Markets are rangebound today as the country gears up for the pre-election federal budget. The Treasurer is expected to run a deep deficit, and several areas of spending have been identified already.
Themes of inflation, interest rates and cost of living are expected to roll throughout the delivery tonight, with undertones of fuel prices and wages growth.
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No pivot points tonight
Goldman Sachs analyst Andrew Boak told Bloomberg Daybreak: Australia earlier that he expects no major policy shifts from tonight's budget.
"The government has some headroom to move because we've seen a much stronger than expected improvement in the labour market and higher commodity prices, so tax receipts will be stronger. The question is – what do they do with them?" he said.
Whereas previously, the economic climate warranted a more conservative budget, current conditions are set to prevail, says Boak.
Nevertheless, this shouldn't materialise as a major shift in policy, he added, especially because things have improved ahead of expectations. Instead, the focus will be on cost of living, interest rates and wage growth.
"This time around I think it's a little bit different…we're expecting a hat tip to cost of living pressures, a slew of small policies [like] fuel and excise concessions," he remarked.
"But ultimately we aren't expecting any major new marco policies, and rather the windfall from that better than expected economic outcome to mostly be banked".
It is the labour market in which Boak says the government is likely to be proactive. Bloomberg reports that wages growth has slowed to below 2.5% in 2022, whereas jobs advertisements have soared to around 4%.
What does this mean for ASX shares?
With that kind of activity in the job market, it's no wonder to see stocks like Seek Limited (ASX: SEK) climb 8% in the past month of trading, after trading as high as $31 in that time. When quizzed on his take on the Aussie labour market, the economist agreed that numbers are running high.
Typically, that's a key factor for inflation Boak notes, but there are key differences in Australia's situation.
Whilst the labour market is running hot, "wages growth is still quite subdued" Boak says, adding that Australia is in a very different situation to other nations like the US.
"I Australia wages growth is a little over 2%, and we haven't really had normal levels of wages growth in Australia for the best part of a decade," he noted.
"But because it's more of a gradual adjustment…there's not that urgency for the RBA to get rates higher in the same way that were' seeing in the US and other parts of the world".
As a result, Boak says, the RBA is unlikely to rush into spiking rates. That's a factor that is likely to impact ASX financials, like market leader National Australia Bank Ltd. (ASX: NAB).
Infrastructure is also set to get a mention in the budget tonight, with the unveiling of approximately $18 billion in funding for new and existing infrastructure projects.
Goldman is expecting infrastructure to be a key theme in tonight's release. With that in mind, earlier analysis conducted by Bloomberg said that investors should pay close attention to materials shares such as Boral Limited (ASX: BLD) and others in the sector.
Net-net, we'll have to wait and see what is revealed in the numbers later tonight to see who the main beneficiaries could be.
