Business News

QE2 and where are the banks?

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by Peter Switzer

While we’ve copped bad news with interest rate rises here, the Yanks have given us good news with the US election not disappointing Wall Street and the Fed promising to buy US$600 billion worth of long-term treasuries by the middle of 2011.

So we have had the answers to two really important market-moving questions but here’s a question that’s still unanswered: “Where are the other banks with their interest rate decisions?”

It was good to see Wall Street finish positively after the election result and the quantitative easing round two (QE2) decision. A bad result would have played into the hands of short-sellers and hedge funds.

The good news

Now the good stuff for a rally is really stacking up. Let’s go through it:

Company reporting remains better than expected.
QE2 will pump money into the US economy.
The mid-term election result was market-friendly.
The stock market historically does well when there’s a Democrat President with no control of the House.
The third year of a presidency is best for stock markets.
November to April is the best six months for the US stock market.
US shares do well with devaluations of the greenback.
David Cassidy, the chief equity strategist at UBS thinks the US economic outlook is on the improve over 2011.

2011 outlook

Against this, we have mounting debt worries worldwide and globally other countries could try and race to the bottom with their own currencies. That said, the short-term ‘goods’ look like they outweigh the short-term ‘bads’. Of course, the long-term issues might eventually come back to hurt shares but I suspect 2011 will be a good year for stock markets.

Important question

Now to the question — where are the banks?

Clearly Westpac’s record result and 84.2 per cent rise in net profit has made it harder for that bank to follow the CBA’s lead with a 0.45 per cent hike in home loans. Some argue the other three big banks are feeling the heat and are running scared. Others say they off at the races!

One thing is for sure: the public and Government backlash means the other big banks have to think through their rate rise responses.

For those wondering how the Government could add more competition without opting for draconian regulations, they should have a look at my interview with lawyer, Jon Denovan from Gadens Lawyers, who helped John Symond kick off Aussie Home Loans in the early 1990s.

And for anyone who wants to know why Terry McCrann thinks the Reserve Bank did the right thing raising rates on Cup Day, have a look at my interview with Terry tonight on my Sky News Business Channel program (or check it out tomorrow on this site).

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, November 04, 2010