ClearWater Market Commentary as of August 11th, 2023

Here is the ClearWater Market Commentary as of August 11^th, 2023:

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

Performance of Principle Indexes: 

^{As of 2023/08/11- Source: www.marketwatch.com}

^{As of 2023/08/11- Source: www.marketwatch.com}

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

US economy (S&P 500 0.14%):

• The major benchmarks ended mixed for the week, as investors weighed inflation data against worries over the recent rise in long-term interest rates. Value stocks handily outperformed growth stocks, and the narrowly focused Dow Jones Industrial Average managed a modest gain. 
• Health care shares got a boost at midweek from further evidence of the efficacy of diabetes drugs in treating obesity and related ailments, while information technology stocks underperformed on worries that rising rates would reduce the value of future profits. Industrials stocks were also weak on growing fears over a strike by the United Auto Workers union.
• Financials stocks sold off briefly on Tuesday morning after Moody’s Investors Service lowered its credit ratings for 10 small- and mid-cap banks and placed six other entities on downgrade watch. 
• The week’s economic calendar was relatively light overall but included some closely watched inflation data. On Thursday, stocks jumped at the start of trading on news that the Labor Department’s consumer price index (CPI) rose 0.2% in July, bringing its year-over-year increase to 3.2%, a tick below expectations. A sharp drop in airline fares helped compensate for continuing pressure from shelter costs.
• Enthusiasm over the CPI data appeared to wane as the day wore on, however, and stocks were mixed on Friday, following news that producer prices rose 0.3% in the month, a tick above expectations. On a year-over-year basis, producer prices rose 0.8%, well below the Federal Reserve’s overall consumer inflation target of 2%. July marked the first annual increase in the rate of producer price inflation in over a year, however.
• The week also brought a somewhat mixed inflation outlook from Federal Reserve officials. Over the previous weekend, Fed Governor Michelle Bowman warned that further hikes might be needed, while New York Fed President John Williams suggested that rate hikes were nearing their end and that rate cuts might be coming as soon as 2024.

Canadian markets (S&P/TSX 0.85%):

• Canada equities were higher at the close on Friday, as gains in the Healthcare, Materials and Telecoms sectors propelled shares higher.
• Canada’s merchandise trade deficit (Jun.) widened to $3.73 billion (versus $2.79 billion expected), from a downwardly revised $2.68 billion in the prior month. Exports rose dropped -2.2% m/m, while imports fell -0.5% m/m
• The September crude oil contract was up 37 cents at US$83.19 per barrel and the September natural gas contract was up one cent at US$2.77 per mmBTU.
• The Canadian dollar traded for 74.39 cents US compared with 74.58 cents US on Thursday.
• The December gold contract was down US$2.30 at US$1,946.60 an ounce and the September copper contract was down five cents at US$3.72 a pound.

Performance 2023: S&P 600 Sector   

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

European and Asian economies:

• The Italian government’s decision to seek a windfall tax on bank profits and increasing concerns about a potential economic slowdown in China weighed on sentiment.  
• The Italian government announced at the start of the week that it would tax 40% of net interest margins earned by banks in either 2022 or 2023, saying lenders had failed to pass on enough of their profits to depositors. The unexpected move triggered the largest drop in banking stocks since March, when two U.S. regional lenders collapsed, and UBS stepped in to buy ailing Credit Suisse. 
• UK gross domestic product (GDP) grew 0.5% sequentially in June, exceeding a consensus forecast for a 0.2% expansion. Strong increases in manufacturing and construction were important drivers. 
• Second-quarter GDP surprised to the upside, growing 0.2% versus the previous three months, thanks, in part, to better-than-expected private consumption. Business investment rose strongly as well, defying forecasts for a modest contraction.
• The European Central Bank (ECB) said in its latest Economic Bulletin that, since the June interest rate hike, developments have supported the expectation that inflation should moderate in 2023 but still stay above the 2% target for an extended period. 
• The publication indicated that the near-term economic outlook for the euro area had deteriorated due to weaker domestic demand. Even so, the ECB believes the outlook for inflation and economic growth remains highly uncertain. 
• Japan’s stock markets rose over a holiday-shortened week. Optimistic earnings forecasts from some major Japanese companies provided a favorable backdrop, while tourism-related shares received a boost from news that China would approve the resumption of Japan-bound group tours for its citizens.
• Economic data developments, including signs of easing inflationary pressure and slowing wage growth, boosted the case for the BoJ to maintain its ultra-accommodative stance.
• The consumer goods price index, an indicator of inter-company pricing for goods and services, rose 3.6% year on year (y/y) in July, marking the seventh straight month of slowing wholesale inflation. The slowdown was due largely to weaker energy utility costs, while government utility fees subsidies for households also moderated price escalation. 
• There were signs that the labor market may be losing some steam, as wage growth unexpectedly slowed in June. 
• The Summary of Opinions at the BoJ’s July monetary policy meeting indicated that the board members believe there is a long way to go to achieve inflation accompanied by wage increases. Determining whether wage hikes will continue next year will be a key issue. Until the likelihood of achieving the 2% inflation target rises sufficiently, the BoJ needs to maintain yield curve control while conducting it with greater flexibility.
• Chinese stocks retreated as mounting evidence that the country’s recovery may have peaked weighed on sentiment. 
• China’s latest inflation data revealed that consumer and producer prices fell in tandem for the first time since November 2020, underscoring the weak demand throughout the economy. The producer price index fell a worse-than-expected 4.4% from a year ago but slowed from June’s 5.4% decline. The release reinforced concerns that China has entered a deflationary period, which offset optimism about Beijing’s latest efforts to prop up demand after the State Council announced new measures last month to boost consumer spending.
• In corporate news, Country Garden, one of China’s largest property developers, missed interest payments on two dollar-denominated bonds as it struggles with liquidity issues. The news from Country Garden, one of a few big developers that has yet to default, spelled more bad news for China’s property sector, which has been in a downturn for several years as cash-strapped developers have grappled with slowing sales and high debt levels.
• Trade and lending data for July came in below expectations and underscored the loss of momentum in China’s post-lockdown recovery. Exports fell a larger-than-expected 14.5% in July from a year earlier, marking the weakest reading since the start of the pandemic in early 2020. Imports shrank by a worse-than-expected 12.4%, almost double the drop recorded in the previous month. 

What to watch this week:

• US retail sales, housing, and industrial production data
• US FOMC Minutes from July 25-26 meeting
• UK employment and inflation data
• Chinese retail sales, industrial production and fixed-asset investment data
• Japanese GDP, industrial production, trade and inflation data
• Eurozone GDP, trade, and inflation data
• Reserve Bank of New Zealand policy announcement
• 17 S&P 500 and 5 S&P/TSX companies report earnings
  
  

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

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