The change of federal government went off without the horses stampeding the ASX yesterday, especially after ratings group S&P Global helped settle things by reaffirming its AAA stable rating for the economy.
In fact from what S&P Global wrote in its statement, it wouldn’t surprise to see rivals Moody’s and Fitch issue similar statements reconfirming their AAA stable ratings.
The ASX rose, dipped and then recovered to be up 3.3 points for the ASX 200 at the close to finish at 7,148 points.
Positive results from Incitec Pivot (IPL) and a decision to split the company in two helped confidence, as did the final act in the split of Tabcorp, plus a surprise update from Codan.
Some market reports tried to link the IPL split and the the final sp[lit in Tabcorp into two groups to the election result, but that was just silly talk.
Both decisions were obviously in train before the election on Saturday – Tabcorp has been talking about splitting itself for a year.
Shares in coal companies fell with WhiteHaven shares losing 2% to $5.15 and shares in New Hope off a smaller 0.4% to $3.96. Santos shares though rose 1.2% to $8.18 and shares in Woodside were up nearly 0.5% to $28.41.
Santos and Woodside shares responded more to move sin global oil prices than the change in government.
A problem emerged in the afternoon – rising Covid cases in Beijing which more than offset the tiny bit of confidence after China’s surprise big rate cut on Friday afternoon.
S&P said in its ratings statement that the new Labor government will inherit a budget that is in better shape than was predicted just a few months ago.
It also says the change in government by itself has no effect on Australia’s AAA rating or its stable outlook with fundamentals, such as a projected fiscal recovery, still sound.
Monday saw Prime Minister Anthony Albanese and his economic team of Treasurer Jim Chalmers and Finance Minister Katy Gallagher were sworn in after the ALP defeated the coalition on Saturday.
S&P said the new government had made promises around energy investment, manufacturing, housing, childcare, health, and education.
“We will examine the new government’s policies, and their impact on the economy and fiscal outcomes, when more details are known,” S&P said in a statement on Monday, noting Labor has promised a budget before the end of 2022.
“We expect this budget to set the fiscal tone and tolerances for spending.”
S&P expects Australia’s economic recovery and commodity prices to improve fiscal outcomes faster than the March 2022 budget anticipated.
“We believe significant upside is likely because commodity prices will outperform budget assumptions. Further, inflationary pressures will drive nominal GDP and taxes higher,” it said.
“It will take significant spending during the last three months of the 2022 fiscal year to hit the budgeted deficit of $A85.8 billion,” it said.
It said rising debt levels do not currently present a risk to Australia’s rating, being comparable to similarly rated peers.
“In addition, we expect borrowing costs to remain manageable. Despite interest rates rising from recent lows, they are still lower than in the past,” S&P said.
And the bottom line remains that monetary policy is set independently by the Reserve Bank.
