With the Conservative Party attaining a surprising majority victory in Monday's Canadian election results, investors now have something to chew on: Do they focus on the fact that the governing party now has far more control to further its pro-business agenda? Or do they take a good, hard look at the new official opposition, composed of newly elected New Democrats that will be opposing the Conservative agenda tooth and nail?
In early moves on Tuesday, the market reaction was tame -- and likely the result of declining commodity prices and a retreat from risk worldwide, as equity markets declined. The Canadian dollar fell 0.2 per cent next to the U.S. dollar, falling to $1.05 (U.S.). The yield on the 30-year Government of Canada bond was relatively unchanged, at 3.68 per cent.
So, no Armageddon but no wild celebrations either. In other words, welcome back to the quiet world of Canadian politics and economics, which rarely have a dramatic impact on the way investors conduct their affairs.
Indeed, the reaction so far appears mostly related to commodity prices, which often have a direct effect on the Canadian dollar. The price of crude oil fell 1 per cent, to $112.42, continuing a round of volatility that began on Monday after markets reacted to the death of Osama bin Laden. The latest downward move seems related to India's surprise decision to raise its key interest rate by 0.5 per cent to help tackle rising inflation in the developing market. While India is just one player -- albeit an important one -- in the global economy, it nonetheless signifies a trend where central banks are getting tough on inflation, likely at the risk of economic growth.
Is a developing economy like India overshadowing the election results of a developed economy like Canada? You bet, and it signifies the growing heft of the developing world.