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Budget, Trump's health to test markets

Colin Brinsden, AAP Economics and Business Correspondent
·3-min read

It's been talked up as the most important federal budget since World War II as the Morrison government spends up big to help lift the economy out of its first recession in nearly 30 years.

How long it retains the interest of Australian financial markets remains to be seen given the extreme volatility on global markets in the face of the uncertainty surrounding the health of US President Donald Trump.

The president was admitted to hospital after he and his wife contracted COVID-19, as did a number of his close aides, throwing the November presidential election into disarray.

"It's clearly added another dimension to this pre-election period," Australian Finance Minister Mathias Cormann told Sky News' Sunday Agenda program.

"Right now it does create a level of uncertainty. When the president of the United States is ill, that is something that markets will be very focused on."

Still, despite a volatile session on Wall Street on Friday, Australian shares look set for a positive opening on Monday, recouping some of the losses scored late last week.

Share futures were trading 67 points higher, or 1.2 per cent, at 5853 points.

On Friday, the S&P/ASX200 benchmark index finished down 1.4 per cent.

US shares partially recovered earlier falls as concern over the president's health turned to optimism over a deal being struck in Washington to pass an economic support package.

The S&P 500 ended down one per cent, at 3348.42, the Dow Jones Industrial Average ended at 27,682.81, off 0.5 per cent, and the Nasdaq composite was 2.2 per cent lower 11,075.02.

Australian Treasurer Josh Frydenberg will hand down his second budget on Tuesday, which is expected to see the deficit balloon to over $200 billion in the 2020/21 financial year as the government attempts to stimulate the economy out of recession.

"This budget is all about jobs. This budget is helping those who are out of work get into work, helping those in a job stay in a job," Mr Frydenberg told the Nine Network.

The treasurer added to a long line of pre-budget initiatives with the announcement of a $1.2 billion skills package that will pay half the wages of new apprentices over the next year.

It comes on top of billions of dollars promised for manufacturing, the digital economy, the NBN, the regions, tourism and the aviation sector.

"There's really no market constraint on how much the federal government can borrow - whether it is to fund bringing forward personal income tax cuts, infrastructure spending, other types of spending," economist Saul Eslake told ABC television.

"I think we'll see some combination of all three from the treasurer."

There is also a possible further twist heading into the budget release with the Reserve Bank holding its monthly board meeting just hours earlier.

There has been speculation the central bank could cut the cash rate to 0.1 per cent from an already record low of 0.25 per cent, as well as easing other monetary policies.

If the Reserve Bank holds fire this week, economists expect there is a strong chance they will move in November.