Morning Commentary: Elections have Consequences Part 2

Foreign Exchange - Morning Commentary
Elections have Consequences Part 2
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
This past Sunday, in our Week Ahead publication, we touched upon the consequences of the upcoming European Parliamentary Elections at the tail end of this week.  This morning, we continue the election theme as it pertains to Australia, Austria and India. 
 
In Australia, PM Scott Morrison’s incumbent government surprised markets by winning a parliamentary majority.  This result represents the biggest come-from-behind win in a generation during a time when Australia’s economy is slowing.    
 
This continuation in government marks a contrast to the political landscape over the past decade in Australia.  Morrison is the Liberal’s third leader in four years and took over after his predecessors were ousted by their own lawmakers.  Since 2007, Australia has had six leadership changes. In response, the AUD is the top performer in the G10 space, rising as much as ~1% on the session before giving back much of those gains as markets returned its attention to RBA rate cut expectations and Chinese trade war concerns.  To this end, the RBA minutes and Governor Lowe’s speech (both Tuesday) will be key. 
 
In India, the Indian rupee has also rallied strongly overnight, with Indian stocks rallying the most in three years, as exit polls indicate that PM Modi’s ruling coalition should maintain power.  Vote counting officially begins this Thursday with results expected that same day. However, the strength of PM Modi’s projected win is giving the markets some comfort in its expectations for a continuation of the current government, leading to foreign buying of Indian risk assets.   
 
Finally in Austria, the Austrian Vice Chancellor has resigned amid questions on whether Russia had direct influence inside the government via the Vice Chancellor’s party.  Austria’s Chancellor has called for snap elections in hopes of removing the Vice Chancellor’s far-right party from the ruling coalition, which puts further focus on the upcoming EU Parliamentary elections as a proxy for whether the Chancellor’s election decision will pay off. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The US Administration’s efforts against Chinese technology companies, including Huawei, has hit tech sector stocks this session.  It has been reported that Intel, Qualcomm and Alphabet—Google’s parent company—will not supply needed components to Huawei.  In response, it has been reported that China will suspend business with all suppliers who agreed to halt supplying Huawei.  US stocks have opened lower with the tech-heavy NASDAQ index leading declines.
  • Japan GDP came in stronger than expected with seasonally adjusted Q1 GDP coming in at a 0.5% gain against expectations for a 0.1% decline.  However, the biggest driver was imports falling faster than exports, leading to growth due to net exports, making the number a bit misleading as declining imports is a sign of weakness. Capital spending and private consumption also declined. 
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