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RANsquawk EU Open Rundown 16.03.17

  • As expected, the FOMC lifted rates by 25bps. However, the Fed dot plot projections showed forecasts for 2017 and 2018 were unchanged from December.
  • After having counted 93.5% of votes in the Netherlands election, PM Rutte's VVD party is to win 33 seats, PVV at 20 seats, while CDA and D66 parties are to win 19 seats each
  • Looking ahead, highlights include SNB, Norges Bank, BoE and Turkish rate decisions, US building permits, housing starts, weekly jobs and Philadelphia Fed Mfg

FOMC

The Fed hiked rates by 25bps to 0.75%-1.00% as expected.

- Fed dot plot projections showed forecasts for 2017 and 2018 were unchanged from December at 1.4% and 2.1% respectively, while the longer run forecast was also unchanged at 3%.

- The number of Fed officials that forecast 3 hikes in 2017 rose to 14 from 11, while the number of officials who forecast 4 hikes in 2017 was unchanged at 5.

- Fed Chair Yellen stated they discussed reinvestment policy but no decision has been made and the discussion will continue at future meetings.

- Fed Chair Yellen stated that the economic outlook is highly uncertain and that changes in fiscal policy can affect the economic outlook.

- A dovish reaction was seen across asset classes, after the Fed kept its long-run rate projections mostly unchanged, in which EUR/USD rose 60 pips, USD/JPY fell 85 pips and the US 10y T-note Jun'17 future rose 18+ ticks.

ASIA

Asia equities initially traded mostly higher as the region reacted to the dovish-perceived FOMC where the Fed hiked rates as expected, but kept projections mostly unchanged and Fed chair Yellen commented that the economic outlook is highly uncertain. This initially supported the ASX 200 (+0.2%) with mining names outperforming following a rally in commodities, although weakness in financials slightly clouded sentiment. Upside in Nikkei 225 (+0.1%) was limited by a firmer currency, while Shanghai Comp. (+0.4%) and Hang Seng (+1.5%) benefitted after the PBoC upped its liquidity injection to CNY 80bln and announced a CNY 303bln Medium-term Lending Facility. 10yr JGBs tracked gains in T-notes as global yields decline post-FOMC dovish FOMC, while the curve flattened amid underperformance in the short-end.

BoJ kept monetary policy unchanged as expected with NIRP held at -0.10%. (Newswires)

- BoJ voted 7-2 to maintain yield curve control with Sato and Kiuchi the dissenters.

- Kiuchi proposed BoJ state that inflation to be extremely slow which was defeated by 8-1 vote.

- BoJ maintained 10yr JGB yield target at around 0% and kept pledge to buy JGBs around current pace so that holdings rise JPY 80tln annually.

- BoJ also maintained its assessment that economy continues to recover moderately as a trend.

PBoC conducted a CNY 303bln 1yr Medium-term Lending Facility at 3.2% and injected CNY 20bln 7-day reverse repos, CNY 20bln in 14-day reverse repos and CNY 40bln in 28-day reverse repos, with the 7-day, 14-day and 28-day offer yield raised by 10bps each to 2.45%, 2.60% and 2.75% respectively. PBoC stated that the change in rates on reverse repos does not equate to a change in monetary policy and reflects market changes, while it added that there is no need to over interpret monetary tools actions. (Newswires)

Hong Kong Money Authority raised its base rate by 25bps to 1.25%, in response to the FOMC rate hike. (Newswires)

EUROPE/UK

After having counted 93.5% of votes in the Netherlands election, PM Rutte's VVD party is to win 33 seats, PVV at 20 seats, while CDA and D66 parties are to win 19 seats each. (Newswires) Subsequently, this shows a strong win for PM Rutte’s VVD party while the far-right, pro-Nexit PVV failed to meet projections. However, the PvdA (Labour Party and potential VVD coalition partner) underperformed with seats falling from 38 in 2012 to around 9 this time round.

FX

The USD-index languished at a sub-101.00 level and USD/JPY declined below 114.00 after expectations of a more hawkish Fed failed to transpire, with dot-plot projections maintaining forecasts for 3 hikes this year. EUR/USD extended on post-FOMC gains and printed its highest in over a month after the Netherlands election showed a strong win for PM Rutte’s VVD party while the far-right, pro-Nexit PVV failed to meet projections. Elsewhere, a pullback was seen in antipodeans as AUD/USD and NZD/USD failed to maintain 0.7700 and 0.7000 after the Australian Unemployment Rate rose to its highest in 13 months and New Zealand GDP significantly missed estimates.

Australian Employment Change (Feb) M/M -6.4K vs. Exp. 16.0K (Prev. 13.5K);First contraction in 5 months.

Australian Unemployment Rate (Feb) M/M 5.9% vs. Exp. 5.7% (Prev. 5.7%);Highestin 13 months.

New Zealand GDP Growth Rate (Q4) Q/Q 0.4% vs. Exp. 0.7% (Prev. 1.1%, Rev. 0.8%)

New Zealand GDP Growth Rate (Q4) Y/Y 2.7% vs. Exp. 3.1% (Prev. 3.5%, Rev. 3.3%)

New Zealand GDP Annual Average (Q4) 3.1% vs. Exp. 3.2% (Prev. 3.0%, Rev. 2.9%)

COMMODITIES

Commodity prices across the board have rose after the greenback slipped in retaliation to the dovish perceived Fed, with gold prices higher by nearly USD 25/oz since the Fed announcement. Elsewhere, copper rose to its highest in over a week amid broad-based gains across commodities and alongside the positive risk sentiment, while WTI crude futures also gained to break above the USD 49/bbl level.

US

Treasury markets followed with bullish pressure as Fed rate hike projections were dampened. The rally was led by the 5y, followed by the 10y, with the T-note Mar’17 future settling at 123.23+ up 27+ ticks. The 2/10yr closed flatter, 10/30yr wider and the 5/30 saw a steepening of over 4bps, noted by analysts at Informa.

US President Trump's second travel ban is blocked by US judge, prompting comments from Trump regarding a return to the first travel ban order. US President Trump also reiterated he wants to reduce taxes and will try to get to a 15% corporate tax level, while there were details of the budget plan in which there are plans to cut the overall budget by 10%. (Newswires)

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