Investors focus on US, not election saga

Australia's uncertain political future is no longer registering on the radar of
investors who are instead concerned by the risk of a double-dip recession in the
United States.
The Australian dollar lost one US cent on Monday over the prospect of a hung
parliament, but investors soon shrugged off any worries of political in stability.
National Australia Bank (NAB) head of research Peter Jolly said he did not believe
Labor or the coalition would jettison their election campaign commitment to put the
budget in surplus by 2012/13.
He said overseas investors were eager to hear whether US Federal Reserve chairman
Ben Bernanke mentions quantitative easing measures at the Kansas City Fed's Jackson
Hole conference in Wyoming during the offshore session on Friday.
"This has become a crucial speech for the market," Mr Jolly said.
"The market's focus is very much on US double dip or not and what that means for the
rest of the world.
"We'll have to wait and see what Bernanke says - whether he is prepared to step in
the way of that deteriorating sentiment, let's hope he is.
"I think yields are too low, particularly in Australia."
On the domestic front, Mr Jolly said Opposition Leader Tony Abbott's refusal to
submit costings to Treasury was not having "any impact" on markets.
RBC Capital Markets economists point to recent figures that show US capital
expenditure, inventories and residential investment were are all set to subtract
from US GDP growth in the third quarter.
"A negative third quarter is becoming a very real possibility," they said in a
statement.
In a morning note, ANZ economists said US new homes sales data released overnight
reflected "the incredibly weak state of the US housing market," declining 12.4 per
cent to the lowest on record.
And as equity markets slid, bond markets rallied hard with the US 10-year Treasury
yields reaching 19-month lows, while German bunds fell to an all-time low of 2.09
per cent.
Australian bond futures followed the lead of the US.
The overnight action led the bank to say the US economy was "in retreat".
ICAP economist Adam Carr described the US market as being in "poor shape".
"The issue is whether the market has stabilised, is deteriorating, or undergoing an
ever so slight improvement," he said.
"The jury is out."
"The truth is there has never been a better time to buy a house in the US. They're
very cheap."
NAB's Mr Jolly said there had been a "very long and sustained rally in bonds".
"Every basis point rally prices in a greater chance that the Reserve Bank of
Australia (RBA) cuts interest rates," he said
While mixed domestic data released this week gave some indication of strong GDP
growth in the second quarter of 2010, Australian markets are forecasting an even
chance of an interest rate cut in the next six months.
Mr Jolly said there was now a 50 per cent chance the RBA would lower the current
cash rate of 4.5 per cent by February 2011.
"But I think it's a highly improbable outcome that the RBA will cut in the near
while," Mr Jolly said.