Early Morning Call: watching AUD/USD as RBA hikes rates by 50bps

Equity markets overview

We saw a very hesitant session on the equity markets in the APAC region, showing the lack of lead from the US, where stock and bond markets were closed yesterday.

In Australia, the Reserve Bank of Australia (RBA) raised its interest rate by 50-basis points (bps) as widely expected. The fifth straight hike takes the cash rate to 2.35%, its highest in seven years.

Equity markets are also hesitant across Europe this morning, after a difficult session yesterday. The DAX and CAC40 pared part of their earlier losses, as Russia decided over the weekend to shut the Nord Stream 1 gas supply indefinitely.

EUR tumbles

The euro also tumbled, falling for a couple of hours below 99 cents for the first time in two decades. Late on Monday French president, Emmanuel Macron, said he backs an EU-wide windfall tax on energy company profits. After a video call with German Chancellor, Olaf Scholz, Macron said France is ready to supply gas to Germany over the winter. In return, Germany could contribute electricity to France.

New UK prime minister to freeze energy bills

In the UK, new prime minister Liz Truss is to line up a £130 billion plan to freeze UK energy bills.

According to British Retail Consortium, retail sales in the United Kingdom increased by 0.5% on a like-for-like basis in August year-on-year (YoY), slowing from a 1.6% increase in July. BRC chief executive, Helen Dickinson, noted that for the first time in recent months, clothing sales were sluggish and parents held back on back-to-school spending.

In Germany, factory orders fell 1.1% in July month-on-month (MoM), after a drop of 0.3% the previous month. In the US, the market awaits ISM non-manufacturing PMI for August at 3pm, forecast to fall to 55.5 in August from 56.7 in July.

Corporate overview

On the corporate front, investors will be attentive to Ashtead Group PLC at the open. The rental company specialising in industrial equipment posted a total revenue increase of 25% and confirmed its full-year (FY) profit expectations.

EnQuest PLC (SE) and DS Smith PLC also published quarterly figures.

Volkswagen AG (Pfd), meanwhile, has decided to go ahead with the Porsche Automobil Holding SE - Pfd IPO despite the current challenging economic context. The German carmaker announced its intention to complete the Porsche IPO by the end of the year.

According to Reuters, Volkswagen may extend the four-week period for buyers to express interest, or pull its plans altogether, should investors not show enough enthusiasm. Investors expect a valuation between €60 bn and €85 bn, which could place the IPO among the largest in German history and the biggest in Europe since 1999.

Commodities

Yesterday’s oil price rebound was short-lived. OPEC+ agreed on a production cut of 100,000 barrels per day (bpd) in October. Global demand is about 100 million barrels per day, so this reduction amounts to about 0.1% of global demand.

This decision confirmed what a Saudi Minister warned of a couple of weeks ago: the organisation is here to maintain price stability, and exaggerated oil price declines need to be addressed.

OPEC+ members also allowed their chairman, Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud, to intervene whenever necessary to stabilise crude markets through calling for a meeting at any time if necessary.