Weekly Economic & Financial Commentary: Global Central Banks Still Active

In addition to the Fed's rate hike, several international central banks were active this week. The European Central Bank raised its policy rate 25 bps to 3.25%, and signaled further tightening to come. Norway's central bank also raised its policy rate 25 bps to 3.25% and indicated rates would be raised further, while the Reserve Bank of Australia surprised market participants with a 25 bps rate increase to 3.85%.

Bank Concerns Ease Again

Bank jitters. Regional bank concerns have faded again with bank stocks performing sharply. Our baseline scenario is still that banking stress is a symptom of monetary tightening and that it will be fairly contained and not turn into a more systemic crisis. But it needs close monitoring as these things can sometimes become self-fulfilling and spread like dominoes falling one by one - as witnessed for example during the euro debt crisis.

US: Manufacturing Sector Downturn Continued in April According to ISM

The ISM Manufacturing Index gained a sliver of ground in April, up to 47.1 from 46.3 in March. That is slightly better than market expectations, but marks six months of contractionary readings for the factory sector.

RBA Board Hikes the Cash Rate by 0.25%

The Reserve Bank Board raised the cash rate by a further 0.25% at its May meeting, pushing the cash rate to 3.85%. The decision came as a significant surprise to markets which had less than five basis points priced in. There have been a number of decisions in this tightening cycle that have been surprising to markets – the decision to hike by 50 basis points in June (instead of 25) and the decision to hike by 25 basis points in October (instead of 50 basis points.)

Higher Yields as JPMorgan Picks up First Republic Bank Assets

Banking turmoil: JPMorgan Chase & Co will buy most of First Republic Bank's assets after regulators seized it at the weekend. JPMorgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp for most of the assets. The failure is the largest since Washington Mutual in 2008. It gave the market some relief and lifted US treasury yields, as the chance of another Fed hike increases.

RBA Spiced Up This Morning's Asian Session

The RBA spiced up this morning’s Asian session by unexpectedly hiking policy rates to 3.85% (cfr. below) and keeping the door open for more as inflation remains way too high (7% y/y in Q1).

RBA Update: An Unexpected Hike Triggered a Squeeze on AUD/USD

RBA surprised the market with a 25 basis points hike to bring the policy cash rate to 3.85% Emphasis on inflation targeting over concerns about the heightened risk of slower growth AUD/USD breached above the 50-day moving average, resurgence of short-term upside momentum.

Surprise RBA Hike Revives Hawks, as US Bank Stress Wanes

Many think that this week’s 25bp hike will mark the Fed’s tightening cycle, but the surprise hike from the Reserve Bank of Australia (RBA) this morning hints that it may not be the case.

Unexpected Interest Rate Hike In Australia Strengthens AUD

Meanwhile, the daily chart of AUDUSD shows a promising bullish pattern — a false bearish breakdown (1) of the lower border of the rising channel. In the most favorable scenario for the bulls, the rate may continue to rise towards a (3) year high, however (2) resistance at 0.678 is on the way — it will help to reveal how strong the demand in the AUDUSD market is really strong.

Aussie Soars after RBA Shocks with 25-bp Hike

The Reserve Bank of Australia has a knack for surprising the markets, and today’s rate hike certainly qualified. The markets had widely expected that the RBA would pause rates for a second straight month, but the central bank defied expectations and delivered a 25-basis point hike. This brought the benchmark cash rate to 3.85%. The Australian dollar surged by 0.95% in response to the move.