US stocks tumble on Fed rate hike and “hawkish pause” – Futures down after market as banking crisis fears return

Asian equities are looking to open lower taking a lead from Wall St where US stocks finished in the red, with most losses coming after the FOMC decision late in the US session.

The FOMC hiked rates 25bp as expected and released what was seen as a mostly dovish statement that left the door open for a pause, this saw market initially rally and chop around, however Powell’s presser threw cold water on the markets dovish expectations seeing a sharp sell-off in risk assets.

The Decline continued after hours as news broke that another bank in the US was in trouble, with PacWest stock cratering almost 60% in the after-market on news that the California bank has been assessing strategic options, including a breakup or a possible sale.

FX Markets

USD saw downside in wake of the Fed rate decision, where the central bank hiked rates by 25bps to 5.00-5.25%, as expected, but issued a dovish tweak to the statement as it dropped the language that it anticipates more policy firming may be appropriate to attain sufficiently restrictive stance. The US Dollar index dipped to test the 101 support area before bouncing modestly.

The Yen outperformed in wake of the FOMC rate decision with USDJPY hitting a low of 134.85 with the dovish tone of the Fed statement helping giving the Yen a tailwind. USDJPY has continued to fall at the start of the Asian session as the PacWest news has seen the extra boost of safe haven buying flowing into the Yen.

AUD and CAD were the laggards, risk off sentiment hit the Aussie , with AUDUSD giving up almost all of its post RBA hike gains, the Loonie saw weakness throughout Wednesday up until the FOMC on account of the broad declines seen again in crude oil.

Commodities

Gold soared in Wednesday’s session, spiking first on the FOMC statement seeing yields drop and USD weakness, then following through on safe haven flows as news of the PacWest issues hit the newswires. XAUUSD smashing through the top end of the range it has been trading in for the last few weeks and coming within a whisker of all-time highs.

Crude Oil prices continued to tumble with WTI now trading with a 68 handle with USOUSD now down over 18% from it’s highs after the OIPEC+ surprise cut in April on ongoing growth concerns and a risk-off tone to the market.

In today’s economic announcements, another big Central Bank decision is due out later today when the ECB sets rates and releases their economic policy at 12:15 GMT.

The ECB is widely expected to hike rates with the consensus of 25bp priced in at around 78% vs. 22% for 50bps. Recent messaging from policymakers has suggested that the options will be between a 25bps and 50bps, so a 50bp hike is definitely a possibility in light of recent hawkish surprises from the RBA and to a lesser extent the FOMC. Either way, expect volatility in EURUSD at the time of the release.