So where to now for the Australian stockmarket and bond yields from today on as investors digest the inconclusive result of Saturday’s Federal poll?
The 32 point rise in overnight trading Friday in the ASX 200 futures market is of no relevance to where markets will head today. There is every chance the shares will weaken because the result was so inconclusive in the House of Representatives – and looking like a chaotic mess in the Senate.
The result, especially what looks like being the make up of the Senate, has raised questions about our AAA credit rating.
With the US market closed tonight for the July 4 holiday, our market will be without leads from offshore that might divert investor attention away from the political situation here.
Substantive voting doesn’t start until tomorrow (to allow postal and pre-poll votes to be sent to their electorates across the country), so it won’t be until Thursday or Friday before the situation becomes clearer and investors can focus on the meaning.
From today there is another week to allow postal votes to be received and distributed to their electorates, while votes cast overseas have to be received and distributed as well.
The AMP’s chief economist, Dr Shane Oliver yesterday raised the question of our AAA credit rating.
He said in a notethat “Even if the Coalition does win government it won’t have control of the Senate with the balance of power remaining with the Greens and minority “parties” which will act as a huge constraint on the government, which means another de facto minority government, ie more of the same.
“The end result will be poor prospects for getting government spending and the budget deficit under control over the next three years and for the Coalition implementing its policy to cut corporate taxes let alone undertaking serious productivity enhancing economic reforms.
“It looks next to impossible for a Coalition government to get enough votes to reinstate the Australian Building and Construction Commission,” he said yesterday.
And if the ALP manages to form government, then a royal commission into the big banks is on the cards, along with changes to negative gearing and superannuation. It will also mean higher taxes and spending on health and education and higher deficits.
Dr Oliver said that over the 8 weeks since the election was called in May, Australian shares fell 0.6%.
But he points out that Australian shares rose an average 4.8% over the 3 month period after the last 12 Federal elections with 8 out of 12 seeing gains.
“Will we see a post-election rally over the next 3 months this time around?” Dr Oliver asked yesterday.
"Relief at getting the election out of the way may help but the unclear outcome with the likelihood of minority government and the failure of the new government to have control of the Senate, September quarter seasonal weakness in shares and Brexit uncertainty are likely to weigh in the short term even though I see shares being higher by year end,” Dr Oliver wrote
Former treasurer Peter Costello also warned the tight result and a possible hung parliament could lead to a downgrade of Australia’s triple-A credit rating.
On Friday, the ASX 200 Index rose to within three points of last Thursday’s pre-referendum close of 5280 before a late sell-off saw it close up 13 points at 5246.
For the week, the ASX 200 Index and the All Ordinaries Index gained 2.5% and 2.6% respectively. Where it heads today is very much up in the air.
