ClearWater Market Commentary as of February 17th, 2023

Here is the ClearWater Market Commentary as of February 17^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	-0.41%
1 Month	1.05%
YTD	5.98%
1 Year	-4.12%

^{As of 2023/02/17 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
CAC 40	4.20%	12.84%
FTSE 100	2.43%	6.49%
DAX	2.26%	10.54%
Dow Jones Industrial	0.82%	1.55%
S&P 500	0.61%	5.99%
Nasdaq	0.60%	12.60%
Shanghai Composite	0.38%	6.10%
Russell 2000	0.25%	11.20%
MSCI EAFE	0.10%	7.80%
S&P/TSX Composite	-0.41%	6.00%
Hang Seng Index	-1.21%	3.72%
Nikkei	-1.70%	2.63%
WTI Crude (Oil)	-3.60%	-4.60%

^{As of 2023/02/17- Source: www.marketwatch.com}

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

US economy (S&P 500 0.61%):

• The major indexes ended mixed as investors weighed some healthy growth and profit signals against worries that inflation trends might be taking an unfavorable turn. 
• Fears that the Federal Reserve would need to raise short-term interest rates more than previously expected caused U.S. Treasury yields to increase and fostered a rise in the U.S. dollar, taking an especially large toll on oil prices and energy stocks.  
• The week’s highly anticipated inflation data offered a mixed picture. On Tuesday, the Labor Department reported that consumer prices rose 0.5% in January, as expected, versus a revised 0.1% increase in December. A “sticky” increase in shelter prices accounted for nearly half of the gain and compensated for another sharp drop in used car prices.
• On a year-over-year basis, the inflation rate came in at 6.4%, higher than expected but the slowest pace since October 2021. Annual core (less food and energy costs) inflation was 5.6%, also modestly above expectations but its slowest pace since December 2021.
• Stocks fell on Thursday, however, after producer prices surprised on the upside. The producer price index rose 0.7% in January, its biggest gain since June, while core producer prices rose 0.5%, the most since May. Nevertheless, producer prices continued their steady and steep decline since June on a year-over-year basis, falling almost in half, from 11.2% to 6.0%
• The data from Wednesday’s retail sales report raised the possibility that a strong recovery in consumer spending may stall the progress the Fed has made in cooling inflation. Retail sales jumped 3.0% in the month, the biggest increase in 10 months and well above consensus expectations of around 1.8%. The strength in goods spending is particularly notable given the widespread expectation that reducing services inflation (heavily driven by shelter costs) is the main challenge moving forward. Spending at department stores jumped 17.5% in January.

Canadian markets (S&P/TSX -0.41%):

• Losses in the energy sector weighed Canada’s main stock index down Friday, while U.S. markets were mixed, pulled lower by tech.
• The TSX’s energy index was down 3.49 per cent Friday, with some of the biggest energy companies on the index helping weigh it down.
• Friday’s weakness was a continuation of a pullback that began a day earlier, as some of the optimism investors had in central banks potentially cutting rates by the end of the year was squeezed out by a string of hotter-than-expected economic data. 
• After inflation, jobs and retail sales all showed the economy is proving tougher than expected to slow down, Thursday’s producer price data came in higher than expected, helping cement that outlook.
• Central bank officials in both Canada and the U.S. have made it clear that if the economic data supports it, they will continue to hike interest rates, even though Canada’s central bank recently signalled it’s pausing to let the effects of hikes work their way through the market. Investors had been pricing in up to two cuts by the end of the year, but those expectations have since waned considerably.
• However, some of the strong economic data is also fuelling cautious optimism that a recession might not be necessary to cool inflation.
• The Canadian dollar traded for 74.15 cents US compared with 74.41 cents US on Thursday.
• The April crude oil contract was down $2.19 cents at US$76.55 per barrel and the March natural gas contract was down 11 cents at US$2.28 per mmBTU.
• The April gold contract was down US$1.60 at US$1,850.20 an ounce and the March copper contract was down almost three cents at US$4.11 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 rebounded as better-than-expected corporate results helped markets shrug off fears about additional interest rate hikes. 
• Annualized consumer price growth fell for a third consecutive month in January to 10.1% due mainly to easing services and fuel costs. Core inflation (excluding energy, food, alcohol, and tobacco) eased to a much lower-than-forecast rate of 5.8%. 
• The slowdown in inflation stoked hopes that the Bank of England might opt for a smaller interest rate hike in March or skip one altogether. However, the jobs market remained tight in the three months through December, with the unemployment rate remaining just off an all-time low at 3.7%. Pay, excluding bonuses, rose by 6.7%.
• Eurozone employment rose to a record high in the final quarter of last year, which could exacerbate ECB policymakers’ worries about second-round effects on inflation. Employment rose by 0.4% to 165.07 million, the most since early 2021 and more than double the consensus forecast. On a year-over-year basis, employment grew 1.5% after rising 1.8% in the third quarter.
• Separately, industrial production in the eurozone fell in December by 1.1% sequentially, which was more than expected. Energy-intensive industries posted the sharpest falls in output. The euro area recorded a deficit of EUR 314.7 billion in 2022, compared with a surplus of EUR 116.4 billion the year before, as sharp increases in energy prices caused the value of imports to exceed the value of exports.
• Japanese equity markets generated mixed returns for the week. Solid U.S. economic data prompted hawkish remarks from U.S. Federal Reserve (Fed) officials, weighing on risk assets. Sentiment was also dampened by Japan’s economy rebounding less than expected over the final quarter of last year.
• The nomination during the week of Kazuo Ueda as the next Bank of Japan (BoJ) governor prompted further speculation about the future trajectory of the central bank’s monetary policy. 
• Gross domestic product (GDP) expanded 0.6% quarter on quarter on an annualized basis in the three months to the end of December 2022, below consensus expectations and following a contraction in the third quarter. Private consumption was the main driver of growth, primarily due to the lifting of tough border controls in October, while accelerating government spending and positive net trade also provided a boost. Business investment contracted, serving as a drag on growth. Uncertainty about the global economic outlook is likely to weigh on Japan’s recovery from the coronavirus pandemic.
• The government presented to Parliament Kazuo Ueda, an economist and former member of the BoJ Board, as its nominee for Japan’s central bank’s next governor and Ryozo Himino and Shinichi Uchida as deputy governors. Himino is a former commissioner of the Financial Services Agency, and Uchida is an executive director at the BoJ.
• Market watchers are focused on any hints of monetary policy tweaks as Ueda prepares to take the helm in April, when incumbent BoJ Governor Haruhiko Kuroda’s term finishes. While Ueda has downplayed changes to BoJ’s ultra-loose stance anytime soon, his previous comments and actions suggest a more balanced tone, with consideration of the risks from excessive easing as well as the importance of reaching the 2% inflation target sustainably (with a focus on wage growth).
• Chinese equities fell for a third consecutive week as concerns over escalating geopolitical tensions with the U.S. hampered prospects of faster economic growth. 
• Bloomberg reported that prices for new homes in China remained roughly steady in January, breaking a 16-month slide, as demand received a boost from the government lifting of its zero-COVID regime. In recent months, Chinese authorities have rolled out a slew of support measures for the struggling sector as it focuses on restoring economic growth in China. Economists now predict that the government will announce additional policies during or after the highly anticipated annual Parliament meeting, which starts in early March.
• Meanwhile, the People’s Bank of China (PBOC) injected a further CNY 199 billion into China’s fiscal system via its one-year medium-term lending facility. The move was largely anticipated by investors, as the bank strives to meet the sharp rebound in economic activity after the government abruptly removed all pandemic-related restrictions in December. The PBOC issued a statement pledging to offer precise measures to strengthen financial support for key areas and weak links in the economy, including steady loan growth, targeted housing credit policies to individual cities, and providing financial services to meet housing demand.
• In other news, China’s foreign ministry spokesman Wang Wenbin announced that Beijing will enact countermeasures against the U.S. after it shot down a suspected Chinese spy balloon in U.S. territory the previous week, stoking fears of rising geopolitical risks. The warning came after the U.S. added Chinese firms to an export blacklist amid alleged links to a military-backed global balloon espionage program.

What to watch this week:

• S&P Global Composite PMI – Flash Estimate (Feb)
• Existing Home Sales (Jan)
• FOMC Meeting Minutes
• U.S. GDP Growth Rate – Second Estimate (Q4 2022)
• Real Consumer Spending Growth (Q4 2022)
• Personal Consumption Expenditures (PCE) Price Index (Jan)
• University of Michigan Consumer Sentiment Index – Final Reading (Feb)
• New Home Sales (Jan)

• 

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

Thank you for checking out our ClearWater Market Commentary for February 17^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.