Credit AgricoleAsia overnightThe sustained dip in oil prices along with a bounce in Chinese technology stocks perked up sentiment in Asia. Investors remain wary of regulatory crackdowns from the Chinese or US governments (the latter on China-Russia ties) and cautious ahead of the FOMC decision later today. At the time of writing, most Asian bourses were trading higher and S&P 500 futures were modestly in the red. Ahead of the FOMC meeting outcome, G10 FX was trading tight ranges in the Asian session with the USD modestly weaker against most of the G10 bar the NZD.CitiEuropean OpenA burst higher in China stocks as the officials vowed to keep markets stable interrupted an otherwise sleepy pre-FOMC session. The shift in risk sentiment lifted S&P e-minis through overnight highs and supported iron ore, boosting AUD and commodity-linked FX while weighing on USD. High-beta SEK rallied sharply, finding additional support as Riksbank Governor Ingves said rate hikes will need to come sooner given the inflation outlook. In USDAsia, KRWbenefitted given close trade-linkages with China, while PHP and INR continued to ride on tailwinds of overnight oil selloff. CNH was firm after the trend of much weaker yuan fixes was halted before surging with domestic stock markets, running counter to recent positioning.Looking ahead, while FOMC remains the highlight, we watch for more incremental hawkish comments from Riksbank speakers and inflation data from Canada and Poland.Decision dayExpectations: Fed is widely expected to deliver a 25bp hike Wednesday at 18:00 GMT, and sound hawkish overall, with Fed Chair Powell’s to speak at 18:30 GMT. likely to indicate aggressive monetary policy going forward. What we expect:–Citi Economic: i) inflation forecasts to rise significantly, ii) “dots” to indicate five or six hikes in 2022, iii) Powell to leave larger hikes on the table depending on inflation, iv) new information on the balance sheet, and v) a reference to geopolitical risk in the policy statement.–CitiFX Strategy look for the Fed to focus firmly on bringing inflation down despite major uncertainties. We expect 150bps of hikes in 2022 shown in SEP projections and indications that the Fed could hike by 50bps at any meeting if required. USD should follow the direction of rates volatility on the day, though more broadly USD should be driven more by geopolitics than Fed policy.What’s in the price: USD OIS prices ~27bps of hikes for today, with around 50% chance of a 50bps hike in the May meeting and roughly 7 full hikes this year
Source: Tickmill
