Global equities lower, oil higher, no shocks expected to markets from Aus Budget, ASX futures down 16 points

****Please note that I will be on leave from 18 May to 2 June, morning coverage during that time will be sporadic****

There are no obvious reasons that I can think of that would lead to an immediate, negative effect on Australian equity prices as they relate to last night's release of the 2015 Australian Federal Budget. The dragging forward of small business tax deductions and falls in the tax rates for small business with turnover less than $2 million will not have a marked effect on listed companies. Australia's AAA/stable rating that is held across all three major global ratings agencies looks to remain stable, with Fitch already stating that it believes Australia's government debt to GDP ratio will remain "far blow" than that of the US, UK and France, which have AA+, AAA and AA+ ratings respectively. Without the threat of a cut to Australia's sovereign rating, the event risk tied to this budget appears very low. The RBA will be conscious of the government's obligation to service its debt, so--inflation permitting--the Bank will likely be inclined to keep rates low for longer. In turn, this ought to provide a low-volatility macro environment for corporations.

The government states on its budget website that "Multinational and foreign-owned companies will no longer be able to avoid tax by shifting profits to other countries." That's simply not true. The government will no doubt go to lengths to try and close this gap, including the introduction of a 'Multinational Anti-Avoidance Law' (reminds me a bit of when a cosmetic company trademarks a new compound called "Moisturizole" or something - sounds good, but I'm not sure if it's a miracle cure). As was the case with car manufacturers, the operations of firms like Facebook and Google will likely threaten to move to more welcoming corporate environments at the expense of local jobs. They'll probably also threaten to sue if the accounting goalposts are changed. The thought of multinationals shifting profits offshore sickens most, quite rightly, but this needs to be a coordinated global effort and so long as countries like Ireland and Luxembourg and Switzerland attract enterprise through their low corporate tax rates, clever accountants and CFOs will find ways to shift profits there. And remember that even though the majority of offenders are US-based companies, those companies are not bringing their profits back onshore to the US either due to the corporate tax rates there. So I think making noise about it is the right thing to do, but the global effort is the one to focus on.

Australia needs (and this is what Joe Hockey has baked into his assumptions) broad economic growth and certainly wage growth. Wage growth in Australia is at record lows of 2.5% presently. This means that government revenues from bracket creep (where wage growth pushes personal earnings into higher tax brackets as they remain static) will suffer as the phenomenon fails to keep up with historical trends. Low employment, business confidence, the advancement of industry and a focus on the breadth of industry growth are among the drivers of wage growth. The loss of high-wage jobs in mining will certainly need to be replaced with those of other industries and I'm not sure there's a clear, vocal champion for this in either the incumbent or shadow cabinets - there really needs to be if the public are to have confidence in the assumptions that see the deficit falling to $6.9 billion in the 2019 financial year.

Back to the markets, and the ASX 200 futures and Aussie dollar had a chance to digest the headline Budget figures last night, so let's focus on them. In today's first chart you can see that Rivkin Trader's ASX 200 cash index CFD didn't move around a lot overnight, closing this morning at 5,653 after bring dragged lower by the US and European sessions. The Australian dollar (second chart) remains elevated and in a short-term up trend that began at the start of April.

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Raft of Japanese data out between 9:50am and 3pm, Chinese industrial production and retail sales at 3:30pm, German GDP at 4pm, German & Italian CPI at 4pm, UK employment report at 6:30pm, Eurozone GDP at 7pm, Bank of England inflation report at 7:30pm, US advance retail sales at 10:30pm, all Sydney time.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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