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Newsquawk Asia-Pac Market Open - US stocks gained post-FOMC after Powell eased fears of a more aggressive hike path

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Wednesday, May 04, 2022 - 09:23 PM
  • US stocks gained post-FOMC after Fed Chair Powell eased fears of a more aggressive rate hike as he noted that 75bps increases are not something they are actively considering.

  • Fed hiked rates by 50bps to between 0.75%-1.00%, as expected, via a unanimous decision and will start trimming the balance sheet on June 1st with the initial caps on reductions set at USD 30bln for Treasuries and USD 17.5bln for MBS before rising to USD 60bln and USD 35bln, respectively, after three months.

  • USD weakened and T-notes were underpinned following Fed Chair Powell’s 75bps rebuttal.

  • Oil prices gained after the EU unveiled its sixth round of sanctions which included a far-reaching ban on Russian oil and related services.

  • Looking ahead, highlights include Australian Building Approvals and Trade Balance, Chinese Caixin Services & Composite PMI, Singapore Retail Sales, China reopening from the Labour Day Holidays, Market Closures in Japan, South Korea and Indonesia.

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LOOKING AHEAD

  • Australian Building Approvals and Trade Balance, Chinese Caixin Services & Composite PMI, Singapore Retail Sales, China reopening from the Labour Day Holidays, Market Closures in Japan, South Korea and Indonesia.
  • Click here for the Week Ahead preview

US TRADE

FOMC

  • Fed hiked rates by 50bps to between 0.75%-1.00%, as expected, via a unanimous decision and will start trimming the balance sheet on June 1st with the initial caps on reductions set at USD 30bln for Treasuries and USD 17.5bln for MBS before rising to USD 60bln and USD 35bln, respectively, after three months. Fed anticipates ongoing increases in the target range will be appropriate and noted that although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. It also stated that inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.
  • Fed Chair Powell said inflation is much too high and they are moving expeditiously to bring inflation down which is essential keep a strong labour market and noted the labour market is extremely tight. Powell also said 50bps increases should be on the table at the next couple of meetings and that 75bps increases is not something they are actively considering, while he added if they see what they expect to see, then it will be 50bps on the table at the next two meetings. Furthermore, he said they are raising rates expeditiously to a broad range and plausible levels of neutral but added there is no bright red line on what neutral is and they will not hesitate to go above neutral if required.

EQUITIES

  • US stocks ripped higher after the Fed's 50bps rate hike and lack of 75bps appetite in Fed Chair Powell's press conference.
  • SPX +2.97% at 4,299, NDX +3.41% at 13,535, DJIA +2.82% at 34,061, RUT +2.53% at 1,949.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • US Treasury Secretary Yellen said she feels quite good about the strength of the US economy and that Q1 GDP is not a good read on the strength of the economy, while she added that consumer spending and business investment remain strong. Yellen also said the US is prepared to respond strongly to purposeful devaluations of currencies and that the EU is very close to adopting the global minimum tax which she expects them to pass into law this spring, according to Reuters.

DATA RECAP

  • US ISM Non-Manufacturing PMI (Apr) 57.1 vs. Exp. 58.5 (Prev. 58.3)
  • US S&P Global Services PMI Final (Apr) 55.6 (Prev. 54.7)
  • US S&P Global Composite Final PMI (Apr) 56.0 (Prev. 55.1)
  • US ADP National Employment* (Apr) 247k vs. Exp. 395.0k (Prev. 455.0k, Rev. 479k)
  • US International Trade $ * (Mar) -109.80B vs. Exp. -107.0B (Prev. -89.2B, Rev. -89.80B)

FIXED INCOME

  • T-note (M2) futures settled 20+ ticks higher at 119-05+; Treasuries bull-steepened after the Fed's lack of 75bps appetite took right tail pricing off the table.

FX

  • DXY weakened post-FOMC after Fed Chair Powell stated that the Fed is not actively considering 75bps and if everything plays out as expected, there will be 50bps hikes at the June and July meetings.
  • Euro strengthened as the greenback dwindled on Fed Chair Powell's 75bs rebuttal.
  • GBP reclaimed the 1.2600 status against the dollar with price action spurred in the FOMC presser.
  • JPY benefitted from the dollar's demise which saw USD/JPY briefly slip beneath the 129.00 handle.

COMMODITIES

  • Oil prices were firmer after the EU unveiled its sixth round of sanctions which included a far-reaching ban on Russian oil and related services.
  • US EIA Weekly Crude Stocks w/e 1.302M vs. Exp. -0.829M (Prev. 0.692M)
  • OPEC+ JTC meeting concluded without a revision to growth forecasts, according to two sources cited by Reuters.
  • OPEC Secretary-General said there is no spare capacity in the world to replace Russian oil and noted that China lockdowns are affecting oil demand with some suggesting China is facing the biggest demand shock since early 2020, according to Reuters.
  • Indian government said if it suddenly pulled back from importing oil from certain markets, it would lead to further volatility, instability and higher prices.
  • LME announced the suspension of the warranting of Russian produced lead in any LME approved warehouse with immediate effect.

GEOPOLITICS

RUSSIA-UKRAINE

NEGOTIATIONS/TALKS

  • Russia's Kremlin said there is no movement in the Russian-Ukrainian negotiations and noted statements about Kyiv's desire to withdraw from the negotiation process, according to Al Jazeera.
  • Ukrainian Interior Minister said they hope to reach a ceasefire agreement in the entirety of Mariupol with European or Turkish assistance, according to Al Jazeera.

MILTARY/DEFENSIVE

  • Russian forces entered the territory of the Azovstal plant in Mariupol, according to the Ukrainian Ruling Parliamentary Faction Head.
  • Russia’s Kremlin commented on speculation of a May 9th national mobilisation announcement, which it said is untrue and nonsense, while it added that Russia is looking at different options regarding an EU ban on oil.
  • Belarus announced the commencement of emergency military exercises but claimed they do not pose a threat to their neighbours.

ENERGY/SANCTIONS/ECONOMIC

  • There was no immediate deal regarding a Russian oil ban at Wednesday's meeting and envoys are expected to meet on Thursday, according to Reuters sources.
  • EU proposed ban on Russian oil would be effective in six months with no gradual phase-out, both for spot market and existing contracts, according to Reuters sources.
  • German Economy Ministry cannot guarantee that oil supplies won't be interrupted at a regional level, while it said the EU's Russian oil embargo transition period is sufficient and that prices could go up considerably as a result of an embargo, according to Reuters.
  • Slovakia's Economy Minister said Slovakia supports an EU oil embargo against Russia and are debating the length of the transition period.
  • Bulgarian Deputy PM said they would seek an exemption if the EU agreed to allow exemptions on any embargoes of Russian oil.
  • Hungary said the proposed ban on Russian oil imports would destroy Hungary's energy security and it seeks an exemption on oil imports from Russia via the pipeline, according to the Foreign Ministry.
  • US Treasury Secretary Yellen said it is important Europe rids itself of dependence on Russia for energy and that they need to do what is possible to limit the revenue Russia gets from selling oil, according to Reuters.
  • US President Biden said the US is always open to additional sanctions on Russia and he is talking to G7 leaders this week about potential further actions, according to Reuters.
  • Russia will take further steps to reduce the monopoly of the USD as the main reserve currency and means of payment in international trade, according to Tass.

ASIA-PAC

NOTABLE HEADLINES

  • Beijing said it is still discovering sporadic COVID community infections and it will extend restrictions which were put in place during the holiday period until further notice. Furthermore, Beijing officials will require close contacts to quarantine in central facilities for 10 days, followed by 7 days of home quarantine, according to CCTV.
  • Shanghai sees a stable and improving epidemic situation with a daily tally falling below 5,000 and two-thirds of the city's population outside of quarantine, according to Global Times.
  • China's Global Times tweeted that China is expected to see an economic recovery as early as the end of May with the easing of the pandemic situation in its largest industrial hub Shanghai, while experts are calling for more macroeconomic policies to bolster confidence.
  • China's Securities Regulatory Commission is to actively support the bond financing of property companies, according to Reuters.
  • US President Biden's administration is moving towards the imposition of human-rights related sanctions on Hikvision although a final decision has not been taken, according to an FT source.
  • RBI raised its key repo rate by 40bps to 4.4% in an off-cycle meeting and raised the cash reserve ratio by 50bps to 4.5%, while it will retain an accommodative policy stance but will remain focused on the withdrawal of accommodation.

EUROPEAN TRADE

  • European stock markets were mostly negative in which the STOXX Europe 600 finished lower by 1.0%.

DATA RECAP

  • EU S&P Global Services Final PMI (Apr) 57.7 vs. Exp. 57.7 (Prev. 57.7)
  • EU S&P Global Comp Final PMI (Apr) 55.8 vs. Exp. 55.8 (Prev. 55.8)
  • EU Retail Sales MM* (Mar) -0.4% vs. Exp. -0.1% (Prev. 0.3%, Rev. 0.4%)
  • EU Retail Sales YY* (Mar) 0.8% vs. Exp. 1.4% (Prev. 5.0%, Rev. 5.2%)
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