ClearWater Market Commentary as of February 18th, 2022

Here is the ClearWater Market Commentary as of February 18th, 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	-2.30%
1 Month	1.88%
YTD	-1.01%
1 Year	14.27%

^{As of 2022/02/18 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Shanghai Composite	0.32%	-5.02%
FTSE 100	-1.26%	1.74%
Nikkei 225	-1.55%	-8.13%
S&P/TSX Composite	-2.30%	-1.01%
CAC 40	-2.58%	-4.94%
Dow Jones Industrial	-2.60%	-6.22%
S&P 500	-2.73%	-8.76%
WTI Crude (oil)	-2.90%	20.20%
Russel 2000	-3.23%	-10.51%
Hang Seng Index	-3.43%	0.52%
Nasdaq	-4.18%	-13.40%
DAX	-4.51%	-7.35%

^{As of 2022/02/18 – Source: www.marketwatch.com}

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

US economy (S&P 500 -2.73%):

• The large-cap indexes suffered their second consecutive week of declines as worries over a Russian invasion of Ukraine and high inflation weighed on sentiment.
• Conflicting signals on whether Russian troops were preparing to cross the border with Ukraine appeared to whipsaw markets throughout the week. Stocks fell on Monday afternoon following a CNN report that the president of Ukraine, Volodymyr Zelensky, said the government had been informed that the coming Wednesday would “be the day of attack.”
• The indexes then rallied on Tuesday, after Russian President Vladimir Putin said he hoped for a diplomatic solution to tensions with the U.S. and its allies and announced a partial pullback of troops near the Ukrainian border.
• Stocks then reversed course and headed lower again on Thursday, after U.S. officials stated that there was no evidence of a pullback and that an invasion was “imminent.”
• Contradictory signs from the Federal Reserve also seemed to foster volatility. On Monday, Fed President James Bullard told a CNBC interviewer that policymakers “surprised to the upside on inflation” and that the Fed’s “credibility was on the line.”
• On Thursday, Bullard said in another interview that he expected a full percentage point of federal funds rate increases by July. Bullard made it clear that his views were the consensus among fellow policymakers. By Friday afternoon, futures markets were pricing in an almost 80% probability of only a quarter-point hike in March, however.
• Some mixed economic data may have also lowered expectations for an aggressive rate hike at the upcoming meeting. Weekly jobless claims rose for the first time in a month, and two regional manufacturing indexes were surprised on the downside.

Canadian markets (S&P/TSX -2.30%):

• Canada’s main stock index closed the book on a losing week as lingering worries about a potential invasion of Ukraine by Russia persisted ahead of a long weekend. All 11 major sectors on the TSX were lower, led by health care and energy.
• January’s headline CPI inflation rose to 5.1% y/y, higher than the consensus 4.8% y/y. February does not look any easier with the trucker convoy adding to disruptions.
• The report from Bloomberg Report showed broad-based price increases across the basket. Aside from the obvious increase in gasoline prices, significant gains were seen in the food and shelter components of inflation.
• This highlights the challenge that the Bank of Canada faces, as inflation appears to be more than just supply-chain tightness. In response to the inflation print, market-based interest rate expectations increased from six to seven anticipated hikes to the BoC’s overnight rate in 2022.
• Gold companies provided a positive offset to the lacklustre performance of the tech sector. Whether it is a response to inflation or a reaction to the Russia/Ukraine tensions, gold has climbed to levels not seen since last summer.
• The Canadian dollar traded for 78.53 cents US compared with 78.77 cents US on Thursday.

Performance 2021: S&P 500/400/600 Sectors

European and Asian economies:

• Shares in Europe fell amid continuing geopolitical tensions over Ukraine and uncertainty about monetary policy.
• European Central Bank (ECB) President Christine Lagarde and Governing Council members Francois Villeroy de Galhau and Pablo Hernandez de Cos emphasized that any adjustment to monetary policy would be gradual and guided by key economic data.
• However, ECB Chief Economist Philip Lane changed his position on inflation, suggesting there may be a growing consensus for stimulus to be withdrawn faster than planned. Lane said in a webinar that inflation was unlikely to drop below the ECB’s 2% target in the next two years because investors, analysts, and consumers now had higher inflation expectations and structural shifts had occurred in the economy.
• Japan’s stock markets generated a negative return for the week, with sentiment weighed down by geopolitical tensions in Ukraine and concerns about more aggressive monetary policy tightening by the Fed.
• Buoyed by strong private consumption amid falling coronavirus cases, the Japanese economy grew by an annualized 5.4% quarter on quarter over the final three months of 2021, having contracted by 2.7% in the third quarter of the year.
• In its Monthly Economic Report for February, Japan’s Cabinet Office downgraded its economic assessment; while the economy is expected to pick up, supported by the effects of policies and improvement in overseas economies, downside risks have increased due to the spread of the coronavirus, supply-side constraints, and high raw material prices. The government will support the economy while paying close attention to these downside risks, and the Bank of Japan will continue monetary easing to achieve the price stability target of 2%. The core consumer price index rose 0.2% year on year in January, down from the previous month’s 0.5%.
• Since November 30, 2021, the government has banned non-resident foreigners from entering Japan, and such entry restrictions. However, new coronavirus cases are on a downward trend and government health experts say that the omicron-fueled sixth wave peaked earlier this month.
• Against this backdrop, Prime Minister Fumio Kishida announced that the first phase of easing the border controls will begin on March 1. Foreigners, including business travellers and exchange students (but not tourists), will be admitted into the country.
• Chinese markets rose as supportive comments from government officials and lower-than-expected inflation data increased investors’ risk appetite.
• In a State Council meeting, China’s Premier Li Keqiang reportedly pledged that Beijing would swiftly roll out a slew of measures to provide stronger support to the economy, parts of which are still suffering from the effects of the coronavirus pandemic.
• Additionally, the head of the People’s Bank of China (PBOC) said that the central bank would maintain a supportive monetary policy this year.
• In economic news, China’s producer price index (PPI) and consumer price index (CPI) inflation both came in lower than expected in January.
• News from developers continued to highlight the financial troubles weighing on the property sector. Shimao Group, long considered among the industry’s financially stronger players, asked for an extension to pay back RMB 6 billion (USD 101 million) of high yield trust products over three years, Bloomberg reported, citing unnamed sources.
• Meanwhile, Reuters reported that a Chinese court ordered the freezing of RMB 640.4 million (USD 101 million) in assets held by a subsidiary of China Evergrande Group, the world’s most indebted developer.
• Finally, the chairman of China Vanke, one of the country’s largest developers by revenue, warned staff members that the property sector’s best days were over and that the company was changing its business mix.
• In other corporate news, Meihua International Medical Technologies Co. became the first China-based company to have an initial public offering (IPO) in the U.S. since July after ride-hailing app Didi Global’s IPO sparked a regulatory backlash in China.

What to watch this week:

• Canada Provincial Budgets
• US personal spending and income and durable goods orders data
• Eurozone inflation data
• Eurozone and UK consumer confidence data
• New Zealand monetary policy meeting
• Global Purchasing Manager Indices
• 55 S&P 500 and 57 S&P/TSX companies report earnings

• 

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

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