US stocks finished mixed after having unwound the overall dovish reaction to the FOMC and Powell's Presser - Newsquawk Asia-Pac Market Open

• US stocks finished mixed after having unwound the overall dovish reaction to the FOMC where the Fed left rates on hold as expected but announced to taper its QT run-off to just USD 25bln a month from USD 60bln which was slightly more dovish than the expected USD 30bln. The typical dovish reaction (upside in stocks, bonds, gold and downside in the Dollar) extended during Fed Chair Powell's press conference as he noted it was unlikely the next move would be a hike and the Fed is focused on how long to keep policy at its current level although he did admit several times that the recent inflation data does not boost the Fed's confidence in inflation returning to 2% but believes that policy is restrictive enough for that to occur. Nonetheless, after the dust settled, stocks then saw a large reversal heading into the close.
• USD was lower in the aftermath of the FOMC rate decision and accompanying dovish Chair Powell press conference where the Fed's QT taper was larger than anticipated and Powell essentially ruled out another hike but also noted that he does not know how long it will take before the Fed can cut and added he does not have great confidence either way on whether there will be rate cuts this year. The dollar was further pressured late in the session as USD/JPY dropped aggressively amid suspected FX intervention.
• Looking ahead, highlights include New Zealand Building Permits, South Korean CPI, Regional PMIs, Australian Building Approvals & Trade Data, BoJ Minutes from the March Meeting, Supply from Japan, Holiday Closure in Mainland China.

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LOOKING AHEAD

• Highlights include New Zealand Building Permits, South Korean CPI, Regional PMIs, Australian Building Approvals & Trade Data, BoJ Minutes from the March Meeting, Supply from Japan, Holiday Closure in Mainland China.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks finished mixed after having unwound the overall dovish reaction to the FOMC where the Fed left rates on hold as expected but announced to taper its QT run-off to just USD 25bln a month from USD 60bln which was slightly more dovish than the expected USD 30bln. The typical dovish reaction (upside in stocks, bonds, gold and downside in the Dollar) extended during Fed Chair Powell's press conference as he noted it was unlikely the next move would be a hike and the Fed is focused on how long to keep policy at its current level although he did admit several times that the recent inflation data does not boost the Fed's confidence in inflation returning to 2% but believes that policy is restrictive enough for that to occur. Nonetheless, after the dust settled, stocks then saw a large reversal heading into the close.
• SPX -0.34% at 5,018, NDX -0.70% at 17,318, DJIA +0.23% at 37,903, RUT +0.32% at 1,980.
• Click here for a detailed summary.

FOMC

• Fed kept its rates unchanged at 5.25-5.50% as expected and said it will slow the decline of the balance sheet by cutting the Treasury redemption cap by USD 35bln (exp. 30bln) to USD 25bln per month from USD 60bln from June 1st with its decision made unanimously. FOMC noted there has been a lack of further progress towards 2% inflation and it maintained its language that economic activity has continued to expand at a solid pace and job gains have remained strong, while the unemployment rate has remained low and inflation has eased over the past year but remains elevated. It also reiterated that the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2% and it would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. Furthermore, it said risks to achieving employment and inflation goals have moved toward better balance over the past year vs. "are moving into better balance" in March.
• Fed Chair Powell said during the press conference that the economy has made considerable progress towards its dual goals and inflation eased substantially over the past year but it is still too high and further progress is not assured with the path ahead uncertain. Powell said the Fed does not expect it will be appropriate to cut rates until they have greater confidence in moving towards 2% and so far this year inflation readings have not given the Fed that greater confidence, while he added gaining confidence to cut will take longer than thought and slowing the pace of QT does not mean the balance sheet will shrink less than it would otherwise, but it will ensure a smooth transition for money markets.
• Fed Chair Powell said during the Q&A that they are committed to retaining a restrictive stance of policy for as long as appropriate and it is unlikely the next policy move will be a rate hike, while the Fed is focused on how long to keep policy restrictive. Powell stated that for a hike, the Fed would need to see evidence is not sufficiently restrictive and that is not what they see. Powell said he thinks policy is well positioned to address different paths the economy might take and he responded that the Fed needs more confidence on inflation and he did not see progress in Q1 when asked about 3 cuts this year. Furthermore, he said it will take the Fed longer to get to sufficiently confident to change policy rate and there are paths to no cuts this year but also paths to cuts and it depends on the data, as well as noted that as inflation has come down to below 3%, the Fed's employment goal comes back into focus and he thinks the stance is appropriate for inflation to return to 2% over time.

NOTABLE HEADLINES

• US Treasury Quarterly Refunding announcement was at USD 125bln (exp. 125bln) with the US to sell USD 58bln of 3yr notes (prev. 58bln M/M) on May 7th, USD 42bln of 10yr notes (prev. 42bln Q/Q) on May 8th, and USD 25bln (prev. 25bln Q/Q) of 30yr bonds on May 9th.
• WSJ's Timiraos said prior to the FOMC announcement that not only are the chances of a June cut dead, "but the question now is whether the data will instead make this week's meeting a waystation to a more hawkish summer pivot". Furthermore, he said ECI data could make the Fed's "wait-and-see" posture a little less comfortable, given cooling wage growth previously offered a potential source of comfort in the face of service sector inflation and ECI raises questions on whether Fed will be able to hit its inflation target without a slowdown in the labour market.
• US House Republican Taylor Greene said she will call for a vote to oust House Speaker Johnson next week.

DATA RECAP

• US S&P Global Manufacturing PMI Final (Apr) 50.0 (Prev. 49.9)
• US ISM Manufacturing PMI (Apr) 49.2 vs. Exp. 50.0 (Prev. 50.3)
• US ISM Manufacturing Prices Paid (Apr) 60.9 vs. Exp. 55.0 (Prev. 55.8)
• US Construction Spending MM (Mar) -0.2% vs. Exp. 0.3% (Prev. -0.3%)
• US ADP National Employment (Apr) 192.0k vs. Exp. 175.0k (Prev. 184.0k, Rev. 208k)
• US JOLTS Job Openings (Mar) 8.488M vs. Exp. 8.686M (Prev. 8.756M, Rev. 8.813M)

FX

• USD was lower in the aftermath of the FOMC rate decision and accompanying dovish Chair Powell press conference where the Fed's QT taper was larger than anticipated and Powell essentially ruled out another hike but also noted that he does not know how long it will take before the Fed can cut and added he does not have great confidence either way on whether there will be rate cuts this year. The dollar was also pressured late in the session as USD/JPY dropped aggressively amid suspected FX intervention.
• EUR gained on the back of the softer dollar with little newsflow from Europe where participants were away for Labour Day although there were comments from ECB's de Cos which provided little incrementally.
• GBP was mildly firmer on the day with an initial boost from slightly stronger-than-expected PMI data.
• JPY strengthened significantly in late trade in which USD/JPY briefly tested the 153.00 level to the downside after collapsing from north of 157.00 which spurred speculation of intervention although the pair has since moved off worst levels to trade at the 155.00 handle.
• Moody's affirmed Brazil at Ba2 but revised the outlook to positive from stable.

FIXED INCOME

• Treasuries bull-steepened after the dovish Fed followed an uneventful QRA, mixed ISM Manufacturing and softening JOLTS.

COMMODITIES

• Oil prices saw steep losses amid a surprise EIA crude build coupled with the prospect of a Middle East ceasefire agreement.

GEOPOLITICAL

MIDDLE EAST

• Israeli PM Netanyahu told US Secretary of State Blinken during their meeting that he won't accept a deal that will include ending the war, while he added if Hamas doesn't drop this demand there will be no deal and Israel will invade Rafah, according to Axios's Ravid.
• Israeli military chief Halevi said the offensive in Gaza will continue and Israel is preparing for an offensive in the north, according to Sky News Arabia.
• US Secretary of State Blinken said Israel has made very important compromises over the proposal for the hostage deal, while he added they have seen real and meaningful progress in recent weeks.
• White House said there was no response from Hamas on the ceasefire and hostage release proposal, while a Hamas official earlier said the group is still studying the recent ceasefire offer.
• France's Foreign Minister, after talks in Egypt, said work is to continue in the coming hours to secure an Israeli-Gaza truce.
• IRGC chief commander said Iran’s missile attack on Israel can be carried out again in the future, according to journalist Aslani.

OTHER

• US State Department said Russia breached the global chemical weapons ban in the Ukraine war.
• US imposed fresh Russia-related sanctions on hundreds of people and entities which target companies connected to Russia's Arctic LNG 2 project, according to the Treasury website. US issued sanctions on more than a dozen China and Hong Kong-based companies as part of Russia action, while it imposed sanctions on Russian air carrier Pobeda which is a subsidiary of Aeroflot.

ASIA-PAC

NOTABLE HEADLINES

• China is reportedly to adopt additional preferential policies to bolster EV sales, according to Bloomberg.
• US FCC moved to tighten rules to bar Chinese telecoms Huawei, ZTE, and others from certifying wireless equipment, according to officials.

EU/UK

NOTABLE HEADLINES

• ECB's de Cos said Eurozone inflation will fluctuate for the rest of 2024, then fall to the 2% target in mid-2025, while he noted risks to the inflation outlook are now balanced and transmission remains a downside risk to the growth outlook. De Cos also said the ECB has gained confidence in its forecasts after the latest inflation data.

DATA RECAP

• UK S&P Global Manufacturing PMI (Apr) 49.1 vs. Exp. 48.7 (Prev. 48.7)