ClearWater Market Commentary as of August 8th, 2022

Here is the ClearWater Market Commentary as of August 8th, 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	-0.88%
1 Month	4.60%
YTD	-7.89%
1 Year	-3.69%

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

Index Performances	Last 5 Days	YTD
Nasdaq	2.30%	-14.92%
Russell 2000	2.04%	-14.17%
DAX	1.24%	-21.74%
Hang Seng Index	1.23%	-12.25%
Nikkei 225	1.09%	-14.64%
S&P 500	1.01%	-11.13%
CAC 40	0.94%	-17.13%
Dow Jones Industrial	0.84%	-7.63%
FTSE 100	0.32%	-8.07%
S&P/TSX Composite	-0.88%	-7.89%
Shanghai Composite	-0.89%	-11.14%
WTI Crude (oil)	-10.40%	17.50%

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

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

US economy (S&P 500 1.01%):

• Stocks were mixed for the week as a much stronger-than-expected jobs report revived investor concerns that the Federal Reserve will need to maintain an aggressive pace of interest rate hikes to tamp down high inflation. 
• The Nasdaq Composite. Russell 2000, and S&P 500 Index finished with gains, while the Dow Jones Industrial Average and S&P MidCap 400 recorded negative results. 
• Equity markets continued to receive support from above-consensus corporate earnings reports.
• Friday’s payrolls report from the Labor Department showed employers added 528,000 nonfarm jobs in July, more than double consensus expectations of around 250,000. Following the strong July gains, total nonfarm employment in the U.S. has now returned to its pre-pandemic level. The unemployment rate fell to 3.5%, matching its February 2020 level. Job gains were widespread, with leisure and hospitality, professional and business services, and health care showing notable hiring.
• Markets had interpreted Fed Chair Jerome Powell’s comments following the central bank’s July 26-27 policy meeting in a dovish light and priced in more limited policy tightening as a result. However, the strong payroll numbers seemed to indicate that the Fed has significant room to raise interest rates. 
• Even before the release of the employment data on Friday, a number of Fed officials had pushed back against the market’s dovish narrative and signaled that the central bank is still committed to raising rates until inflation is under control.
• The strong payroll report and hawkish messaging from Fed officials helped drive U.S. Treasury yields higher over the week, outweighing downward pressure from rising U.S.-China tensions following House Speaker Nancy Pelosi’s visit to Taiwan.

Canadian markets (S&P/TSX -0.88%):

• Canada’s resource-heavy main stock index fell on Friday and was set to end the week lower, as energy stocks posted steep weekly losses, while fears of an aggressive policy tightening path by central banks weighed on global sentiment.
• The index took cues from the global markets as U.S. and European stocks declined after stronger-than-expected U.S. jobs data fuelled expectations for a 75-basis-point rate hike at the Federal Reserve’s September meeting
• Canada’s economy unexpectedly lost jobs for the second month in a row in July after a year-long boom, but analysts predicted that this would not stop the Bank of Canada from hiking interest rates to fight inflation.
• The Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting
• The unemployment rate held steady at 4.9%, while the participation rate slipped to 64.7% (from 64.9%)
• Canada’s merchandise trade surplus (Jun.) expanded to $5.05 billion (versus $4.90 billion expected), from a downwardly revised $4.77 billion in the prior month. Exports (2.0% m/m) and imports (+1.7% m/m) were up, led by energy products

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 weakened on expectations that central banks would continue to raise interest rates aggressively in a bid to smother inflation. 
• The BoE raised its key interest rate by 50 basis points (0.50 percentage point) to 1.75%, the biggest increase in 27 years. It also projected that inflation would hit 13.3% by October because of surging energy prices. The central bank expects inflation to remain “very elevated” through 2023 and to recede in two years’ time to its 2% target. 
• It forecast that a recession lasting five quarters would begin this winter.
• The number of unemployed people rose in the eurozone for the first time in 14 months in June, according to the European Commission’s statistics bureau. The jobless rate remained unchanged at a record low of 6.6%, but the number of job seekers increased by 25,000 to just under 11 million.
• The eurozone manufacturing sector contracted last month, with final data in July purchasing managers’ surveys conducted by S&P Global signaling the sharpest decline in production since the initial wave of COVID-19 lockdowns in spring 2020. 
• German manufacturing activity contracted in July for the first time in two years, as new orders dropped and firms grew increasingly pessimistic about the outlook, according to final data in a survey of German purchasing managers compiled by S&P Global.
• Japan’s stock markets gained over the week. Upbeat domestic corporate earnings supported share prices, but concerns about heightened tensions between China and the U.S. capped returns. 
• Against the backdrop of rising inflationary pressures (which, nevertheless, remain low in Japan compared with other developed economies), a government panel agreed on a record hike in the average minimum wage for all workers for fiscal year 2022.
• Although wages have risen in Japan, growth has been muted—the BoJ believes that wage increases are necessary for achieving its 2% inflation target. The central bank’s aim is to achieve a virtuous cycle between wages and prices, leading to an improvement in people’s living standards, but there is still a long way to go to achieve this objective. It has consistently cited this as a reason for supporting economic activity by continuing with monetary easing.
• China’s stock markets eased as geopolitical tensions, mortgage boycotts, and tepid economic data kept buyers on the sidelines. 
• U.S. House of Representatives Speaker Nancy Pelosi’s trip to Taiwan infuriated Beijing, which held live-fire drills in the waters around the self-ruled island and imposed sanctions on Pelosi and her immediate family. 
• Chinese chipmakers’ shares jumped as traders bet that the government would increase support for the domestic semiconductor industry at a time when the U.S. is ramping up efforts to curb China’s rise in chip manufacturing. Last week, the U.S. Congress passed the CHIPS and Science Act, which aims to prop up the U.S. semiconductor industry and contains restrictions on chip firms considering expanding in China.
• On the economy front, the official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth and the lowest in three months. The non-manufacturing business activity index fell to 53.8 from 54.7 in June and the composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.
• New home prices and sales volume fell in July from a month earlier, according to property research firm China Index Academy, as a growing nationwide movement among homebuyers to stop paying mortgages on unfinished projects weighed on sentiment.

What to watch this week:

• US inflation data
• China trade, aggregate yuan financing, and money supply data
• Eurozone industrial production data
• UK GDP data
• Japan GDP, industrial production, and trade data
• 23 S&P 500 and 74 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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