Saturday September 18, 2010
By THEAN LEE CHENG
WHILE much of the Western world today continues to suffer the effects of the global financial crisis of 2008/09, Asia has moved on. It is probably in this process of moving on that there is much concern about the property prices today, as seen in several readers writing in calling for curbs to speculation.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng says prices began to rise during the second half of last year but surge the first half of this year, particularly for landed units.
Although the 1998 Asian Financial Crisis took its toll on the Malaysian property sector, the sector was not affected by the 2008/09 global crisis.
“Our main concern today is the escalation in property prices. We do not see an economy-wide bubble. It is location specific. If the situation persists, it will have a spillover effect on the broader market segment. The effect is more noticeable in Penang, although certain locations in Kuala Lumpur are also affected. The double-digit growth may be sustainable for a year or two, but if it continues, there is the high likelihood that we will experience a bubble,” says Yeah.
Yeah’s views are echoed by property consultancy Khong & Jaafar Sdn Bhd managing director Elvin Fernandez.
“For a number of years after the Asian Financial Crisis, house prices hovered at about four times our annual household income. In some countries, it is three times. When prices increase six to seven times the household income, that is known as a bubble. In the last six months or so, there are a few locations where prices have started to run up. It is still not alarming as it has not yet affected the entire market.”
Both Yeah and Fernandez also concur that there are two key factors which are supporting this sharp run-up on prices – low interest and easy credit financing.
Prior to this sharp run-up on prices, the middle income group could afford a certain type of housing, in a certain location. Of late, the group discovers that this has gone beyond their reach.
At the same time, the number of people in the high-income bracket has also increased and their strong purchasing power has enabled them to snap up properties as an investment asset.
“Both these factors were present last year because of the counter measures taken by the Government to stimulate domestic demand.
“This has resulted in a boost in demand and the rush to buy in anticipation that prices will go up.
“Fundamentally, one may think it is not affordable but the expectation of higher prices stays with speculators. And the market becomes frothy,” says Yeah.
When prices go beyond fundamentals – an overshot in prices – rental yield is affected. If this situation is confided to selected schemes, the negative impact is limited. It is the high income bracket that will be affected.
A reasonable rental return is 3% to 5% nett depending on the type of house. But with various new areas coming up, yield has gone to 2% or below.
“These are dangerous levels from the household income perspective and also from the rental perspective,” says Fernandez.
Added to that is speculation, with some people buying five to 10 houses in one go, says Fernandez. The 5/95 schemes and other variants of it, where you pay RM2,000 to RM3,000 and need not pay anything until the property is completed, is an invitation to speculate.
Speculation, says Yeah, is another of RAM’s other concern as this is likely to affect non-performing loans (NPLs).
“At this point in time, the latest figures show that NPLs have not increased. That is one of the arguments that there is no bubble. What banks need to do is to ensure that lending is not generating speculation,” says Yeah.
The total exposure of banks to the property sector is about 40% in terms of mortgages and lending for construction loans.
Sunday, September 19, 2010
Tuesday, September 7, 2010
A TALE OF TWO CITIES
Contrast the gloom of the WEST and upbeat mood of the EAST.
" What has been will be again,
What has been done will be done again,
There is nothing new under the sun. "
All good things comes to an end and from every time of sorrow, good times will come again.
STORY A (IN THE WEST)
Wednesday September 8, 2010
Rising risk of double-dip recession
COMMENT
By NOURIEL ROUBINI
THE global economy is headed towards a massive slowdown this year and next. The global economic recovery since the severe recession of 2008–2009 has been artificially boosted by a massive monetary and fiscal stimulus and the backstopping and bailout of the financial system.
But the fundamental excesses that led to the crisis – too much debt and leverage of the private sector (households, banks and other financial institutions, and even a fat-tail of the corporate sector) – have not been addressed as private sector deleveraging has barely started.
At the same time, there is now massive re-leveraging of the public sector in advanced economies with massive budget deficits and public debt accumulation driven by automatic stabilisers, counter-cyclical Keynesian fiscal stimulus and socialisation of the private losses (massive fiscal costs of bailing out the financial system).
Thus, at best, we will have a protracted period of anaemic sub-par, below-trend growth in advanced economies as the deleveraging of households, financial institutions and, soon, enough governments starts to kick in.
Moreover, at the global level, the countries that spent too much now need to deleverage – in the United States, Britain, Spain, Greece and elsewhere – and now they are spending, consuming and importing less. But those countries that saved too much – China, emerging Asia, Germany and Japan – are not spending more to compensate for the fall in spending of the first group.
Thus, in a world of excess supply, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global economic slowdown, which is already evident from the data for the second quarter of 2010, will accelerate in the second half of the year. The fiscal stimulus will become a drag on growth as austerity programme in most countries kick in.
The inventory adjustment, which boosted growth for a few quarters, will run its course. The effects of tax policies that stole demand from the future, such as “cash-for-clunkers” schemes in most countries, investment tax credits, tax credits for homebuyers or cash for green appliances, will fizzle out as they have all expired.
Labour market conditions are still very weak with little job creation and a sense of malaise is spreading among consumers.
The most likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double-dip.
In the United States, growth was already below trend even in the first half (2.7% in the first quarter and tracking a mediocre 2.2% in the second quarter). It will further slow to 1.5% growth in the second half of this year and into 2011.
Thus, even if we technically avoid a double-dip it will feel like a recession, given the mediocre job creation and further rise in unemployment; larger cyclical budget deficits; a further fall in home prices; banks’ larger losses on mortgages, consumer credit and other loans; and the risk that the US Congress will take protectionist actions against China which has allowed only a token appreciation of its currency.
Outlook for eurozone worse still
In the eurozone, the outlook is even worse. Growth is likely to be closer to zero by the end of the year, as fiscal austerity and stock market declines, along with a sharp rise in sovereign, corporate and interbank liquidity spreads, increase the cost of capital.
Increases in risk aversion, volatility and sovereign risk will also further undermine business, investor and consumer confidence in Europe and around the world, while the weakening of the euro hurts the export and growth prospects of the United States, China and emerging Asia.
Even in China, the policy tightening to deal with its economic overheating and the rise in goods and asset inflation is now slowing down growth. The slowdown in advanced economies’ growth and the weakening of the euro will further dent Chinese growth in the second half of the year. The world’s leading growth locomotive is thus slowing, from 11%-plus towards a 7% rate by the year-end.
This is bad news for export growth in the rest of Asia and among commodities exporters, which increasingly rely on Chinese imports.
An important victim will be Japan, whose domestic demand is anaemic as real income growth is anaemic and which relies mostly on exports to China for its economic growth.
Japan also suffers from low potential growth, given the lack of structural reforms, and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, scary ageing demographics, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which the US growth slumps to a mediocre 1.5%, where eurozone and Japan’s growth slows closer to zero than 1%, and where China slows below 8%, is not a global double-dip but it will feel awfully close to one.
Also, any additional shock could tip this fragile global economy, which is growing close to a stall speed, into a full-fledged double-dip. The sovereign problems of the eurozone could get worse, leading to another round of risky asset-price correction, global risk aversion, and volatility and financial contagion that will hurt the region and the world.
Vicious circle
A vicious circle of asset-price correction leading to weaker growth and in turn downside surprises to growth, which are not currently priced by markets and causing further asset prices falls, could occur like the one that tipped the global economy into a global recession in 2008-2009.
One cannot exclude that Israel will strike Iran in the next 12 months; then oil prices could rapidly spike and, like the summer of 2008, tip the global economy into a recession.
Finally, policymakers are running out of policy bullets – which have been already overused in the last three years – in the event the risks of a double-dip rise. Some additional quantitative easing will not make much of a difference. There is little room for further fiscal stimulus in most advanced economies. And the ability to bail out financial systems that are too-big-to-fail but also too-big-to-be-saved – given the fiscal strains of many sovereign – will be sharply constrained.
Thus, as the delusions of optimists for a rapid V-shaped recovery are now out of the window, the advanced world will be at best in a long U-shaped recovery that in some cases, in eurozone and Japan, may be long enough that it will stretch into an L-shaped near depression. And it will struggle to avoid a W-shaped double-dip recession.
In this world even a V-shaped recovery in stronger emerging markets will be dented as no country is an island and many emerging market economies, starting with China, are seriously dependent on the growth of now anaemic and retrenching advanced economies.
So, fasten your seat belts as it will be a very bumpy ride for the global economy.
STORY B (IN THE EAST)
Wednesday September 8, 2010
Hot property market still grabbing attention
By ANGIE NG
PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.
The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.
According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.
In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.
The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.
Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.
The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.
They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.
Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.
Bank sources said Bank Negara’s aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.
A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.
Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.
Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.
The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.
Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.
To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.
Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.
In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.
But things have changed substantially in the past six months or so, and it should be time to review these housing packages.
If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.
We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.
Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.
Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market.
" What has been will be again,
What has been done will be done again,
There is nothing new under the sun. "
All good things comes to an end and from every time of sorrow, good times will come again.
STORY A (IN THE WEST)
Wednesday September 8, 2010
Rising risk of double-dip recession
COMMENT
By NOURIEL ROUBINI
THE global economy is headed towards a massive slowdown this year and next. The global economic recovery since the severe recession of 2008–2009 has been artificially boosted by a massive monetary and fiscal stimulus and the backstopping and bailout of the financial system.
But the fundamental excesses that led to the crisis – too much debt and leverage of the private sector (households, banks and other financial institutions, and even a fat-tail of the corporate sector) – have not been addressed as private sector deleveraging has barely started.
At the same time, there is now massive re-leveraging of the public sector in advanced economies with massive budget deficits and public debt accumulation driven by automatic stabilisers, counter-cyclical Keynesian fiscal stimulus and socialisation of the private losses (massive fiscal costs of bailing out the financial system).
Thus, at best, we will have a protracted period of anaemic sub-par, below-trend growth in advanced economies as the deleveraging of households, financial institutions and, soon, enough governments starts to kick in.
Moreover, at the global level, the countries that spent too much now need to deleverage – in the United States, Britain, Spain, Greece and elsewhere – and now they are spending, consuming and importing less. But those countries that saved too much – China, emerging Asia, Germany and Japan – are not spending more to compensate for the fall in spending of the first group.
Thus, in a world of excess supply, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global economic slowdown, which is already evident from the data for the second quarter of 2010, will accelerate in the second half of the year. The fiscal stimulus will become a drag on growth as austerity programme in most countries kick in.
The inventory adjustment, which boosted growth for a few quarters, will run its course. The effects of tax policies that stole demand from the future, such as “cash-for-clunkers” schemes in most countries, investment tax credits, tax credits for homebuyers or cash for green appliances, will fizzle out as they have all expired.
Labour market conditions are still very weak with little job creation and a sense of malaise is spreading among consumers.
The most likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double-dip.
In the United States, growth was already below trend even in the first half (2.7% in the first quarter and tracking a mediocre 2.2% in the second quarter). It will further slow to 1.5% growth in the second half of this year and into 2011.
Thus, even if we technically avoid a double-dip it will feel like a recession, given the mediocre job creation and further rise in unemployment; larger cyclical budget deficits; a further fall in home prices; banks’ larger losses on mortgages, consumer credit and other loans; and the risk that the US Congress will take protectionist actions against China which has allowed only a token appreciation of its currency.
Outlook for eurozone worse still
In the eurozone, the outlook is even worse. Growth is likely to be closer to zero by the end of the year, as fiscal austerity and stock market declines, along with a sharp rise in sovereign, corporate and interbank liquidity spreads, increase the cost of capital.
Increases in risk aversion, volatility and sovereign risk will also further undermine business, investor and consumer confidence in Europe and around the world, while the weakening of the euro hurts the export and growth prospects of the United States, China and emerging Asia.
Even in China, the policy tightening to deal with its economic overheating and the rise in goods and asset inflation is now slowing down growth. The slowdown in advanced economies’ growth and the weakening of the euro will further dent Chinese growth in the second half of the year. The world’s leading growth locomotive is thus slowing, from 11%-plus towards a 7% rate by the year-end.
This is bad news for export growth in the rest of Asia and among commodities exporters, which increasingly rely on Chinese imports.
An important victim will be Japan, whose domestic demand is anaemic as real income growth is anaemic and which relies mostly on exports to China for its economic growth.
Japan also suffers from low potential growth, given the lack of structural reforms, and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, scary ageing demographics, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which the US growth slumps to a mediocre 1.5%, where eurozone and Japan’s growth slows closer to zero than 1%, and where China slows below 8%, is not a global double-dip but it will feel awfully close to one.
Also, any additional shock could tip this fragile global economy, which is growing close to a stall speed, into a full-fledged double-dip. The sovereign problems of the eurozone could get worse, leading to another round of risky asset-price correction, global risk aversion, and volatility and financial contagion that will hurt the region and the world.
Vicious circle
A vicious circle of asset-price correction leading to weaker growth and in turn downside surprises to growth, which are not currently priced by markets and causing further asset prices falls, could occur like the one that tipped the global economy into a global recession in 2008-2009.
One cannot exclude that Israel will strike Iran in the next 12 months; then oil prices could rapidly spike and, like the summer of 2008, tip the global economy into a recession.
Finally, policymakers are running out of policy bullets – which have been already overused in the last three years – in the event the risks of a double-dip rise. Some additional quantitative easing will not make much of a difference. There is little room for further fiscal stimulus in most advanced economies. And the ability to bail out financial systems that are too-big-to-fail but also too-big-to-be-saved – given the fiscal strains of many sovereign – will be sharply constrained.
Thus, as the delusions of optimists for a rapid V-shaped recovery are now out of the window, the advanced world will be at best in a long U-shaped recovery that in some cases, in eurozone and Japan, may be long enough that it will stretch into an L-shaped near depression. And it will struggle to avoid a W-shaped double-dip recession.
In this world even a V-shaped recovery in stronger emerging markets will be dented as no country is an island and many emerging market economies, starting with China, are seriously dependent on the growth of now anaemic and retrenching advanced economies.
So, fasten your seat belts as it will be a very bumpy ride for the global economy.
STORY B (IN THE EAST)
Wednesday September 8, 2010
Hot property market still grabbing attention
By ANGIE NG
PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.
The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.
According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.
In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.
The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.
Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.
The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.
They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.
Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.
Bank sources said Bank Negara’s aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.
A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.
Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.
Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.
The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.
Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.
To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.
Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.
In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.
But things have changed substantially in the past six months or so, and it should be time to review these housing packages.
If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.
We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.
Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.
Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market.
Wednesday, September 1, 2010
Awas; Treacherous September ahead for stocks
Monday August 30, 2010
NEW YORK: Beaten-up investors go into September, historically a weak month for stocks, facing key reports on jobs, manufacturing and services. If those disappoint, the S&P 500 could breach technical support levels, pushing stocks yet lower.
The S&P 500 index has fallen nearly 13% since April as investors fret about the chance of a double-dip recession. But the index has found solid support around the 1,040 level, with a sustained move below that proving tough.
Federal Reserve chairman Ben Bernanke boosted stocks on Friday by signalling the Fed is ready to act if the economy worsens.
But more weakness in upcoming indicators like non-farm payrolls and Institute for Supply Management surveys would intensify fears the economy is sliding back into recession.
“There is this continual trend toward numbers falling short of expectations,” said Nick Kalivas, equity analyst at MF Global in Chicago. “My guess is you’ll see some selling come in again next week on these numbers.”
The non-farm payroll report on Friday is expected to show 99,000 jobs were lost in August, swollen by redundancies among temporary census workers, while private sector hires grew by only 42,000.
Both the manufacturing and services sectors are expected to have experienced another slowdown in growth in August. The ISM manufacturing report is released on Wednesday, followed by the services sector report on Friday.
The S&P 500 tested the 1,040 level twice during the week, both times ending the day with gains.
The level has consistently attracted buyers over the past 10 months and was significantly breached only once during a brief stint in July.
“Here we are sitting at this important support level, having pulled back 8% (on an intraday basis) in three weeks, you potentially set up for a reversal,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.
The benchmark Standard & Poor’s 500 index finished last week at 1,064 on Friday. If the 1,040 level is breached, the S&P 500 could fall into a lower range around 1,020 to 1,010.
However, the index runs into resistance at its 14-day moving average at 1,076.65, providing only limited scope on the upside.
Investor sentiment remains negative. In the options market, investors bought S&P 500 puts, giving them the right to sell S&P futures at a fixed price, although the most actively traded option on the S&P 500 ETF was the US$107 call, suggesting some bullish trades ahead of next week.
“Overall investor sentiment in the option market has become very skeptical, with put buying widely exceeding call purchases,” said Ryan Detrick, technical senior analyst at Schaeffer’s Investment Research in Cincinnati.
The put-to-call ratio, a measure of investor sentiment, was at 0.61 as of Thursday’s close compared with a 21-day ratio of 0.59.
Investors will be closely following comments from executives at big industrial companies like General Electric and Boeing at Morgan Stanley’s Global Industrials Unplugged Conference this week.
Intel Corp cut its third-quarter revenue estimates in a surprise on Friday.
Although investors shook off the news after an initial fall, bleak outlooks from large corporation at the heart of the economy could rattle investors.
As usual there will be a series of secondary labor market data playing second fiddle ahead of the Friday’s jobs number.
ADP’s jobs report on Wednesday is expected to show the private sector added 18,000 jobs in August, down from 42,000 in July.
Weekly claims for jobless benefits are tipped to remain solidly elevated on Thursday, edging up to 475,000 against 473,000 the week before.
With significant risks on the horizon, many investors may think twice about getting into the market at the start of September, historically the worst performing month for all three major indices.
That may be especially true given the three-day break the following week when US markets shut to observe Labour Day on Sept 6.
Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St Louis, said he found it hard to envision a rally in the current environment.
“Right now the market is locked into short-term thinking,” he said. — Reuters
NEW YORK: Beaten-up investors go into September, historically a weak month for stocks, facing key reports on jobs, manufacturing and services. If those disappoint, the S&P 500 could breach technical support levels, pushing stocks yet lower.
The S&P 500 index has fallen nearly 13% since April as investors fret about the chance of a double-dip recession. But the index has found solid support around the 1,040 level, with a sustained move below that proving tough.
Federal Reserve chairman Ben Bernanke boosted stocks on Friday by signalling the Fed is ready to act if the economy worsens.
But more weakness in upcoming indicators like non-farm payrolls and Institute for Supply Management surveys would intensify fears the economy is sliding back into recession.
“There is this continual trend toward numbers falling short of expectations,” said Nick Kalivas, equity analyst at MF Global in Chicago. “My guess is you’ll see some selling come in again next week on these numbers.”
The non-farm payroll report on Friday is expected to show 99,000 jobs were lost in August, swollen by redundancies among temporary census workers, while private sector hires grew by only 42,000.
Both the manufacturing and services sectors are expected to have experienced another slowdown in growth in August. The ISM manufacturing report is released on Wednesday, followed by the services sector report on Friday.
The S&P 500 tested the 1,040 level twice during the week, both times ending the day with gains.
The level has consistently attracted buyers over the past 10 months and was significantly breached only once during a brief stint in July.
“Here we are sitting at this important support level, having pulled back 8% (on an intraday basis) in three weeks, you potentially set up for a reversal,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.
The benchmark Standard & Poor’s 500 index finished last week at 1,064 on Friday. If the 1,040 level is breached, the S&P 500 could fall into a lower range around 1,020 to 1,010.
However, the index runs into resistance at its 14-day moving average at 1,076.65, providing only limited scope on the upside.
Investor sentiment remains negative. In the options market, investors bought S&P 500 puts, giving them the right to sell S&P futures at a fixed price, although the most actively traded option on the S&P 500 ETF was the US$107 call, suggesting some bullish trades ahead of next week.
“Overall investor sentiment in the option market has become very skeptical, with put buying widely exceeding call purchases,” said Ryan Detrick, technical senior analyst at Schaeffer’s Investment Research in Cincinnati.
The put-to-call ratio, a measure of investor sentiment, was at 0.61 as of Thursday’s close compared with a 21-day ratio of 0.59.
Investors will be closely following comments from executives at big industrial companies like General Electric and Boeing at Morgan Stanley’s Global Industrials Unplugged Conference this week.
Intel Corp cut its third-quarter revenue estimates in a surprise on Friday.
Although investors shook off the news after an initial fall, bleak outlooks from large corporation at the heart of the economy could rattle investors.
As usual there will be a series of secondary labor market data playing second fiddle ahead of the Friday’s jobs number.
ADP’s jobs report on Wednesday is expected to show the private sector added 18,000 jobs in August, down from 42,000 in July.
Weekly claims for jobless benefits are tipped to remain solidly elevated on Thursday, edging up to 475,000 against 473,000 the week before.
With significant risks on the horizon, many investors may think twice about getting into the market at the start of September, historically the worst performing month for all three major indices.
That may be especially true given the three-day break the following week when US markets shut to observe Labour Day on Sept 6.
Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St Louis, said he found it hard to envision a rally in the current environment.
“Right now the market is locked into short-term thinking,” he said. — Reuters
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