European stocks tumble post-FOMC, MU -15% pre-market weighing on chip peers in Europe; US futures attempting to recoup yesterday’s losses.
USD gives back some of yesterday's post-FOMC gains, JPY hit after BoJ Governor Ueda’s press conference.
US yield curve steepens, JGBs outperform post-Ueda, Gilts lag pre-BoE.
Crude lifts incrementally off Wednesday's lows, XAU fares better as the USD pauses for breath.
Looking ahead, US Jobless Claims, Philly Fed Index, NZ Trade Balance, Japanese CPI, BoE, CNB, Banxico Policy Announcements, Earnings from Accenture, Cintas, Conagra Brands, Nike, FedEx, BlackBerry.

BOJ MEETING

BOJ STATEMENT:

BoJ maintained its rate at 0.25% as expected, with an 8-1 vote; Board Member Tamura dissented, advocating for a 25bps hike to 0.50%. The central bank said inflation expectations were heightening moderately, and inflation was likely to reach a level generally consistent with the BoJ's price target in the second half of the three-year projection period through fiscal 2026.
However, uncertainty regarding Japan's economic and price outlook remains high, the central bank said. BoJ highlighted the need to scrutinise FX and market movements, along with their impact on Japan's economy and prices.
BoJ said the impact of FX volatility on inflation could be greater than in the past due to changes in corporate wage and price-setting behaviour. Meanwhile, Japan's economy was recovering moderately despite some weaknesses, with private consumption increasing.
Little action was seen outside of Japanese assets; USD/JPY and JGB futures saw upside, Nikkei trimmed some earlier losses.

UEDA PRESS CONFERENCE

For the next rate hike need "one more notch" to decide on tightening. Want to see next year's wage negotiation momentum.
Hard to say if the January outlook report and various info are sufficient as "one more notch".
If they decide not to hike, will consider whether this decision is a safe one. A risk of falling behind the curve while waiting. Will consider the risks, if they were to decide to skip rate hike.
Need more data on the wage outlook; needs a little bit more information on wage trends.
Will need considerable time to see the full picture of wage hikes and Trump policies. Need to gauge the situation for quite a while.
Large picture on wage trends will become clearer in March and April. Will have to combine other data to make rate decisions until then.
In totality, Ueda's remarks have a dovish and cautious skew with Ueda expressing a desire for "one more notch" to decide on tightening. Overall, the presser has increased the odds of rates being left unchanged at the January 24th meeting with focus on the March 19th gathering as details on Spring wage negotiations will have begun filtering through by then.

EUROPEAN TRADE

EQUITIES

European bourses began the session entirely in the red and have generally traversed worst levels throughout the morning, as traders react to the hawkish cut at the Fed which sparked considerable pressure in US stocks, in the prior trading day.
European sectors are entirely in the red, with sentiment hit following the hawkish Fed decision. Optimised Personal Care fares better than peers, with Autos taking second spot. Technology is by far the clear underperformer today, with sentiment across chip-makers hit after Micron’s (-15.5% pre-market) guidance disappointed.
US equity futures are modestly in positive territory, as the complex attempts to recoup some of the losses seen in the prior session after the hawkish cut delivered by the Fed, sent the S&P 500 tumbling by around 3%.
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FX

USD is currently giving back some of yesterday's FOMC-induced gains which saw DXY take out the 22nd Nov 2024 high (108.09), topping out at 108.25. DXY has since returned to a 107 handle. As the dust settles on the Fed decision, around 2bps of loosening is priced for the Fed's January decision with the next 25bps cut not priced until July, whilst around 36bps of cuts is priced by end-2025.
EUR macro drivers are on the light side and as such impetus for EUR/USD is being mostly driven by the USD leg of the equation. EUR/USD is back on a 1.04 handle after slumping to a 1.0343 low in the aftermath of the FOMC. As for NY OpEx, there are a slew of notable clips due to roll off (details below).
JPY is by the far the underperformer across the G10 FX complex. USD/JPY was already driven higher following the hawkish Fed announcement, reaching a 154.86 peak. This extended to 155.44 following the BoJ's decision to keep rates unchanged. Thereafter at Governor Ueda's press conference, despite some initial firming of the JPY (as Ueda flagged the need to look at financial and FX markets), JPY then sharply depreciated as Ueda struck a cautious tone on future rate hikes. (details in the BoJ section above).
GBP near the top of the G10 leaderboard in the run-up to today's BoE policy announcement which is expected to see the MPC hold rates at 4.75% via an 8-1 vote split on account of stubborn services inflation, elevated wage growth and a potential upcoming boost to growth from recent fiscal measures.
Antipodeans are both firmer vs. the USD in today's session but very much down on the week after being dealt a hammer blow by yesterday's FOMC policy decision. AUD/USD made a fresh YTD low overnight at 0.6200 to hit its lowest level since October 2022. NZD/USD also hit a fresh YTD low overnight at 0.5609 to trade at its lowest level since October 2022. Softness in NZD was also exacerbated by soft GDP metrics overnight.
EUR/SEK fell from 11.50 to an 11.4872 session low. SEK appreciation was in response to outside bets for 50bps unwinding (though, recent global hawkish action had already done this), phrasing around a "more tentative approach" to policy easing going forward and the elevated CPIF forecast for 2025.
Following the Norges Bank announcement to keep rates unchanged (as expected), there was some modest two-way reaction seen in EUR/NOK. Initially, the NOK came under pressure on the explicit nod to March before paring given MPR adjustments; as the dust settles, EUR/NOK is back towards pre-release levels of 11.7680.
PBoC set USD/CNY mid-point at 7.1911 vs exp. 7.3165 (prev. 7.1880)
BCB announces spot Dollar auction for December 19th; to offer up to USD 3bln.
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FIXED INCOME

USTs continue to falter post-FOMC and now at a 108-26+ trough, just below Wednesday’s 108-27 base and at a contract low. Ahead, we look to the US quarterly PCE and GDP before Friday’s monthly metric ahead of blackout lifting and Fed speak potentially resuming. Amidst this, the 2yr, 5yr, 7yr announcement before a TIPS auction. The US yield curve is steepening and markedly so with the 10yr at a 4.53% peak, its highest since May when 4.69% printed, while the short-end is under pressure and the 2yr is pulling back from a 4.36% peak.
JGBs caught a bid following BoJ Governor Ueda's press conference, in which he largely held a dovish tone and remained cautious on future hikes, noting he is waiting for "one more notch" on the wage data front. Currently higher by around 21 ticks, after rising to a 142.51 peak earlier.
Bunds were pressured, in-fitting with USTs as outlined above. Specifics for the bloc have been light, with focus thus far and ahead firmly on external drivers. Bunds down to a 133.79 trough overnight, for reference 132.00 is the contract low from November, but have since bounced back above 134.00 to a 134.23 peak taking impetus from JGBs.
Gilts gapped lower by 69 ticks before moving below the 92.00 handle to a 91.87 base, which is another contract low. The BoE is set to announce is policy decision today, where it is widely expected to keep rates unchanged, so focus will lie on any potential forward guidance.