ClearWater Market Commentary as of February 24th, 2023

Here is the ClearWater Market Commentary as of February 24^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	-1.81%
1 Month	-2.39%
YTD	4.30%
1 Year	-4.20%

^{As of 2023/02/24 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	0.10%	-4.60%
Nikkei	-0.85%	1.76%
Shanghai Composite	-1.06%	4.50%
MSCI EAFE	-1.20%	7.40%
FTSE 100	-1.44%	4.95%
S&P/TSX Composite	-1.81%	4.08%
S&P 500	-1.84%	4.04%
Dow Jones Industrial	-2.03%	-0.51%
DAX	-2.17%	8.15%
CAC 40	-2.50%	9.91%
Hang Seng Index	-2.53%	1.10%
Russell 2000	-2.73%	7.98%
Nasdaq	-3.30%	8.90%

^{As of 2023/02/24- Source: www.marketwatch.com}

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

US economy (S&P 500 -1.84%):

• A cascade of upside inflation and growth surprises pushed the S&P 500 Index to its worst weekly loss since early December. The declines pushed the narrowly focused Dow Jones Industrial Average into negative territory for 2023, however. Communication services and consumer discretionary stocks performed worst within the S&P 500, but the declines were widespread.
• The Cboe Volatility Index (VIX), Wall Street’s so-called “fear index,” jumped but remained a bit below its mid-December levels.
• Stocks fell sharply following worrisome signs that inflation might have reversed course and accelerated again as the year began. On Friday, the Commerce Department reported that its core (less food and energy) personal consumption expenditures (PCE) price index jumped 0.6% in January, above expectations of an increase of 0.4% and its biggest rise since August. December’s figure was also revised higher, pushing the year-over-year increase—widely considered to be the Federal Reserve’s preferred inflation gauge—from 4.6% to 4.7%.
• Along similar lines, personal spending rose a solid 1.8% in January, the biggest increase in nearly two years and also well above expectations.
• Additional data suggested that both consumers and employers were yet to be deterred by rising interest rates. The University of Michigan’s gauge of consumer expectations in February was revised higher to its best level in over a year.
• Both initial and continuing jobless claims fell back and came in below consensus.
• In a sign of solid household balance sheets, sales of new single-family homes reached their highest level since March 2022, when 30-year mortgage rates were roughly 2.5 percentage points lower. 
• A few major retailers reported disappointing earnings and offered cautious guidance during the week, however, suggesting some tightening in household budgets. 
• Not surprisingly, the week’s data had a large impact on expectations for the timing and extent of future Fed rate hikes. According to CME Group data, futures markets began pricing in a roughly 27% chance of a half-point (0.50%) hike in the federal funds target rate at the upcoming March policy meeting, with approximately a 38% chance that the so-called terminal rate would reach a target range of 5.50% to 5.75% or higher. Likewise, expectations that the Fed would begin cutting rates in the fall dwindled considerably.

Canadian markets (S&P/TSX -1.80%):

• Canada’s main stock index held firm Friday, buoyed by sturdy energy and financial sectors, but finished the week negative due to a jitter-inducing inflation report out of the U.S.  
• CIBC, the first of Canada’s big banks to report their latest results, beat expectations for first-quarter adjusted earnings despite a profit drop from a year earlier due to a billion-dollar settlement payout.
• Canadian Consumer Price Index (CPI) for December was released and rose by 6.3% from a year ago. However, this is its sixth month of declines since its peak in June, and is considerably lower than November’s 6.8% increase.
• The majority of the decline was attributed to lower gasoline prices, which led a pullback in December’s headline inflation rate. Slower price growth was offset by increases in mortgage interest costs, clothing and personal care supplies. Shelter was again among major contributors to price gains, with mortgage interest and rent up 18% and 5.8% from a year ago, respectively. Consumers paid 13.1% less at gasoline pumps in December compared with a month earlier. 
• It is widely expected that the Bank of Canada will raise rates by another quarter of a percentage point at its next meeting, but may also signal a pause afterwards. Markets are still expecting the same increase from the Fed, however there are growing rumours that a 0.5% increase is a possibility.
• The Canadian dollar traded for 73.41 cents US, compared with 73.81 cents US on Thursday.
• The April crude contract was up 93 cents at US$76.32 per barrel and the April natural gas contract was up 12 cents at US$2.55 mmBTU.
• The April gold contract was down US$9.70 at US$1,817.10 an ounce and the May copper contract was down 10 cents at US$3.95 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

• Shares in Europe fell as better-than-expected economic data and corporate earnings raised the prospect that central banks might persist with interest rate increases. 
• Inflation in the eurozone eased in January to an annual rate of 8.6% from 9.2% the previous month. That was only marginally higher than the initial estimate, even after data from Germany showed that consumer price growth remained elevated in the bloc’s largest economy. However, underlying price pressures continued to increase, with the core inflation measure—which excludes fuel and food prices—accelerating to 5.3% from the 5.2% registered in December.
• The German economy shrank more than expected in the fourth quarter, spurring fears of a recession. 
• Private sector business activity in the eurozone picked up pace in February, reaching a nine-month high, a survey of purchasing managers by S&P Global showed. A preliminary reading of the composite Purchasing Managers’ Index (PMI), which measures the combined output of the services and manufacturing sectors, rose to 52.3 in February from 50.3 in January. Stronger services activity and a return to growth in manufacturing output drove the increase.
• Business activity in the UK manufacturing and services sectors unexpectedly ticked up in February, according to PMI data from S&P Global/CIPS. The survey indicated that prices charged by companies eased only fractionally during the month, and many firms mentioned the need to pass on higher wages, food costs, and energy bills. 
• Equities in Japan lost ground over the week. Comments perceived as dovish by incoming Bank of Japan (BoJ) Governor Kazuo Ueda lent some support to markets on Friday, but this was outweighed by general worries about the impact of further interest rate hikes by the U.S. Federal Reserve. Surging consumer prices added fresh pressure on the BoJ to start scaling back its massive stimulus program. 
• In a hearing in the lower house of parliament, Kazuo Ueda, who is set to become BoJ Governor in April, adopted a largely dovish tone, emphasizing monetary policy continuity but also acknowledging that current policy had side effects. He said that it will take time for the BoJ to achieve its 2% inflation target in a sustainable and stable manner, and given the current economic and price situation as well as the outlook, it is appropriate to continue with monetary easing.
• However, when the BoJ’s inflation target is realized, the central bank will be able to take steps to normalize monetary policy. Without going into specifics, Ueda hinted at various possibilities for the future of the BoJ’s yield curve control framework, while emphasizing that the outlook for underlying prices will determine whether it is reviewed in the direction of normalization.
• Ueda asserted that the main reason for the rate of increase in consumer prices—Japan’s core consumer price index rose 4.2% year-on-year in January, its biggest gain in over 41 years—is cost-driven inflation due to rising import prices and not due to strong demand. He emphasized the need to focus on a variety of factors, including wage growth, to determine underlying price trends. 
• Chinese stocks advanced after three weeks of losses as hopes for stepped-up regulatory support offset concerns about elevated U.S. tensions.
• China’s yuan currency dropped to a seven-week low against the dollar after the release of unexpectedly strong U.S. inflation data on Friday raised expectations that the Federal Reserve would keep raising interest rates. Signs of worsening U.S.-China relations—a key factor influencing currency trading in recent years—also pressured the yuan amid reports that the U.S. plans to increase the number of troops helping train Taiwanese forces. The U.S. is Taiwan’s biggest weapons supplier and has recently increased its presence around the island to guard against a potential invasion by China. 
• The People’s Bank of China (PBOC) left its benchmark one-year and five-year loan prime rates unchanged for the sixth consecutive month, as expected. S
• Many analysts forecast the central bank will continue its accommodative stance to support the economy amid a sluggish property market, tumbling exports, and fragile consumer confidence. However, the PBOC instructed lenders to control the pace of new loans after they reached a record level in January, Reuters reported. 
• In regulatory news, China’s securities regulator published new rules to revive offshore initial product offerings following a regulatory freeze that began in July 2021. The rules grant oversight of variable interest entity structures and allow access to foreign capital as Beijing attempts to boost overseas listings, which it cited as vital for letting domestic companies access liquid capital markets. The guidelines go into effect on March 31.

What to watch this week:

• Pending Home Sales (Jan)
• Durable Goods Orders (Jan)
• Wholesale Inventories (Jan)
• Retail Inventories (Jan)
• S&P Case-Shiller National Home Price Index (Dec)
• CB Consumer Confidence Index (Feb)
• S&P Global Manufacturing PMI (Feb)
• S&P Global Composite PMI – Final Reading (Feb)

• 

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

Thank you for checking out our ClearWater Market Commentary for February 24^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.