US Indices were eventually mixed on Wednesday, while sectors saw downside bias as Real Estate and Health lagged, as the latter extended on Tuesday’s pronounced losses. Energy and Tech sat atop of the pile, with the former buoyed by gains in the crude complex amid punchy President Trump remarks on Iran, while Tech saw strength ahead of Mag-7 earnings after-hours. The key risk event during the session was the FOMC and accompanying Chair Powell press conference, which largely went as expected and saw little market move. The Fed held rates between 3.5-3.75%, as expected, albeit within two dissenters (Waller, Miran), who voted for a 25bps reduction. The Bank of Canada Monetary announcement was also largely a non-event, with little move on the Canadian Dollar. In FX, the Dollar pared some of its recent weakness, with the Euro, Swiss Franc and Japanese Yen all seeing notable losses. The Yen noticed a strong bout of selling after US Treasury Secretary Bessent said “we are absolutely not intervening in USD/JPY currently” and “US does not speculate on interventions; Has always had a strong US Dollar policy.” Back to the energy space, which rose after Trump said that a massive Armada is heading to Iran, time is running out to make a deal, and the next attack will be far worse. For fixed income markets, long-end yields ticked higher as the Fed’s decision to hold rates does little to shift markets. Lastly, recapping some of the earnings today, ASML (ASML, -2.2%) topped quarterly expectations, alongside a strong order metric and guidance, though the initial move higher pared as some cited profit taking. Meanwhile, Seagate (STX, +19.1%) left sentiment still very bullish on memory names after a stellar earnings report driven by robust AI-driven demand for data storage (MU +6.1%, WD +10.7%). The Fed left rates unchanged at 3.50-3.75%, as expected, in a 10-2 vote split, with Governors Miran and Waller calling for a 25bps reduction (Miran had previously voted for a 50bps cut in December, although in recent remarks said the need to dissent with a 50bps cut has become somewhat less). The January statement revised the economic assessment by replacing “economic activity has been expanding at a moderate pace” with “expanding at a solid pace”, “job gains have slowed this year” with “job gains have remained low”, and “the unemployment rate has edged up” with it having “shown some signs of stabilisation”; “inflation has moved up since earlier in the year and remains somewhat elevated” is simplified to “inflation remains somewhat elevated”. In its risk characterisation, December’s addition that the Committee “judges that downside risks to employment rose in recent months” is removed, leaving only that it is attentive to risks to both sides of the mandate. Balance-sheet guidance states that “reserve balances have declined to ample levels and [the Committee] will initiate purchases of shorter-term Treasury securities”, is omitted entirely. The voting members include a new voting composition, and dissents: December’s dissent split between one member favouring a 0.50ppts cut (Miran) and two preferring no change, is replaced in January by two dissenters preferring a 0.25ppts cut (Miran, Waller). The language of the statement tilts a little more positive on the economy and jobs, and broadly unchanged on inflation. Heading into the announcement, traders were attentive for any remarks about the future policy path; however, the statement does not offer any immediate clues. Markets were little changed in wake of the announcement. Traders looked to Chair Powell’s post-meeting press conference for guidance on the future path of interest rates, but he offered little new information. Powell acknowledged an improvement in incoming economic data and reiterated that policy decisions will continue to be made on a meeting-by-meeting basis, guided by the data and the balance of risks. He said there was broad Committee support for holding rates, with no participant viewing a hike as their base case. Policy was described as well-positioned, with rates within a plausible neutral range, but towards the higher end. Powell noted that the December SEP showed most policymakers still expect further normalisation ahead. On the economy, Powell said activity is expanding at a solid pace and that growth remains on a firm footing, having shown notable resilience despite significant trade policy changes. He said incoming data since the last meeting has clearly improved the outlook, leaving the Committee more optimistic than at the time of the December SEP. However, he cautioned that Quarterly GDP figures can be volatile and argued that labour market data provides a more reliable signal. The earlier divergence between strong growth and a weakening labour market may have reflected productivity gains and now appears to be resolving as labour conditions stabilise. Distortions from the government shutdown are no longer material and should unwind this quarter. Powell warned, however, that the US fiscal path is unsustainable and will need to be addressed. Inflation has evolved broadly as expected but remains somewhat elevated. Powell said there was no progress on core PCE inflation last year, with the overshoot largely driven by goods prices, tariffs and one-off factors rather than demand. Goods and tariff-related inflation are expected to peak around mid-year, with many effects already passed through. He added that the tariff effect on goods pricing peaking over this year, and if the Fed sees that, that would tell the Fed it can loosen policy. He said December core PCE inflation was likely around 3.0% and headline around 2.9%. Short-term market-based inflation expectations have fully retraced since “Liberation Day”, while longer-term measures suggest confidence that inflation will return to 2%. Powell said the labour market has weakened alongside solid growth, but recent data suggests stabilisation following a period of cooling. Job gains remain subdued, and while risks to employment have diminished, they have not disappeared, making it difficult to judge whether the dual mandate is fully in balance. Consumer spending remains resilient but uneven across income groups, with a disconnect between weak survey data and stronger realised spending. Asked about the US Dollar and Gold prices, Powell said the Fed does not comment on the currency and does not take signals from Gold. He strongly defended central bank independence, warning that any loss of credibility would be difficult to reverse. He said the Fed remains fully committed to its independence, adding jokingly that future Chairs should avoid domestic politics. More seriously, he described the case involving Governor Cook as potentially among the most important in the Fed’s legal history. Powell declined to comment on whether he intends to remain a Governor after his term as Chair ends. Elsewhere, Gold closed higher by 3.76% while Oil ended Wednesday’s session with a 1.7% gain.
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