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The Australian Federal Election: the key issues for Australian financial markets

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When is the election date?

The Australian Federal Election will be held on Saturday the 18th of May 2019.

What do the polls and betting markets say about the outcome?

As of May 16, betting markets have the Australian Labor Party short priced favourites to win government at Saturday’s election. The results of the most recent opinion polls back up this broad sentiment: on a two-party preferred basis, public surveys unanimously suggest an ALP victory.

Polling Company Polling Dates Liberal/National Party Coalition Australian Labor Party
Essential 11th – 15th of May 48.5% 51.5%
Roy Morgan 10th – 12th of May 48% 52%
Newspoll 9th - 11th of May 49% 51%
Ipsos 1st – 4th of May 48% 52%

What are the key macro-related themes to watch?

1. Fiscal policy

Markets have had the benefit of digesting both the Coalition’s, and Labor Party’s economic policies well in advance: April’s Federal Budget, and the opposition’s budget reply, outlined quite explicitly the different economic agendas of both parties. For households, both sides have pledged major income tax-cuts – though where those tax cuts flow differ between the parties. Infrastructure has also been prioritized by both parties, with massive funding pledged to major infrastructure projects across the country. One area of difference between the parties is health and environment spending: the Labor Party is pledging considerably more money to these areas of the economy than the Coalition.

2. Capital-versus-labour

As the electorate has been told ad nauseum: this Federal election is about a “choice”. While each of the major parties are impressing upon voters what this “choice” happens to be, there does appear to be a clear demarcation between the Labor Party and Liberal Party Coalitions vision for the country at this election. And it cuts down old class-based, ideological lines. The Labor Party have suggested that capital has been taxed too lightly, to the detriment of workers – their key promises, such as capital gains, negative gearing, dividend imputation, and wages reforms are targeted at addressing this perceived imbalance in the economy.

3. RBA

The RBA will be hoping that stimulatory fiscal measures, pledged by both major parties, will re-energize the Australia economy, no matter who wins Saturday’s poll. Ideally, the boost in government spending and income tax cuts would ease pressure on the central bank to cut interest rates. There would surely be some degree of concern from the RBA about the potential impact negative gearing changes will have on household wealth. However, the most significant variable for the central bank would be the presumed boost in aggregate demand within the Australian economy, courtesy of either Labor’s or the Coalition’s proposed fiscal reforms.

4. ASX

From a macro-perspective, the ASX200 has probably discounted many of the proposed economic policies by both sides of politics. However, from a micro-perspective, some sectors of the ASX may still be impacted by the outcome of this election. Consumer and infrastructure stocks will feel some marginal benefit from both parties promises to cut income taxes and boost infrastructure spending. The banks and REITs could feel the pinch of the Labor Party’s reforms to negative gearing and capital gains tax. And health care and renewable energy stocks should enjoy the increased spending in these sectors from the Labor Party, should they win the election.

How have federal elections impacted the AX200 in the past?

In truth, there’s not a statistically significant answer to the question of under which of the major political parties that financial markets perform “best”. This applies just as much to interest rates and the Australian Dollar, as it does to the ASX – though of course, certain stocks and sectors have benefitted from targeted government policies in the past.

However, in the interest of curiosity, reflecting on the changes in Australian financial markets since the turn of the millennium can convey changes in the global macro-environment throughout electoral cycles. And perhaps demonstrate the RBA’s, Australian Dollar’s and ASX’s historical independence of changes in the make-up of the Australian government.

1. RBA Cash Rate

Election Date OCR: Start of Electoral Cycle OCR: End of Electoral Cycle OCR: Electoral Cycle High OCR: Electoral Cycle Low
November 10, 2001 4.50% 5.25% 5.25% 4.25%
October 9, 2004 5.25% 6.75% 6.75% 5.25%
November 24, 2007 6.75% 4.50% 7.25% 3.00%
August 21, 2010 4.50% 2.50% 4.75% 2.50%
September 7, 2013 2.50% 1.75% 2.50% 1.75%
July 2, 2016 1.75% 1.50% 1.75% 1.50%

2. Australian Dollar

Election Date AUD/USD: Start of Electoral Cycle AUD/USD: End of Electoral Cycle AUD/USD: Electoral Cycle High AUD/USD: Electoral Cycle Low
November 10, 2001 0.5150 0.7349 0.8006 0.5044
October 9, 2004 0.7373 0.8778 0.9401 0.7016
November 24, 2007 0.8841 0.8939 0.9850 0.6009
August 21, 2010 0.8848 0.9185 1.1081 0.8771
September 7, 2013 0.9228 0.7498 0.9758 0.6827
July 2, 2016 0.7447 ???? ???? ????

3. ASX200

Election Date % Change: 6 months prior to election % Change: 6 months after election % Change: start-to-end of electoral cycle Electoral Cycle Low/High
November 10, 2001 -2.09% 2.16% 12.77% 2700/3700
October 9, 2004 7.79% 11.52% 70.93% 3681/6828
November 24, 2007 -0.33% -11.81% -31.53% 3145/6680
August 21, 2010 -6.13% 9.41% 16.11% 3863/5220
September 7, 2013 0.50% 5.42% 1.26% 4765/5982
July 2, 2016 -0.45% 7.99% ???? ????

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