US stocks declined and bonds were pressured after hawkish Fed dot plots - Newsquawk Asia-Pac Market Open

• US stocks and bonds dipped in the aftermath of the FOMC meeting where the Fed unsurprisingly kept rates unchanged and provided more hawkish dot plots which signalled a further rate hike this year and fewer cuts next year with the 2024 dot plot at 5.1% which is 50bps higher than the June projection.
• USD recovered its pre-FOMC losses and was supported by the hawkish Fed dot plots, while Powell also pushed back on the notion of the timing of rate cuts and spoke on how the majority at the Fed see another rate hike pencilled in this year. Powell also noted the short-term neutral rate could be higher than the longer-run neutral rate and stressed that the Fed are now in a position to proceed carefully.
• Looking ahead, highlights include New Zealand GDP & Credit Card Spending, Supply from Japan.

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LOOKING AHEAD

• Highlights include New Zealand GDP & Credit Card Spending, Supply from Japan.

US TRADE

• US stocks and bonds dipped in the aftermath of the FOMC meeting where the Fed unsurprisingly kept rates unchanged and provided more hawkish dot plots which signalled a further rate hike this year and fewer cuts next year with the 2024 dot plot at 5.1% which is 50bps higher than the June projection.
• SPX -0.94% at 4,402, NDX -1.46% at 14,970, DJI -0.22% at 34,440, RUT -0.9% at 1,810.
• Click here for a detailed summary.

FOMC

• FOMC kept the Federal Funds Rate target unchanged at 5.25-5.50%, as expected, in a unanimous vote. FOMC said economic activity is expanding at a 'solid' pace (prev. moderate) and job gains have 'slowed' (prev. 'been robust') but 'remains strong', while it stated that inflation remains elevated and the central bank remains 'highly attentive' to inflation risks.
• Dot Plot projections showed the Fed Funds Rate for 2023 is seen at 5.6% (prev. 5.6%), 2024 at 5.1% (prev. 4.6%), 2025 at 3.9% (prev. 3.4%), 2026 at 2.9% and in the longer run at 2.5% (prev. 2.5%).
• Fed Chair Powell said at the press conference that the current stance of policy is restrictive and they are committed to achieving and sustaining sufficiently restrictive policy to bring inflation down to 2% over time. Powell also noted that projections are not a plan and policy will adjust as appropriate, while they will continue to make decisions meeting by meeting and he repeated the Fed is in a position to proceed carefully Furthermore, they are mindful of uncertainties but are prepared to hike further if appropriate and will keep rates restrictive until the Fed is confident inflation is moving down to 2%.
• Fed Chair Powell said during the Q&A that the fact we decided to keep the policy rate where it is, does not mean that they have decided they have or have not reached a stance of policy they are seeking. Powell stated that they are fairly close to where they need to get and would not attribute huge importance to one more hike but also noted that stronger economic activity is the main reason for needing to do more with rates. Furthermore, when asked about neutral, he responded that you will only know when you get there and it may be that the neutral rate has risen and it is plausible that the neutral rate is higher than the longer run rate, while he also commented that forecasts are highly uncertain and growth has come in stronger than expected, requiring higher rates.

NOTABLE HEADLINES

• US House Speaker McCarthy said some progress is being made and they are closer to averting a shutdown.
• US SEC is set to approve a rule change which would ban deceptive labelling of funds that appear to target "growth" and "value" assets or ESG.

FIXED INCOME

• US Treasuries slumped as the hawkish Fed dot plots overshadowed softer-than-expected UK CPI data.

FX

• USD recovered its pre-FOMC losses and was supported by the hawkish Fed dot plots, while Powell also pushed back on the notion of the timing of rate cuts and spoke on how the majority at the Fed see another rate hike pencilled in this year. Powell also noted the short-term neutral rate could be higher than the longer-run neutral rate and stressed that the Fed are now in a position to proceed carefully.
• EUR gave way to the dollar strength in which EUR/USD reverted to beneath the 1.0700 handle.
• GBP saw two-way price action with early pressure from the softer-than-expected UK inflation but then proceeded higher ahead of the FOMC before slipping again in the aftermath of the hawkish dot plots.
• JPY oscillated back and forth of the 148.00 level with intraday gains wiped out post-Fed.
• BoC Minutes said the Governing Council did not want to raise expectations of a near-term reduction in rates at the September 6th announcement. Furthermore, they only debated keeping rates steady or lifting them and agreed that given the uncertain path forward for core inflation, tighter policy should remain a potential option.
• Russia is mulling currency control measures, according to TASS. Furthermore, Russian Finance Minister said measures to restore currency controls are aimed at restraining capital outflows to friendly countries, according to Ifax.

COMMODITIES

• Crude was ultimately lower with pressure seen heading into the settlement and after the FOMC.
• US EIA Wkly Crude Stocks (W 15 Sep) -2.1M vs. Exp. -2.2M (Prev. 4.0M)
• Saudi Arabia cut the Asian premium after India tapped Russian oil with the premium cut to USD 3.50/bbl from around USD 10 in the past year, according to Mint.
• Russian Energy Ministry said they are to take "radical" measures to stop the "grey export" of oil products, according to Ifx.
• Russian oil producers have reportedly sent the first cargoes of CPC blend to UAE, opening up a new route for exports, according to Reuters citing traders and LSEG data.
• Iran's oil exports have increased as the US has backed away from some sanctions enforcement, according to WSJ.
• Chevron (CVX) said no agreement had been reached with unions following further consultation sessions held this week with the Fair Work Commission. Furthermore, Australia's Offshore Alliance said negotiations before the commissioner were useful and resulted in some concessions on both sides, while it added that members remain open to a compromise but Chevron must table a viable offer.
• UK PM Sunak said they will not ban new oil and gas in the North Sea and will bring forward reforms for energy infrastructure.

GEOPOLITICAL

• A ceasefire was reportedly announced in Karabakh with Armenians to meet with Azeri authorities on September 21st, according to Ifax.

ASIA-PAC

NOTABLE HEADLINES

• China's Cabinet said China will speed up the development of the advanced manufacturing sector and it passed draft regulations for the protection of minors on the internet, according to state media.
• Chinese Foreign Minister Wang Yi met with Russian President Putin and said that China is ready to continue business cooperation with Russia and protect mutual interests. It was also reported that Russian President Putin accepted the invitation to visit China in October, according to Russian press.
• German Interior Ministry said planned Huawei and ZTE restrictions would not result in additional costs for telecoms providers, according to WIWO.
• Italian PM Meloni reportedly informed China of Italy's plans to exit the Belt and Road Initiative, according to the Deputy Foreign Minister cited by ANSA.

EU/UK

NOTABLE HEADLINES

• ECB's de Cos said they cannot afford persistently high inflation and uncertainty about the economy and inflation is still high, while he added keeping rates at the current 4.0% level is consistent with the ECB's 2% inflation target and risks to inflation in the Eurozone are now more balanced.
• ECB's Makhlouf said his current view is that March 2024 is probably too soon for the first rate cut and they are likely there or thereabouts at the top of the ladder regarding rate increases, while he added that he is not saying the next meeting will see rates on hold, but they are near the top. Furthermore, he said they will have a better sense of the 2024 rate profile when they get the December projections.
• ECB's Schnabel said new supply-side shocks may pose upside risks to inflation and dynamics in wage growth remain strong, while labour shortages persist and energy shock threatens to leave permanent scars in the euro area.
• ECB's Wunsch said they may have reached the peak, but high uncertainty has made it very unclear whether the last ECB rate hike would be the final one, according to comments from last Thursday cited by Econostream.
• EU lawmakers approved Buch's nomination as ECB Supervisory Board head.

DATA RECAP

• UK CPI YY (Aug) 6.7% vs. Exp. 7.0% (Prev. 6.8%)
• UK Core CPI YY (Aug) 6.2% vs. Exp. 6.8% (Prev. 6.9%)
• UK House Prices (Jul) 0.6% Y/Y vs. Exp. 0.0% (prev. 1.9%)