The last time markets had such a big post-budget bump – testifying to the new age of fiscal dominance – was when Josh Frydenberg had a full head of hair.

That urgency of more US fiscal stimulus was rammed home by none other than Federal Reserve chairman Jerome Powell, who warned of “tragic” consequences in the absence of more government support.
That the world’s most powerful central banker wants more fiscal support testifies to the tectonic changes in policy leadership at a time when interest rates have become a relic and large-scale bond purchases can’t really do much to create jobs.
The differing paths laid out for Australian and US fiscal policy over the space of 24 hours represents a dilemma for Australian investors.
Yes, the consequences of Frydenberg’s “bazooka” moment were obvious to investors with a keen eye on stocks leveraged to the extra hit of spending power coming households’ way through tax cuts and special one-off payments.
Banks, which have borne a heavy burden through loan deferrals, advanced, so too did retailers like JB Hi-Fi and Wesfarmers.
But the US economy still rates as the world’s largest. The trajectory of US growth still has an outsized influence on the global economy and markets, including Australia.
Many of Australia’s most successful companies, such as CSL, are far more dependent on big global markets like the US for earnings than they are on the domestic market.
The latest update from listed investment company Absolute Equity Performance Fund shows why investors shouldn’t get too carried away with what’s happening in Australia.
Sure, big sectors like the banks earn only 3 per cent of their revenue offshore.
But the materials sector which is heavily weighted towards miners and stocks like James Hardie earns 76 per cent of revenue offshore. Meanwhile, the fast growing tech sector earns half its revenue beyond Australia’s borders, and healthcare which is code mainly for CSL earns 85 per cent of its earnings overseas.
Given the reliance of some of Australia’s biggest and best performing stocks on markets like the US and China for their revenue, investors need to watch how hard policymakers in Washington and Beijing are cranking their fiscal levers.
Of course, it’s not all about fiscal policy. Yes, its dominance has grown and will become more influential.
But that doesn’t mean central banks are totally redundant. The Federal Reserve should never, ever be underestimated about what it can do with the world’s most powerful balance sheet.
The Reserve Bank of Australia’s hint following Tuesday’s board meeting that more easing may be coming helped steer the Australian dollar US1¢ lower against the greenback in the space of 24 hours.
That’s a big plus for offshore earners. They just need the US and Chinese policymakers to follow Frydenberg and not be shy in pulling the trigger on more stimulus as long as it’s needed.