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Is Surprise RBA Rate Cut Just a First Act on Inflation?

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Australia delivered a surprise rate cut, European banks tumble and the dollar's slide continues. Here are some of the things people in markets are talking about today.

RBA surprises

The Reserve Bank of Australia unexpectedly cut the benchmark cash rate by 25 basis points to 1.75 percent overnight. The Australian dollar slid after the central bank's announcement, with yields on the country's sovereign debt falling to a record low. Governor Glenn Stevens pointed to continuing low inflation as the motivation behind the cut, saying "very subdued growth in labor costs and very low cost pressures elsewhere in the world point to a lower outlook for inflation than previously forecast.”

Europe bank results

UBS Group AG reported a 64 percent decline in first quarter profit, with earnings at its wealth-management and securities unit hit hardest. Shares in the bank plunged in Zurich and were trading 7.8 percent lower at 5:42 a.m. ET. Commerzbank AG, Germany’s second-biggest lender, is also having a rough morning  after the bank reported a halving in first-quarter profit, pushing its shares down 8.3 percent. On a brighter note, HSBC Holdings Plc reported profits that beat analyst forecasts, as cost-cutting measures started to bear fruit. Shares in HSBC were 0.4 percent higher at 5:32 a.m.

Dollar slide continues

The U.S. dollar has fallen to its weakest level in almost a year as the Bloomberg Dollar Spot Index drops for a fourth day. The euro is headed for its longest winning streak against the greenback since 2013 while the yen continued to climb, trading at 105.75 to the dollar at 6:05 a.m. Gold briefly climbed above $1,300 an ounce as speculation over the pace of Fed tightening increases. 

Markets lower

Global stock markets are firmly lower this morning. Overnight in Asia, the MSCI Asia Pacific excluding the Japan Index dropped 0.3 percent but it is European stocks that are faring worst, with the Stoxx 600 Index slipping 1.5 percent at 5:58 a.m., with disappointing bank results and the stronger euro pushing equities lower. S&P 500 futures were 0.7 percent lower.

Auto sales data due

With jobs day on Friday, this was always going to be a big week for the U.S. economy. Today, we get auto sales data, which will be very closely watched after last month's surprise slump to an annualized rate of 16.5 million. If the number recovers towards the expected 17.4 million rate for April it will be viewed as a sign the American consumer is still in good health.

What we've been reading 

This is what's caught our eye over the last 24 hours.

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