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The numbers after the election: ASX hits 11-year high, AUD bounces

Pedestrians are seen reflected on the Australian Stock Exchange (ASX) trading board in Sydney, Monday, January 7, 2019. (Source: AAPImage/Jeremy Piper)
Pedestrians are seen reflected on the Australian Stock Exchange (ASX) trading board in Sydney, Monday, January 7, 2019. (Source: AAPImage/Jeremy Piper)

Prime Minister Scott Morrison’s shock return to power has seen the Australian share market hit a 11-year high as financial giants celebrate the dwindling threat of greater regulatory scrutiny and intervention from the government.

Big four bank shares jumped by 5.7 to 7.6 per cent on Monday, while health insurers saw a bump to the tune of double digits.

The rise saw ASX200 reach its highest level since before the global financial crisis – December 2007 – as the index increased by as much as 1.7 per cent, hitting 6,475.5.

The ‘relief rally’ in the financial sector was at 5.1 per cent at 1:10pm on Monday, which was even higher than after the release of the banking Royal Commission’s final report.

"Investors won't need to work through the consequences of the Labor Party's proposed changes to negative gearing, franking credits and taxation scales," said CommSec chief economist Craig James.

Where big banks feared worsening news for the housing market if Labor’s negative gearing policy went ahead, it’s now likely the property market will in fact get a boost in the second half of the year thanks to the Coalition’s plan to help first-home buyers break into the market.

"With negative gearing now off the table, the medium-term outlook for housing is a little less negative," said JP Morgan strategist Ben K Jarman.

Insurers NIB and Medibank Private shares also jumped by 12.1 per cent and 10.8 per cent following the federal election outcome. A Coalition win means Labor’s threat of a two per cent cap for annual premium increases won’t come to pass.

The Australian dollar has also enjoyed a bounce: at the time of writing, a dollar was at 69.2 US cents, bouncing from a four-month low of 68.65.

Market bounce may be short-lived

But AMP Capital chief economist Shane Oliver indicated the lift in the share market would not last long.

"With the return of the Coalition with its more pro-business policies and uncertainty now removed around changes... it's possible we will see a bit of a short-term bounce in the share market," he said.

"Against this though, the Australian share market has already performed pretty well over the last few months and is likely to be dominated by issues around global trade, slowing growth, interest rates and the iron ore price, and so will quickly move on from the election, I suspect."

Indeed, the ASX has opened lower today: at 10:30am, the ASX200 down 12.2 points (0.19 per cent to 6,463.9.

But the financial sector was still up 0.68 per cent thanks to corporate watchdog APRA’s proposal to scrap the 7 per cent interest rate floor that banks use to assess whether customers can make their loan repayments.

ANZ, NAB and Westpac were all up between 1.39 per cent to 1.84 per cent.

RBA rate cuts a matter of time

All eyes will be on the Reserve Bank of Australia, CommSec’s James indicated.

“The question is whether the Reserve Bank waits for the 'natural' lifting of economic activity post-election or whether it believes that an extra kick along is required,” the chief economist said.

NAB director of economics and markets David de Garis said he expected the RBA to cut rates in June, and again in August.

“We now expect that after last week's soft readings on the labour market the RBA will cut rates in June.

“The numbers pointed to a risk that labour market spare capacity will not reduce, putting the RBA's getting back to target inflation forecast at risk,” he said.

“NAB expects another follow-up cut in August.”

–with AAP

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