News & Analysis

Week Ahead – Australia’s Unexpected Election Outcome

May 20, 2019

By Deepta Bolaky

Market Overview

It was a hectic week with ratcheting trade tensions, and investors were caught in the tug-of-war between China and the US. The Trump administration is ramping up pressure on Huawei while on China side, there were talks on the large sale of US Treasuries amongst others.

Week Ahead – Australia’s Unexpected Election Outcome

Stock Markets

The weekend catalysts will highly drive the start of the week:

  • Australia’s surprise election result
  • President Trump’s threat to Iran in a tweet: “…that will be the official end of Iran.”
  • A “rudimentary rocket” on the green zone near the US Embassy in Iraq reported early on Monday morning.

Despite some optimism towards the end of last week, the stock markets closed in the red on Friday as investors turned risk-averse in anticipation of the weekend developments. Major US equity benchmarks ended the week in negative territory.

 World Equity Indices (% Change)

Source: GO MT4

In the Australian share market, we expect the outcome of the election to put a bid on stocks as the potential overhang of franking reform under a Labor government is eliminated as the Coalition has retained government. At this stage, there is more policy-stabilisation as there is no change in government and investors confidence might improve. As of writing, the ASX200 is up by 1.68%.

In the US market, trade tensions will likely overshadow the markets. Investors will monitor the developments while waiting for the meeting between President Trump and Xi Jinping at the G20 summit in Japan to bring more answers.

In the European market, the confirmation of the delay on tariffs on European auto imports brought some relief. However, Brexit talks and trade tensions weighed on risk sentiment. The talks between the Conservative Party and the Labor Party broke down on Friday reignited fears of a harder Brexit.

Forex Markets

Investors flew to safety with haven currencies like the US dollar. Bloomberg Dollar Spot Index weekly change shows that the greenback has the biggest advance since February.

The Aussie Dollar gapped higher on Monday as traders were mostly anticipating a” Labor win”. The relief rally helped the AUDUSD pair to regain the 0.69 level. The pair opened at 69.12 US cents before retreating slightly. However, trade tensions and a stronger US dollar combined with raising odds of a rate cut will still weigh on the fundamentally weak currency.

The economic calendar is relatively quiet for Australia with the key events being the RBA minutes and the Governor Lowe’ speech.

The British Pound is under intense pressure as traders are bracing for another failure in Parliament and we expect the local currency to remain dampened following the increasingly unstable political backdrop in the UK. The GBPUSD pair dropped to four months low-  below the 1.2734 level. On the data front, attention will be on the Inflation Report Hearings, CPI, PPI and Retail Sales figures.

The Euro will likely be driven by the European elections. The attention is on Italy after its deputy Prime Minister said that Rome should allow its fiscal deficit to rise above the EU’s upper limit. Those political jitters might keep the shared currency on the downside until the outcome of the election is known. In the meantime, traders will monitor the IFO surveys and PMI figures scheduled to release of Thursday for fresh trading impetus.

WTI and Brent Crude

OPEC’s intent to continue with output cuts helped oil prices to start the week on a positive note. The big question remains Russia ‘s commitment.

Oil traders will likely keep a close watch on geopolitics and weekly oil reports to support the rise in price.

Cryptocurrencies Markets 

After retreating lower last Friday, Bitcoin retested the $8,000 level but is finding resistance at R2.

BTCUSD (Weekly Chart)

Source: GO MT4

As of writing, Ethereum, Ripple and Litecoin are all in the positive territory.

Tuesday, 21 May 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.316 0 0.075 0.01 0.206 8.69 2.1
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 74.75 0 0