Early Morning Call: RBA rate hike erases AUD gains; Sainsbury's trading statement

APAC outlook

Asia-Pacific (APAC) equity markets closed higher, led by the Japan 225 ending the session up 1.03%. The Australia 200 rose by 0.25%.

As expected, the Reserve Bank of Australia (RBA) increased its cash rate by 50 basis points (bps) to 1.35%, back to its highest level since May 2019. The Australian dollar lost some ground against the greenback at the announcement, erasing the gains it had made prior to the decision.

In China, Caixin services PMI rose to 54.5 in June, marking the first expansion in the sector in months, and the sharpest rise since July 2021. Japan Jibun bank services PMI shows the activity in the sector rose to 54 - its highest level since 2013. Later this morning, S&P Global PMI final data for May will be released in Europe.

In Taiwan, the world's largest contract electronics maker, Foxconn reported an overnight jump in sales of 31% in June year-on-year (YoY), and raised its full-year business outlook, citing strong sales of smartphones and servers, despite rising inflation and slowing demand concerns.

Indices

European indices opened higher, after a positive session yesterday for the FTSE 100 and CAC 40. Germany’s DAX 40 fell 0.31% after the country recorded its first seasonally-adjusted trade deficit in more than 30 years.

In the US, equity markets will reopen after Independence Day. At 3pm, factory orders are expected to rise by 0.5% on May month-on-month (MoM).

Equities

Sainsbury's trading statement shows that first quarter (Q1) like-for-like sales excluding fuel were down 4% in last 16 weeks. Clothing sales fell 5% in the last 11 weeks, after a drop of 30% in the first five weeks.

There are similar patterns at Argos: down 7% in the last 11 weeks and -19% in the first five weeks of the quarter.

Also watch out for Tesla at the open, at 9am on the IG all-sessions stock market. The electric carmaker reported on Saturday that it delivered 254,000 vehicles in the second quarter, its first back-to-back quarterly drop in more than two years. This was well below the 350,000 estimated by analysts.

Tesla is also facing a $440 million write-downs on its bitcoin holdings after a slump in the digital currency's value. The carmaker bought $1.5 billion worth of bitcoin early last year in a radical move that made it the biggest company to move part of its cash reserves into cryptocurrency.

Tesla reports earnings on Wednesday 20 July.

Commodities

On the commodity front, European gas supply is under added pressure. Today Norwegian offshore workers begin a strike, asking for wage hikes to compensate for rising inflation.

Metal prices remain weak. Copper remains below $8,000. Zinc remains near its recent lows but is up for a second straight day, a first in five weeks.

After a longer weekend than usual in the US, we'll see later on if Chicago Wheat and Corn prices continue to drop. Last week was a second straight week of heavy declines for grain prices in the US, on rising hopes that end-of-summer harvests would be plentiful, not only in the US, but in Europe and Australia.