The Federal Reserve's hawkish messaging drives the dollar higher and brings the rally in U.S. and global stocks to a shuddering halt. The Bank of England is up next, under pressure to match the Fed step-for-step or risk a further erosion of the U.K.'s credibility in global markets. Stocks are set to open lower, with online travel agent Booking (NASDAQ:BKNG) a rare bright spot in a sea of red. Carmakers Stellantis and BMW (ETR:BMWG) fall despite reporting improved results. China's health regulators squash rumors of an imminent relaxation of the Zero-Covid policy, and also squash the nascent Chinese equity rally and oil prices in the process. Here's what you need to know in financial markets on Thursday, 3rd November.
Fed drives the dollar higher with hawkish messaging
The dollar surged to a two-week high as the Federal Reserve’s latest interest rate hike and policy messaging brought the global rally in risk assets to a shuddering halt.
The dollar index, which measures the greenback against a basket of developed market currencies, rose 1.3% to 112.79, supported by rising short-term Treasury yields, which continue to suck in capital from around the world. The benchmark 2-Year note yield rose another 16 basis points overnight to 4.73%.
The Fed had on Wednesday had hiked the upper target for fed funds to 4.0%, its highest since the Great Financial Crisis, while Chair Jerome Powell had said that interest rates will have to go higher than previously thought, even if the size of individual hikes from now on is likely to be smaller than the 75 basis points seen at the last four meetings.
Bank of England under pressure to follow suit
The Fed’s action puts the spotlight squarely on the Bank of England, which will announce the results of its Monetary Policy Committee meeting at 08:00 ET (12:00 GMT).
Like the Fed, the BoE is expected to raise its key rate by 75 basis points, even though the underlying economic situation is nowhere near as strong as in the U.S. In part, the Bank’s hand is being forced by the weakness of sterling, which fell 1.3% against the dollar to $1.1244 in response to Powell’s latest guidance.
Sterling’s weakness is a reflection of a broader crisis of confidence in the U.K. economy, which surveys suggest is heading quickly into recession. The only crumb of comfort for the BoE is that the market chaos caused by the ill-fated administration of Liz Truss has more or less subsided since Rishi Sunak took over as Prime Minister.
Stocks set to extend losses; Booking defies the gloom, but automakers can't
U.S. stock markets are set to extend losses at the open, after being rudely disabused of their hopes for an early ‘dovish pivot’ from the Fed on Wednesday.
By 06:25 ET, Dow Jones futures were down 102 points, or 0.3%, while S&P 500 futures were down by 0.4% and Nasdaq 100 futures were down 0.5%. The three main cash indices had lost between 1.5% and, for the Nasdaq, a thumping 3.4% on Wednesday.
Stocks likely to be in focus later include Chrysler owner Stellantis (EPA:STLA), which fell in Europe despite reporting a sharp rise in sales as its supply chain problems eased (BMW also posted better sales but its stock fell even more sharply).
One bright spot among the sea of red is Booking, after it made hay with the first proper summer tourism season since Covid. ConocoPhillips (NYSE:COP), Amgen (NASDAQ:AMGN), Cigna (NYSE:CI), Regeneron (NASDAQ:REGN), Kellogg (NYSE:K) and Exelon (NASDAQ:EXC) all report early, while Starbucks (NASDAQ:SBUX) heads the late roster of earnings updates.
China rally stalls as regulators quash Covid relaxation rumor
While the Fed was killing the U.S. rally, China’s health regulators were busy squashing those who had dared to bet on an end to the Zero-Covid policy earlier in the week.
A statement from the National Health Committee dismissed suggestions that this is going to be relaxed any time soon, saying: “We must as ever pay close attention to control of the Covid-19 pandemic and absolutely not in the least waver from the overall strategy of preventing the virus from entering from without, and from rebounding within."
Chinese stock indices, which had rallied violently on unverified reports that the Politburo would form a new committee to look at ways to move away from a policy that has been a serious drag on the economy this year, fell by as much as 3%.
Oil falls as China disappointment outweighs U.S. inventory draw
Crude oil price weakened further in the wake of the Chinese news, completely shrugging off a bigger-than-expected draw in U.S. inventories that suggested demand is still holding up well in the short term in the world’s biggest economy.
By 06:30 ET, U.S. crude futures were down 1.4% at $88.70 a barrel, while Brent futures were down 1.2% a barrel.
By contrast, European natural gas futures rose another 7.8% amid fears that the Freeport LNG facility won’t resume shipments this month after a fire in the summer. Any delayed reopening would keep surplus U.S. gas trapped in the domestic market, depressing Henry Hub prices.
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Source: investing.com
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