Daily Agenda: Australia Surprises with Rate Cut

Australia dollar falls against the greenback; UBS earnings slip while BNP, HSBC beat estimates; Saudi Arabia opens door for more foreign investment.

Australia has a unique macroeconomic position as both a major producer of raw materials required by rapidly growing developing economies and a highly evolved and regulated financial ecosystem. Since the credit crisis began, the Reserve Bank of Australia, the central bank, has been particularly proactive as the country faced unique supply and demand pressures. The move by Reserve Bank governor Glenn Stevens and his colleagues to unexpectedly cut the benchmark lending rate by 0.25 percent this morning sent a small shock wave through currency markets as investors surmised that the Reserve Bank expects disinflationary pressures to continue in the near-term despite Chinese stimulus efforts. After the cut, the Australian dollar slid by more than 1.5 percent against the U.S. dollar.

UBS earnings disappoint; BNP and HSBC beat estimates. Financial results from big Switzerland-based bank UBS Group for the first quarter fell short of analysts’ expectations, with a 67 percent year-over-year decline in investment-banking returns. Critically, wealth-management profits fell short of targets as management refocused on that business as the bank’s core franchise. Separately, BNP Paribas reported stronger-than-anticipated earnings during the period, in part by distancing itself from problems with Italian lending operations, as did HSBC Holdings, as cost cutting in Asia paid off.

Saudi Arabia opens door wider to foreign capital. Today the Capital Market Authority for the Kingdom of Saudi Arabia announced that the net-assets-under management requirement for foreign investors to participate in the Tadawul, the nation’s stock exchange, had been lowered to roughly $1 billion. The move, which is paired with a shift to two-day trade settlement and a raised limit of 10 percent for offshore company ownership, arrives as Saudi prepares for the initial offering of shares in Saudi Arabian Oil Company.

Commerzbank earnings reveal ongoing pain. Commerzbank announced financial results today for the first quarter that initially drove share prices for the Frankfurt-based lender lower by more than 9 percent during German trading hours. Net income for the bank fell by more than $180 million versus the same period in 2015 as cost-cutting measures put in place by management have yet to produce results.

Chinese PMI falls. Closely followed Caixin-Markit manufacturing purchasing-manager survey data released today fell short of consensus forecasts. The final April reading for the headline index, which is more closely followed by some investors than official state data, since it focuses on smaller private-sector operators, contracted at 49.2 versus expectations for an expansionary 51.2.