The key issue for traders today will be to gauge the extent of stock market reaction to the election result. The initial response of currency and bond markets indicates that the election result will at least dent what might otherwise have been a strong start to the stock market after a solid lead from US markets.
The prospect of a hung parliament in combination with a large and diverse Senate cross bench, creates medium term but unspecified risks for business. If nothing else, markets will be concerned by the potential for a period of policy paralysis when it comes to budget and economic reform. The political environment is also becoming increasingly hostile to free trade and bigger businesses like those listed on the stock exchange
However, as with the Brexit vote, low interest rates are likely to mean that negative market reaction to the election outcome is brief. Low interest rates are keeping investors in equities until they are confronted by specific, near term risks.
The big 4 banks will provide and insight into investor reaction to the election. Potential buyers may be hesitant until there is more clarity on the election outcome. At the same time the banks will be in the firing line of any sell Aussie reaction from international investors that emerges. Specific policy issues like negative gearing and the possibility of a costly Royal Commission on banks may also weigh on sentiment for the sector.
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