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STOCKS here are likely to face a rough ride this week, following the release of economic data suggesting a mixed outlook for recovery in the world's biggest economies.
Investors looking to the United States for direction will find little comfort - Friday was a roller-coaster ride of welcome and unwelcome surprises, sending the major US equity indices lower for the week.
The Reuters/University of Michigan index that tracks monthly changes in US consumer sentiment fell for a second straight month in August, dampening hopes of a revival in consumer spending, the biggest driver of the US economy.
A separate data release on Friday showed that US industrial production rose 0.5 per cent in July from the previous month, stoking hopes of a recovery in its manufacturing sector. But the increase in manufacturing output was mainly due to short-term boosts from the reopening of factories by US carmakers General Motors and Chrysler after their bankruptcy restructuring earlier this year, as well as the government's incentive scheme to encourage people to trade in their old cars for new, fuel-efficient ones, known colloquially as 'cash for clunkers'.
On Friday, too, a large US regional bank, Colonial BancGroup, was shut down by regulators, the biggest bank failure there since Washington Mutual collapsed in September last year - a reminder of the troubles still faced by lenders there.
Friday's developments underline the fragility of the world's biggest economy. Consumer spending has driven more than two-thirds of US economic activity for many years, and with the unemployment rate at 9.4 per cent and home prices far below their peak in 2006, a rapid recovery in the US seems a remote prospect.
Some economists have long warned of the possibility of a 'double-dip' recovery, where economic activity slows or even contracts again once the effect of short-term stimulus measures wears out, before growth resumes.
There were other signs, though, of recovery elsewhere that could bode well for Asia. On Friday, France and Germany - the two biggest economies in the 16-country eurozone for which the European Central Bank sets monetary policy - both reported an unexpected return to growth in the second quarter. The expansion was faint - a mere 0.3 per cent growth from the first three months of the year - but it was the first sign of growth after four straight quarters of contraction.
And Hong Kong reported faster-than-expected second-quarter economic growth of 3.3 per cent compared to the first quarter, also ending four consecutive quarters of contraction.
Still, the likelihood is that major equity indices in Asia will suffer a volatile week ahead, if only because they have risen so far, so fast. There is much uncertainty over whether current prices are justified by the earnings potential of firms, given that the pace of any recovery in the global economy is still highly uncertain.
Already, investors appear to have priced in a lot of positive, or at least, not-as-bad-as-expected news. At last Friday's close, the Straits Times Index had gained 80.6 per cent since its March 9 low; Hong Kong's Hang Seng Index was up 84.2 per cent.
Data on Singapore's July non-oil domestic exports to be published today should offer yet more clues about the demand for Singapore's exports from its major trading partners.
In his National Day Rally speech last night, Prime Minister Lee Hsien Loong warned of an uncertain outlook for Singapore's economy beyond the current quarter, and said that the global recovery is likely to be 'subdued'.
Although employment appears to have stabilised, 'there could be more job losses', he said. 'We need to be prepared.'
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