Australian Markets Will Like Abbott's Election Victory, But The Senate Is The Key

One of Tony Abbott’s first actions as Prime Minister of Australia was to sit down with the heads of Treasury and the Finance Department.

It was a largely symbolic action to signal to the electorate that the Coalition’s focus on the economy, the budget deficit and the Carbon tax prior to the election had delivered them a mandate to act on these fronts, and act they will.

Markets in Australia will most likely be energised by what they saw between Abbott and the department heads. They will like also what they have heard over the past 12 months and markets will genuinely hope that the uncertainty of Australia’s longest election campaign ever has ended and they will hope and expect for a turnaround in business sentiment.

What markets will particularly like the most though is incoming Finance Minster Andrew Robb’s comments that the Government will “reboot” the mining boom and get small business going again.

Speaking on the ABC TV on Sunday Robb said:

“As of today, the mining boom will be rebooted… Under Labor, it was finished because of the cost [and] uncompetitiveness that we’ve now got. We will change that.”

“We can do so much… We can get Australia open for business, we will restore an appetite for risk and investment [and] people’s jobs will grow massively… Small business will come out from under the huge shadow that they’ve had for the last two years.

Markets will love all of this and the ASX is likely to open higher, the Aussie dollar will get a lift and sentiment from offshore investors is likely to be buoyed by what looks like a stable pair of hands on the Australian economy.

As deputy Liberal leader Julie Bishop said on ABC TV last night, it has been an “emphatic” victory for the Coalition.

But what is true of House of Representatives is not true of the Senate and this is a problem. The incoming government will not only have to grapple with the issues of running the country, running the economy, rebooting the mining boom, and of re-energising small business amidst overall poor business confidence and expectations. What this government will also need to do is negotiate and get Legislation through what is probably one of the most fractured — and potentially fractious — Australian Senates in the post World War II era.

It appears that both the major parties have gone backwards and that there could be as many as 10 cross bench Senators in the upper house from disparate parties such as the semi-mainstream Palmer United Party who will have a Tasmanian and Queensland Senator to the fringe parties of Australian Motoring Enthusiast Party in Victoria and maybe even Australian Sports Party in WA which polled less than 1% of the Primary vote.

With all of these potentially competing views and agendas in Australia’s Upper House there is a real chance of disruption.

Indeed Labor candidate and former Queensland Premier Peter Beattie told the ABC:

If Clive (Palmer) has the balance of power… you’re going to have to say a big prayer but you’re going to have a lot of fun.

The machinations of Australian Politics hardly ever affects markets – in my career I can only ever recall one period where what happened on the floor of Parliament impacted the Australian Dollar or investment sentiment. It was a budget impasse back in the early 1990’s when the conservative side of politics left it to the minor parties to negotiate with the Keating Labor Government. During that period bonds, stocks and the currency reacted.

Of course the new Senate doesn’t come in until July next year so it is going to be a very busy legislative agenda until then. But will Labor and the Greens support the repeal of the carbon tax, or with Tony Abbott suggesting he will use “all constitutional means” to deliver his promises, could Australia be back at the polls before we know it?

Australian Markets over the next few days and weeks are going to love this Abbott victory but as euphoria leads to the boredom of Government the make-up of the Senate is going to be crucial to the delivery of the Coalition’s promises and a potential Grey Swan for markets.

Greg McKenna is an active currency trader – he is currently on a break with his family so is not trading.

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