By Benjamin Picton, Senior strategist at Rabobank

Australia’s ruling Labor Party was returned to government in emphatic fashion over the weekend, becoming the only first-term government in Australian history to actually increase its numbers in the House of Representatives at its first bid for re-election. The Australian result echoes what we saw a week earlier in Canada, where a centre-left party that had been chronically trailing in the polls just a few months ago suddenly surged to victory. In Australia, as in Canada, the leader of the main centre-right opposition party not only lost the election, he lost his own seat in the parliament.

The return of Donald Trump to the White House looms large in both results and seems to have flipped last year’s dynamic of incumbency being a curse to a new environment where stability is favored and any hints of Trumpian instincts are punished by electors. Nevertheless, while it might be tempting to read this as a uniform embrace of bigger government and globalized trade across the Anglosphere (ex-USA), that might be over-interpreting the signal as there are confounding signs elsewhere.

In England, for instance, things look quite different. Council elections held late last week saw both the ruling Labour Party and the main opposition Conservatives decimated by the right-wing populist Reform party. Reform won 677 out of around 1,600 seats, cementing the party’s position as a genuine third-force in British politics and an existential threat to the Conservative Party in particular. Labour lost control of Doncaster council and was displaced as the largest party bloc in Durham, while areas that have reliably voted Conservative for aeons flipped to Reform.

What to make of these results? Perhaps the most we can say is that a volatile external environment is upending established political norms and, in some cases, established political parties as frustration with politics-as-usual vies against popular revulsion of the leader of the Free World. Local voter profiles will also be a factor here as England particularly tends to lean further to the right than much of the rest of the UK while in Canada the emphatic result papers over rumbling discontent in resource-rich Western Provinces.

Nevertheless, markets are back into risk-on mode with the S&P500 and the NASDAQ closing up ~1.5% on Friday and US 10-year yields poking higher to 4.31%. The Dollar spot index closed above 100 on Friday, but has edged back below that key level this morning following a better than expected US payrolls report on Friday, comments by Trump that tariffs on China would be lowered “at some point” and assurances that he wouldn’t be firing “too slow” Jerome Powell (probably because he can’t).

Crude oil prices have fallen by more than 3% in early trade this morning to see benchmark Brent prices back below $60/bbl. The falls were precipitated by reports that Saudi Arabia could look to increase output even further in response to other OPEC+ producers (particularly Iraq and Kazakhstan) exceeding agreed production levels.

The falls in oil prices are interesting given that tensions in the Middle East have only increased over the last few days. A Houthi missile managed to elude Israel’s Iron Dome to strike just outside the Ben Gurion Airport in Jerusalem, injuring a number of bystanders. Prime Minister Netanyahu said that Israel will respond to the Houthi attack and, critically, to the Houthis’ “Iranian terror masters” at a time and place of Israel’s choosing. Netanyahu’s threat against Iran follows rumours that US National Security Advisor Mike Waltz was fired (at least in part) for coordinating with Israel on plans to attack Iran’s nuclear program even while Trump’s Middle East Envoy, Steve Witkoff, was trying to reach a deal with Iran over the same. 

Will Israel unilaterally attack Iranian nuclear assets? Might they attack the oil facilities on Kharg Island that ultimately bankrolls the Iranian nuclear program? These are non-zero probabilities, but any risk premium for crude is MIA while the market continues to stare down the barrel of substantial oversupply.

Still, Treasury Secretary Scott Bessent will be pleased to see lower energy prices coinciding with the recent strengthening of the DXY and bond yields that show no real signs of threatening the 2023 highs. This happy combination might take the edge off of the price impacts of tariffs, which is timely given an announcement by Donald Trump this morning that foreign films will be subject to a 100% tariff rate. 

Considerable uncertainty over price pass-through from tariffs still exists. Bessent and Trump tell us that exporters will “eat” the cost, but Amazon has conspicuously passed costs through to consumers and there are plenty of anecdotes to be found about purchasing managers halting new orders. In reality the burden will be shared between exporters (via lower prices), importers (via lower margins) and consumers (via higher prices) with a little bit of deadweight loss tacked on just to upset economists. The price elasticity of demand for each product is going to be the critical factor, which makes the foreign film tariff read like an indirect tax on wealthy Democrats. 

How price sensitive are US consumers of French arthouse cinema likely to be?