Dollar slides, Meta soars, ECB, BoE meet - what's moving markets

By Geoffrey Smith

Investing.com -- The dollar falls to a nine-month low and Treasury yields ease after the Federal Reserve signals the end is near for the current rate hiking cycle. The European Central Bank and Bank of England are due to play catch-up later, raising their key rates by 50 basis points each. Facebook owner Meta Platforms stock surges after Mark Zuckerberg signaled a pivot of his own - back to making profits and away from expensive bets on the Metaverse. Apple, Amazon and Alphabet are all due to report their earnings after the close. And oil falls to a three-week low after another big rise in U.S. inventories signals weakening demand. Here's what you need to know in financial markets on Thursday, 2nd February.

1. Dollar, Treasury yields fall as Fed signals an end to tightening

The dollar fell to a nine-month low and U.S. Treasury yields slid after the Federal Reserve signaled an end to its policy tightening cycle.

The Fed raised the target range for fed funds by 25 basis points to 4.50%-4.75% and Chair Jerome Powell still said it was “premature” to declare victory over inflation, but acknowledged that a “disinflationary trend” has started.

The dollar index fell to a low of 100.675 before recovering, while two-year Treasury yields fell as low as 4.09%. In contrast to the dollar, however, 2-year yields didn’t make a new low.

With the Fed out of the way, the market can look forward to more labor market data with weekly jobless claims at 08:30 ET (13:30 GMT) and the January labor market report on Friday. There will also be durable goods and factory orders data at 08:30 ET, which will provide a cross-check to a worryingly weak ISM manufacturing survey published on Wednesday.

2. ECB, BoE set to hike by 50 bps each

The central bank action shifts to Europe, with both the European Central Bank and the Bank of England expected to raise their key interest rates by 50 basis points, despite signs of economic stagnation (or worse) in data released earlier this week. German trade data released Thursday morning were particularly poor, with exports falling over 6% on the month in December.

The ECB has nevertheless more or less committed itself to two more hikes of 50 basis points, so there will be limits to how much flexibility President Christine Lagarde can show in her press conference at 08:15 ET.

The BoE’s Monetary Policy Committee is also likely to be split again, with a growing number of dissenters arguing that inflation will fall naturally as the U.K. economy contracts this year. The BoE’s decision is due at 07:00 ET, with Governor Andrew Bailey speaking at 09:15 ET.

3. Meta sparkles with pivot back to profitability; Big Tech earnings due later

The day’s big highlights in the U.S. are due after the closing bell, with earnings updates from Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google owner Alphabet (NASDAQ:GOOGL).

The latter in particular will make for interesting reading after Meta Platforms (NASDAQ:META), its big rival in the online advertising market, reported a surprisingly strong outlook for 2023 despite the uncertain macroeconomic outlook. French ad group Publicis (EPA:PUBP) also rose in European trading after a strong update.

Facebook owner Meta is surging in premarket after CEO Mark Zuckerberg effectively acknowledged that his shareholders could think of better things to do with their money than pay him to throw it at wild bets on the Metaverse. It will buy another $40 billion in stock back and also slash its spending in an effort to improve shareholder returns.

4. Stocks set to open mostly higher; Big Pharma reports to continue

U.S. stock markets are set to open mostly higher, with tech outperforming after a Meta update that banished unpleasant memories of Snap’s (NYSE:SNAP) warning the previous evening.

By 05:55 ET, Dow Jones futures were down 55 points, or 0.2%, but S&P 500 futures were up 0.2% and tech-heavy Nasdaq 100 futures were up 1.3%.

There’s also some early earnings action, with drugmakers Eli Lilly (NYSE:LLY), Bristol Myers Squibb (NYSE:BMY) and Merck (NYSE:MRK) up first, followed by ConocoPhillips (NYSE:COP), Honeywell (NASDAQ:HON), Becton Dickinson and Company (NYSE:BDX), Air Products (NYSE:APD), Intercontinental Exchange (NYSE:ICE) and Hershey (NYSE:HSY).

5. Oil hits three-week low after another rise in U.S. inventories

Crude oil prices are in the doldrums after the U.S. government confirmed a big rise in inventories last week, pointing ever more clearly to weakening demand in the world’s biggest consumer. Gasoline inventories, a good indicator of final demand, rose by more than expected for the fourth week in a row.

U.S. commercial crude inventories are now 3% above their five-year average and are at their highest level since June 2021.

By 05:55 ET, U.S. crude futures had weakly rebounded 0.1% from overnight lows to be at $76.47 a barrel, while Brent was down 0.1% at $82.75, both contracts near their lowest in three weeks.

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