ClearWater Market Commentary as of February 10th, 2023

Here is the ClearWater Market Commentary as of February 10^th, 2023:

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	-0.07%
1 Month	1.24%
YTD	6.33%
1 Year	-4.35%

^{As of 2023/02/10 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	8.70%	-0.60%
Shanghai Composite	1.20%	5.38%
Nikkei	-0.03%	4.40%
MSCI EAFE	-0.30%	7.20%
S&P/TSX Composite	-0.07%	6.44%
Dow Jones Industrial	-0.58%	0.72%
FTSE 100	-0.63%	3.96%
S&P 500	-1.37%	5.35%
Nasdaq	-1.56%	12.82%
DAX	-2.55%	8.10%
Hang Seng Index	-2.61%	4.99%
CAC 40	-2.89%	8.29%
Russell 2000	-2.90%	9.60%

^{As of 2023/02/10- Source: www.marketwatch.com}

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

US economy (S&P 500 -1.37%):

• The major benchmarks ended lower in a week with relatively few important economic releases or other concrete drivers of sentiment. 
• Sector performance was relatively uniform within the S&P 500 Index, with energy stocks being the notable upside outlier and communication services shares the prominent laggard. 
• The most significant stock-specific event for the broad benchmarks was a plunge in shares of Google parent Alphabet, which lost roughly USD 100 billion in market capitalization on Wednesday and fell roughly 10% for the week. 
• Statements from Federal Reserve officials appeared to send stocks in opposite directions on Tuesday and Wednesday. Stocks rallied Tuesday, after Fed Chair Jerome Powell, in a question-and-answer session at the Economic Club of Washington, repeated an earlier reference to the disinflation process having started. 
• Some investors had worried that the major upside surprise in the January payrolls report, released the previous Friday, might cause Powell to change his tone. 
• After the previous Friday’s big surprises, the week’s light calendar of economic data came in largely in line with consensus expectations. Weekly jobless claims were slightly higher than expected, at 196,000, but remained near recent nine-month lows. The University of Michigan’s preliminary gauge of February consumer sentiment, released Friday, moderately exceeded expectations and reached its highest level (66.4) since January 2022.
• The yield on the benchmark 10-year U.S. Treasury note increased solidly over the week as investors appeared to continue digesting the previous week’s strong January payrolls report. (Bond prices and yields move in opposite directions.) The yield curve inverted further as fears grew that the Fed would need to push the economy into recession in order to tame inflation.

Canadian markets (S&P/TSX -0.07%):

• Canada’s main stock index was largely unchanged Friday with gains in industrials and energy partially offset by weakness in technology and metals, while U.S. markets were mixed. 
• Friday saw the end of a relatively tepid week, with some pockets of volatility as investors recover from an unexpectedly strong showing in January. 
• New data in Canada showed a surge of jobs in January, far above what was expected, echoing a similar surprise from the U.S. labour market last week.
• Canadian employment rose 150,000 (versus 15,000 expected), after the prior month’s downwardly revised gain of 69,200. The bulk of the increase was in full-time jobs. The unemployment rate held steady at 5.0% (versus 5.1% expected), while the participation rate rose to 65.7% from 65.4%.
• But markets are starting to shift away from the “good news is bad news” reactions of the past several months as the fear of a major recession wanes. Strength in the job market may help shore up the slowing economy and while a mild recession is still the most likely outcome, a soft landing is becoming more of a possibility. 
• Oil has been drifting upward over general optimism about China’s reopening, but news last week that Russia is cutting oil production helped bump it up close to the $80 mark. 
• Canada’s merchandise trade deficit (Dec.) narrowed to $160 million (versus $50 million expected), from $220 million in the prior month.  
• The March crude contract was up US$1.66 at US$79.72 per barrel and the March natural gas contract was up eight cents at US$2.51 per mmBTU.
• The Canadian dollar traded for 74.84 cents US compared with 74.48 cents US on Thursday.
• The April gold contract was down US$4 at US$1,874.50 an ounce and the March copper contract was down eight cents at US$4.02 a pound.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe weakened on concerns about overly aggressive central bank policy that might prolong an economic downturn. 
• Several European Central Bank (ECB) policymakers reasserted their hawkish stance in the wake of the most recent rate-setting meeting, warning against complacency in the fight against inflation.
• Comments by Executive Board member Isabel Schnabel seized the market’s attention at the start of the week. The recent slowing of inflation wasn’t necessarily due to ECB policy, she argued, while stressing that underlying inflation was still extraordinarily high. 
• The German Finance Ministry said it expected the winter slowdown to be mild because of strong industrial order books, an improvement in confidence, and easing supply bottlenecks. Earlier, data showed industrial production in December fell 3.1% sequentially, largely due to slowdowns in energy-intensive industries. However, industrial orders rose 3.2% on the month—the biggest increase in more than year—thanks to strong domestic and eurozone demand.
• Meanwhile, delayed data showed that inflation in Germany, when adjusted for comparison with other EU countries, slowed by more than expected, hitting a five-month low of 9.2% in January.
• The UK avoided a recession last year, despite a sharp economic contraction in December, official data showed. Gross domestic product (GDP) came in flat in the final three months of last year, avoiding a second consecutive quarter of economic contraction. 
• The Riksbank raised interest rates by another half percentage point to 3.0%. The central bank’s latest economic projections pointed to at least another quarter-point rate hike in April.
• Japan’s stock markets rose over the week, Speculation was rife about the potential nominees to be the next governor and deputy governor of the Bank of Japan (BoJ). 
• After Japanese markets closed on Friday, the Nikkei news agency reported that the government plans to appoint Kazuo Ueda, an economist and former member of the BoJ Board who had not been mentioned as a shortlisted candidate, as the central bank’s next governor. 
• With incumbent BoJ Governor Haruhiko Kuroda’s term ending in April, investors are watching for any potential change in the central bank’s ultra-loose monetary policy stance amid signs of wage growth coming through and particularly if more hawkish candidates are appointed. 
• The yen jumped on Friday on reports of Ueda’s potential appointment and some investor expectations of a monetary policy tweak. 
• In considering the selection for the new BoJ governor, Prime Minister Fumio Kishida will pay close attention to the potential impact on financial markets. He noted that an important attribute for Kuroda’s successor would be the ability to closely coordinate with other major central banks and to understand and communicate with market participants at home and abroad. 
• Ueda’s previous comments and actions suggest a more balanced tone with consideration of the risks from excessive easing and also the importance of reaching 2% inflation sustainably (with a focus on wage growth). He recently said that the current rise in Japan’s inflation is largely driven by a negative supply shock from the global increase in food and energy prices. He has also signaled some concern about applying unusual monetary policy frameworks for an extended period and suggested a review was necessary.
• Chinese stocks retreated as the spy balloon controversy fanned tensions with the U.S. and offset expectations of faster economic growth following China’s exit from pandemic controls. The Shanghai Stock Exchange Index and the CSI 300 Index both recorded slight declines for the second straight week as the diplomatic crisis over the balloon in U.S. airspace reminded investors of the geopolitical risks of investing in the country.
• The spy balloon incident raised the prospect of further sanctions on China from the U.S. after the Biden administration announced a sweeping ban on U.S. companies selling advanced semiconductors and certain chip manufacturing equipment to China last October. 
• Relations with China and the U.S. debt ceiling will be the key public policy catalysts moving markets in 2023, and risks for both are skewed to the downside. Possible U.S. measures that could be enacted in the next two years include outbound investment screening for investments in China as well as further export controls on the country, according to Pinkerton.
• Investors appear to have turned more cautious about China’s outlook following a three-month rally driven by reopening optimism that began last November amid speculation that China was preparing to unwind its strict zero-COVID policy, which Beijing rolled back in December. Despite a burst of economic activity during the weeklong Lunar New Year holiday at the end of January, analysts have lately flagged significant growth headwinds for China, including waning export demand and a weak property market.
• In economic news, China reported that its consumer price index picked up 2.1% in January from a year ago, in line with estimates, while producer prices fell more than expected due to lower commodity costs. The latest data showed that China isn’t likely to experience runaway inflation similar to the U.S. and Europe and raised expectations that the central bank would keep policy supportive to bolster the economy.

What to watch this week:

• Canadian housing data
• US inflation, retail sales, industrial production and housing data
• Japanese GDP, industrial production and trade data
• Japan to nominate Kazuo Ueda as next Bank of Japan Governor
• Eurozone GDP and industrial production data
• UK employment, inflation and retail sales data
• 61 S&P 500 and 42 S&P/TSX companies report earnings

• 

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

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