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Monday, June 08, 2009

Mixed signals for week ahead

Mixed signals for week ahead

Business Times - 08 Jun 2009

STOCKS here face an uncertain start to the week, with conflicting signals over the timing and degree of a recovery in the global economy. Friday's mixed finish on Wall Street offers precious little guidance to those looking to the US for direction, following a key jobs report that gave both optimists and pessimists reasons to cling ever more strongly to their respective convictions.

The monthly US employment situation report for May was less bad than expected - far fewer jobs were lost than feared; in fact, the smallest number since last September - fuelling hopes that the recession there is nearing its end, with a recovery around the corner.

But as several commentators pointed out, the net loss of 345,000 jobs in a single month is hardly good news, and suggests a crippling burden of joblessness that will slow any recovery in the world's biggest economy.

Many businesses there are still busy slashing costs and cautious about the outlook for sales in the months ahead.

And an economy that has shed six million jobs in the past 18 months is unlikely to see a sharp rebound in aggregate consumer spending - for the longest time the main driver of the US economy - in the months ahead. Many of those still employed have had their salaries cut.

And the heavy aggregate debt load of US consumers will likely force many to save more, rather than spend, pointing to a slow, tepid recovery. The US unemployment rate in May was 9.4 per cent, the highest in a quarter of a century, while the growth in average hourly earnings for private-sector workers has slowed to a crawl.

Large retailers such as Macy's and JC Penney continued to report falling sales in May, compared to a year earlier, according to a survey by Thomson Reuters, though an official report due this Thursday is expected to show that overall US retail sales rose slightly in May from a year earlier.

Other mixed signals can be seen from the recent rebound in commodity prices - especially the price of oil, which briefly rose above US$70 a barrel last week.

Optimists cheer the increase in commodity prices as more evidence that a recovery in the global economy - and demand for raw materials and energy - is at hand; pessimists suggest that higher commodity prices are just the thing that will stifle any nascent recovery in economic activity.

Here, the good news for the bulls is that interest in penny stocks, not just safe blue-chip companies, appears to be returning with a vengeance - a sign that retail investors are prepared to dabble again.

In May, the trading volume of Catalist-listed stocks was 4.92 billion, the highest turnover for stocks listed on the second board since November 2007.

The renewed interest in penny stocks was evident on Friday, when the UOB Catalist index jumped 5.6 per cent, outpacing the gains in the Straits Times Index (STI) and the All-Share index, which rose 1.4 per cent and 1.1 per cent respectively.

Another indication: the 301 relatively illiquid stocks tracked by the FTSE ST Fledgling index, which are not included in the All-Share index, accounted for 1.11 billion of the shares that changed hands on Friday, even more than the trading volume of 1.09 billion shares recorded for the 269 stocks tracked by the All-Share index.

In a week light on scheduled economic data releases here and in the US, perhaps the action in penny stocks will be a better indication of market sentiment than the movements in the STI.

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