Global stocks surge – Tony Abbott will be PM in three months


Media coverage of financial markets is always subject to headline grabbers and fantasy explanations. Amid the high quality news and analysis, a few corkers occasionally pop up.

The one today is in the Australian Financial Review where there is a story that suggests that the jump in bank share prices over the last few days is due to “the growing realisation that Tony Abbott will be PM within three months”.

This is flawed on several counts and here is why.

To be sure, bank share prices have risen strongly in the last few days with increases of 3 and 5 per cent or so since Wednesday morning. This was just as the political ructions in Canberra were unfolding at a rapid pace.

What those ructions delivered was a change in Prime Minister and quite importantly, a significant change in the probability that Mr Abbott will NOT be PM in three months.

The betting markets which had Labor at as much as $8.00 and the Coalition $1.07 to win the election less than a week ago, now have Labor at $4.25 and the Coalition $1.20. While the Coalition is still likely to win the election, the odds of that happening are now less than just a couple of days ago.

This also shows up with the Roy Morgan poll which noted a 5 point lift to Labor in the immediate aftermath of the Rudd return to PM to the point where it has the Coalition now on 50.5 per cent and Labor on 49.5 per cent and due to the margin of error of that poll, Morgan concluded that it is “too close to call”.

Another factor may have also supported bank share prices. How about a rebound in global stock markets?

The Dow Jones Industrial average, for example, has risen nearly 3 per cent in recent days, not counting the 0.8 per cent gain this morning. Larger rises have been registered in Europe and Japan.

I wonder if the “growing realisation that Tony Abbott will be PM” has fuelled this lift in investor confidence in the US and elsewhere in the world where markets have rebounded?

It all goes to show, be careful what you read and beware spruikers peddling their snake oil.


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