Opinion is divided on the
impact that the leadership brawl is having on the markets. The
AFR today states that the political uncertainty drove
down the currency from $US75.33c on Monday night to around $US74.60c Tuesday
morning, before strong home loan data revived suggestions of an impending
interest rate hike, driving the dollar back up to
US74.86c.

Alternatively,
The
Age reports that investors were completely unfazed by
the Cossie/JWH stoush, and that instead the markets are “preoccupied with signs
of a global economic slowdown, rising inflationary pressures and the prospect of
interest rates rising in Japan and Europe.”

Henry is inclined
to believe both. Currency traders are likely to jump on any news that may have
to do with the overall confidence in the Australian economy, but in the end the
markets are more concerned with the overall economic picture that includes the
prospect of rising interest rates – the major driver of foreign exchange
markets.

Is it back to the status quo? Of course not – this has damaged the PM, it has damaged the Liberal
party and most of all it has damaged Cossie, who looked like a scolded school
prefect on his way out of the Cabinet meeting yesterday. Cossie risks oblivion
if he doesn’t follow this through and Henry sticks by his view that the next few
months in the lead-up to Christmas will be critical.

If the PM
announces to the Party Room that he plans on staying and Cossie wants to retain
a shred of credibility, he will have to challenge, he’ll lose, and he’ll lose
with not enough time in the lead-up to the next election to make up ground. If
he does challenge, the PM will have to decide if he can fight and win the next
election without Cossie, which is no gimme. Meanwhile of course, the punters
are going to get sick of this – there are some real issues to be
discussed.

Henry said
yesterday that divorce was imminent. Of course in Australia, couples have to be
separated for 12 months before a divorce is granted. The separation has been
pretty much made official, and the divorce is coming – make no
mistake.

More reading at
Henry Thornton.