Early Morning Call: Equity markets hit by Jerome Powell's remarks

FOMC

As expected, the US Federal Reserve (Fed) raised the Fed Fund rates target by another 75-basis points yesterday evening to a range of 3.75% to 4%, but it also signalled that future increases could be made in smaller steps, as the effect of previous hikes has not been fully felt yet.

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

But Fed chair, Jerome Powell, made clear it was too premature to talk about pausing rates hikes. "We still have some way to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected."

Equity markets reacted to the announcement. US indices fell, led by technology stocks, having a ripple effect in the APAC region overnight where Hong Kong’s HSI dropped the most after two sessions of strong gains.

After an initial drop at the rates publication, the US dollar dropped, but strengthened during Powell’s press conference.

Gold mechanically followed the opposite path: initial gains were soon followed by a drop below $1,640.

Bank of England

Today, UK households are expected to be hit by the biggest jump in interest rates since Black Wednesday as the Bank of England (BoE) cranks up the restrictions on monetary policy to tackle double-digit inflation.

Markets expect the Bank's rate-setters to vote for a 0.75 percentage point increase to 3%, which would mark the eighth consecutive increase to borrowing costs.

Macro oveview

Elsewhere, Australia reported a larger than expected trade surplus, as exports grew stronger in September than imports.

In China, Caixin services fell deeper in contraction territory to 48.4 in October.

This morning at 10:00, the Eurozone unemployment rate is forecast to remain at 6.6% in September, and in the US at 12.30pm, initial jobless claims are expected. Economists expect 220,000 new claimants last week, after 217,000 new claimants the previous one.

For the past few weeks the trend has changed. From roughly mid-July to late-September we saw jobless claims drifting lower, but data from the last four weeks seem to show a change in trend.

Tomorrow sees non-farm payrolls (NFPs) for the month of October. Economists expect 200,000 job creations, a rise in the unemployment rate by 10bps to 3.6% and average hourly earnings to increase by 0.3% month-on-month (MoM), 4.7% year-on-year (YoY).

Earnings

BT increased its savings target by £500 million to help fund the rising cost of building its fibre network as it met its forecast in the first half (H1). The group posted a 1% increase in revenue and core earnings of £3.9 billion, up 3%.

Sainsbury posted an 8% fall in profit in the first half, and like-for-like sales excluding fuel down 0.8%. The group however confirmed its guidance for the full year (FY).

Elsewhere in Europe, France's largest bank BNP Paribas posted a higher-than-expected net profit in the third quarter (Q3). Net income rose by 10.3% from a year earlier to €2.76bn. Revenues were up 8% at €12.3 billion.

Watch out for BMW at the open in Frankfurt. The carmaker saw a rise in its automotive EBIT margin in the third quarter to 8.9% from 7.8%. BMW reported a group net profit of €3.18bn, up nearly 23% on last year, and confirmed its outlook for an EBIT margin of 7-9% for the automotive segment.

Stellantis sales rose 29% in the third quarter, helped by higher volumes amid improved semiconductor supplies. Consolidated shipments rose 13% in the quarter to 1.281 billion units and the group confirmed its margin forecast for the year.

In the US, QUALCOMM , an all-sessions stock on the IG platform, published mixed results yesterday evening. Earnings per share (EPS) fell just short of estimates, while revenue came in just over expectations. But share price plunged in extended hours after the chipmaker revenue estimates for the current holiday quarter disappointed investors.

ConocoPhillips is expected to post earnings of $3.72 per share, to be compared to the $1.77 recorded in the same quarter last year. Revenue is expected to reach $19.42bn, some of $8bn more than Q3 2021.

Moderna is scheduled to post its quarterly earnings before market open today. Analysts expect earnings of $4.81 on revenue of $4.63bn. The market is keen to know more about the group's guidance, especially after Pfizer earlier this week boosted its 2022 Covid vaccine forecast by $2bn to $34bn.

And tonight after the bell, Coinbase Global reports. Analysts forecast a loss of £2.36 per share on revenue of $655m. Crypto related stocks haven't had the best of times recently, as the prices of cryptocurrencies decline as interest rates go higher.

Commodities

Like after the publication of the API report on Tuesday evening, oil prices got a boost from the latest EIA inventories figures yesterday afternoon.

Crude oil stocks fell by 3.1 million barrels, gasoline stocks decreased by 1.3 million barrels. Only distillate products showed a small increase on 400,000 barrels.

Russia decided yesterday to reintegrate the Black Sea agreement, which means that ships have started to leave the region again to deliver their supplies.

Wheat and corn fell yesterday on the news.