ClearWater Market Commentary as of August 26th, 2022

Here is the ClearWater Market Commentary as of August 26th, 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	-1.18%
1 Month	0.92%
YTD	-6.36%
1 Year	-3.74%

^{As of 2022/08/26 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (oil)	2.70%	23.50%
Hang Seng Index	1.86%	-14.42%
S&P/TSX Composite	-0.51%	-6.36%
Russell 2000	-0.83%	-15.39%
Shanghai Composite	-1.13%	-10.96%
FTSE 100	-1.41%	0.58%
S&P 500	-1.94%	-14.87%
Nasdaq	-1.94%	-22.39%
Dow Jones Industrial	-2.37%	-11.16%
CAC 40	-2.80%	-13.32%
DAX	-2.89%	-19.11%
Nikkei 225	-3.18%	-3.17%

^{As of 2022/08/26 – Source: www.marketwatch.com}

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

US economy (S&P 500 -1.94%):

• Stocks moved sharply lower—if in a week of mostly light summer trading—as investors became less optimistic that the Federal Reserve will be able to tame inflation without causing a significant economic slowdown. 
• Technology and other high-growth stocks fared worst in this environment, and the tech-heavy Nasdaq Composite Index fell to its lowest level in a month. Rising oil prices fed into inflation worries but also boosted energy stocks. 
• Most of the market’s moves came at the end of the week as central bankers gathered at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming—and most of investors’ focus appeared to center around Fed Chair Jerome Powell’s speech on Friday morning. Powell’s comments were “resolutely hawkish,” and it is believed that the Fed is unlikely to move official short-term rates above 4% by the end of the year as the U.S. economy feels the lagged impact of monetary policy and in anticipation of a recession in Europe and a sharp slowdown in China.
• Much of the week’s economic data surprised on the downside and arguably offered evidence that growth had slowed considerably in recent weeks in response to tightening financial conditions. 
• On Tuesday, S&P Global announced that its composite gauge of service and manufacturing activity had fallen further into contraction territory and hit its lowest level since early 2020. Sales of new homes in July fell for the sixth month so far this year to the slowest pace since early 2016, and both personal income and spending rose much less than consensus expectations (0.2% versus roughly 0.6% and 0.1% versus 0.4%). 
• On the positive side, new orders for nondefense capital goods excluding aircraft, a proxy for business investment, rose 0.4% in July, and weekly jobless claims fell back to their lowest level in a month. The University of Michigan’s index of consumer sentiment also rose more than expected, hitting 58.2 in August after bottoming at a record low of 50 in June.

Canadian markets (S&P/TSX -1.18%):

• Canadian equities were lower at the close on Friday, as losses in the Healthcare, IT and Consumer Discretionary sectors propelled shares lower. Hardest-hit were growth stocks such as technology, which are more sensitive to interest rates.
• A rise in commodity prices helped the S&P/TSX Composite hold its loss to a more modest 1.2% on the week..
• Investors had hoped Powell would use his remarks to signal the Fed’s willingness to begin easing its interest rate hiking cycle — perhaps even reversing some of its already instituted hikes as early as 2023.
• The Canadian dollar traded for 76.99 cents US compared with 77.30 cents US on Thursday.
• The October crude contract was up 54 cents at US$93.06 per barrel and the October natural gas contract was down seven-and-a-half cents at US$9.27 per mmBTU.

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 fell as fears intensified that the efforts of key central banks to subdue inflation could deepen an economic downturn.    
• Also weighing on investor sentiment, natural gas prices surged to record levels after Russia’s state-owned natural gas producer Gazprom announced further maintenance-related closures of the Nord Stream 1 pipeline to Europe at the end of August. Pipeline flows are currently at 20% of the agreed volume. The euro traded close to parity with the dollar as the economic outlook soured.
• The minutes from the European Central Bank’s (ECB) July policy meeting suggested that more interest rate hikes could be forthcoming to subdue persistently high inflation that “posed an increasing risk of longer-term inflation expectations becoming unanchored.” 
• At that meeting, policymakers sanctioned a larger-than-expected 0.5 percentage point increase in key rates and “cautioned that a continued anchoring of inflation expectations was dependent on the Governing Council acting decisively on the worsening inflation outlook.” 
• Eurozone business activity shrank for a second consecutive month in August, another sign of a possible recession in the third quarter, according to purchasing managers’ surveys. 
• In Germany, surveys of consumer and business confidence hit new lows. The GfK Institute said its survey of 2,000 consumers indicated that confidence would fall to a fresh record low in September as households saved to pay for higher energy costs. 
• In the UK, business activity almost stagnated in August, with a sharp fall in the manufacturing sector. 
• The UK regulator announced an 80% increase in household energy bills to GBP 3,549 per year, effective from the end of September, as natural gas imports have become more expensive.
• Despite rallying late in the week, Japanese equities finished the period lower than they began, as investors braced for a hawkish message from U.S. Federal Reserve Chair Jerome Powell at the annual Jackson Hole economic symposium on Friday. 
• Economic data released early in the week did little to boost sentiment, with flash survey numbers showing Japan’s factory activity growth slowed to a 19-month low in August, impacted by persistent rises in raw materials/energy costs and weakening global demand.   The weaker data only added to persistent concerns about an economic slowdown, causing Japanese equities to close at a two-week low on Wednesday.
• However, the week ended on a positive trend. Japanese equities finished higher on Thursday—snapping a five-session losing streak for the Nikkei 225—thanks to generally positive cues from Wall Street and support from bargain hunters.  
• China’s stock markets declined as extreme temperatures and power shortages in some provinces raised concerns about the growth outlook.  
• Beijing announced several measures to prop up the economy last week. The State Council, China’s cabinet, outlined a 19-point policy package adding CNY 300 billion to state policy banks’ investment in infrastructure projects, on top of CNY 300 billion announced in June. Analysts believe that China’s policymakers have signaled that they wouldn’t flood the economy with excessive stimulus.
• The People’s Bank of China (PBOC) cut two key interest rates as the central bank stepped up efforts to revive the economy. Last month, China reported its economy narrowly avoided contracting in the second quarter amid repeated coronavirus lockdowns and a nationwide property crisis.
• In property sector news, developer Longfor Group raised CNY 1.5 billion (USD 219 million) through selling onshore bonds fully guaranteed by the government. The guarantee from China Bond Insurance was the first under a scheme that Beijing unveiled earlier this month to support the stricken real estate sector. CIFI Holdings, another developer, also plans to sell an onshore bond with a state guarantee.
• Despite the recent show of official support, some state-backed financial institutions have resisted Beijing’s calls to support the country’s debt-laden developers over concerns about the impact of such exposure on their balance sheets, Reuters reported.

What to watch this week:

• S&P Case-Shiller Home Price Index (June)
• Freddie Mac National House Price Index (June)
• JOLTS Job Openings, Quits, and Separations (July)
• ADP Private Nonfarm Payrolls (June, July, Aug)
• Chicago PMI Survey Reading (Aug)
• S&P Global Manufacturing PMI – Final Reading (Aug)
• ISM Manufacturing PMI (Aug)
• Nonfarm Labor Productivity Growth (Q2 2022)
• Nonfarm Payrolls Report (Aug)

• 

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

Thank you for checking out our ClearWater Market Commentary for August 26th, 2022 If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.