Originally published by Rivkin Securities
The big focus domestically on Tuesday was the budget released for 2017-2018 which aims to boost growth and create jobs by investing $75 billion in infrastructure projects over the next decade. A big focus was a new six basis point levy on customer deposits above $250,000 at the big banks whose liabilities exceed $100 billion which is expected to raise to $6.2 billion over the next four years. This story was leaked before the release of the budget and as a result the banks certainly weighed on the S&P/ASX 200 on Tuesday (-0.53%) with Commonwealth Bank Of Australia. (AX:CBA) declining -3.85%, National Australia Bank Ltd (AX:NAB) -2.05%, ANZ Banking Group (AX:ANZ) -2.64%, Westpac Banking Corporation (AX:WBC) -3.52% and Macquarie Group Ltd (AX:MQG) -1.98%.
First home buyers will receive some help through salary sacrificing voluntarily into their superannuation of up to $30,000 which can later be withdrawn. Schools will also receive an additional $18.6 billion over the next ten years, the freeze on Medicare rebates will be lifted lowering the cost of seeing a doctor and a +0.5% increase in the Medicare levy will help fund the National Disability Insurance Scheme. Other winners include working parents with the government contributing $37.3 billion through until 2021 to help with childcare costs and small business will be able to instantly write off the costs of new equipment up to $20,000 and a reduced tax rate to 27.5%.
Other than banks university students will be hit having to begin repaying HECS debt at a lower income threshold along with an increase in the costs of degrees. Property developers will be unable to sell more than 50% of a new project to overseas investors and foreign investors who fail to occupy or rent out a property in the first six months will face a $5,000 tax. The focus will now be on the reaction from S&P Global Ratings who have recently placed Australia’s coveted AAA credit rating on a negative outlook.
This credit rating is seen as a badge of honour for politicians, no one wants it to disappear on their watch, however a downgrade by one agency would not be a disaster. Only around ten countries globally maintain a AAA credit rating by all three ratings agencies and aside from a short-term reaction in government bond yields along with the Aussie dollar, the broader implications are likely to be muted.
Elsewhere it was quiet night for markets globally with little economic data to guide investors. The Nasdaq 100 rose to a new all-time high, up +0.34% extending year to date gains to +16.75% while Apple Inc's (NASDAQ:AAPL) market capitalisation topped US$800 billion, the first company to do so. The S&P 500 was flat, down just -0.1% while European markets were higher with the Euro STOXX 600 up +0.45% as was the DAX +0.43%.
Locally the ASX200 looks to reverse some of Tuesday’s decline with ASX SPI200 futures up +19 points or +0.33% in overnight trading.
Data releases:
· Chinese CPI (MoM & YoY Apr) 11:30am AEDT
· ECB President Mario Draghi Speaks 9:00pm AEDT
· US Crude Oil Inventories (May 5th) 12:30am AEDT