Market Matters Afternoon Report Monday 4th July 2016

Afternoon Report 04/07/2016

Market Matters Afternoon Report Monday 4th July 2016

Market Data

What Mattered Today

The first session following the weekend’s elections and the market was higher – mostly on the back of buying in the resource space, offsetting a sell-off in the banks. A range of +/-63 pts. 5218 low, 5282 high and close; up +35pts or +0.67%.

Obviously, a lot has been written about the election, and more will flow over coming days, however here’s the main points as we understand it – to follow on from our comments this morning….

The 3.5% swing against the Coalition is tipped to leave it a few seats short of majority and make it reliant on negotiating with crossbenchers for an agreement on confidence and supply – clearly, the is far from ideal, however, it does not necessarily mean the market/stocks/our economy will spend the next 3 years in the wilderness.

If we look back at the last hung parliament on the On 21st August 2010, Labor and the Coalition both won 72 seats, short of the 76majority required to form a government. The market fell 105 points, or 2.4% in the next three trading sessions, before recovering all lost ground and making new highs. A Gillard minority government was formed and sworn in on the 14th of September, at which stage the market was 207 points, or 4.6% higher than pre-election.

Assuming a hung parliament, attention will turn to the 5 crossbenchers. Bob Katter sided with the Libs following 2010’s hung parliament – it seems Greens MP Adam Bandt has more of a leaning towards Bill’s Labor party while Nick Xenophon has signalled more of a willingness to negotiate with the party with the most MPs – which is probably the Libs BUT could turn out to be Labor. Andrew Wilkie from Tassie and Victorian Independent Cathy McGowan have ruled out negotiating with either side.

Turnbull’s own standing within his party has taken a hit, and his hope of diminishing the influence of minor parties from the Senate proved a complete farce. MT clearly underestimated the impact of the BS from BS around Medicare, and to a wider degree, the global trend against more traditional political parties.

In the Senate, Initial estimates have the Libs seeing a drop of three seats to 30 v Labour which seems likely to add 2 seats and go to 27. The Greens will probably drop a seat, leaving them with 9 which would bring the number of crossbenchers from 8 to 10, led by the Nick Xenophon Team (3-4 seats) and Pauline Hanson’s One Nation Party (2-4 seats).

As we suggested above, the market reaction following the 2010 hung parliament was negative initially, then it was brushed to one side. It’s clearly not a positive for the market, however, it’s not a disaster either. The main takeout for us, and we covered it this morning, is clearly around the potential for underperformance courtesy of what could be called the ‘political risk premium’. Why do we continue to do it to ourselves??

Anyway, the counters will be back on the job tomorrow and more colour forthcoming thereafter.

As suggested above, the miners led the charge today with BHP putting on 2.3% to close at $19.53 while Fortescue (FMG) rocketed higher – up another 7.2% to settle at $3.89 – its highest close since the back end of 2014.

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Overseas

The US is closed tonight for Independence Day – and re-opens tomorrow. The S&P 500 closed -1.4% below it’sall time high on Friday. A BIG turnaround from the post BREXIT lows

….EUROPEAN FUTURES pointing to a positive lead, with Euro Stoxx 50 futures up 12 points at present.

Regards,
The Market Matters Team
28-34 O'Connell St
Sydney, NSW 2000

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 4/07/2016. 4:00PM.

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