Financial markets are relieved that Scott Morrison, whom they know well as Treasurer, has become Australia’s 30th Prime Minister.
The Australian dollar and the ASX200 have under-performed this week with political uncertainty over the national leadership.
Moody’s says the changes in the leadership of the Liberal Party have no implications for Australia’s sovereign credit profile and its triple A rating.
“Moody’s is assuming the absence of significant changes in the nature and implementation of policies,” says the credit agency.
“Australia’s Aaa rating is supported by the country’s very high level of economic strength and moderate level of government debt.”
Sally M. Auld of J.P. Morgan says markets may have been pricing in the risk of political uncertainty, given the prospect of minority government and change in senior ministers.
“Today’s outcome eliminates some of these risks. Morrison is a known quantity (having served as Treasurer in the Turnbull government), and is generally viewed as having performed well in the portfolio,” writes Auld in a note to clients.
She says today’s result is market-friendly, removes political uncertainty and delivers some sense of continuity.
“Policy changes under a Morrison government are likely to be minimal,” she says.
“It is likely Morrison will preserve the ambition to return the Budget to surplus, and unlikely that Morrison will take corporate tax cuts as policy to the next election (as per Tuesday’s announcement with Turnbull).
“Moreover, we suspect that a number of key ministerial appointments will remain unchanged (for example, Foreign Minister and Finance Minister).
“And the fact that there appears to be comfort around Morrison governing with the support of the cross bench in the House of Representatives should also be positive.”
One lingering concern will be the closeness of the vote, and the fact that conservatives in the Liberal Party will still be unhappy with this outcome.
“It remains to be seen whether recent animosities can be put to bed, permitting Morrison a clear run into the next election,” says Auld.
“We have long held the view that for the first time in a while, the next Federal election was going to be important for financial markets, but also for the mix of macro-economic policy.
“With the ALP pursuing a more redistributive policy mix, Australian voters will face a starker choice at the next election.
“This will be a significant change from recent elections, where the choice between centre-right and centre-left policies has not really mattered much for economic or financial market outcomes. We will have more to say on this topic at a later date.”
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