By Geoffrey Smith
Investing.com — The Federal Reserve’s hawkish message drives the dollar higher and halts the rally in U.S. and global equities in its tracks. The Bank of England is the next to intervene, under pressure from the Federal Reserve, on pain of a further erosion of the credibility of the United Kingdom on the world markets. Stocks are set to open lower, with online travel agency Booking (NASDAQ:) a rare bright spot in a sea of red. Automakers Stellantis and BMW (ETR:) fell despite reporting better results. Chinese health regulators are shutting down rumors of an impending easing of the ‘zero carpooling’ policy and, with it, the nascent rally in Chinese stocks and oil prices. Here’s what you need to know in financial markets this Thursday, November 3.
1. The Fed pushes the dollar higher with a hawkish message
The dollar hit a two-week high as the latest interest rate hike and policy messages from the Federal Reserve halted the global rally in risky assets.
The index, which measures the greenback against a basket of developed market currencies, rose 1.3% to 112.79, buoyed by rising short-term Treasury yields, which continue to attract capital from all over the world. The yield on the benchmark bond rose another 16 basis points overnight, to 4.73%.
On Wednesday, the Fed raised the upper fed funds target to 4.0%, its highest level since the Great Financial Crisis, while its chairman Jerome Powell said interest rates will have to be higher than expected, although the magnitude of individual increases should now be less than the 75 basis points seen in the last four meetings.
2. Bank of England under pressure to go with the flow
The Fed’s action puts the spotlight on the , which will announce the results of its monetary policy committee meeting at 1:00 p.m.
Like the Fed, the BoE should raise its key rate by 75 basis points, even if the underlying economic situation is far from being as solid as in the United States. The Bank is being forced in part by the weakness of the , which fell 1.3% against the dollar, to 1.1244 dollar, in reaction to the latest indications from Powell.
Sterling’s weakness reflects a broader crisis of confidence in the UK economy, which surveys indicate is rapidly heading 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 head of government.
3. Stocks are ready to extend their losses; Booking defies gloom, but not automakers
U.S. stock markets are poised to extend their losses at the open, after being harshly disillusioned with hopes of an early “dovish pivot” from the Fed on Wednesday.
At around 12:45 p.m., the were down 102 points, or 0.3%, while the were down 0.4% and the were down 0.5%. The three main spot indices had lost between 1.5% and, for the Nasdaq, a jump of 3.4% on Wednesday.
Among the stocks likely to receive particular attention is Chrysler owner Stellantis (EPA:), which fell in Europe despite reports of a news-2930414 due to its supply chain issues easing (BMW also posted but its stock fell even more sharply).
A bright spot in the sea of red is booking, after it made hay with the first real summer tourist season since Covid. ConocoPhillips (NYSE:), Amgen (NASDAQ:), Cigna (NYSE:), Regeneron (NASDAQ:), Kellogg (NYSE: ) and Exelon (NASDAQ:) report their results early in the day, while Starbucks (NASDAQ:) is at the top of the late publications.
4. China’s rally stalls as regulators shut down Covid easing rumor
While the Fed was killing the US rally, Chinese health regulators were busy crushing those who had dared to bet on an end to the zero-covid policy earlier this week.
A statement from the National Health Committee rejected any suggestion that this policy could be relaxed in the near future: “We must as always pay close attention to controlling the Covid-19 pandemic and not deviate in the least. of the overall strategy to prevent the virus from entering from the outside and bouncing back inside.”
China’s stock indexes, which had rallied sharply following unverified reports that the Politburo would form a new committee to consider ways to deviate from a policy that has severely dampened the economy this year , fell by up to 3%.
5. Oil falls as disappointment in China outweighs drop in US inventories
The price of crude oil weakened further in the wake of the Chinese news, completely ignoring a larger than expected reduction in prices that suggests demand is holding up well in the near term in the world’s largest economy.
By 12:45 p.m., US oil futures were down 1.4% at $88.70 a barrel, while oil futures were down 1.2% a barrel.
In contrast, European natural gas futures rose another 7.8% on fears that the Freeport LNG facility will not resume shipments this month after a fire in the summer. Any delay in reopening would keep excess US gas trapped in the domestic market, depressing oil prices.
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Fed Pushes Dollar Higher, BoE Hikes Rates, China’s Rally Halts – What’s Moving Markets Thursday By Investing.com