Early Morning Call: AUD falls as RBA surprises with 25bp hike

RBA surprises with rate hike

In Australia the S&P/ASX 200 fell and the Australian dollar jumped as the Reserve Bank of Australia (RBA) unexpectedly raised its interest rates by 25-basis points (bp) to 3.85%, and warned that further tightening of monetary policy may be needed, depending on how the economy and inflation evolve.

There are two big rate decisions this week. Tomorrow, the Federal Funds Rates are expected to rise by 25-basis points to a target range of 5%-5.25%. Economic data is now more reflecting the effects of the speed at which rates have been rising in the US, however, while GDP is slowing, with the potential this year that the US economy could go into recession, inflation is still far from under control.

On Thursday, it's the turn of the European Central Bank (ECB) to deliver its latest rate decision. A majority of economists expect the ECB's main refinancing rate to rise by 25-basis points to 3.75%. The deposit facility rate is forecast to rise to 3.25%, and the marginal lending rate to 4%.

At the back end of last week, there was some pleasant news around gross domestic product (GDP) in both Spain and Italy, while Germany and France remain close to flat GDP quarter on quarter (QoQ). And, like in other regions worldwide, inflation remains stubbornly high.

The British Retail Consortium (BRC) says food prices at British supermarkets rose 15.7% in the year to April, the biggest annual increase in records going back to 2005, but lower prices are on horizon. Overall inflation among BRC members dropped to 8.8% from March's 8.9% as price increases for non-food items slowed due to heavy discounting of clothing, footwear, and furniture. Costlier coffee beans and more expensive packaging and production of ready-meals pushed up food inflation, but prices of butter and vegetable oil were starting to decline.

Business confidence in the UK is up for a fifth month in a row, according to lobby group the Institute of Directors (IoD). The IoD's "economic confidence index", which surveys company directors on issues such as the wider economy and their own plans for hiring and investment, rose to -5 in April, up from -13 the previous month. The reading was -64 in November last year.

This latest reading takes the index back to levels last seen immediately before Russia's invasion of Ukraine in 2022 when it was a fraction more positive at -4.

Later today, eurozone consumer price index (CPI) is expected to rise by 6.8% in April year-on-year (YoY), after a 6.9% rise the previous month.

In the US, the market awaits JOLTs job openings, factory orders, and API crude oil inventories.

Equities

Elsewhere on the equity market, HSBC posted a pretax profit of $12.9 billion for the first quarter, up 212% YoY, much higher than the $8.64bn average estimate of 17 analysts compiled by the bank.

HSBC's headline profit was boosted by a reversal of a $2bn impairment it took against the planned sale of its French business, as the deal may no longer go through. HSBC announced a dividend of $0.10 per share, its first quarterly dividend since 2019.

BP posted a $5bn profit in the first quarter (Q1), beating expectations of $4.3bn, but a drop on the $6.25bn recorded a year ago. The group also said it will repurchase a further $1.75 billion of shares over the next three months after buying $2.75 billion in the previous three months. BP's dividend remained unchanged at 6.61 cents per share after a 10% increase in February.

In the US, pharmaceutical giant Pfizer is due to report its first quarter earnings before market open. Analysts anticipate earnings of 97 cents per share, on revenue of $16.65bn. The same quarter a year ago, Pfizer posted earnings per share (EPS) of $1.62, and revenue of $25.66bn.

As in the case of its competitors, Pfizer’s top and bottom line will reflect a drop in Covid-related sales. In the case of Pfizer, the combined revenue from its Covid vaccine and antiviral pill in expected at $21.5bn this year, compared to the $57.6bn recorded in 2022.

This set of earnings will be the first since the acquisition of Seagen. The oncology company, acquired in a $43bn deal, is forecast to generate revenue of about $2.2bn this year. Pfizer estimates this could rise up to $10bn by 2030.

Uber Technologies is expected to post a considerably narrower loss of 8 cents per share for the first quarter. The same quarter a year ago, Uber recorded a loss per share of $3.04. Revenue is forecast by some 26% to $8.7bn. Uber earnings are due before market open.

Tonight after the US closing bell, Ford Motor is expected to post earnings for Q1. Analysts expect 40 cents per share, after a loss of 78 cents a year ago, on revenue of $39.25bn, up 13% year-on-year. It would be the fourth straight quarter of sales growth for the US car maker, 'driven' by its North American market.

The market will have a close look at the group's EV division after it cut prices in January after Tesla did the same. Margins are likely to be affected. Tesla posted its lowest gross margins in two years.