US stocks gained on softer CPI data but with further upside capped on hawkish Fed dot plots - Newsquawk Asia-Pac Market Open

• US stocks finished higher in which the S&P 500 and Nasdaq extended on record levels after softer-than-expected US CPI data provided an early boost and saw money markets briefly revert to fully pricing in two 25bp rate cuts this year, although some of the gains were later pared and money markets are back to fully pricing in just one cut after the FOMC where the Fed kept rates unchanged and lifted its dot plot projections in which the median view was for one cut this year vs prev. median view of three cuts. Furthermore, Fed Chair Powell's press conference largely stuck to the script and noted they do not have the confidence right now that would warrant loosening policy.
• USD was pressured in which the DXY slipped below the 105.00 level and briefly tumbled below its 200 DMA (104.457) in the aftermath of the cooler-than-expected CPI data although the dollar later pared some of its losses after the FOMC announcement whereby the Fed kept rates unchanged but the 2024 dot plot signalled only one rate cut in 2024 (prev. 3 in March).
• Looking ahead, highlights include UK RICS House Price Balance, Japanese BSI Large Manufacturing Conditions, Australian Westpac Consumer Sentiment & Employment Data, Supply from Japan.

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LOOKING AHEAD

• Highlights include UK RICS House Price Balance, Japanese BSI Large Manufacturing Conditions, Australian Westpac Consumer Sentiment & Employment Data, Supply from Japan.
• Click here for the Newsquawk Week Ahead.

US TRADE

• US stocks finished higher in which the S&P 500 and Nasdaq extended on record levels after softer-than-expected US CPI data provided an early boost and saw money markets briefly revert to fully pricing in two 25bp rate cuts this year, although some of the gains were later pared and money markets are back to fully pricing in just one cut after the FOMC where the Fed kept rates unchanged and lifted its dot plot projections in which the median view was for one cut this year vs prev. median view of three cuts. Furthermore, Fed Chair Powell's press conference largely stuck to the script and noted they do not have the confidence right now that would warrant loosening policy.
• SPX +0.85% at 5,421, NDX +1.33% at 19,465, DJI -0.09% at 38,712, RUT +1.62% at 2,057.
• Click here for a detailed summary.

FOMC

• Fed kept rates unchanged at 5.25-5.50%, as expected with the vote unanimous, while the statement noted there has been modest (prev. a lack of) further progress towards the 2% inflation objective and it repeated that it does not expect it will be appropriate to reduce policy target range until gaining greater confidence inflation is moving sustainably towards 2%.
• Fed’s updated dot plots now signal only one rate cut in 2024 vs. three in the March projections and four policymakers even saw no rate cuts this year, while seven pencilled in just one cut and eight expect there two rate cuts this year. Looking ahead, the 2025 median dot plot increased to 4.1% from 3.9% and the 2026 dot was unchanged at 3.1%, but the longer run rate ticked up again to 2.8% from 2.6%.
• Fed Chair Powell said during the press conference that the economy has made considerable progress and continued strong job gains in the economy, as well as noted that inflation has eased substantially but is still too high. Powell said the Fed is maintaining a restrictive stance of policy and recent indicators suggest economic growth is still expanding at a solid pace. Furthermore, he said they remain highly attentive to inflation risks and so far have not greater confidence on inflation in order to cut, while he noted that SEPs are not a plan or any kind of decision and that the assessment of policy will adjust.
• Fed Chair Powell said during the Q&A that all agree the Fed is data dependent and he'd look at all Fed forecasts for the rate path as plausible, while he wants to gain further confidence on rates, but not going to say how many more months of good data is needed and noted that policymakers are not trying to send a strong signal with forecasts. Powell said they will be monitoring the labour market for signs of weakness, but not seeing that right now and they do not have the confidence right now that would warrant loosening policy. Furthermore, he said FOMC participants were allowed to update SEPs to incorporate the latest CPI data if they wanted, but most policymakers do not update their forecasts mid-meeting and some do, as well as noted that no one has rate hikes as a base case and he ultimately thinks rates will need to come down to continue to support goals.

NOTABLE HEADLINES

• US President Biden said prices are still too high but added that Wednesday's inflation report showed welcome progress on lowering inflation.

DATA RECAP

• US CPI YY NSA (May) 3.3% vs. Exp. 3.4% (Prev. 3.4%)
• US Core CPI YY NSA (May) 3.4% vs. Exp. 3.5% (Prev. 3.6%)

FX

• USD was pressured in which the DXY slipped below the 105.00 level and briefly tumbled below its 200 DMA (104.457) in the aftermath of the cooler-than-expected CPI data although the dollar later pared some of its losses after the FOMC announcement whereby the Fed kept rates unchanged but the 2024 dot plot signalled only one rate cut in 2024 (prev. 3 in March).
• EUR benefitted from the softer US CPI data which helped the single currency reclaim the 1.0800 status.
• GBP strengthened alongside the dollar's demise and largely ignored the in-line monthly GDP estimates.
• JPY traded firmer and USD/JPY briefly dipped beneath the 156.00 handle as US yields tumbled post-CPI although the pair later recouped some of the losses owing to the Fed's more hawkish dot plot projections.

FIXED INCOME

• T-notes gained but were off intraday highs with early support seen following the cooler-than-expected US CPI report before some unwinding post-Fed.

COMMODITIES

• Oil prices settled in the green albeit with price action choppy session amid bearish inventory data and heightened geopolitical concerns
• US EIA Weekly Crude Stocks w/e 3.73M vs. Exp. -1.55M (Prev. 1.23M)
• IEA Oil Market Report lowered its 2024 demand growth forecast by 100k BPD to 960k BPD and the 2025 oil demand growth is seen at 1mln BPD amid a muted economy and clean energy tech deployment, while a major oil surplus seen this decade as demand peaks.
• Iraq's Oil Ministry said it will adhere to required production levels with 4mln BPD for June onwards.

GEOPOLITICAL

MIDDLE EAST

• Over 200 rockets were fired from Lebanon towards Israel after the recent killing of a Hezbollah commander, according to AP News.
• Israeli army shelled the areas of Halta and the outskirts of Kafr Shuba in Lebanon with phosphorus bombs, according to Sky News Arabia.
• Israeli military said fighter jets hit launch sites in southern Lebanon following the missile attack in Northern Israel. Furthermore, Israeli military officials said Hezbollah has not finished responding and they are ready to confront its rockets, while they are preparing for a strong response in Lebanon.
• Hezbollah vowed to intensify attacks on Israel after senior commander killed, according to Times of Israel.
• Israel's top general met earlier this week in Bahrain with his counterparts from several Arab militaries to discuss regional security cooperation, according to Axios citing sources.
• Iranian Foreign Minister said they will not allow Israel to achieve its goal in Lebanon and they advise Israel not to fall into the well of Lebanon, according to Al Arabiya.
• Hamas is reportedly seeking guarantees from the US for a permanent Gaza ceasefire and Israeli withdrawal, according to Reuters citing sources. Hamas denied putting forward new ideas for the proposed Gaza ceasefire deal, according to an official cited by Al-Araby TV.
• US military said it does not want the situation between Israel and Lebanon to escalate into a regional conflict, while Defense Secretary Austin urged a de-escalation of tensions in the region during a call with his Israeli counterpart.
• US Secretary of State Blinken said if Hamas continues to say no it will be clear that they have made the choice to continue the Gaza war, while he added it is time for the ceasefire to begin.
• White House National Security Adviser Sullivan said many Hamas proposed changes are minor and others veer from previous agreements on a Gaza ceasefire.

OTHER

• US Deputy Secretary of State Campbell said the US believes China is currently determined to work to stabilise US-China relations and not create frictions that can escalate in unpredictable and dangerous ways, while Campbell said it is difficult to envision how the US is going to get back on any kind of engagement with North Korea given current circumstances.
• Moscow Exchange said it will cease FX trading in Dollars and Euros because of new US sanctions, while CBR said due to US sanctions on the Moscow Exchange, trading and settlement in US Dollars and Euros will be suspended.

ASIA-PAC

NOTABLE HEADLINES

• PBoC will improve the macro-prudential management of real estate finance and promote the acceleration of construction of a new model for property development. PBoC was also reported to hold a meeting on pushing re-lending work for affordable housing and will support state firms to buy existing homes, while it urged efforts to increase the pace of inventory reduction.
• EU intends to impose provisional tariffs on Chinese EVs of 21% for cooperating companies and 38.1% for those which have not, while the German Economy Ministry said it needs to evaluate EU statements on tariffs on Chinese cars and they do not need new trade restrictions but fair trading conditions. It was also reported that French cognac producers reiterated deepest concerns regarding Chinese probe into European cognac imports after EU tariffs on Chinese EVs.
• China’s Foreign Ministry said EU tariffs on Chinese EVs violate market economy principles and international trade rules, while China will take all measures to firmly defend its interests. China's CPCA said the EU provisional tariffs are basically within expectations and will not have much impact on the majority of firms.
• Chinese President Xi vowed to boost imports from other developing countries, according to CCTV.
• BoJ will reportedly consider gradually reducing its Japanese government bond holdings at its two-day policy meeting that starts on Thursday, according to Nikkei.

EU/UK

NOTABLE HEADLINES

• UK opposition Labour Party leader Starmer said they are not looking at bringing in wealth taxes.
• ECB's Nagel said core inflation is still very sticky and inflation is going down.
• ECB’s Schnabel said the economy is recovering gradually and the last mile of disinflation is proving bumpy, while she noted first indications of easing wage growth.
• ECB's Villeroy said inflation will be below 2% in France starting next year even at 1.7%.
• French President Macron reaffirmed that he will not be resigning if they do not win the snap election.

DATA RECAP

• UK GDP Estimate MM (Apr) 0.0% vs. Exp. 0.0% (Prev. 0.40%)
• UK GDP Estimate YY (Apr) 0.6% vs. Exp. 0.6% (Prev. 0.70%)
• UK Manufacturing Output YY (Apr) 0.4% vs. Exp. 1.6% (Prev. 2.3%)
• UK Industrial Output YY (Apr) -0.4% vs. Exp. 0.3% (Prev. 0.5%)