ClearWater Market Commentary as of January 13th, 2023

Here is the ClearWater Market Commentary as of January 13th, 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	2.85%
1 Month	4.72%
YTD	5.03%
1 Year	-4.67%

^{As of 2023/01/13 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	8.40%	-0.30%
Russell 2000	5.26%	7.14%
Nasdaq	4.80%	5.90%
CAC 40	3.75%	8.85%
MSCI EAFE	3.30%	4.40%
DAX	3.26%	8.35%
Hang Seng Index	3.11%	9.89%
S&P/TSX Composite	2.85%	5.16%
S&P 500	2.10%	3.39%
Dow Jones Industrial	2.00%	3.50%
FTSE 100	1.88%	5.26%
Shanghai Composite	1.19%	3.43%
Nikkei	0.56%	0.10%

^{As of 2023/01/13- Source: www.marketwatch.com}

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

US economy (S&P 500 2.10%):

• Stocks recorded a second consecutive week of gains as investors weighed key inflation data and quarterly earnings reporting season kicked off in earnest on Friday. 
• The Nasdaq Composite and growth-oriented sectors outperformed, helped by rebounds in some mega-cap technology-related names, including Amazon.com, Tesla, and Microsoft. Consumer staples shares lagged.
• Investors seemed to spend much of the week waiting for and then reacting to the Labor Department’s report on consumer price index (CPI) inflation on Thursday morning, which Wall Street generally viewed as benign. Headline prices fell 0.1% in December, a tick lower than expected and the first decline since May 2020. 
• The drop brought the year-over-year gain to 6.5%, its lowest level since October 2021. The 12-month increase in core (less food and energy) consumer inflation fell as expected to 5.7%, also the slowest pace in over a year.  
• The week’s economic calendar was fairly light, but some of the other data suggested that the economy remained relatively healthy even as inflation pressures eased—bolstering hopes that the Federal Reserve would manage a “soft landing.” 
• Weekly jobless claims fell to a three-month low of 205,000, while the University of Michigan’s preliminary reading of consumer sentiment jumped much more than expected and reached its highest level since April. 
• The cooling inflation data helped U.S. Treasury yields to continue trending lower, with the yield on the benchmark 10-year U.S. Treasury note falling to 3.43%, its lowest level since soon after the Fed’s mid-December meeting. 

Canadian markets (S&P/TSX 2.85%):

• Canada’s main stock index was up in late-morning trading as gains in the industrials sector helped lead stocks higher, while U.S. stock markets were mixed.
• Next week will see retail sales released in both Canada and the U.S., with the latter giving insight into how the consumer fared during the holiday shopping season (Canada’s data on retail trade will cover November). Retail sales are expected to slump on both sides of the border.
• In Canada, all eyes will be on inflation data ahead of an all-but-certain 25-basis-point interest rate hike the following week. 
• The Canadian dollar traded for 74.53 cents US compared with 74.75 cents US on Thursday.
• The February crude contract was up US$1.10 at US$79.49 per barrel and the February natural gas contract was down eight cents at US$3.62 per mmBTU.
• The February gold contract was up US$16.00 at US$1,914.80 an ounce and the March copper contract was down a penny at US$4.19 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 rallied for a second consecutive week, as better-than-expected economic data raised hopes of a short and shallow recession. However, some central bankers said interest rates would need to rise further, tempering market optimism. 
• The German economy likely stagnated in the fourth quarter of 2022, after growing 0.4% in the previous three months, according to a first estimate from the national statistics office. The Finance Ministry said the data pointed to a milder, shorter slowdown over the winter. 
• For the full year, the economy expanded 1.9%, down from 2.6% in 2021, as the Russia-Ukraine war and surging energy costs curbed output. Meanwhile, the German Chambers of Commerce and Industry said that more than half of Germany’s companies were suffering from labor shortages.
• Eurozone unemployment remained at 6.5% in November, as expected by economists, official data showed. Meanwhile, investor morale strengthened for a third straight month in January. The economic sentiment index compiled by Sentix rose to its highest level since June last year but remained in negative territory. This follows official eurozone data published earlier this month that showed economic sentiment improving in December for the first time since the start of the Russian invasion of Ukraine.
• Gross domestic product in the UK grew 0.1% sequentially in November, beating a consensus forecast for a 0.2% contraction in a FactSet survey of economists. This upside surprise fueled expectations that the economy might avoid a recession. The Office for National Statistics said that the economy would have to shrink about 0.5% in December to record a second quarter of economic contraction.
• Bank of England (BoE) Chief Economist Huw Pill said in New York that the UK faced the risk of persistent inflation, hinting that interest rates would probably rise again. “The distinctive context that prevails in the UK—of higher natural gas prices with a tight labor market, adverse labor supply developments and goods market bottlenecks—creates the potential for inflation to prove more persistent,” Pill stated, which would “strongly influence my monetary policy position in the coming months.” 
• Financial markets expect the BoE to raise its key interest rate by half a percentage point (0.50%) to 4.00% in February.
• Japan’s equity markets gained over the week, with risk appetite supported by weaker momentum in U.S. consumer price inflation, which raised hopes that the U.S. Federal Reserve would slow the pace of its interest rate hikes. 
• As core consumer price inflation in the Tokyo area rose 4.0% year on year in December—the fastest rate in 40 years—speculation grew that the Bank of Japan (BoJ) could revise up its inflation forecasts and assess the viability of further monetary policy adjustments at its next meeting (January 17–18). 
• The central bank surprisingly tweaked its yield curve control (YCC) framework in December. As a result, the BoJ was again forced to conduct unscheduled bond-buying operations to keep the 10-year Japanese government bond (JGB) yield around its new 0.50% cap, roughly the level at which it ended the week. 
• BoJ watchers were spurred on during the week by an article in Japan’s Yomiuri Shimbun newspaper, which added to speculation about the central bank’s monetary policy trajectory. It claimed that the BoJ would inspect the side effects of its ultra-easy stance at its January meeting, given there are ongoing distortions in market interest rates even after the December modification of its YCC framework. 
• However, while the revisions to the BoJ’s inflation forecasts are widely expected, further monetary policy changes may not be imminent until after the end of Governor Haruhiko Kuroda’s term in April. Of 43 economists surveyed by the Bloomberg news agency, all but one predicted that the BoJ would leave its policy unchanged in January. 
• Asked whether the BoJ needs to tweak its ultra-loose policy, Prime Minister Fumio Kishida said that monetary policymakers must have a view on the outlook for the economy, and there needs to be careful communication and dialogue with markets.
• Chinese stocks rose as a softer-than-expected U.S. inflation print and optimism about the post-pandemic reopening outlook boosted sentiment.
• Hopes that domestic demand will recover in the coming months rose after Beijing abandoned its zero-COVID policy in December and officials stepped up measures to support the struggling property sector. Earlier in the week, China issued a large quota for crude oil imports to prepare for an expected uptick in energy demand as infections start to wane and economic activity returns to normal. Economists polled by Reuters projected a swift rebound for China’s economy once infections peak and forecast 4.9% growth this year versus an estimated growth pace of about 3% in 2022.
• In other economic news, China’s inflation gained momentum, rising 1.8% in December. Core inflation, which excludes food and energy prices, picked up slightly after remaining unchanged for three consecutive months. Meanwhile, producer prices weakened as virus-related disruptions curbed industrial demand. The producer price index declined 0.7% in December after falling 1.3% in November.

What to watch this week:

• Canadian inflation, retail sales, and housing data
• Bank of Canada Outlook Survey and Survey of Consumer Expectations (Q4)
• US retail sales, industrial production, and housing data
• Fed Beige Book
• Bank of Japan policy meeting
• Japanese industrial production, trade and inflation data
• Chinese GDP, industrial production, retail sales, and fixed asset investment data
• Eurozone inflation data
• UK employment, inflation, retail sales and consumer confidence data
• World Economic Forum 
• 26 S&P 500 and 1 S&P/TSX companies report earnings

• 

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

Thank you for checking out our ClearWater Market Commentary for January 13th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.