ClearWater Market Commentary as of December 9th, 2022

Here is the ClearWater Market Commentary as of December 9th, 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	-2.63%
1 Month	-0.82%
YTD	-6.01%
1 Year	-4.52%

^{As of 2022/12/09 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Hang Seng Index	2.46%	-15.42%
Nikkei 225	0.46%	-5.02%
Shanghai Composite	-0.24%	-12.10%
CAC 40	-0.76%	-7.48%
DAX	-0.81%	-10.30%
FTSE 100	-1.05%	-0.38%
S&P/TSX Composite	-2.63%	-6.01%
Dow Jones Industrial	-2.80%	-7.90%
S&P 500	-3.40%	–17.50%
Nasdaq	-4.00%	-29.70%
Russell 2000	-4.74%	-20.94%
WTI Crude (oil)	-10.60%	-5.00%

^{As of 2022/12/09- Source: www.marketwatch.com}

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

US economy (S&P 500 -3.40%):

• Stocks gave back much of the previous two weeks’ gains, as some surprisingly strong economic data dampened hopes that the Federal Reserve might soon be able to curb its program of raising interest rates to cool inflation. 
• The S&P 500 Index recorded its worst return in five weeks, while the small-cap Russell 2000 Index endured its worst week since late September. 
• Within the S&P 500, the typically defensive health care, consumer staples, and utilities sectors fared best. Energy shares fell sharply as international oil prices tumbled to their lowest level since January, while weakness in Google parent Alphabet weighed heavily on communication services stocks. Financials also performed poorly as several bank executives offered negative outlooks.  
• Investors seemed focused on the Friday morning release of producer price inflation (PPI) data throughout much of the week. The PPI figures surprised moderately to the upside, rising 7.4% on a year-over-year basis versus consensus expectations of around 7.2%, sending stock futures sharply lower. 
• Friday also brought the release of the University of Michigan’s preliminary survey of consumer sentiment for December, which provided evidence that the near-term outlook for the U.S. consumer is broadly stable. While long-term inflation expectations were unchanged at 3%, which is on the higher end of the historical range for the series, short-term inflation expectations fell further.
• The yield on the benchmark 10-year U.S. Treasury note touched a nearly three-month intraday low on Wednesday but edged higher to end the week, driven in large part by the PPI data and headlines that China is easing some of its COVID-related restrictions.

Canadian markets (S&P/TSX -2.63%):

• Canada’s main stock indexed slipped end of the week due to new report on U.S. inflation that spooked investors.
• What had been a relatively flat week for North American markets ended with some up and down activity as investors took stock of the latest producer price data out of the U.S. on Friday.
• Investors are nervous ahead of next week’s expected interest rate decision by the U.S. Federal Reserve. Friday’s worse-than-expected producer price index report heightened fears that the central bank will have to keep hiking interest rates to get inflation under control.
• On Wednesday, the Bank of Canada announced it would hike its key interest rate to 4.25 per cent — the highest it’s been since January 2008. But the move didn’t have a significant impact on markets, even though previous rate hikes have spooked investors fearful that central bankers could go too far and tip the economy into recession.
• Also making news on Thursday was an announcement from Canada’s financial regulator that it is raising the amount of capital major banks need to have on hand over concerns of high household debt levels and other systemic vulnerabilities.
• The Canadian dollar traded for 73.37 cents US compared with 73.63 cents US on Thursday.
• The price of oil continued the downward slide it’s been on for the past six weeks, with West Texas Intermediate falling from US$90 at the start of November to the low $70s this week.
• On Friday, the January crude contract was down 44 cents at $71.02 per barrel and the January natural gas contract was up 28 cents at US$6.25 per mmBTU.
• Oil’s recent slump has largely been due to COVID shutdowns in China and concerns about a weakening economy in that country. With China beginning to loosen pandemic restrictions, Small said he believes crude oil is poised for a rally since global energy supplies remain tight.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe fell on renewed fears of a recession as central banks tighten monetary policy in an effort to quell inflation.
• Revised data showed that the eurozone economy expanded 0.3% sequentially in the third quarter—up from a first estimate of 0.2%—boosted by increases in household spending and business investment.
• However, S&P Global’s composite Purchasing Managers’ Index (PMI), which measures business activity in the services and manufacturing sectors, ticked up in November. Despite the improvement, the composite PMI remained below 50, marking the fifth consecutive month in which the forward-looking indicator has been in contractionary territory.
• Eurozone retail sales in October posted their biggest monthly drop this year, while German industrial production weakened that month, albeit less than expected.
• The central bank governor of Ireland, Gabriel Makhlouf, and the governor of the Bank of France, François Villeroy de Galhau, added their voices to growing support among European Central Bank (ECB) policymakers for a half-percentage-point rate increase this month, which would take the deposit rate to 2%.
• Business activity in the UK services sector contracted again in November as new orders fell, a survey of purchasing managers showed. The S&P Global/CIPS UK Services PMI Business Activity Index held steady at 48.8 in November, remaining at levels that correspond with a contraction.
• House prices dropped for a third consecutive month in November and at the fastest pace since the financial crash in 2008, mortgage lender Halifax said. Average house prices declined 2.3% sequentially, after dropping 0.4% in September as mortgage rates surged. Meanwhile, the Royal Institution of Chartered Surveyors said that its house price net balance—measuring the difference between the percentage of surveyors seeing rises and falls in house prices—fell to -25 in November, the lowest level since May 2020.
• Japan’s stock markets generated modest positive returns over the week. While investor sentiment was to some degree supported by data showing that Japan’s economy contracted less than initially estimated in the third quarter of 2022, uncertainty about the trajectory of U.S. monetary policy capped market gains.
• The yen weakened to around against the U.S. dollar, on the continued divergence in the monetary policies of the U.S. Federal Reserve and the BoJ, with the former widely expected to hike interest rates again and the latter consistently asserting its commitment to an ultra-loose policy stance.
• Gross domestic product (GDP) shrank an annualized 0.8% in the third quarter of the year, less than the 1.2% contraction indicated by initial estimates. Japan’s government has enacted measures to support growth and protect households and businesses from the buildup of price pressures. The reopening of the country’s borders to tourism is also likely to support economic expansion.
• Separate data showed that household spending, a key indicator of private consumption, increased year-on-year in October, due to increased spending on trips after the lifting of coronavirus restrictions, with the benefits of government subsidies to encourage domestic tourism being felt. However, falling real wages posed a headwind to increased spending. 
• Chinese stock markets rose as Beijing’s rapid easing of coronavirus pandemic restrictions bolstered investor sentiment despite an expected surge in infections in the coming months. 
• Chinese officials announced a 10-point guideline to their new COVID prevention and control measures. The new measures outlined by the State Council include home quarantine for people with mild symptoms, a vaccination program for the elderly, and reducing mass testing requirements in many cities. Lockdowns in high-risk areas would be lifted if no new cases appeared for five consecutive days.
• Although China’s zero-tolerance approach to the virus significantly disrupted economic activity this year, concerns persisted over the impact of reopening on the country’s near-term growth outlook. Many analysts have noted that China’s rapid shift from zero-COVID could be a headwind for the economy and increase business uncertainty if infections and deaths start to rise.
• Weak trade data tempered optimism about reopening. China’s exports fell a bigger-than-forecast 8.7% in November from a year earlier, marking the steepest monthly drop in exports since February 2020. Weaker global demand resulting from rising prices and interest rates worldwide and pandemic-related disruptions in China weighed on exports. Although China has relaxed its COVID restrictions, economists believe that persistent virus outbreaks will weigh on manufacturing activity in the coming months.

What to watch this week:

• Canada Q3 National Balance Sheet
• Canadian housing data
• US inflation data
• US FOMC monetary policy announcement and Summary of Economic Projections
• US retail sales and industrial production
• BoE, ECB, and Bank of Mexico monetary policy announcements
• Chinese industrial production, retail sales, fixed asset investment, money supply and aggregate yuan financing data
• German inflation data
• Eurozone industrial production and trade data
• UK GDP, retail sales, consumer confidence, industrial production, trade, employment and inflation data  

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

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