chair Powell distanced himself from the dot plots in the press conference whereby he noted that projections are not a plan or a decision.
• US stocks finished mixed, APAC stocks traded mostly higher despite disappointing activity data from China; PBoC cut its 1-year MLF rates by 10bps.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.2% after the cash market closed up 0.7% yesterday.
• DXY has continued to claw back yesterday's losses, JPY is the standout laggard across the majors amid interest rate differential flows.
• Looking ahead, highlights include US IJC, Retail Sales, Industrial Production, New Zealand Manufacturing PMI, ECB Policy Announcement & Press Conference with ECB's Lagarde, Supply from Spain & France.

US TRADE

EQUITIES

• US stocks finished mixed in the aftermath of the FOMC meeting where the Fed left rates unchanged as expected although the dot plots saw a marked revision higher with the 2023 Fed Funds Rate projection raised to 5.6% from 5.1% which is indicative of two more 25bp hikes this year, while the 2024 and 2025 dots were also raised from March. This spurred an immediate hawkish reaction across asset classes but was then unwound during the press conference as Powell distanced himself from the dot plots whereby he noted that projections are not a plan or a decision and they will continue to make decisions meeting by meeting, while markets had also earlier digested a cooler-than-expected PPI report which spurred an initial rally in Treasuries and pressured the Dollar prior to the Fed announcement.
• SPX +0.08 at 4,372, NDX +0.70 at 15,005, DJIA -0.68% at 33,979, RUT -1.17% at 1,874.
• Click here for a detailed summary.

FOMC

• Fed left rates unchanged at 5.00-5.25%, as expected, through a unanimous vote and raised the 2023 Fed Funds Rate dot plot forecast to 5.6% from 5.1% in March, while it stated that holding the target range steady allows time to assess additional information and implications for policy. Fed said inflation remains elevated and that it is highly attentive to inflation risks with the Committee strongly committed to returning inflation to its 2% objective.
• Federal Funds Rate forecast for 2023 is at 5.6% (exp. 5.1%, prev. 5.1% in March), 2024 at 4.6% (exp. 4.4%, prev. 4.3%), 2025 at 3.4% (exp. 3.1%, prev. 3.1%), longer run at 2.5% (exp. 2.5%, prev. 2.5%).
• Fed Chair Powell said nearly all FOMC policymakers view some further rate hikes this year as appropriate and most policymakers expect subdued growth to continue. Powell also stated that inflation remains well above the 2% goal and has moderated somewhat but added that inflation pressures continue to run high and getting inflation back to 2% has a long way to go. Furthermore, Powell said Fed projections are not a plan or decision and they will continue to make decisions meeting by meeting.
• Fed Chair Powell said during the Q&A that the main issue is determining the extent of additional tightening and it makes sense for rates to move higher but at a more moderate pace, while they did not discuss whether to go to an every-other meeting approach and he thinks July will be a live meeting. Powell called the decision a "skip" but then corrected himself stating "should not call it a skip" and stated that by taking a little more time on tightening, they reduce the chance of going too far, while he said it will be appropriate to cut rates when inflation comes down but added that rate cuts are not appropriate this year and that no policymakers saw a rate cut for this year.

NOTABLE HEADLINES

• US President Biden vetoed the GOP resolution to repeal the EPA standard on vehicle pollution.
• US President Biden congratulated both parties after a West Coast port contract deal was reached and said port workers will finally get the pay, benefits and quality of life they deserve, according to Reuters.
• White House economic adviser Bernstein said banking system headwinds have been contained.
• US Fed will release the results of 2023 bank stress tests on June 28th at 16:30EDT/21:30BST, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks traded mostly higher but with gains capped in the aftermath of the FOMC where a hawkish knee-jerk reaction to the Fed’s dot plots was partially unwound during the press conference after Powell distanced himself from projections, while the attention in the region shifted to the slew of key data releases.
• ASX 200 was kept afloat in rangebound trade with stellar jobs data partly clouded by yield curve inversion.
• Nikkei 225 benefitted from currency depreciation and encouraging data including Exports and Machinery Orders.
• Hang Seng and Shanghai Comp. were positive with outperformance in Hong Kong after the HKMA kept rates unchanged for the first time since March 2022 in lockstep with the Fed, while the advances were led by property names amid expectations for more support measures for the industry and after Chinese House Prices returned to growth. Furthermore, the PBoC cut its 1-year MLF rates by 10bps following similar cuts to short-term funding rates although participants also digested disappointing activity data from China in which both Industrial Production and Retail Sales missed estimates.
• US equity futures lacked direction overnight and took a breather following yesterday's post-FOMC fluctuations.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.2% after the cash market closed up 0.7% yesterday.

FX

• DXY was firmer and clawed back yesterday’s losses which were triggered by the cooler-than-expected PPI data and Fed Chair Powell’s press conference with the rebound in the buck at the detriment of its Asian counterparts.
• EUR/USD marginally weakened but held on to the 1.0800 status ahead of the looming ECB rate decision.
• GBP/USD was softer after yesterday’s early momentum was thwarted by resistance around the 1.2700 level.
• USD/JPY rose above 141.00 amid anticipation of wider future policy divergences between the Fed and the BoJ.
• Antipodeans were mixed with AUD/USD underpinned by strong jobs data, while NZD/USD was pressured after Q1 GDP confirmed that the New Zealand economy entered into a recession.

FIXED INCOME

• 10yr UST futures remained subdued following the FOMC meeting where the dot plots suggested that the Fed still had a total of 50bps to go on rate hikes but with prices off their lows after a less hawkish press conference from Powell who said projections are not a plan or decision and that they will decide meeting by meeting.
• Bund futures mildly retreated to beneath 133.00 ahead of today’s widely anticipated ECB rate hike.
• 10yr JGB futures were choppy albeit with downside stemmed amid the BoJ’s presence in the market for JPY 1.3tln of JGBs on top of its fixed-rate operations and with the central bank also kick-starting its 2-day policy meeting.

COMMODITIES

• Crude futures traded rangebound as participants digested the Fed's hawkish skip and weak Chinese data.
• Spot gold trickled lower and extended on post-FOMC lows after the greenback recouped its losses overnight.
• Copper futures were pressured as the latest Chinese activity data continued to underscore the nation's slow economic recovery.

CRYPTO

• Bitcoin was lacklustre following a brief dip beneath USD 25,000 after the Fed signalled more rate hikes this year.
• European Commission plans to have the ECB set limits on the use of a digital Euro.

NOTABLE ASIA-PAC HEADLINES

• PBoC conducted CNY 237bln in 1-year MLF lending with the rate cut by 10bps to 2.65%.
• HKMA maintained its base rate unchanged at 5.50%, as expected.
• China National Bureau of Statistics said the economic recovery is not yet solid but noted that Q2 growth will be significantly faster than Q1 and that China's economy is resilient despite facing some pressures. China's stats bureau also stated that pressure on employment and structural problems persist, while it added that consumption recovery faces some hurdles and China will support consumption growth.
• Japan's opposition party is making final preparations to submit a no-confidence vote on Friday.

DATA RECAP

• Chinese Industrial Production YY (May) 3.5% vs Exp. 3.6% (Prev. 5.6%)
• Chinese Retail Sales YY (May) 12.7% vs Exp. 13.6% (Prev. 18.4%)
• Chinese Urban Investment YTD YY (May) 4.0% vs Exp. 4.4% (Prev. 4.7%)
• Chinese House Prices YY (May) 0.1% (Prev. -0.2%)
• Japanese Machinery Orders MM (Apr) 5.5% vs Exp. 3.0% (Prev. -3.9%)
• Japanese Machinery Orders YY (Apr) -5.9% vs Exp. -8.0% (Prev. -3.5%)
• Japanese Trade Balance (JPY)(May) -1372.5B vs Exp. -1331.9B (Prev. -432.4B, Rev. -432.3B)
• Japanese Exports YY (May) 0.6% vs Exp. -0.8% (Prev. 2.6%)
• Japanese Imports YY (May) -9.9% vs Exp. -10.3% (Prev. -2.3%)
• Australian Employment (May) 75.9k vs Exp. 15.0k (Prev. -4.3k)
• Australian Unemployment Rate (May) 3.6% vs Exp. 3.7% (Prev. 3.7%)
• Australian Participation Rate (May) 66.9% vs Exp. 66.7% (Prev. 66.7%)
• New Zealand GDP QQ (Q1) -0.1% vs. Exp. -0.1% (Prev. -0.6%, Rev. -0.7%)
• New Zealand GDP YY(Q1) 2.2% vs. Exp. 2.6% (Prev. 2.2%, Rev. 2.3%)

GEOPOLITICS

• Israel told Russia it is highly concerned about its growing military cooperation with Iran in the war in Ukraine and the possibility it will provide Tehran with advanced weapon systems, according to Axios.
• Japanese Chief Cabinet Secretary Matsuno said Japan, Philippines and US security advisers will meet on Friday to discuss regional matters, according to Reuters.

EU/UK

NOTABLE HEADLINES

• BoE said it will commission an external review of its economic forecasting processes.
• UK PM Sunak abandoned the plan for a supermarket price cap following a backlash, according to The Telegraph.