Monthly inflation data, the RBA meeting Tuesday and Friday’s June US non-farm payrolls were all set to be the highlight in the 4th of July, US-shortened, week ahead. But that was before Saturday’s indecisive result in Australia’s Federal election.
A hung Parliament is a real chance, and the Australian Electoral Commission won’t begin the count again until Tuesday. (Simon Thomsen explains the reasonable but still problematic reason here), by it means traders enter a vacuum when forex markets open at 5am on Monday. The Aussie could come under intense pressure as a result of the increased uncertainty.
Likewise Australian banking stocks, now at some larger risk of a royal commission, and the ASX 200 more broadly as the prospect of a hung parliament potentially saps the resolve of local stock market bulls.
Hung parliaments, or minority governments don’t guarantee political anarchy, indeed they may enforce a level of discipline large majorities do not. But for the markets and Australian traders this is just another example of how volatile electorates have become and how uncertain a year 2016 is.
So they’ll likely react. Even if the reaction eventually proves ephemeral.
Australian politics is not normally market moving long term – there is no reason Saturday’s election should be any different. I can really only remember one occasion in my career when politics interfered in a material sense in market pricing. I seem to recall it was a Senate impasse over the budget one year and bonds and the Aussie came under pressure a little until it was resolved. But resolved it was and the government, and parliament, got back to business and market pricing when back to that which prevailed before the impasse.
Saturday’s election should prove the same in time.
While the Senate may prove problematic for either side to rule – sorry work with – the House of Representatives proved in 2010/13 that it can still function even as the government changed leaders twice. The big issue, the really big one which might worry ratings agencies and foreign investors, is whether the path the budget will return to balance ever, and how high might Australian government debt actually go. That threatens Australia’s AAA rating, and as a large current account deficit nation the price of the Aussie dollar and the rate at which banks can fund that deficit.
In the end though, it’s global growth, global inflation, and the shape of global interest rate curves which are more important to the Aussie dollar and investment into Australia in the long run.
Belgium, Ireland, Rome’s Mayoral election, Britain, Spain, Australia – Trump next? The result of the Australian election is just another sign that there is a large rump of voters here at home, and around the world, who feel that modern politics, modern capitalism, liberalism, and globalisation are letting them down. The pundits and political elites are railing against this democratic backlash. They say that these people are voting out of frustration, self-interest, xenophobia and more. Certainly, there are some newly elected Senators who suggest this is not entirely wrong.
But a fancy education, a job on Wall Street or, more likely in Australia, a lifetime in the political machine doesn’t establish the connection necessary to understand these seemingly discordant results in Australia or around the world. But at heart, the voters across the democratic globe seem to share one thing in common. A feeling they have been left behind and a desire to have their voices heard. This is as it should be.
The question now, as traders turn their minds to that other big event on the first Tuesday in November – the US Presidential election – is could Donald Trump ride this wave to the White House and what does that mean for markets and the global economy.
Australian Calender – (courtesy NAB Economics, our enphasis) RBA Board Meeting Tuesday the highlight along with Retail Sales and the Trade Balance also Tuesday. Usually second-tier MI Inflation Gauge Monday could garner some attention ahead of the official CPI numbers on July 27, along with Building Approvals also Monday. Plenty of other second-tier data too.
Forget the RBA – it’s monthly inflation which is the highlight this week. The NAB’s economics team said in its weekly “What to Watch” publication that “For this meeting, we expect the RBA to acknowledge the recent volatility in financial markets, but that more time and data will be needed to assess whether this portends weaker global and domestic demand”. I couldn’t agree more.
But, as David Scutt pointed out Friday even though no economist thinks the RBA will cut rates on Tuesday the outlook for the August meeting is very different. The NAB, and I, are the only ones who seem to think August is not a lock for a rate cut.
The reason 24 of 25 economists surveyed by Bloomberg believe the RBA will be cutting is inflation – or lack thereof. So, as we wait for the release of the ABS official 2nd quarter inflation data on July 27 Monday’s release will give a strong pointer to where that data is likely to print. Another low result and markets will further move to factor in an RBA rate cut. That in turn could add weight to the Aussie dollar.
International Calender (also courtesy NAB Market Economics)
Global : Will there be any Brexit fallout this week? Probably not. Traders will be watching and waiting for the release of US non-farm payrolls for June on Friday night to see if May’s very weak 38,000 print really was a rogue number.
US: Independence Day Holiday Monday, then the data onslaught of Non-manufacturing ISM and the FOMC June Meeting Minutes Wednesday, and Non-farm Payrolls Friday. Before then, Trade Balance Wednesday, and Jobless Claims and ADP Thursday.
China: A quiet week with only the unofficial Caixin Services PMI Tuesday.
Euro:Euro Retail Sales Tuesday and Sentix Investor Confidence Monday.
UK: Focus to continue on the UK’s Brexit and the UK’s leadership race with first round of voting by MPs to narrow candidates to two from five on Tuesday – with Theresa May the frontrunner to be PM. Datawise Industrial Production Thursday and Trade Balance Friday, and the BoE releases its Financial Stability Report.
Japan: A quiet week with the Trade Balance and Eco Watchers Survey Friday the highlight. Also out is the Nikkei Services PMI Tuesday. BoJ Governor Kuroda speaks Thursday.
NZ: Quiet week with QSBO survey Tuesday, house price data also Tuesday and the latest Dairy Auction early Wednesday.
Here’s the NAB’s excellent calender of all the week’s key data and events.