Business News

Another good day on high hopes

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by Peter Switzer

Despite expectations that the US economy will grow more slowly than previously thought, the Dow put on 45 points or 0.42 per cent and the S&P index added six points or 0.55 per cent.

Meanwhile, on the local front it’s looking more likely that interest rates could be on hold for the rest of this year but Thursday’s employment numbers could ruin this good news story.

Back to the US, the day on Wall Street was not helped by Hewlett Packard losing eight per cent following its CEO resigning on sexual harassment matters, which turned out to be accusations falsifying expenses over a relationship with a contractor.

More liquidity

So, why are investors positive?

Tomorrow the US Federal Reserve is expected to take measures to increase liquidity, that is money, in the hands of Americans. It’s often called printing money but they don’t need to do that. They simply might buy mortgages off banks and the exchange for money means banks can lend that money to try to kickstart economic activity leading hopefully to jobs.

So market direction is in the hands of Fed chairman, Ben Bernanke.

The news overnight

There was some other OK news with Goldman Sachs. They peeled back their 2010 forecast for the S&P 500 from 1250 to 1200, but their 12-month forecast is 1250, which implies an 11 per cent jump in the index.

Better news came from McDonald's which said same-store sales in the US were 5.7 per cent higher. This was taken as a plus reading for consumer stocks.

More good news came in the form of less Americans with negative equity in their homes, which could be a fair forward indicator for the missing US consumer.

When the consumer comes back, so will the missing jobs.

No rate rise until 2011?

On the local front, we saw new home loans for owner-occupied properties fall by 3.9 per cent in June. That’s the eighth month out of the past nine and takes these loans to a nine-year low and that was after the GST and the tech bubble spooked the Aussie economy.

Meanwhile, ANZ jobs ads rose by 1.3 per cent in July while the Advantage Internet Job index fell 1.3 per cent. This suggests that the labour market isn’t as tight as we thought and we should find out on Thursday when the next unemployment report comes out.

But the best news for home loan interest rate sufferers is this observation from Craig James from CommSec: “Day by day, it is looking more likely that the Reserve Bank Board will be sitting on its hands until 2011. Interest rates are back at ‘normal’ but there are good grounds to argue that the normalisation process was a little too quick.”

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, August 10, 2010