By Geoffrey Smith
Investing.com -- Chinese markets rally strongly on unconfirmed reports of a coming shift in the country's COVID-19 policy. That's also lifting oil prices and U.S. stocks, although the U.S. is settling into wait-and-see mode as the Federal Reserve begins a two-day meeting. The Labor Department will release its monthly survey on job vacancies, and the ISM manufacturing survey is due. Big Pharma results are also out, while Saudi Aramco and BP (NYSE:BP) join the list of oil major reporting bumper profits. Meanwhile, the Bank of England begins quantitative tightening and the Reserve Bank of Australia takes it easy with a 25 basis point hike. Here's what you need to know in financial markets on Tuesday, 1st November.
1. China rallies on hopes of exit from Zero-COVID
Chinese stock markets rallied and the yuan rose after unconfirmed reports said that the new Politburo will form a committee looking at ways to relax the "Zero-COVID" policy that has plagued the Chinese economy all year.
The news comes only days after President Xi Jinping secured a third five-year term in office, allowing him now to change course without exposing himself to political risk.
The Hang Seng index rose 5.2% in Hong Kong, while mainland benchmark indices all gained by between 2% and 4%. The offshore yuan, which fell to an all-time low against the dollar last week after China reported a sharp shortfall in economic growth, recovered 0.6% to trade at 7.2937 to the dollar.
Chinese assets pared their gains after a Foreign Ministry spokesman said he wasn't aware of the committee referred to in the social media posts that triggered the move.
2. JOLTS, ISM due as Fed meeting starts
The Federal Reserve starts a two-day meeting against a backdrop of rising expectations that it will flag a slowdown in the pace of interest rate hikes on Wednesday. Such expectations have brought the 10-year Treasury yield down to 3.95% from a high of 4.34% less than two weeks ago.
Market expectations for a further 75 basis-point hike taking the upper end of the fed funds target range to 3.25% are all but baked in, but hopes are that the recent signs of a slowdown in the economy will force the Fed to publicly acknowledge the risks of further tightening.
At 10:00 ET (14:00 GMT), the Labor Department will release its September survey of job openings and labor turnover. This had been among the first indicators to show the labor market cooling, with a sharp drop in the number of vacancies in August. The Institute for Supply Management's monthly manufacturing PMI is also due at the same time.
Those looking for signs of central banks taking their feet off the brakes can take heart from Australia's example overnight: the Reserve Bank hiked its key rate by a relatively modest 25 basis points.
3. Stocks set to open higher, settling into wait-and-see mode
U.S. stock markets are set to open higher, reversing Monday’s losses, but with the size of market movements gradually ebbing as investors settle into wait-and-see mode ahead of the Fed's decisions on Wednesday.
By 06:20 ET, Dow Jones futures were up 230 points or 0.7%, while S%P 500 futures were up 1.0%, and Nasdaq 100 futures were up 0.7%.
Sentiment is being supported by the move in China overnight, with major Chinese ADRs all higher in premarket. Alibaba (NYSE:BABA) ADRs were 6.7% higher, while Baidu (NASDAQ:BIDU) was up by a similar amount and JD.com (NASDAQ:JD) was up 7.6%.
Eli Lilly (NYSE:LLY) has started the day's earnings roster with a beat and will be joined by Pfizer (NYSE:PFE) later. Phillips 66 (NYSE:PSX), Ecolab (NYSE:ECL), Sysco (NYSE:SYY), and Simon Property (NYSE:SPG) are all due before the bell, while Advanced Micro Devices (NASDAQ:AMD), McKesson (NYSE:MCK), Devon Energy (NYSE:DVN), AIG (NYSE:AIG), and Electronic Arts (NASDAQ:EA) are all due after the close.
4. Bank of England to begin quantitative tightening
The U.K. remains the test case for advanced economy central banks trying to unwind a decade of easy money policies. The Bank of England will conduct its first "quantitative tightening" operation at 11:00 ET (15:00 GMT), selling 750 million pounds of government bonds out of a portfolio that currently holds 838 billion ($967 billion).
The Bank is aiming to actively sell at an initial rate of 10 billion pounds a quarter and will allow a similar amount of maturing debt to 'roll off' its balance sheet.
The move will add upward pressure to market interest rates at a time the economy is already slowing sharply. That was reflected in the biggest monthly drop in house prices in over two years in September – a month that was admittedly dominated by extraordinary political chaos.
5. Crude oil surges on Chinese hopes; API numbers due
Crude oil prices surged in response to developments in China, in a stark illustration of what a real rebound in Chinese demand could do for the overall balance of the global market.
By 6:35 ET, U.S. crude futures were up 1.7% at $88.02 a barrel, while Brent futures were up 1.8% at $94.46 a barrel.
The American Petroleum Institute will release its weekly inventory data for the U.S. at 16:30 ET as usual. Overnight, Saudi Aramco (TADAWUL:2222) and BP (LON:BP) joined the long line of companies reporting bumper profits in the third quarter.