Smart Investing/Trading for the week ending December 5 2008

Weekly US markets update and outlook

Washington may steal Wall Street's limelight
With no relief seen in economic data, eyes turn to more federal bailouts

Marketwatch:Stock investors can expect little relief from economic data or corporate reports in the week ahead, making Washington's efforts to fix the broken credit system the one possible bright spot.

The Dow Jones Industrial Average and S&P 500 come to grips with the magnitude of the problem, tumbled last week as a drumbeat of bad economic and corporate news increased the likelihood the U.S. economy was in the midst of a severe recession.

"It looks like the market is starting to are already starting to get baked into prices," said Russ Koesterich, head of investment strategy for Barclays Global Investors. Economists don't see much moderation on the recession front for the week ahead. Retail sales and consumer sentiment reports are expected to show large drops and multi-decade lows. Wholesale prices are forecast to have retreated -- generally a good sign -- but one that's due to plunging oil prices. Prices have dropped as depressed consumers and manufacturers have used less.

Similarly, the handful of companies scheduled to report earnings - including consumer-oriented firms H&R Block, Inc. Costco Corp. and CKE Restaurants -- will be hard-pressed to find something good to say about the U.S. spending environment. Their reports will follow the worst monthly job loss and the grimmest month for same-store sales in more than three decades.

The dismal economic and corporate outlook leaves the heavy lifting to Washington, D.C. Lawmakers are debating bailout requests from struggling carmakers General Motors Corp., Ford Motor Co. and Chrysler LLC

Also, investors will be keyed into any announcements from President-elect Barack Obama or House Speaker Nancy Pelosi, D-Calif., on the direction of another fiscal stimulus package.

And the Treasury and Congress are expected to make further proposals on direct aid to mortgage markets, say economists at IHS Global Insight. Announcements about an alphabet soup of programs to lower borrowing costs and make loans more available have rocked credit markets in recent weeks. Some of these programs have started to achieve their ultimate purpose -- driving rates down. Spreads to Treasurys on mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac have fallen sharply since the Fed said it would buy this debt Nov. 25. Mortgage rates dropped to 5.53%, a January low.

Treasury yields have also sunk, to historic lows, with declines hastened by Fed Chairman Ben Bernanke's comments Monday that the Fed might buy up Treasurys to push rates down. But borrowing costs for companies whose debt isn't backed by the U.S. government have risen in many cases. That's one more sign that risk fears are still running high, say strategists. "You'll know when risk appetite comes back into the market when yields on Treasurys start to back up," said Koesterich. The 10-year Treasury yield last week hit 2.655%, the lowest since at least 1955. Thirty-year bonds touched 3.165%, the lowest since at least 1977.

Still, a rally in stocks on Friday, the same day the Labor Department said the U.S. destroyed 553,000 jobs last month, have given some strategists reason hope for a turnaround. "In view of the 'mild' reaction to the U.S. employment report today, a modest increase in risk appetite between now and the end of the year is still not completely out of the question," wrote Stephen Gallo, head of market analysis at Schneider Foreign Exchange Ltd. More willingness to take on risk usually bodes poorly for the U.S. dollar. Like U.S. Treasurys, it's benefited from a flow into safety assets.

The U.S. dollar index gained 0.6% last week. Despite a nearly 260-point, or 3.1%, gain on Friday, the Dow-30 ended the week 2.2% lower. The S&P 500 lost 2.3%.

Oil futures plunged 25%, their worse weekly loss since Jan. 1991.

Weekly KLCI Update and Outlook

ICapital: The KLSE CI is below its 30-day, 50-day and 50-week moving averages. Its daily MACD is struggling to stay bullish and its DMI is bearish.

This week, we continue to see endless developments such as the continued bailout of the US economy, interest rate cuts by China, BOE, ECB etc leading to a short-lived rally. Locally, Bank Negara also lowered its OPR to 3.25%, the first reduction in more than 5 years. However, the KLSE CI still ended lower in lacklustre trade. Technically, the weekly MACD is still bearish but it has stalled its fall. Has it reached a bottom or has it not?

* Tmn Bkt Mewah, Ampang landslides kills 4 people and evacuated thousands of residents. (site is just a few kms away from the Highland Towers disaster in 1993 where 48 people were killed. PM: Stop all hillside projects! I am quite sure we will very soon forget about it and happily approving it all over again!

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* Despite Paulson(US)'s calls for stronger RMB, some analysts were of the opinion it will not happen so soon as the currency is set to depreciate further. This is in view of the declining China exports and easier to tame inflation.

* TheStar Biz: South Korea's forex reserves fell to new lows with a drop of USD11.7b in November to USD200b (lowest since January 2005 when it was at USD199.7b). Japan's forex reserves meanwhile touches USD1T in November (October USD977.72b) on US Treasury gains as it came with lower yields.

Bloomberg: Interest rate cuts everywhere! Egs: NZ cuts its key interest rate to 5% from 6.5%. Thailand cuts its benchmark interest rate to 2.75% from 3.75%. UK cuts interest rate to its lowest since 1951 to 2% (from 3%) while ECB cuts to 2.5% from 3.25%.

* Bloomberg: Jim Rogers says commodities fundamentals are unimpaired and prices will rebound when a lack of new supply leads to shortages. Still so bullish?Merrill Lynch is predicting a USD25 per barrel for oil next year if China economy slumps. Oil is nearing USD40 per barrel now.

* US lawmakers will vote as soon as Tuesday on a proposal being worked out this weekend to help save the failing US carmakers.