Article / 03 May 2016 at 7:00 GMT

Morning Markets: Australia cuts rates to combat low inflation

Consulting editor / TradingFloor
Norway







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Watchlist

  • Australia: Building approvals (0130 GMT; published)
  • China: Manufacturing PMI (0145 GMT; published)
  • Australia: RBA cash rate decision (0430 GMT; published)
  • UK: CIPS/Markit manufacturing PMI (0830 GMT)
  • EU: PPI (0900 GMT)
  • Australia: Federal budget (0930 GMT)
  • US: API Weekly statistical bulletin, incl. crude oil stocks (2030 GMT)


The Reserve Bank of Australia cut its cash rate by 25 basis points to a record low 1.75% on Tuesday, against market expectations for no change, knocking the Aussie dollar . The cut came in reaction to lower-than-foreseen inflation pressures. 

Asian equity markets were mixed, with Chinese stocks up and the Tokyo exchange closed.

Trading resumed today in China, Hong Kong, and other key markets that took a May Day holiday on Monday, with the Shanghai Composite index making strong gains. Meanwhile Japan began a three-day Golden Week public holiday today, so we will have to wait until Friday to see whether the Tokyo stock exchange can recover from Monday's 3% dive.

In forex markets, the US dollar fell further against the yen, and it was Super Tuesday for the Aussie dollar, with three news items affecting the currency – China's weaker-than-expected Caixin PMI, the RBA rate cut and the federal budget (due out at 0930 GMT). 


Market signals

Asian session

  • Gold is back in fashion on expectations that the Fed will be slow to hike rates
  • Markets are closed in Japan for the start of a three-day public holiday
  • Trading resumed in China and Hong Kong after the May Day holiday
  • China's Caixin/Markit Manufacturing PMI fell to just 49.4 in April; 49.9 was expected
  • China's Shanghai Composite shrugged off disappointing PMI in a post-May Day surge
  • Shanghai Composite was up a robust 1.68% to 2,987.74 at 0546 GMT
  • Hong Kong's Hang Seng slid on China's disappointing Caixin PMI
  • Hang Seng was down 1.1% to 20,834.88 at 0548 GMT
  • RBA cut its cash rate by 25 bps to a record low 1.75% in the wake of deflationary CPI data
  • S&P/ASX200 rallied despite an initial dip driven by disappointing results from ANZ
  • S&P/ASX200 closed up a hefty 1.95% at 5,345.10 points
  • Australian building rose 3.7% in March, helped by strong growth in apartments

Forex ahead

  • US dollar slipped lower against the yen; it was worth ¥105.9450 at 0540 GMT
  • AUDUSD dropped after the RBA rate cut; it was worth just 0.7566 at 0540 GMT
  • New Zealand dollar is catching up to its counterpart across the Tasman Sea
  • NZD was worth $A0.9225 at 0540 GMT

From the Floor

Aussie cut. “Today was all about the RBA – big movements there,” says Van-Petersen.

Wrongfooted. “The market was really the wrong way around on RBA expectations,” says Hardy. “It wasn’t just the [RBA] cut itself, but also dovish guidance.”

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1...2...3
Upbeat Q1 data may give the European Commission scope to manage expectations upwards, by publishing a higher forecast for GDP growth, says James Picerno

Yen frustration
Bank of Japan governor Haruhiko Kuroda says the rising yen will have an unwelcome impact on growth in Japan, says the Singapore-based team at Saxo APAC Sales Trading

Hello planned economy
QE is in many ways a trick — it works when markets are stressed and undergoing a financial crisis, but doesn't work as a remedy to lift potential growth rates, says Teis Knuthsen.

Pullback
US equity indices appear to be peaking and could be poised for a pullback; first-quarter earnings brought little to improve sentiment, says Georgio Stoev.

nnn
Something to celebrate ... China's Shanghai Composite index rose sharply today when trading resumed following Monday's May Day holiday. Photo: iStock

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