The Federal Budget Is Out -- And The Market Doesn't Believe The Forecasts

Getty/Scott Olson

I first traded the budget in 1990.

Back then we were in the midst of Paul Keating’s “recession we had to have” and it was just the beginning of what has become an unexpected 23 years without a recession.

So markets used to move – and move a lot – as traders hung off every word the Treasurer uttered and, in the days before Bloomberg and Business Insider, every headline and story that flashed across the Reuters terminal.

But markets in 2014 have become less volatile so much so that at 8pm after the Treasurer’s speech and the release of a sweeping budget which included the increase in unemployment in 2014-2015 to 6.25% and then for it to persist for another year at this level – the Aussie dollar, ASX Futures, Bank Bill futures and 3 and 10 year futures are all largely unchanged from where they were at 7.30pm when Joe Hockey started speaking.

If Aussie dollar traders believe the 6.25% forecast it would have fallen, not held strong at 0.9340. Likewise because higher unemployment means a lower likelihood of RBA rate hikes Bank Bill and Bond futures should have rallied (rates down). Instead they are steady.

As more analysis from the banks comes out this situation might change, but for the moment the price action tells you the market doesn’t believe the pessimism implied in the unemployment figures and, at present at least, are betting that the budget deficits will come in better than this budget suggests.

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