Stock markets are influenced by many factors: interest rates, government policy, exchange rates and even, in a gloriously British way, the weather! However, the single most important influence shaping investor appetite is that of confidence, specifically a confluence of consumer, business and government confidence.

Depressingly, not only is investor confidence waning rapidly, but according to November’s ‘Nationwide Building Society Consumer Confidence Survey’ nearly 60% of those canvassed are pessimistic about the labour markets, believing there will be fewer jobs in six months time.

Reading Michael Page’s trading update in December, it is clear that the loss of confidence among its international client base is affecting performance, resulting in profits expectations at the bottom end of current analyst forecasts. An already rattled investor market reacted by marking down the share price by 15% during morning trading the day after the announcement.

We expect more staffing firms to come under increasing pressure

With many commentators believing that the market had fully factored in the pending recession, this severe initial reaction suggested otherwise. The recent share price performance of the bellwether UK recruitment firms such as Hays, SThree and Robert Walters has remained in line with that of the FTSE All-Share as relatively flat over late November, early December. As the global recession becomes more tangible, we expect more staffing firms to come under increasing pressure and for there to be a strong rise in negative trading statements from recruitment plcs.

And more bad news… Recent research from the Recruitment & Employment Confederation’s (REC) ‘Report on Jobs’, highlights the scale of the challenge facing the recruitment industry, concluding that “the demand for both permanent and temporary staff declined for the second month running in November and at survey record rates”.

Kevin Green, chief executive of the REC, summed up the mood in certain parts of the recruitment industry, announcing that “these figures confirm that the jobs market has hit the wall”.

The world is currently a highly dynamic place in which a single week is a long time. A more accurate picture of the troubles of the recruitment sector will come in the form of Hays and Michael Page trading statements due on 8 January. We await with interest the update and insights they will bring.

^{Please note that whilst this document has been prepared in good faith and with reasonable care and skill, no representations or warranties, express or implied, are made or any assurances are given by Catalyst Corporate Finance LLP, its employees, members or agents, that the information contained herein is true or accurate and no liability therefore is accepted by Catalyst Corporate Finance LLP, its employees, members or agents. In addition, in making an investment decision, prospective investors must rely on their own investigations and evaluations, including the merits and risks involved. Each prospective investor should consult their own advisers in respect of legal, tax, regulatory, financial and accounting consequences of any proposed investment and investors should not treat the content of this document as advice in relation to such matters. Any prospective investor should, if they are in any doubt about any investments to which this document could relate, consult an authorised person specialising in advising on investments of the kind in question.}

^{Catalyst Corporate Finance LLP is authorised and regulated by the Financial Services Authority.
© Catalyst Corporate Finance LLP 2008}