Asian indices drop alongside US indices as Fed's forward guidance turns hawkish

– Asian indices such as the HSI futures (-1.2% to 19,650) and Nikkei225 (-1.1%% to 38,735) are trading in the red as of 925AM this morning, led by the overnight 2% drop in US indices.

– The moves come after the Fed lowered rates overnight by 25 basis points to 4.25 to 4.5% as expected, but issued quarterly forecasts showing several officials expect fewer rate cuts in 2025 than previously estimated.

– Fifteen of 19 officials now see a higher risk inflation will exceed their expectations rather than undershoot them, a massive shift from the three who felt the same back in September. And 14 officials said they see higher uncertainty around their inflation forecast.

– The dot plot was adjusted in a hawkish direction; now projecting 50 bps of cuts in 2025 (down from 100 bps in September). The long-run dot edged higher to 3.0%, its fourth consecutive quarterly rise. Notably, 6 (prev. 4) of 19 participants believe this is 3.5% or higher

– Following the drop in key Asian and US indices, put warrants tracking the indices rose between 12% to 54% as of 935AM this morning

– Today's Bank of Japan's rate decision is the next event risk for traders, with any surprise in the policy outcome likely to whip up more volatility in global markets. (Bloomberg)

– Investors wanting to hedge against further short-term pullbacks in the indices may wish to consider our index put warrants, while those who see a rebound from here can consider our call warrants. Both will move in greater magnitudes than the underlying futures indices they track while requiring a low capital outlay, as evidenced by this morning's magnified moves in the call and put warrants.