Markets Await Budget Release

All eyes will be on the release of the Australian Federal Budget later tonight where markets will be watching to see how the ratings agencies will view it. Moody’s has already stated its wariness of the budget and it will certainly be scrutinising the details closely to see whether Australia deserves maintaining its AAA credit rating. Any drop in Australia’s rating would almost certainly cause bond yield to rise and increase the cost of funding the national debt. This could potentially also lead to higher borrowing costs for the banks which they would pass on to consumers. Australia’s retail sales data for the month of March will be released today with expectations of a 0.3% increase. This would represent a significant turnaround from February’s decline of 0.1%. The retail environment in Australia continues to remain challenging and retailers will certainly be looking at the retail sales numbers for signs of a resumption of consumer spending activity.

Globally, although the US stock markets were virtually flat last night, they continue to hover near their all-time highs. The Dow Jones has been sitting right around the 21,000 level for a couple of weeks now and seems to be having trouble decisively breaking through. Confidence surrounding president Trump’s tax cut plan appears to be supporting markets at this time.  

The gold price continues to have a fairly severe pull-back from recent highs as the probability of a US rate hike in June is now a near certainty (according to market pricing). This probability was bolstered by the strong jobs report released late last week and by comments from Yellen and other officials suggesting a hike is on the cards. Interestingly, the first estimate of the first quarter GDP was just 0.7% making the March rate hike one of the weakest quarters in 30 years in which the Federal Reserve raised rates. The Fed is confident that the first quarter was just an anomaly and growth will return in the second quarter.        

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Data releases:

·        Australian Retail Sales (MoM Mar) 11:30am AEDT

·        Australian Annual Budget Release 07:30pm AEDT


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This article was written by William O'Loughlin - Local Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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