Working Papers

Low Expectations: Why Financial Markets Didn’t Care About the Election Result

Financial markets usually take federal election outcomes in their stride, an indication that the result is either not a surprise or makes very little difference to expected economic and financial outcomes.

The fact that markets have been just as sanguine when faced with the prospect of a hung parliament for the first time since 1940 implies that markets do not expect public policy outcomes to be appreciably worse under the various options for a minority or (small ‘c’) coalition government than under a majority government. One can only conclude that markets had very low expectations for the public policy outcomes from any majority government and those expectations have not in any way been disappointed by a hung parliament.

posted on 24 August 2010 by skirchner in Economics, Financial Markets, Politics

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On Friday, the betting markets were expecting a Labor victory, so I’m not sure one can infer that financial markets had low expectations for the public policy outcomes under a Coalition majority government. In fact, equity markets rallied initially on Monday morning (despite a weak lead from Wall St) at a time when it looked like the Coalition might be best placed to lead a minority givernment.

Posted by .(JavaScript must be enabled to view this email address)  on  08/24  at  04:33 PM

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