The Federal elections did not give a clear result to either of the two major parties with the outcome to be decided only when all postal votes and pre-polls are counted. As it stands now, Labor has 67 seats and the Coalition 65. There are 13 seats in doubt and to form a government in its own right, 76 seats are required.
It will be days until Australia knows who and how the next Government will be formed. It is absolutely clear that the Turnbull effect on the Coalition when he toppled Tony Abbott has evaporated. The electorate simply could not fathom the hollowness of Turnbull's "economic management" mantra when it came to the detail - and the long 10 year plan to fix the fiscal health and no immediate reforms did not have any impact.
The prospects of a hung parliament is not ideal from a business confidence perspective and whoever forms the next Government will find it incredibly difficult to pass any legislation requiring significant reforms unless it gathers bi-partisan support. The rating agencies will factor this in when it considers Australia's sovereign credit rating and a near term outlook.
We do not think that the RBA will move on cash rates in this month's meeting tomorrow and will wait as previously stated in the August meeting after it has the June quarter CPI data available.
It will be days until Australia knows who and how the next Government will be formed. It is absolutely clear that the Turnbull effect on the Coalition when he toppled Tony Abbott has evaporated. The electorate simply could not fathom the hollowness of Turnbull's "economic management" mantra when it came to the detail - and the long 10 year plan to fix the fiscal health and no immediate reforms did not have any impact.
The prospects of a hung parliament is not ideal from a business confidence perspective and whoever forms the next Government will find it incredibly difficult to pass any legislation requiring significant reforms unless it gathers bi-partisan support. The rating agencies will factor this in when it considers Australia's sovereign credit rating and a near term outlook.
We do not think that the RBA will move on cash rates in this month's meeting tomorrow and will wait as previously stated in the August meeting after it has the June quarter CPI data available.
UK IN LIMBO WITH BREXIT AND RATING DOWNGRADE
Since the Brexit referendum on 23 June, the UK's political footprint remains in complete mess with leadership uncertainties in the ruling Conservative Party as to who will be the next PM after David Cameron. The mess is felt in the opposition Labour Party whose leader Jeremy Corbyn is refusing to step down with almost half of his "shadow" cabinet colleagues resigning their posts.
The financial markets particularly stock markets while continuing to remain volatile have clawed back some of the lost ground but the pound sterling continues to remain weak. The markets basically reacted to the shock of a completely unexpected results but it appears that it has settled knowing that the immediate impact will be minor. The ASX 200 clawed back 200 points during the week and closed last week at 5,246 back at the levels in mid-June.
The uncertainty with Brexit has had a savage response from rating agency S&P who stripped the UK of its AAA top rating by two notches to AA and retained the negative outlook. Fitch also cut its UK rating by one notch to AA. A rating downgrade will mean cost of UK's sovereign debt will go up reflecting the deterioration of the risk profile. US bonds continue to rally with the 10 year bond falling to 1.44% (down 12 basis points for the week and down from 2.28% on 31 December 2015).
The financial markets particularly stock markets while continuing to remain volatile have clawed back some of the lost ground but the pound sterling continues to remain weak. The markets basically reacted to the shock of a completely unexpected results but it appears that it has settled knowing that the immediate impact will be minor. The ASX 200 clawed back 200 points during the week and closed last week at 5,246 back at the levels in mid-June.
The uncertainty with Brexit has had a savage response from rating agency S&P who stripped the UK of its AAA top rating by two notches to AA and retained the negative outlook. Fitch also cut its UK rating by one notch to AA. A rating downgrade will mean cost of UK's sovereign debt will go up reflecting the deterioration of the risk profile. US bonds continue to rally with the 10 year bond falling to 1.44% (down 12 basis points for the week and down from 2.28% on 31 December 2015).
MARKET DATA
| Australia Cash rate Australia 90 day bank bill Australia 10 y bond US 10y Govt bond AUD/USD AUD/EUR AUD/JPY AUD/CNY ASX 200 S&P 500 Dow Jones Industrial Average Shanghai Composite Brent Oil (USD per BBL) Gold Spot (USD per oz) *Iron Ore 60% MBIOI-IR index USD/t (Updated Wednesday) | As at 1 July 1.75 1.95 1.97 1.44 0.7460 0.6733 76.73 4.9648 5,246 2,102 17,949 2,932 50.53 1,345 46.72* | As at 24 June 1.75 2.00 2.04 1.56 0.7387 0.6701 75.61 4.8895 5,066 2,037 17,400 2,854 48.00 1,331 45.15* |
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