ClearWater Market Commentary as of April 6th, 2023

Here is the ClearWater Market Commentary as of April 6^th, 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	0.49%
1 Month	0.55%
YTD	4.19%
1 Year	-7.50%

^{As of 2023/04/06 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	6.30%	0.20%
FTSE 100	2.12%	6.52%
Shanghai Composite	1.16%	6.38%
CAC 40	0.54%	14.98%
Nasdaq	0.49%	4.10%
Dow Jones Industrial	0.43%	0.65%
MSCI EAFE	0.40%	8.30%
DAX	0.31%	13.84%
S&P 500	-0.01%	6.85%
Dow Jones Industrial	-0.54%	1.81%
NASDAQ	-1.10%	15.50%
Russell 2000	-1.16%	0.21%
Nikkei	-1.51%	4.46%

^{As of 2023/04/06- Source: www.marketwatch.com}

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

US economy (S&P 500 -0.01%):

• The major benchmarks were mostly lower over a holiday-shortened week that was characterized by light and choppy trading. U.S. markets were shuttered on Friday, along with most of the other markets in the Americas, in observance of the Good Friday holiday, while Passover started on Wednesday evening.  
• With markets closed on Friday, investors were unable to react to the Labor Department’s closely watched nonfarm payrolls report for March, but several other important economic releases appeared to sway sentiment. On Monday, the Institute for Supply Management’s (ISM’s) gauge of March factory activity fell back to a nearly three-year low, reversing a modest uptick in February. The ISM’s services sector gauge, released two days later, indicated that the services sector was still expanding, but at a significantly slower-than-expected pace.
• Recession concerns seemed to deepen—and hopes for lower interest rates appeared to grow—when the Labor Department reported on Tuesday that job openings declined much more than expected in February, falling to levels (9.9 million) last seen in May 2021. The number of people quitting their jobs rose from 3.9 million to 4.0 million, however. Some economists believe that the number of people leaving their jobs voluntarily is a more reliable indicator of the overall health of the labor market.
• Payroll processor ADP’s tally of private sector jobs indicated that the job market continued to expand in March, but at a slower pace.  
• The downbeat statements from a Federal Reserve official and a leading bank executive also weighed on sentiment. Cleveland Fed President Loretta Mester stated at an economic conference that she expected the federal funds rate to go above 5% and stay there, while, in a letter to shareholders, JPMorgan Chase Chairman and CEO Jamie Dimon warned that “the [banking] crisis is not yet over” and that “there will be repercussions from it for years to come.”

Canadian markets (S&P/TSX 0.49%):

• Last week marked the end of the first quarter of 2023, in which Canadian equities had a positive performance. Canada’s main stock index ticked by weeks end with mixed results among sectors, while U.S. markets also posted gains to end the short trading week. 
• The week was marked by an “aggressive rotation” away from growth stocks and toward more defensive holdings.
• This week, OPEC+ agreed to lower oil production by an additional 1.6 million barrels a day until the end of the year to support crude prices in anticipation of economic weakness and expanding inventories. The reduction includes Russia’s previously announced 500,000-barrel cut. While higher prices may benefit oil producers and investors in the short term, it could present challenges for the consumer by stoking inflation, which central banks have been trying to fight for months. A silver lining of tighter oil production is that increased crude prices benefit oil producers and Canadian equity investors.
• The Bank of Canada Q1 Business Outlook Survey (BOS) indicated that sentiment is softening, with the BOS indicator falling 1.1 points to -1.1, the first negative print since 2020. The Survey of Consumer Expectations showed that inflation expectations have moderated – 1-year ahead down 1.2% to 6.0% and 2-year ahead down 0.9% to 4.3%.
• The jobs data in Canada released on Thursday was still strong, but the Bank of Canada is widely expected to continue its rate pause when it announces its decision next week.
• The Canadian dollar traded for 74.17 cents US compared with 74.31 cents US on Wednesday.
• The May crude contract was down 17 cents at US$80.44 per barrel and the May natural gas contract was down six cents at US$2.09 per mmBTU.
• The June gold contract was down US$9.40 at US$2,026.20 an ounce and the May copper contract was up a penny at US$4.00 a pound.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe rose as fears of a banking crisis abated.
• European Central Bank (ECB) President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane indicated that inflationary pressures would require further interest rate hikes. While several other policymakers, including Bank of France Governor, Bank of Lithuania Governor, and Bank of Greece Governor, echoed the view that rates might rise, they also said they believed rates were nearing a peak.
• European Union home prices fell in the fourth quarter of last year for the first time since 2015, dropping by a record amount. House prices declined 1.5% sequentially, as higher interest rates curbed demand for houses. Meanwhile, eurozone producer prices fell for a fifth consecutive month and by more than expected in February, due mostly to subsiding energy prices.
• Strong demand for heavy vehicles and autos fueled an unexpected monthly increase in Germany’s industrial production, which ticked up 2.0% in February. Manufacturing orders, meanwhile, surged 4.8%. A marked pickup in industrial activity and in business confidence since the start of the year prompted Germany’s economics ministry to say signs of an economic recovery were now evident.
• Bank of England (BoE) Chief Economist indicated that policymakers face a close decision on whether to raise interest rates for a 12th consecutive time in May, a sign that monetary policy tightening in the UK might be near an end. 
• Japanese stocks declined over the week. Data releases suggesting that the U.S. economy may be slowing raised some concerns about global recessionary conditions. Investors also sought to digest the potential impact of Japan’s recent announcement of export restrictions on certain types of semiconductor manufacturing equipment, particularly on the country’s relations with China, its largest trading partner.
• Speculation continued about a potential change in the Bank of Japan’s (BoJ’s) ultra-loose monetary policy under incoming Governor Kazuo Ueda, who assumes the post on April 9. A former BoJ official suggested during the week that the central bank could tweak its yield curve control framework without prior warning. 
• The yen strengthened to about JPY 131.3 against the U.S. dollar, from around 132.8 the prior week, amid dollar weakness as sluggish U.S. data increased the likelihood that the Fed could moderate the pace of its monetary policy tightening.
• The BoJ’s closely watched Tankan survey showed a deterioration in business sentiment among Japan’s big manufacturers in the first quarter, the fifth straight decline. Higher materials costs due to yen weakness and elevated resource prices weighed on profits, exacerbated by an anticipated weakening in overseas demand. Conversely, big nonmanufacturing enterprises benefited from rising inbound consumption.
• Trade ministers of the Group of Seven (G7) advanced economies, which includes Japan, agreed during the week to cooperate on imposing export controls for some leading-edge technologies to address the potential misuse of those technologies. They also emphasized the need to work more closely with non-G7 partners to build resilient supply chain networks.
• The U.S. imposed export restrictions in October on chipmaking tools to China and called on other key suppliers, including Japan and the Netherlands, to follow suit. Japan recently announced plans to restrict exports of certain types of semiconductor manufacturing equipment, although it does not have one specific country in mind with these measures.
• Chinese stocks advanced in a holiday-shortened week as a recovery in services activity and the property sector bolstered investor sentiment. Markets in Hong Kong and China were closed on Wednesday in observance of the Qingming festival, also known as Tomb Sweeping Day, when Chinese people honor their ancestors by cleaning and placing offerings on their tombs.
• In economic news, the private Caixin/S&P Global survey of services activity rose to 57.8 in March, up from February’s 55.0, the third consecutive monthly expansion after Beijing lifted pandemic restrictions in December. However, the survey’s manufacturing gauge slowed to 50.0 in March from an eight-month high in February amid tepid global demand. The weaker-than-expected Caixin/S&P manufacturing data matched the prior week’s official manufacturing Purchasing Managers’ Index, which also eased from February’s level but remained in expansion. Index readings above 50 indicate growth from the previous month.
• China’s new home sales rose 55.7% in March, up from 31.9% in February, according to a private survey of 14 cities, Reuters reported. Increased demand was attributed to an array of stimulus measures that China’s central and local governments rolled out at the end of 2022 to bolster homebuying sentiment. While sales growth is expected to improve for the rest of 2023, many analysts believe that the longer-term outlook for China’s property market remains subdued.
• China Evergrande Group, once the country’s largest real estate developer and the highest-profile casualty of the liquidity crisis hitting the property sector, signed a deal with creditors to restructure most of its outstanding debt. Evergrande was declared to be in default in late 2021, marking the start of a nationwide property crisis that periodically shook international financial markets. Evergrande’s debt restructuring, which still faces months of negotiations with creditors, could serve as a reference for other Chinese developers in default that are trying to restructure their debt.

What to watch this week:

• Bank of Canada monetary policy announcement
• Canadian housing data
• US inflation, retail sales, and industrial production data
• US FOMC Minutes from March 21-22 meeting
• Chinese M2 money supply, aggregate yuan financing, inflation and trade data
• Japanese trade and consumer confidence data
• Eurozone retail sales and industrial production data
• UK GDP, industrial production and trade data
• G20 Finance Minsters and Central Bank Governors Meet in Washington, DC
• 10 S&P 500 and 3 S&P/TSX companies report earnings – US banks to kick off

• 

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

Thank you for checking out our ClearWater Market Commentary for April 6^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.