ClearWater Market Commentary as of January 20th, 2023

Here is the ClearWater Market Commentary as of January 20th, 2023:

In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  Events and Upcoming Events

Performance of Principle Indexes: 

S&P/TSX Composite Index
5 Day	0.70%
1 Month	5.11%
YTD	5.80%
1 Year	-0.57%

^{As of 2023/01/20 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Shanghai Composite	2.18%	5.68%
Nikkei	1.66%	1.76%
Hang Seng Index	1.06%	9.80%
S&P/TSX Composite	0.70%	5.80%
Nasdaq	0.55%	6.44%
FTSE 100	0.28%	5.65%
WTI Crude (Oil)	-0.20%	0.90%
DAX	-0.22%	8.19%
CAC 40	-0.27%	8.29%
MSCI EAFE	-0.50%	7.00%
S&P 500	-0.70%	3.50%
Russell 2000	-1.04%	6.02%
Dow Jones Industrial	-2.80%	-0.48%

^{As of 2023/01/20- Source: www.marketwatch.com}

Last week’s and next week’s key economic events:

US economy (S&P 500 -0.70%):

• The major indexes ended mixed for the week as recession fears appeared to weigh on sentiment. The narrowly focused Dow Jones Industrial Average performed worst and gave back a portion of its strong rally in the first two weeks of the year, while the technology-heavy Nasdaq Composite recorded a modest gain.
• Relatedly, dampening inflation fears helped growth stocks outperform, as the prospect of lower interest rates increased the implicit value of future earnings. 
• The week brought several additional signals that the economy was slowing significantly following the Federal Reserve’s aggressive rate hikes in 2022. Most notable may have been Wednesday’s report of a 1.1% drop in retail sales in December, which was roughly triple consensus estimates. November sales data were also revised lower.
• The upside of the weakening economy for investors was declining inflation pressures. The Labor Department reported that producer prices fell 0.5% in December, the biggest drop since early in the pandemic, as prices companies paid for goods, food, and especially energy all recorded declines.
• The job market remained unusually tight in this environment, however, with weekly jobless claims falling to their lowest level since April 2022. Housing starts and existing home sales also fell a bit less than expected.
• Investors also reacted to the second week of major quarterly earnings reports, although the trickle of early reports was dominated by financial services firms. 
• U.S. Treasuries posted positive returns as the yield on the benchmark 10-year note fell to its lowest intraday level in over four months before rising to end the week. (Bond prices and yields move in opposite directions.) 

Canadian markets (S&P/TSX 2.85%):

• This week has seen investors relatively subdued after a risk-on two weeks to start the year, with markets looking ahead to the Bank of Canada’s rate decision next week and the U.S. Federal Reserve’s soon after. 
• We expect the Bank of Canada to raise rates by another quarter of a percentage point at its next meeting, but also think they will signal a pause afterwards. Markets are still expecting the same increase from the Fed, however there are growing rumours that a 0.5% increase is a possibility.
• Canada’s main stock index was up more than 150 points Friday on broad-based gains, while U.S. markets also rose with an end-of-week rally driven by significant strength in the tech sector. The S&P/TSX composite index was up 161.
• After a rocky week, markets appeared to reverse some of their losses Friday.
• Canadian existing home sales (Dec.) rose 1.3% m/m seasonally adjusted, after the prior month’s decline (-3.3%).
• The Canadian dollar traded for 74.51 cents US compared with 74.23 cents US on Thursday.
• The March crude oil contract was up US$1.03 cents at US$81.64 per barrel and the February natural gas contract was down ten cents at US$3.17 per mmBTU.

Performance 2023: S&P 500 Sectors   

Forward P/E Ratios: S&P 400/500/600 Sectors

European and Asian economies:

• Shares in Europe weakened after European Central Bank (ECB) policymakers signaled that they would still hike interest rates aggressively, reigniting fears of a prolonged economic slowdown. 
• ECB President Christine Lagarde dismissed market speculation that a fall in energy prices would allow policymakers to slow the pace of monetary policy tightening. Speaking at the World Economic Forum in Davos, Switzerland, she said: “I would invite [financial markets] to revise their position; they would be well advised to do so.” She explained: “Inflation, by all accounts, however you look at it, is way too high. Our determination at the ECB is to bring it back to 2% in a timely manner, and we are taking all the measures that we have to take in order to do that.”
• On a year-over-year basis, UK inflation slowed for a second consecutive month in December 2022. Lower gasoline prices were a key driver. The consumer price index (CPI) slipped to 10.5% from November’s 10.7%. The labor market also remained strong, with the unemployment rate still close to a record low in the three months to November. However, average wage growth in the three months to November was 6.4% higher than a year earlier.
• Bank of England (BoE) Governor Andrew Bailey said in a newspaper interview that a second consecutive month of slowing inflation could be “the beginning of a sign that a corner has been turned.” He also suggested that financial market expectations that rates would peak at 4.5% was not dissimilar to the bank’s view. 
• Stock markets in Japan rose over the week. Sentiment was supported by the prospect of China’s reopening boosting the global economy and hopes that the major central banks would slow the pace of their rate hikes amid some signs of waning inflationary pressures. 
• There was no change in the BoJ’s monetary policy at its January meeting—it maintained its ultralow rates and left its YCC framework unchanged—as had been widely expected. 
• The BoJ said that medium- to long-term inflation expectations had risen, albeit at a moderate pace relative to short-term ones, and raised its forecasts for the core CPI for fiscal years 2022 and 2023—which had also been widely anticipated.
• In a sign that there could be a major shift in Japan’s pandemic restrictions, Prime Minister Fumio Kishida said that the legal status of COVID could be downgraded this spring to the same level as seasonal influenza. He indicated that the testing and quarantine requirements for foreigners entering Japan and the requirement to wear face masks to prevent the spread of the coronavirus would be reviewed. These steps could help invigorate the economy, which is still struggling to recover from the pandemic. 
• Chinese equities rallied for a fourth consecutive week ahead of a weeklong holiday following reports indicating better-than-expected economic growth. 
• China’s gross domestic product rose 2.9% in the fourth quarter of 2022 and expanded 3.0% for the full year. The annual growth pace missed the official target of around 5.5% set last March and marked the second-worst year for economic growth after a pandemic-hit 2020 since 1976, the end of China’s decade-long Cultural Revolution. Still, both readings surpassed economists’ forecasts after Beijing abandoned its stringent pandemic restrictions and rolled out a slew of pro-growth policies toward the end of 2022.
• For 2023, economists predict that China’s economy will recover close to 5% as infections subside and domestic demand accelerates. Most Chinese provinces have also set growth targets of above 5% this year, reflecting the government’s focus on prioritizing economic growth in 2023 through boosting consumption and investment.
• In monetary policy news, the People’s Bank of China (PBOC) left its benchmark one-year and five-year loan prime rates unchanged for a fifth consecutive month. However, many analysts predict that the PBOC will resume easing measures in the near term after the central bank pledged in December to support a recovery in consumption.
• The value added by China’s property sector to the overall economy slumped 5.1% in 2022 from the prior year. Other data showed that new home prices fell 1.5% in December from a year earlier, the eighth straight month of year-on-year declines. Analysts polled by Reuters forecast that property sales in China would decline in 2023 for the second straight year but to a smaller extent compared with 2022 amid an expected recovery in economic activity later this year.

What to watch this week:

• Bank of Canada policy announcement
• US GDP, durable goods orders, and personal spending and income data
• Eurozone consumer confidence data
• Japanese inflation data
• Global Purchasing Manager Indices
• 89 S&P 500 and 5 S&P/TSX companies report earnings

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Sources: Bloomberg.com,Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org

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