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Market News
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Global
Market Commentary:
Currencies/Macro:
The US dollar experienced a downturn against all G10 currencies following the Federal Open Market Committee (FOMC) announcements, although the Japanese yen still ended the day lower. Initially, USD/JPY climbed from 150.80 to 151.82, reaching a four-month peak, but post-Federal Reserve Chair Jerome Powell's press conference, it decreased to 151.30. The EUR/USD ascended from 1.0865 before the FOMC decision to 1.0920, and GBP/USD escalated from 1.2720 to 1.2785.
The FOMC elected to maintain the Federal funds rate at the mid-rate of 5.375%, aligning with universal anticipations. Contrary to some expectations that the Fed might lower its forecast for rate reductions this year, the median projection stayed consistent at -75 basis points, albeit with slight upward adjustments for the projections in 2025, 2026, and the long term. The meeting's statement echoed the language used in January, reaffirming, "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." However, there was a subtle modification regarding the labor market, updating from January's comment, "Job gains have moderated since early last year but remain strong," to "Job gains have remained strong." No changes were made to the plans for quantitative tightening, with the balance sheet reduction proceeding as scheduled. The decision was unanimously supported with a 12-0 vote.
In his press briefing, Chair Powell reiterated the Committee's stance on requiring more substantial evidence to be convinced that inflation is consistently trending toward the 2% target. He acknowledged the progress made so far but stressed the need for further confirmation of this trend's sustainability. Notably, Powell did not contest the market's expectations for a potential rate cut in June.
Interest Rates:
The US 2-year Treasury yield declined from 4.67% just before the Federal Open Market Committee (FOMC) meeting to 4.61%, while the 10-year Treasury yield saw movements in both directions but ultimately remained stable at 4.28%. Market sentiment now indicates a 10-15% likelihood of a 25 basis point reduction in the Federal Reserve's funds rate, presently at a midpoint of 5.375%, at the upcoming meeting on May 2, with the probability of a cut by June increasing to 67% from 40% the previous day.
In the credit markets, following the adjustment for the index roll, there was positivity with the CDX Series 41 decreasing by 1.5 basis points to 46.5. Meanwhile, the newly introduced Series 42 is priced at 51.5, reflecting a roll adjustment of +4.8. However, US investment-grade (IG) cash markets remained unchanged, and there was no primary market activity in the US leading into the Fed announcement. Conversely, Europe experienced more activity with 11 issuers (excluding supranational, sub-sovereign, and agency entities) successfully pricing EUR 6.9 billion.
Commodities:
Crude oil markets saw some retracement as traders engaged in profit-taking before the Federal Reserve's decision. The May West Texas Intermediate (WTI) contract declined by 1.7% to $81.35, while the May Brent contract decreased by 1.5% to $86.09. The Energy Information Administration (EIA) disclosed a crude inventory reduction of 1.95 million barrels, aligning with expectations, although gasoline stocks experienced another notable drop of 3.3 million barrels, following a 5.66 million barrel decrease the prior week, marking the seventh successive weekly decline. Furthermore, crude exports surged by 1.7 million barrels per day (mbpd), the most substantial increase since October, reaching an impressive 4.9 mbpd. The BP Whiting refinery reportedly escalated operations close to full capacity following an abrupt power outage that halted operations on February 1.
In the natural gas sector, the U.S. Biden administration's review of liquefied natural gas (LNG) exports is anticipated to conclude quicker than previous analyses, with U.S. Energy Secretary Jennifer Granholm expressing confidence in finalizing the study by the end of this calendar year.
Metal prices witnessed an uptick following the Federal Reserve's decision, with copper increasing by 0.15% to $8,990 and aluminum by 0.6% to $2,283. Nickel appreciated by 1% to $17,570, while tin dropped an additional 0.78% to $27,230. Key Chinese smelters, such as Jiangxi Copper and Tongling Nonferrous Metals, are planning a quarterly meeting to potentially discuss production strategies. The gathering, scheduled for Thursday, might address Q2 spot processing fees. Notably, Chinese refined copper production reached a robust 2.215 million tonnes in January and February, an 11% rise compared to the previous year and building upon the record high set last year, which marked a 17.4% increase from the year prior.
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