MNI ASIA OPEN - FOMC Hikes 75bps, Undecided For July

NEWS

FED (MNI): Fed Raises Rates 75BP, Biggest Hike Since 1994
The Federal Reserve on Wednesday raised interest rates by an unusually steep 75 basis points, the biggest rate hike in 28 years, an aggressive move intended to dampen inflation that appears to have gotten out of the central bank’s control. The move pushed up the federal funds rate target range to 1.5%-1.75% from 0.75%-1.0%. There was one dissent from Kansas City Fed President Esther George, who favored a half-point increase.

FED (MNI): Powell Says 75BP Or 50BP Hike Possible For July
The Federal Reserve’s aggressive 75 basis point rate hike today is a rare event but it could happen again at the Fed’s next meeting, Chair Jerome Powell said. “I do not expect moves of this size to be common. Either a 50 basis point or a 75 basis point increase seems likely” at the next meeting, he said.

ECB (MNI): ECB To Counter Bond Market Risk, Build New Tool
Reinvestments from the principal payments of the European Central Bank's pandemic emergency purchase programme, PEPP, will be applied flexibly to counter resurgent euro area fragmentation risks, the Governing Council said in a statement following Wednesday's ad-hoc meeting, with existing work on designing a new anti-fragmentation tool to be accelerated.

US (MNI): Housing Cost Lag To Drive Inflation As Fed Hikes
U.S. unemployment looks set to rise substantially even if the Fed manages to steer the economy into only a shallow recession, though a continuing rise in a measure of housing costs could make it harder to avoid more drastic monetary tightening, Fannie Mae chief economist Doug Duncan told MNI. The likely coming downturn could be more severe if inflation does not respond to Federal Reserve rate increases, Duncan said in an interview, ahead of an FOMC decision largely priced in by markets as a 75-basis-point hike.

EU-UK(MNI): Can’t Exclude Tariffs If UK Bill Passed-EU Sefcovic
A trade war with the UK cannot be excluded if the UK Parliament passes legislation to scrap the Northern Ireland Protocol, EU Vice President Maros Sefcovic said Wednesday. Asked whether the EU would impose tariffs on the UK and suspend the EU-UK Trade and Cooperation Agreement, Sefcovic replied "If it becomes law, I can't exclude anything." But the commissioner added that the Commission would also continue to work for a "long-term solution based on the law" and again rejected any renegotiation of the NIP.

CHINA (MNI): China FX Policy Must Watch Sharply Weaker JPY On Trade
China's central bank needs to enhance regional FX policy coordination because of the potential spillover effects of the sharp depreciation of the Japanese yen which may intensify volatility of Asian currencies and hurt exports, market analysts said. The rapid drop of the yen, which reached a quarter century low above JPY135.50 to the dollar on Wednesday, was seen as pushed by the continued easy policy of the Bank of Japan.

CANADA (MNI) Canada Realtors Double 2022 Sales Decline Forecast
The Canadian Real Estate Association nearly doubled its forecast of how much home sales will decline this year as the central bank lifts interest rates, to a 15% decline from the previous 8% estimate, while projecting prices will still climb 11%. The interest rate used to stress test new borrowers jumped by almost a percentage point in April alone to more than 6%, and variable rates will catch up later this year, CREA said in a report Wednesday.

BOE (MNI): A 25bp hike is fully priced for this week's MPC meeting, with markets pricing in around a 1/3 probability that the Bank of England vote for a larger 50bp hike. We think that there is likely to be enough support for most (or "the majority") of members to continue with the previous forward guidance for this month at least. Full MNI BOE Preview here: https://marketnews.com/markets/central-bank-reports/central-bank-preview/bank-of-england-preview/mni-boe-preview-june-2022-25bp-but-what-next

SNB (MNI): FX language could be first sign negative rates will be reversed
The SNB are expected to lay the groundwork for the first change to the policy rate in seven years at this week’s meeting. But the bank will likely hold rates for a further three months so as not to add to market uncertainty by prematurely widening the ECB/SNB policy rate differential and inducing FX market volatility. Full MNI SNB Preview here: https://marketnews.com/-2657511324

DATA

MNI: US NY FED EMPIRE STATE MFG INDEX -1.2 JUN
- PRICES PAID INDEX 78.6 JUN
- NEW ORDERS 5.3 JUN
- EMPLOYMENT INDEX 19.0 JUN

**US MAY EXPORT PRICES +2.8%; NON-AG +2.9%; AGRICULTURE +2.1%
MNI: US MAY IMPORT PRICES +0.6%

**MNI: US APR BUSINESS INVENTORIES +1.2%; SALES +0.4%
*US APR RETAIL INVENTORIES +0.7%

MNI: CANADIAN MAY EXISTING HOME SALES -8.6% MOM

FOREX: Volatile Session Sees USD Weaken, Powell Hints 75BP Not To Be Common

• The US Dollar traded in a volatile manner following the Fed’s decision to hike rates by 75bp at their June meeting, the largest hike since 1994.
• Initial weakness, potentially on the sole dissent for a smaller hike, was short-lived with the DXY swiftly reversing course and printing a fresh high at 105.79. In turn, EURUSD headed quickly through the overnight lows to print 1.0359, coming within touching distance of the key bear trigger at 1.0350, May 13 low.
• Once again there was a swift reversal in greenback sentiment as Chair Powell began his press conference. Following the comments regarding not to expect 75 basis-point moves to be common, markets favoured USD selling and momentum was encouraged by stronger US equity benchmarks.
• This emboldened the likes of AUD, GBP and NZD which look set to post extremely strong +1.5% recoveries. Additionally, CNH has strengthened 1.25% against the dollar, supported by the better-than-expected activity data overnight.
• Central bank meetings continue on Thursday with the Swiss National bank preceding the Bank of England. The Bank of Japan round off the central bank slate during Friday’s APAC session.

US TSYS: Bull Steeper As Powell Describes 75bp Hikes As "Unusually Large"

Treasury markets took a dovish interpretation from June's FOMC meeting, with diminished rate hike pricing for the July meeting and a decision (+75bp) and Dot Plot that were in line with expectations.

• The curve flattened sharply a minute or two after the FOMC decision was released, with 2s10s temporarily going negative.
• But ultimately it resolved much steeper as Fed rate hike pricing pared back during Powell's press conference.
• The main trigger to this was Powell's comment early in the presser that the next meeting in July could bring a 50 or 75bp hike - and that a 75bp hike was unusually large and that he didn't expect them to be common.
• 2-Yr yield is down 21.3bps at 3.2138%, 5-Yr is down 20.1bps at 3.3858%, 10-Yr is down 17bps at 3.3029%, and 30-Yr is down 8.9bps at 3.3353%.