Smart Investing/Trading for the week ending June 06 2008

Weekly US markets update and outlook

U.S. stocks face renewed economic uncertainties
Surge in joblessness, oil near $140 fuel recession fears

Marketwatch: Stocks will enter the second week of June with renewed uncertainty about the outlook for the ailing U.S. economy, after shocking news Friday that the U.S. jobless rate jumped to 5.5% while crude prices soared to a record near $140 a barrel. "The U.S. jobs report had recessionary paw prints all over it," said Sherry Cooper, chief economist at BMO Capital Markets. The stock market tanked on the news, only to see losses accelerate as oil continued to surge, fueling fears people paying more at the pump will cut back on consumer spending. "In past times usually when our economy went down, oil prices would go down," said Owen Fitzpatrick, chief U.S. equities strategist at Deutsche Bank. "But we're not in the driver's seat anymore. Supply is coming from Saudi Arabia, and it's China on the demand side. "This time, it's not a sign of our economy overheating," he added. Crude finished the session on a gain of nearly $11 at $138.54 a barrel, after earlier reaching a record high above $139. At the end of Friday, the Dow Jones Industrial Average plunged 394.64 points, or 3.1%, to end 12,209.81, giving it a weekly loss of 3.5%. The S&P 500 Index fell 43.36 points, or 3.1%, to 1,360.69, leaving it down 2.9% for the week. The technology-heavy Nasdaq Composite Index shed 75.38 points, or 3%, to 2,474.56 for a weekly decline of 1.9%.

The surge in crude futures Friday came amid heightened concerns that Israel might attack Iran, one of the world's largest oil producers, while a broker forecast a barrel would top $150 within a month. A slide in the dollar further drove oil's rally, with the U.S. currency getting hit by the weakness of the jobs report and a jump in the euro, following hints that the European Central Bank might soon lift interest rates . A weaker U.S. unit makes dollar-denominated commodities, such as oil, cheaper for holders of other currencies.

Monday will bring pending home-sales data for April and on Tuesday the trade-deficit figure for April will be released. On Wednesday, the Federal Reserve unveils its Beige Book of economic conditions. In addition, the market will key in on the consumer-price index for signs of whether surging energy and food prices are seeping into so-called core prices. "I think [surging commodities] is more of a concern for growth," added Stovall. "It's not wage-based inflation, which leads to higher and higher prices. Our forecast is that inflation will moderate as consumers cut back on spending."


KLSE Technical Update and Outlook

I Capital: Update on the daily KLSE Composite Index. After the KLCI reacted sharply to the government's announcement of the subsidy restructuring for energy products, the economy is now facing extra headwinds with rising prices for food and energy. The pullback below the short-term support level, accompanied by a bearish MACD crossover, suggests that the selling pressure is increasing. I Capital is worried that the recent weakness could continue and probably lead the index to the lower support level of 1,160.

* Sunday Star: "If Malaysians are expected to change their lifestyles to cope with higher prices, the Government must also adopt a more prudent and frugal style of management. The Government can expect Malaysians to be less forgiving from now when they come across extravagant projects and schemes, which see little return for the country". The increase in energy cost was a suprise to me. I actually expected a price increase in fuel only in September as reported by the Government. I am certainly baffled and worried by the sudden and drastic action. [ For our records, Malaysian petrol jumped 41% to RM2.70 from RM1.92 per litre while diesel went up by 63% to 2.58 from RM1.58 per litre. In line with the increase in fuel price, Tenaga will be raising its electricity rates by 20% for homes and 26% for business users]. Can we cope....and it is just the beginning.....?