ClearWater Market Commentary as of August 19th, 2022

Here is the ClearWater Market Commentary as of August 19th, 2022:

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	-0.34%
1 Month	5.94%
YTD	-5.24%
1 Year	-1.12%

^{As of 2022/08/19 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
FTSE 100	0.09%	1.78%
Shanghai Composite	0.05%	-9.95%
Nikkei 225	-0.27%	0.01%
S&P/TSX Composite	-0.34%	-5.24%
Dow Jones Industrial	-0.61%	-7.24%
S&P 500	-1.60%	-11.28%
Hang Seng Index	-1.92%	-15.99%
WTI Crude (oil)	-2.60%	19.30%
CAC 40	-2.73%	-10.66%
Russell 2000	-3.17%	-12.83%
Nasdaq	-3.22%	-18.79%
DAX	-3.99%	-16.49%

^{As of 2022/08/19 – Source: www.marketwatch.com}

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

US economy (S&P 500 -1.60%):

• Stocks gave back a portion of the previous week’s strong gains after a prominent “hawkish” Federal Reserve policymaker appeared to dampen hopes that inflationary pressures had peaked. The growth-oriented technology and communication services sectors underperformed within the S&P 500 Index, with the latter dragged down by a sharp decline in Facebook.
• In an interview with The Wall Street Journal on Thursday, St. Louis Fed President James Bullard questioned whether inflation had really peaked despite the surprise downturn in the year-over-year increase in the consumer price index (from 9.1% in June to 8.5% in July) reported the previous week. “The idea that inflation has peaked is…not statistically really in the data at this point,” Bullard told the Journal, while stating that he was likely to vote in favor of another 75-basis-point (0.75 percentage point) increase in the federal funds target rate at the Fed’s next policy meeting.
• Bullard’s comments came on the same day as the release of the Fed’s minutes from its July policy meeting. Fed officials discussed the recent slowdown in many areas of the economy—with the notable exception of the labor market. While concurring on the need to continue raising rates, “a number of participants posited that some of the effects of policy actions and communications were “showing up more rapidly than had historically been [due to] a significant tightening of financial conditions.”
• Some upward surprises in the week’s economic data may have fueled rate fears, even as they offered hope that the economy would avoid a recession. Retail sales proved more resilient than expected in July, rising 0.7% once the volatile gas and auto segments were excluded. 
• Industrial production was also strong, rising 0.6% in the month, roughly twice consensus expectations. Weekly jobless claims ticked lower, betraying expectations for an increase. On the downside, housing data remained weak.  

Canadian markets (S&P/TSX -0.34%):

• Canada’s main stock index finished lower due to a broad-based decline of oil prices, as well as the drop in the U.S. markets
• While the pace of inflation in both Canada and the U.S. lessened slightly in July, it remains far higher than central bankers in both countries would like. In spite of a series of positive earnings reports from major retailers this week, investors remain concerned about inflation’s impact on businesses and consumers, as well as the risk that central banks will raise interest rates too aggressively and tip the economy into recession.
• The Canadian dollar weakened even despite Thursday’s rally in crude prices, with underlying strength in the U.S. greenback pushing the loonie lower on the day. The Canadian dollar traded for 77.35 cents US compared with 77.45 cents US on Wednesday.
• Canadian existing home sales fell (-5.3% m/m seasonally adjusted versus -8.2%% expected), after the pullback (-5.6%) last month. 
• Housing starts accelerated to 275,300 (versus 264,100 expected), from 272,400 in the prior month.  
• Canadian CPI inflation slowed to 7.6% for July (in line with expectations), down from 8.1% in the prior month. The average of the Bank of Canada’s three core measures (Jul., y/y) was 5.3% (versus 5.0% expected), up from 5.2% in the prior month.
• Canadian retail sales (Jun., m/m) rose (0.8% versus 0.9% expected), down from 1.9% in the prior month. StatCan’s early estimate for July sees a 2% pullback in sales.

Performance 2022: S&P 500/400/600 Sectors

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

European and Asian economies:

• Shares in Europe pulled back amid renewed fears that central banks would need to tighten their policies aggressively to stamp out persistently high inflation.
• The UK’s headline inflation rate hit 10.1% in July—the first double-digit reading since February 1982—fueled by sharply higher food costs. The core rate, which excludes food and energy prices, also came in higher than expected, rising to 6.2%.
• Meanwhile, underlying wage growth in the UK (excluding bonuses) rose to an annual rate of 4.7% in the second quarter. However, factoring in inflation, regular wages declined 3.0%—the fastest drop since comparable records began in 2001. Unemployment rose 0.1 percentage point to 3.8% in the same period. But job vacancies at 1.27 million in the three months to July, a small decrease from record levels, suggest that the labor market remained tight. 
• ECB board members said that the eurozone’s inflation outlook had not improved since July’s large interest rate hike indicating further large scale rate hikes in the future.
• Eurozone inflation hit a record 8.9% in July. Meanwhile, Eurostat lowered its estimate of second-quarter economic growth to 0.6% from 0.7%. Factory-gate prices in Germany rose 37.2% in July from a year earlier, driven by strong increases in natural gas and electricity costs. 
• Norway’s central bank raised its key interest rate 0.5 percentage point to 1.75% in an effort to quell inflation.  
• Japanese shares were solidly higher through the first half of the week as investors reacted to positive U.S. economic data released late last week. This raised hopes that the Federal Reserve may be less aggressive with rate hikes in the coming months. Indeed, despite a mixed bag of domestic economic releases and weak data out of China stoking concerns about slowing global growth, Japanese equity markets rallied on Wednesday.  
• The hopeful sentiment proved to be short-lived, however, after the minutes from the U.S. Fed’s July meeting, released on Thursday, pointed to rates staying higher for longer. The minutes also reaffirmed the central bank’s plans to continue raising interest rates in an effort to return inflation to its 2% long-term objective. This saw Japanese stock markets close notably lower.  
• Japan’s gross domestic product expanded by an annualized 2.2% in the second quarter of 2022. This missed consensus expectations of around 2.5% growth, however. More positively, Japan’s industrial production rose by more than anticipated.
• Meanwhile, inflation in Japan continued to remain above the 2% target, influenced by higher fuel prices and a weaker yen, official data showed on Friday. This was in line with consensus expectations. Core inflation has now exceeded the central bank’s 2% target for four consecutive months. 
• China’s stock markets posted a loss for the week in reaction to weak economic data and elevated levels of COVID cases, with drought conditions in parts of the country adding to the gloom.
• Data released during the week showed retail sales in July grew 2.7% year on year while industrial output was 3.8% higher than a year ago. Both data sets were below expectations. 
• In the property sector, data showed China’s home prices fell for an 11th month in July.  
• It was the worst seven-day period for China in terms of COVID infections since mid-May, with more than 18,000 new local cases recorded, Bloomberg reported. The government also issued a national drought alert as soaring temperatures threatened crops and industrial activity, with regions from Sichuan in the southwest to Shanghai in the Yangtze Delta facing extreme heat.

What to watch this week:

• S Jackson Hole Economic Symposium
• US durable goods orders, personal spending and income data
• European Central Bank Minutes from July 21 meeting
• Eurozone consumer confidence
• Germany GDP data
• Global Purchasing Manager Indices
• 12 S&P 500 and 7 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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