This coming Saturday, Australians head to the polls to vote in a Federal election which appears destined to deliver a change in government, prompting the question should traders be preparing for a rise in volatility?
In terms of key policy differences, the Liberal National Coalition (LNP) has promised a range of long-dated tax cuts out to 2025 and to promote economic growth via infrastructure spending. On the other hand, the Australian Labor Party (ALP) has promised increased spending on health and education to be funded by higher taxes. Both parties have committed to budget surpluses and paying down debt.
Although the lead has narrowed, the polls continue to point towards a comfortable win for the ALP. As such, an ALP win is likely to largely be priced into Australian equity prices and the Australian dollar.
Of course, as we learned from Donald Trump’s shock win in the 2016 U.S. election and before that the Brexit referendum in 2016, polls are not infallible. However, without a hugely polarising personality like Trump or an issue like Brexit, it seems reasonable to take the polls on the Federal election on face value.
Changes in PM’s
Over the past decade, Australian politics has delivered the same number of PM changes as Italy. As such, Australian voters and investors have become used to changes in PM’s and this is likely to have numbed the financial markets to another change in PM.
The risk – a positive shock?
Some of the ALP’s policies which include proposed changes to franking credits and negative gearing are viewed as not particularly “market-friendly”. Should the LNP coalition pull off a surprise win and retain power, it may result in both Australian shares and the Aussie dollar enjoying a brief relief rally of sorts.
While we would never say never, the upcoming Federal election is unlikely to have a meaningful impact on Australian equity prices or the Aussie dollar. Instead, the primary driver of both markets will continue to be U.S. – China trade issues, the dovish pivot undertaken by major central banks at the start of 2019 and other fundamental and technical factors.