INVESTORS look set to react with caution next week to the approval of a $US700 billion ($900 billion) Wall Street bailout .
The Australian stockmarket is expected to fall by up to 50 points, or 1 per cent, when it opens on Monday on the back of news 159,000 Americans lost their jobs in September - a further sign the US is in recession.
US investors pushed The Dow industrials down 162 points, or 1.55, per cent, after the bailout package vote, and the rate at which banks lend to each other also climbed.
Commonwealth securities senior analyst Craig James is tipping the Australian share market will fall 40 points on Monday, while AMP Capital Investors chief economist Shane is expecting a 50 point, or 1 per cent, slump.
"Sanity prevails"
Mr James said the Congress had no choice but to back the Bill or risk plunging the US economy into a depression.
"Our reaction is that sanity has prevailed,'' he said.
"If you didn't have this rescue package then it would be certain that you would have not just a recession in the US, but you could get into a depressionary type scenario. "
Some US analysts believe the economy is already in a recession. “There is little doubt that the nation is in a recession which will only deepen in coming months as the financial crisis casts a pall on economic activity,'' said Sophia Koropeckyj at Economy.com.
Getting banks back on track
Mr James said the passage of the bailout should get US financial institutions back on track.
"Hopefully, this will be back to business for US financial institutions that there will be some lower interest rates on credit markets in the US and hopefully that's going to flow through across the globe,'' he said.
"Clearly that has been a problem for Australian banks. They have been going to the US, facing higher funding costs, having to either absorb that or pass that onto customers.
"If those funding costs come down then that's good news for Australian borrowers.''
Rates should be 'slashed'
Dr Oliver said the Reserve Bank of Australia (RBA) needed to embark on a rate slashing mission to get the official interest rate down to between 5.5 and 6 per cent by early next year, starting with half a percentage point cut when it meets next week.
Mr James also said a 50 basis points reduction was likely if the RBA's private soundings indicated the banks could not pass on a 25 basis points reduction.
Armageddon averted, recession still on
Dr Oliver said while the passage of the bailout was necessary to avoid a "financial Armageddon'' it would not drag the US economy out of recession.
"The squeeze on credit markets actually got worse last night despite the passage of the package through Congress, which suggests we are still not out of the woods yet,'' he said.
"The economic data release overnight just added to the view the US has already gone into recession and the rescue package won't do anything to stop that.''
Australia's recession risk increasing
Mr Oliver said the US, Japan and Europe were in recession and the risk of recession in Australia was increasing.
"For Australia, the growing signs of recession in the US highlighted by the further slump in employment in the US suggests to me that whilst our trade situation is now quite strong, we can't count on that going into next year,'' he said.
"The risk of recession in Australia is growing. I think we will still avoid it but it's certainly gone up.''
Poitical welcome
Prime Minister Kevin Rudd welcomed the rescue package but stressed more needed to be done.
"This is a positive step forward in restoring stability to the global banking system,'' he said.
"But there is still much much more work to be done.
"We now face a challenge of bringing about globally consistent financial regulations on transparency, on prudential standards and on corporate governance in the financial sector.''
Opposition Leader Malcolm Turnbull said the bailout would restore confidence to global markets but warned there were rocky times ahead.
"We have to recognise that this crisis has worsened to the extent that no one could have predicted,'' he said.
"I would not be surprised if we had more bad days on Wall Street, but I would hope that the trend will be to improve.
The House, which sparked market and political turmoil by rejecting an earlier version of the bailout on Monday by 228 votes to 205, voted 263 to 171 overnight to pass the largest US government economic intervention since the 1930s.
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