What to watch

Following a rally in Chinese and Hong Kong equities after a post-meeting communqiue from China's State Council vowed support for equity markets, we have seen knock-on moves higher in European/US equity futures and fixed income markets are also in risk-on mode with STIR futures moving lower this morning. Risk sentiment has also been helped by continued hopes of progress in Russia-Ukraine negotiations.

• The main event of the day is the FOMC policy decision, with markets pricing in around 28bp for today's meeting at the time of writing (i.e. fully pricing a 25bp hike with around a 12% probability of a 50bp hike). The Statement and Chair Powell is likely to signal that this hike is the beginning of a series of increases. But solid forward guidance may prove elusive, especially given geopolitical uncertainties. The Dot Plot median is likely to show at least 5 FOMC rate hikes in 2022, with risks that the median “Dot” is even higher than that if participants want to bring rates close to “neutral” quickly in the face of high inflation pressures. This is lower than current market pricing of 7 hikes this year. We may get more specifics on future balance sheet policy as the Fed eyes reducing its asset holdings beginning in the coming months. For the full MNI Fed Preview click here.
• Today also sees the release of US retail sales and further speeches from Riksbank's Ingves and Ohlsson. This morning, Governor Ingves said that inflation is too high, will probably go up further and that rate hikes would be needed sooner than 2024 (the current Riksbank forecast).