US stocks finished mixed post-FOMC after the hawkish reaction to the Fed's dot plots unwound at Powell's presser - Newsquawk Asia-Pac Market Open

US stocks finished mixed in the aftermath of the FOMC meeting where the Fed left rates unchanged as expected although the dot plots saw a marked revision higher with the 2023 Fed Funds Rate projection raised to 5.6% from 5.1% which is indicative of two more 25bp hikes this year, while the 2024 and 2025 dots were also raised from March. This spurred an immediate hawkish reaction across asset classes but was then unwound during the press conference as Powell distanced himself from the dot plots whereby he noted that projections are not a plan or a decision and they will continue to make decisions meeting by meeting, while markets had also earlier digested a cooler-than-expected PPI report which spurred an initial rally in Treasuries and pressured the Dollar prior to the Fed announcement.
USD was heavily pressured ahead of the FOMC announcement in which the DXY slipped beneath the 103.00 level after cooler-than-expected PPI data. The dollar then saw an immediate hawkish reaction to the FOMC decision after the Fed kept rates unchanged and raised its dot plot forecast for this year by 50bps to 5.6%, but then reversed some of the moves during the press conference.
Looking ahead, highlights include New Zealand GDP, Australian Jobs Data, Japanese Machinery Orders & Trade Data, Chinese Industrial Production, Retail Sales & PBoC MLF Rate.

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LOOKING AHEAD

Highlights include New Zealand GDP, Australian Jobs Data, Japanese Machinery Orders & Trade Data, Chinese Industrial Production, Retail Sales & PBoC MLF Rate.

US TRADE

US stocks finished mixed in the aftermath of the FOMC meeting where the Fed left rates unchanged as expected although the dot plots saw a marked revision higher with the 2023 Fed Funds Rate projection raised to 5.6% from 5.1% which is indicative of two more 25bp hikes this year, while the 2024 and 2025 dots were also raised from March. This spurred an immediate hawkish reaction across asset classes but was then unwound during the press conference as Powell distanced himself from the dot plots whereby he noted that projections are not a plan or a decision and they will continue to make decisions meeting by meeting, while markets had also earlier digested a cooler-than-expected PPI report which spurred an initial rally in Treasuries and pressured the Dollar prior to the Fed announcement.
SPX +0.08 at 4,372, NDX +0.70 at 15,005, DJIA -0.68% at 33,979, RUT -1.17% at 1,874.
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FOMC

Fed left rates unchanged as expected at 5.00-5.25% through a unanimous vote and raised the 2023 dot plot forecast to 5.6% from 5.1% in March, while it stated that holding the target range steady allows time to assess additional information and implications for policy. Fed said inflation remains elevated and it is highly attentive to inflation risks with the Committee strongly committed to returning inflation to its 2% objective.
Federal Funds Rate forecast for 2023 is at 5.6% (exp. 5.1%, prev. 5.1% in March), 2024 at 4.6% (exp. 4.4%, prev. 4.3%), 2025 at 3.4% (exp. 3.1%, prev. 3.1%), longer run at 2.5% (exp. 2.5%, prev. 2.5%).
Fed Chair Powell said nearly all FOMC policymakers view some further rate hikes this year as appropriate and most policymakers expect subdued growth to continue. Powell also stated that inflation remains well above the 2% goal and has moderated somewhat but added that inflation pressures continue to run high and getting inflation back to 2% has a long way to go. Furthermore, Powell said Fed projections are not a plan or decision and they will continue to make decisions meeting by meeting.
Fed Chair Powell said during the Q&A that the main issue is determining the extent of additional tightening and it makes sense for rates to move higher but at a more moderate pace, while they did not discuss whether to go to an every-other meeting approach. Powell called the decision a "skip" but then corrected himself stating "should not call it a skip" and stated that by taking a little more time on tightening, they reduce the chance of going too far, while he said it will be appropriate to cut rates when inflation comes down but added that rate cuts are not appropriate this year and that no policymakers saw a rate cut for this year.

NOTABLE HEADLINES

White House economic adviser Bernstein said banking system headwinds have been contained.
US economy will avoid a recession in 2023 and inflation is seen falling to 3.1%, while a positive global backdrop is seen increasing capital flows to emerging markets through 2023, according to IIF.

DATA RECAP

US PPI Final Demand MM (May) -0.3% vs Exp. -0.1 (Prev. 0.2%)
US PPI Final Demand YY (May) 1.1% vs Exp. 1.5% (Prev. 2.3%)
US PPI exFood/Energy MM (May) 0.2% vs Exp. 0.2% (Prev. 0.2%)
US PPI exFood/Energy YY (May) 2.8% vs Exp. 2.9% (Prev. 3.2%)

FIXED INCOME

US Treasuries were ultimately firmer after the kneejerk selling spurred by the hawkish Fed dot plots unwound through Fed Chair Powell's presser and Q&A.

FX

USD was heavily pressured ahead of the FOMC announcement in which the DXY slipped beneath the 103.00 level after cooler-than-expected PPI data. The dollar then saw an immediate hawkish reaction to the FOMC decision after the Fed kept rates unchanged and raised its dot plot forecast for this year by 50bps to 5.6%, but then reversed some of the moves during the press conference where Powell noted that Fed projections are not a plan or decision and that they will continue to make decisions meeting by meeting.
EUR strengthened and climbed above the 1.0800 level amid the dollar weakness although came off highs following the FOMC announcement and dot plot projects.
GBP was firmer albeit off today's best levels after GBP/USD hit resistance just shy of the 1.2700 handle and with the partial reversal also facilitated by the reaction to the hawkish Fed Funds Rate projections.
JPY returned to relatively flat territory against the greenback after whipsawing in reaction to today's major risk events.

COMMODITIES

Crude prices were choppy and eventually settled at lows after a hawkish FOMC where the Fed left rates unchanged but signalled more hikes to come in the dot plots.
US EIA Weekly Crude Stocks w/e 7.9M vs Exp. -0.5M (Prev. -0.5M).
IEA Monthly Oil Market Report stated that oil demand is set to increase by 2.4mln BPD in 2023 to a record of 102.3mln BPD (vs. May view of 102mln BPD).
Iraq is reportedly to hold talks on the Ceyhan pipeline on June 19th.
IEA's Birol said India is to soon overtake China as the largest driver of global oil demand.
JPMorgan cut its 2023 Brent forecast to USD 81/bbl from 90/bbl and sees world oil demand to average 101.5mln BPD this year which is almost 1mln BPD above 2019 and a new record. Furthermore, it said that even with OPEC's 1.16mln BPD cuts extended into 2024, it sees a 0.4mln BPD surplus next year and expects output from Venezuela, Nigeria and Iran of almost 600k BPD higher than its projections last November.

GEOPOLITICAL

Russia’s Kremlin said it is not considering changing the status of the 'special military operation' in Ukraine.
Russian President Putin said he will discuss the Black Sea grain deal with African leaders on June 17th, according to Interfax.
NATO Secretary General Stoltenberg said NATO has not seen any changes in the Russian posture that requires a change in their nuclear posture.
NATO Secretary General Stoltenberg said some progress was made in talks in Turkey on Swedish NATO membership, while the Turkish Presidency said Turkey, Sweden, Finland and NATO have agreed to continue work on Sweden's NATO membership.
US resumed "quiet" diplomacy with Iran on prisoners and nuclear issues, while US and Iranian officials held several sets of indirect talks in Oman, according to WSJ sources.

ASIA-PAC

NOTABLE APAC HEADLINES

US Secretary of State Blinken will travel to Beijing and London between June 16th-21st and will meet with senior Chinese officials and discuss the importance of maintaining open lines of communication.
White House Indo-Pacific Coordinator Campbell said the US is for de-risking with China not decoupling and that as competition continues, China will take provocative steps from the Taiwan Strait to Cuba and the US will push back. Campbell added that the US had an interest in setting up crisis communication mechanisms to reduce conflict risks and the primary focus is to have candid, direct, and constructive discussions with China. Furthermore, the US believes China will raise US technology policy in the Blinken meeting and the US will defend and explain its activity.
US Assistant Secretary of State for East Asian and Pacific Affairs Kritenbrink said in preparation for Secretary of State Blinken's trip, US officials had a number of substantive, productive, and candid exchanges with the Chinese and both sides indicated a shared interest in having communications channels open, while he added that Chinese officials have expressed the desire to stop a downward spiral in the US-China relationship. Kritenbrink also stated the US hopes the Blinken trip, at a minimum, will reduce the risk of miscalculation with China but also noted the US does not anticipate "a long list of deliverables" from Blinken's visit and the US is not going to Beijing with the intent of a breakthrough, with Blinken taking a realistic approach.
German national security strategy document said China remains a partner needed to solve many global challenges but added that China is increasingly pressuring regional stability and disrespecting human rights.

EU/UK