每日市場點評 --- February 6, 2008

The market simply cannot hold onto its early gain and closed the day at almost the lowest level. More troubling, this happened on a day when both corporate earnings (higher than expected results from Disney) and economic news (higher than expected Q4 Productivity number) were mostly positive. Simply from technical perspective, it is very likely that the market is going to re-test the previous lows made in late January. On the fundamental side, the picture is not pretty either.

Let me pause a moment here and look at most important economic news since the start of 2008: a). Employment. The unemployment rate jumped from 4.7% to 5.0% before easing a little bit in the latest report. Since 1949, every time there was a 0.3% jump in unemployment rate, a recession would follow soon. The Non-farm payrolls have already dipped into negative territory (although the number may be revised back into positive territory in the next few months) and the initial claims had a huge jump last week ( so tomorrow’s jobless claims bear a close watch). In short, the labour market is pretty shaky; b). Housing. Although the sector accounts only 7% of the total economy, it is really the number one drag to the economy in the past two years and is partly responsible for the sub-prime mess we are experiencing right now. The data here were simply disastrous and it may still take several months before this sector stabilizes. On a positive side, the recent surge in refinancing activities after 30-year mortgage rate slumping to a 4-year low may eventually make houses attractive again; c) Inflation. The prospect is not looking good here either. Although the core-CPI remains relatively stable, it looks more and more likely that higher energy and food prices are spreading into other sectors of the economy. In addition, inflation doesn’t just happen to the US. It shows almost everywhere and in almost every major economies. It seems only a global recession can prevent it from losing control and this certainly is not great news; d). Manufacturing Sector. I guess this is the part that has caused most debates among economists. On the one hand, both durable orders and factory orders look pretty healthy in the past two months, indicating business is still investing in equipments. On the other hand, both regional and national ISM surveys have dipped below 50 during the same period, indicating some parts of the sector were already contracting. The best I can say here is the manufacturing sector is at a cross road; e). Service Sector. Here came probably the biggest shocking news. The Non-Manufacturing ISM survey reported the first contraction since March 2003 yesterday. As the service sector is accounting for almost 80% of the US economy, a contraction in that sector will almost for sure guarantee a recession in the broader economy. Although we have one month negative data for the service sector, the trend is clearly not looking good.

The global economic picture is as gloomy. We have already seen clear slow down in the Euro region. For example, the retail sales in that region posted their largest drop ever in January. The housing market in UK continued to slump and the approval for new mortgages dropped to a nine-year low in January. Unlike the US Fed, ECB cannot simply cut interest rates to boost the economy without worrying about inflation, which means further slow down in that region in the months ahead. In Asian, Japan’s housing starts dropped almost 20% in 2007 and its key export sector is going to face more challenges with a stronger Yen. In China, the central government is going to impose a tight monetary policy in 2008 to prevent inflation losing control. In India, a strong Rupee has already started to hurt its exports with material slow down in outsourcing activities. Although most emerging markets still enjoy a strong economy due to record commodity prices in the past few years, the tide can easily change if the global economy enters into a recession. Simply put, investors should get prepared for a tough year ahead.