- The FOMC hiked rates to 1.25% – 1.50%, as expected. Yellen failed to deliver any hawkish surprises while the rate path trajectory was kept broadly the same
- The UK government was defeated in parliament in a 309-305 vote, meaning MP’s will get a meaningful vote on the final Brexit deal
- Looking ahead, highlights include ECB, BoE, Norges and SNB rate decisions, UK and US retail sales, Eurozone and US Mfg. PMI
FOMC RATE DECISION
• The FOMC hiked rates to 1.25% – 1.50%, as expected; vote was 7-2. Kashkari and Evans (non-voters in 2018) dissented, favouring to keep rates unchanged.
• Fed Chair Yellen, in her last press conference as Chair, reiterated rate rises to be gradual while noting that most policy makers have now factored in fiscal stimulus into their outlook.
• Following the decision, the USD fell, rates declined and gold pushed higher as Yellen failed to deliver any hawkish surprises while the rate path trajectory was kept broadly the same despite the fiscal stimulus being incorporated into forecasts.
Asia equity markets were mostly subdued as the regional bourses and central banks reacted to a hike from the Fed under Yellen’s last meeting. ASX 200 (-0.2%) was indecisive and pared the early mining-led gains, while Nikkei 225 (-0.3%) was hampered by USD/JPY woes post-FOMC. Hang Seng (-0.5%) and Shanghai Comp. (-0.4%)traded subdued as participants mulled over Chinese Industrial Production and Retail Sales figures which either printed inline or below estimates. Furthermore, the HKMA and PBoC responded to the FOMC with the base rate in Hong Kong raised by 25bps in lockstep with the Fed, while the PBoC increased rates by 5bps on 1-year MLF loans and on its Reverse Repo operations. Finally, 10yr JGBs were rangebound despite the subdued risk tone in Japan, while the 20yr auction also failed to spur demand with most metrics inline with the previous month.
PBoC injected CNY 30bln via 7-day reverse repos and CNY 20bln via 28-day reverse repos, while it also announced to lend CNY 288bln through MLF 1yr loans. PBoC raised rates on reverse repos and its MLF by 5bps each following the Fed rate hike with 7-day reverse repo at yield of 2.50% (Prev. 2.45%), 28-day at 2.80% (Prev. 2.75%) and 1yr MLF loan at 3.25% (Prev. 3.20%) (Newswires)
HKMA increased its base rate by 25bps to 1.75% in response to the Fed hike. (Newswires)
Chinese Industrial Output (Nov) Y/Y 6.1% vs. Exp. 6.2% (Prev. 6.2%); YTD 6.6% vs. Exp. 6.6% (Prev. 6.7%). (Newswires)
Chinese Retail Sales (Nov) Y/Y 10.2% vs. Exp. 10.3% (Prev. 10.0%); Y/Y 10.3% vs. Exp. 10.3% (Prev. 10.3%)
UK RICS Housing Survey (Nov) 0 vs. Exp. 0 (Prev. 1). (Newswires)
The UK government was defeated in parliament in a 309-305 vote, meaning MP’s will get a meaningful vote on the final Brexit deal. (BBC) PM May now heads to Brussels to the European Summit.
UK PM May is set to stall for time to find unity on the exact trade deal Britain wants from Brussels. (FT)
The greenback remained weak against its major counterparts after yesterday’s US Core CPI miss and in the absence of any hawkish surprises from the FOMC where Fed’s Evans and Kashkari both dissented, while the rate path trajectory was also kept broadly the same despite fiscal stimulus being incorporated into forecasts. As such, EUR/USD and GBP/USD traded around post-FOMC highs after having reclaimed the 1.1800 and 1.3400 handles respectively, while USD/JPY languished at a sub-113.00 level. Elsewhere, AUD outperforms with AUD/NZD up by about 80 pips for the session on a stellar jobs report and after a gradual pull-back in NZD/USD amid lower NZ government growth forecasts.
Australian Employment Change (Nov) 61.6k vs. Exp. 19.0k (Prev. 3.7k, Rev. 7.8K). (Newswires)
Australian Unemployment Rate (Nov) 5.4% vs. Exp. 5.4% (Prev. 5.4%)
Australian Participation Rate (Nov) 65.5% vs. Exp. 65.1% (Prev. 65.1%, Rev. 65.2%)
New Zealand Treasury lowered GDP forecasts for 2017/18 to 3.3% from 3.5% and cuts 2018/19 forecast to 3.4% from 3.5%. (Newswires)
Gold prices were underpinned overnight post-FOMC, with prices higher around USD 10/oz from pre-announcement levels. Elsewhere, WTI crude futures were lacklustre and failed to make any meaningful recovery from the prior day’s losses which were partly triggered by the DOE report which showed increased US production and a large build in gasoline inventories.
Ineos told clients that the Forties pipeline is likely to be shut for several weeks not days, according to sources. (Newswires)
The White House said that Trump administration position is that any negotiations with North Korea must wait until the regime fundamentally improves its behaviour and that now is not the time to start talks with North Korea, given its recent missile test. (Newswires)
US treasuries rallied with yields down between 4bps and 5.5bps across the curve. IFR noted there was a better bid in the belly and long end following the ‘dovish hike’, particularly from real money accounts.
House & Senate leaders reached a tax package deal, which sets the corporate tax rate at 21%. (Newswires)
US President Trump said that we are hopefully ‘days away’ from delivering on tax legislation and that lower taxes will begin in February if the bill is passed. In related news, Republican Senators Johnson & Collins are said to be withholding judgement on the tax bill, while Republican Senators Corker and Flake are also still undecided on tax bill. (Newswires)