Australia Focus : Changing Hands In Springtime
Australia has had 5 prime minister changes in 5 years. That is some record as Australia’s Economic Surprise Index sinks to a 9 month low as economic data has largely disappointed in terms of consumer confidence and inflation expectations although employment remains strong.
I suppose it has nothing to do with populist prime ministers like Abbott who is the first casualty as Japan’s Abe looks shaky along with France’s Hollande whose popularity has sunk to rock bottom these days.
Well, the good thing about Malcolm Turnbull is that he is another ex-Goldman Sachs partner and it looks like Australia Inc is on its way.
The AUDUSD reacted well to the news, trading higher for most of the week, with a meteoric rise on Friday, and cemented its 2nd weekly gain after the FOMC on Thursday to bounce back from its 6 year lows and I would hope for a decent blip towards 0.74-0.75 to sell into which is not unlikely given the potential market short positioning unwinds.
Goldman Sachs knows that currency strength is no friend of GDP growth and trade deficits which makes it a good case for innovative monetary policies going ahead and I would suppose that there is still a chance that the RBA could be persuaded later this year to cut, after the FOMC this week, given that Australian rates are just too high for the developed world, with the exception of Singapore.
RBA Governor Stevens however has said he is “content” with the cash target rate at where they are at although he would “be surprised if things would look normal in 5 years” and expects low policy rates for Japan, Europe and even the US. Thus bonds underperformed a bit on the week, with yields rising into Friday.
Going ahead, I am less bullish now because Australia Inc will be on a reform warpath, that is, if Turnbull survives holding on to his seat till Jan 2017 (next elections) and it will be ugly business overhauling the tax system, the highest minimum wages in the world and more while avoiding falling into their first recession since 1991 (see chart above).
Bloomberg’s William Pesek sums it up well : http://www.bloombergview.com/articles/2015-09-15/australia-s-turnbull-can-t-afford-complacency
This gives the long end bonds (>10Y) some meat especially with the curve inverted in the 2-3Y point if there is a need to trade at all.
Leaving with the indicative prices …
