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Australia Post Election

Posted by Marge Maresca on Sep 9, 2013 7:32:00 AM

aus1 resized 600CBA Global Markets Research - 8 September 2013

Australia post election

  • The key thrust of economic policy will continue.

  • So any sustained market reaction is unlikely.

  • Fiscal settings are essentially the same as laid out in the PEFO.

  • The main requirement for all governments is good policy applied consistently.

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Counting after Saturdays's Federal Election is still underway but the pundits expect the Coalition parties to have a comfortable working majority with 88 seats in the 150 seat House of Representatives. The Senate outcome is still work in progress but it seems certain that the Coalition parties will fall short of a majority in the upper house.

What will change?

A new government brings with it the question of what the change will mean. The short answer from a market/macro perspective is not a lot.

The key thrust of economic policy will not change:

  • The RBA will remain an independent central bank free to set interest rates without political interference with the objectives of keeping unemployment low and keeping the inflation rate within a 2-3% target zone in the medium term.

  • The Aud's free float will continue, as will the free flow of capital.  And inward migration will remain a key driver of population growth.

  • Fiscal policy will be set in a medium-term framework with the aim of balancing the books over time and maintaining Austrralia's AAA status.

  • The financial system will remain well run and well regulated.

  • Fiscal policy will be set in a medium-term framework with the aim of balancing the books over time and maintaining

  • China/Asia will still drive Australian activity and income.  The US and Europe will still drive Australian financial markets.

Financial markets show few marked reactions to election outcomes. The facing charts show some market indicators in the period from an election announcement to two weeks after the event. There are no particularly dramatic shifts in interest-rate markets post election, even when there is a change in government. The AUD has often moved higher, but not by very much. CommSec Chief Economist, Craig James, has noted that elections are neither unambiguously positive nor negative for share markets. But after each of the last five Federal elections the Australian share market was stronger three weeks after the poll date.

Whatever the immediate post-election impact may be, financial market attention will quickly return to the looming US FOMC meeting and the possible start of the "QE taper".

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