It’s all coming together for the US Federal Reserve to start scaling back its bond purchase program at its 18 September meeting, and markets are reacting accordingly. Stock markets in Europe and the US were down on the prospect of easy money drying up while US bond yields rose to fresh highs and the US Dollar surged. Meanwhile, hard commodities marked time and gold, platinum and palladium jumped higher as alternative investments to stocks and following political unrest in Egypt.
Our market followed the lead from offshore and even expectations of further rate cuts from the Reserve Bank of Australia (RBA) have been scaled back over the last week. Analysts are starting to talk about Australia moving into the “mature stage of the easing cycle” and beginning to unwind future rate cut expectations. The next full 25 basis point rate cut is now not fully priced in until February next year.
Election Campaign Update: Until their change of Leader, the ALP was heading towards a substantial defeat, but the return of Kevin Rudd has given the government a major boost in the lead up to the election. According to the polls, betting markets and analysis of key marginal seats, it is the Coalition’s election to lose. This means that Tony Abbott needs to run a disciplined election campaign as the front runner, as all the polls currently indicate a comfortable win to the Liberal National Party Coalition. Regardless, a decisive win by either Party should be a positive for business and consumer confidence after the three years of minority government. A sustained rebound in business confidence would also make further RBA rate cuts less likely.
The latest Newspoll survey showed that, on a two-party preferred basis, the Coalition’s vote has increased 2 points to 54%, with Labor’s share of the vote slipping to 46%.