By Geoffrey Smith
Investing.com -- The dollar hits its highest level of the week, as the market reassesses the relative outlook for global interest rates. Weekly jobless claims and import data will provide the first test of the tapering timeline outlined on Wednesday. The Bank of England and the Czech National Bank are both expected to raise interest rates later, albeit the former's decision is on a knife-edge. Stocks are drifting, but Qualcomm (NASDAQ:QCOM), Toyota and Booking (NASDAQ:BKNG) are all looking strong after impressive results. And OPEC meets with Russia and others but isn't expected to cut oil importers much slack with their December output quotas. Here's what you need to know in financial markets on Thursday, 4th November.
1. Dollar reverses losses after Fed’s dovish tapering message
The dollar reclaimed all the losses it made in response to what most analysts saw as a modest first step by the Federal Reserve to normalize monetary policy at its meeting on Wednesday.
By 6:15 AM ET (1015 GMT), the dollar index that tracks the greenback against a basket of advanced economy currencies was up 0.4% at 94.265, its highest level this week, as analysts came around to the view that the chance of higher interest rates is still more realistic in the U.S. than in either Japan or the Eurozone, where ECB President Christine Lagarde effectively ruled out the chance of a rate hike next year in comments on Wednesday.
Stock markets in Asia and Europe followed the U.S. higher overnight, comfortable with Fed Chair Jerome Powell’s assurances that the central bank is not “behind the curve” on inflation, even though it expects current supply bottlenecks plaguing the economy to last “well into next year.”
2. Multi-speed monetary tightening in Europe
For other central banks, it’s a different picture. The Bank of England is expected by many to raise interest rates for the first time since the pandemic at its meeting, although the prospect of the economy cooling off may yet leave it to keep policy settings unchanged. Its decision is due at 8 AM ET.
Norway’s central bank, which has already raised interest rates once, kept its key rate at 0.25% but remains on track to hike again in December, while the Czech National Bank is expected to continue the trend of aggressive interest rate hikes by central European economies when it meets later. Analysts expect a further 50 basis point hike to 2.0% in its key rate, after a 75 basis point hike last month.
Poland’s National Bank had raised its key rate by 75 basis points on Wednesday, a second straight tightening in as many months.
3. Stocks set to open mixed; Qualcomm, Toyota shine
U.S. stock markets are set to open mixed later after closing at fresh record highs on Wednesday in response to the Fed’s announcement, in which Jerome Powell was at pains to emphasize no acceleration of the timeline for rate hikes.
By 6:20 AM ET, Dow Jones futures were down 20 points, or less than 0.1%, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.4%.
The key 10-Year Treasury bond yield, which had risen as high as 1.60% on Wednesday, was back down at 1.57%.
Stocks likely to be in focus later in Qualcomm, which posted record sales in its fiscal fourth quarter on the back of strong demand for 5G phones, and Toyota, which also posted results that defied the constraints of the global chip sector overnight. Booking and lithium miner Albemarle (NYSE:ALB) also look set for strong starts after better-than-expected earnings late on Thursday.
A heavy earnings schedule is led by Zoetis, Duke Energy and Cigna early, and by MercadoLibre, Occidental, Peloton and Motorola after the bell.
4. Jobless claims, trade data to highlight economic strength
Powell had left the Fed some wiggle room on Wednesday by saying that the Fed can adjust the pace of its phase-out of bond purchases if appropriate, and weekly jobless claims data due at 8:30 may have some people already asking that question.
Initial claims are expected to edge down to a new post-pandemic low of 275,000, a day after ADP’s private payrolls report for the month through mid-October came in much stronger than expected, showing a net gain of 571,000 jobs. The Institute of Supply Management’s non-manufacturing business survey also showed a clear strengthening of activity in October.
Also of note will be U.S. trade data. Last month’s numbers showed imports running at historic records ahead of the upcoming holiday season, suggesting consumer demand remains extraordinarily strong.
5. OPEC+ to hold its course
Ministers from the Organization of Petroleum Exporting Countries will meet with Russia and other big oil exporters to decide on production levels for December.
They’re not expected to change their pre-announced plan of a 400,000 barrel a day increase, despite pressure from President Joe Biden and the leaders of other big importers such as India to pump more.
U.S. government inventory data on Wednesday strengthened suspicions that high gasoline prices are already hurting oil demand in the U.S., crude stocks rising by more than 3 million barrels last week.
By 6:30 AM ET, U.S. crude futures were up 1.4% at $82.00 a barrel, while Brent was up 1.7% at $83.38 a barrel.