Stocks slump following a hawkish Fed cut - Newsquawk Asia-Pac Market Open

• US stocks saw considerable downside (SPX -2.95%, NDX -3.6%, DJIA -2.58%, RUT -4.4%) as did Treasuries, while the Dollar surged in the wake of a hawkish FOMC. 
• The Federal Reserve cut rates by 25bps, as expected, to 4.25-4.5% in an 11-1 split, with Hammack voting to leave rates unchanged; the median dot plot for 2025 and 2026 FFR forecasts were lifted above expectations.
• Fed Chair Powell said the decision was a "closer call", but the "right call", suggesting there was a discussion surrounding holding rates at this meeting, and that "extent and timing language" shows Fed is at or near the point of slowing rate cuts, and the slower pace of cuts reflects expectation. 
• Chip name Micron (MU) slumped 15% post-earnings following disappointing guidance.  
• Looking ahead, highlights include  Japanese Foreign Bond Investment, New Zealand ANZ Own Activity, BoJ rate decision and Governor Ueda's press conference.

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SNAPSHOT

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FOMC

ANNOUNCEMENT

• The Federal Reserve cut rates by 25bps, as expected, to 4.25-4.5% in an 11-1 split, with Hammack voting to leave rates unchanged. The statement was little changed from the November meeting, but added in considering the "extent and timing" of additional rate adjustments (prev. In considering additional adjustments), Fed will assess incoming data, evolving outlook and balance of risks.
• However, the further hawkish skew came in the updated Summary of Economic Projections (SEPs) whereby the median dot plot for 2025 and 2026 FFR forecasts were lifted above expectations. Recapping, the median 2025 dot rose to 3.9% from 3.4% (exp. 3.6%), while the 2026 median rose to 3.4% (exp. 3.1%, prev. 2.9%). 2027 and longer run median dot plots rose to 3.1% (prev. 2.9%) and 3.0% (prev. 2.9%), as expected. As such, the 2025 median dot plot looks for just two cuts in 2025.
• Elsewhere, Core PCE inflation is now seen at 2.5% for 2025 (exp. 2.3%, prev. 2.2%) and 2.2% for 2026 (exp. 2.0%, prev. 2.0%). Forecasts for the unemployment rate were largely as expected, with all horizons, ex-longer run, seen at 4.3%, although 2027 was expected. In addition, and as was alluded to in the latest Minutes, the Fed lowered the repo rate by 30bps to 4.25% (lower end of FFR target, vs 5bps above lower end previously).

CHAIR POWELL PRESSER & Q/A:

• In Chair Powell's pre-prepared remarks he stated the Fed is squarely focused on two goals, and that the economy is strong, the labour market remains solid, and inflation is much closer to the 2% goal. Ahead of November PCE on Friday, Powell said total PCE probably rose 2.5% in the 12 months ending in November, while core PCE prices probably rose 2.8% in November. The Chair added that the policy stance is now significantly less restrictive, and going forward they can be more cautious, something which was indicated from the updated SEPs and statement tweak.
• In the Q&A, the distinct hawkish remark came from the first question, which accentuated hawkish market moves, as Powell said that today's decision was a "closer call", but the "right call", suggesting there was a discussion surrounding holding rates at this meeting. Powell added risks are two-sided, and trying to steer between those two risks.
• Chair Powell stated that "extent and timing language" shows Fed is at or near the point of slowing rate cuts, and the slower pace of cuts reflects expectation. Powell said that cuts they make in 2025 will be in response to data and as long as the labour market and economy is solid, they can be cautious as they consider further cuts. In addition, looking to US President-elect Trump's term, Powell said some people did take a very preliminary step and incorporated conditional effects of coming policies in their projections.
• Note, one committee member sees no cuts in 2025, and one sees five 25bps rate cuts - showing a wide range of views on the Fed, but many were centered around the median. Continuing to look ahead, Powell said it will be looking for further progress of inflation to make those cuts, and added that from here is a new phase, and the Fed is going to be cautious about further cuts.

MARKET REACTION

• Stocks: Sold off across the board and SPX saw its worst "Fed day" since 2020.
• FX: DXY surged against major peers as the Fed delivered a hawkish cut, that is, delivering a 25bps cut as expected, but raising FFR projections above expectations, particularly in 2025.
• Bonds: dived after Fed signals slower rate path ahead; US 10-year yield rose above 4.50%.
• Commodities: sold off post-settlement after the hawkish FOMC.
• Crypto: Extended on recent losses with Bitcoin slipping under USD 101k.
• Market Implied Fed Rate Cut Pricing: January 2bps (prev. 4bps), March 12bps (prev. 17bps), May 15bps (prev. 23bps), December 2025 34bps (prev. 48bps); (prev. = pre-FOMC and incorporated for today's rate cut).

US TRADE

• US stocks saw considerable downside (SPX -2.95%, NDX -3.6%, DJIA -2.58%, RUT -4.4%) as did Treasuries, while the Dollar surged in the wake of a hawkish FOMC. Highlighting the extent of the moves, the S&P 500 noticed its largest post-Fed move since March 2020.
• Sectors were all notably in the red with Consumer Discretionary plunging 4.75% and weighed on by Tesla (TSLA) (-8.5%) weakness.
• SPX -2.95% at 5,872, NDX -3.60% at 21,209, DJIA -2.58% at 42,327, RUT -4.39% at 2,232
• Click here for a detailed summary.

NOTABLE HEADLINES

• Micron Technology Inc (MU) Q1 2025 (USD): Adj. EPS 1.79 (exp. 1.77), Adj. Revenue 8.71bln (exp. 8.71bln). Adjusted gross margin 39.5% (exp. 39.5%). Adjusted operating income 2.39bln (exp. 2.34bln). Adjusted operating income margin 27.5% (exp. 27%). Cash flow from operations 3.24bln (exp. 4.1bln). Guidance: Sees return to growth in H2 of FY. Q2 adj. revenue 7.7-8.1bln (exp. 8.99bln). Q2 adj. gross margin 37.5-39.5% (exp. 41.3%). Q2 adj. EPS 1.33-1.53 (exp. 1.92). Fiscal Q2 bit shipment outlook weaker than expected. Prioritizing investments to ramp 1β & 1γ tech nodes. Commentary: PC refresh cycle is unfolding more gradually. Sees sale of projects to China-headquartered customers to be concentrated in high-end customer portfolios for the remainder of 2025. Shares fell 15% after-market.
• Punchbowl reports, on the US fiscal situation, that the general consensus is the US House will take up the CR on Thursday, leaving just Friday for the Senate to clear it before the midnight funding deadline

DATA RECAP

• US MBA Mortgage Applications -0.7% (Prev. 5.4%)
• US MBA 30-Yr Mortgage Rate 6.75% (Prev. 6.67%)
• US Building Permits: Number (Nov) 1.505M vs. Exp. 1.43M (Prev. 1.419M)
• US Build Permits: Change MM (Nov) 6.1% (Prev. -0.4%)
• US Housing Starts Number (Nov) 1.289M vs. Exp. 1.343M (Prev. 1.311M, Rev. 1.312M)
• US House Starts MM: Change (Nov) -1.8% (Prev. -3.1%, Rev. -3.2%)

FX

• USD surged against major peers as the Fed delivered a hawkish cut, that is, delivering a 25bps cut as expected, but raising FFR projections above expectations, particularly in 2025.
• GBP was flat ahead of the Fed's decision following the headline CPI and Services CPI Y/Y coming in hotter than the MPC's projections. Additionally, 10-year Gilt yields approached post-budget highs
• JPY was the relative G10 outperformer, though still weakened notably with USD/JPY climbing above 154 post-Fed as rising US yields were behind the downside. Yen will be closely watched ahead of the BoJ overnight.
• SEK and NOK were both softer against the EUR and USD, particularly the latter given the increasing rate differential post 2024. Meanwhile, the Viking cross was modestly lower as SEK strength prevailed ahead of a busy day for the Scandis.

FIXED INCOME

• T-notes dived after Fed signals slower rate path ahead.

COMMODITIES

• Oil prices sold off post-settlement after the hawkish FOMC.

DATA RECAP

• US EIA Weekly Crude Production Change, -0.20% (Prev. +0.87%)
• US EIA Weekly Crude Production Change, bbl -27k (Prev. +118k)
• US EIA Weekly Crude Production 13.604M (Prev. 13.631M)
• US EIA Weekly Refining Util w/e -0.6% vs. Exp. -0.2% (Prev. -0.9%)
• US EIA Weekly Gasoline Stk w/e 2.348M vs. Exp. 2.015M (Prev. 5.086M)
• US EIA Weekly Dist. Stocks w/e -3.18M vs. Exp. 0.8M (Prev. 3.235M)
• US EIA Weekly Crude Stocks w/e -0.934M vs. Exp. -1.7M (Prev. -1.425M)
• US EIA Wkly Crude Cushing w/e 0.108M (Prev. -1.298M)

GEOPOLITICAL

MIDDLE EAST

• Israel's Finance Minister, speaking with local radio, said the proposal of granting concession to Hamas in a ceasefire deal was "not good" for their interests or the remaining hostages, via FT.
• "Israeli forces deepen their penetration into the Buffer Zone in Syria, according to the Syrian Observatory", via Guy Elster on X.

OTHER

ASIA-PAC

NOTABLE HEADLINES

• Honda (HMC) and Nissan (NSANY) talks to start as early as next week, according to Nikkei.

DATA RECAP

• New Zealand GDP Prod Based QQ, SA (Q3) -1.0% vs. Exp. -0.2% (Prev. -0.2%, Rev. -1.1%)
• New Zealand GDP Exp Based QQ, SA (Q3) -0.8% vs. Exp. -0.4% (Rev. -0.8%)
• New Zealand GDP Prod Based YY, SA (Q3) -1.5% vs. Exp. -0.4% (Prev. -0.5%)
• New Zealand GDP Prod Based, Ann Avg (Q3) 0.1% vs. Exp. -0.1% (Prev. -0.2%, Rev. 0.6%)

EU/UK

NOTABLE HEADLINES

• French RN leader Le Pen says she is "...preparing for an early presidential election, out of precaution..." due to the fragility of President Macron, via La Parisien.
• Marine Le Pen, the populist French leader, said on Thursday that she was preparing for an early presidential election to succeed Emmanuel Macron, who she claimed is “finished or almost finished", via The Telegraph.

DATA RECAP

• UK CPI YY (Nov) 2.6% vs. Exp. 2.6% (Prev. 2.3%); MM 0.1% vs. Exp. 0.1% (Prev. 0.6%)
• UK Core CPI YY (Nov) 3.5% vs. Exp. 3.6% (Prev. 3.3%); MM 0.0% (Prev. 0.4%)
• UK CPI Services YY (Nov) 5.0% vs. Exp. 5.1% (Prev. 5.0%); MM -0.1% (Prev. 0.4%)
• UK House Price Index (Oct) 3.4% Y/Y (prev. 2.8%)
• UK CBI Trends - Orders (Dec) -40.0 (Prev. -19.0); weakest since November 2020.
• EU HICP Final YY (Nov) 2.2% vs. Exp. 2.3% (Prev. 2.3%); HICP Final MM (Nov) -0.3% vs. Exp. -0.3% (Prev. 0.3%)
• EU HICP-X F&E Final YY (Nov) 2.7% vs. Exp. 2.8% (Prev. 2.8%)
• EU HICP-X F, E, A, T Final MM (Nov) -0.6% vs. Exp. -0.6% (Prev. -0.6%); HICP-X F,E,A&T Final YY (Nov) 2.7% vs. Exp. 2.7% (Prev. 2.7%); HICP-X F&E MM (Nov) -0.4% (Prev. 0.3%)

CENTRAL BANKS

• ECB's Wunsch says tariff impact is dependent on FX moves. With EUR at parity, would not lose much competitiveness. Guess rates will land somewhere around 2%. Four cuts is a meaningful scenario that he feels relatively comfortable with. No longer consensus on QE working so well when economy is doing okay.
• ECB's Lane says incoming information and the latest staff projections indicate that the disinflation process remains well on track. While domestic inflation is still high, it should come down as services inflation dynamics moderate and labour cost pressures ease. Looking to the future, in the current environment of elevated uncertainty, it is prudent to maintain agility on a meeting-by-meeting basis and not pre-commit to any particular rate path. Monetary easing can proceed more slowly compared to the interest rate path embedded in the December projections in the event of upside shocks to the inflation outlook and/or to economic momentum. Equally, in the event of downside shocks to the inflation outlook and/or to economic momentum, monetary easing can proceed more quickly. Says argument for lowering rates by 50bps was to show that the ECB is no longer restrictive