ClearWater Market Commentary as of January 21st, 2022

Here is the ClearWater Market Commentary as of January 21st, 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	-2.83%
1 Month	-2.87%
YTD	-2.83%
1 Year	15.55%

^{As of 2022/01/21 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (oil)	6.80%	12.00%
Hang Seng Index	1.81%	5.38%
Shanghai Composite	-0.50%	-3.18%
Nikkei 225	-2.63%	-4.18%
Nasdaq	-2.72%	-11.46%
FTSE 100	-3.32%	-0.36%
S&P/TSX Composite	-4.25%	-2.83%
Dow Jones Industrial	-4.58%	-5.70%
CAC 40	-4.78%	-4.13%
DAX	-5.09%	-4.79%
S&P 500	-5.68%	-7.73%
Russell 2000	-8.03%	-11.46%

^{As of 2022/01/121 – Source: www.marketwatch.com}

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

US economy (S&P 500 -5.68%):

• Rising interest rate fears and growth worries pushed the S&P 500 Index to its biggest decline in more than 14 months over the holiday-shortened week.
• The Nasdaq Composite Index slumped roughly 7.5%, its biggest weekly drop since the start of the pandemic. Weakness in semiconductor shares weighed on technology stocks, while weakness in automakers and home improvement retailers dragged down the consumer discretionary sector.
• Much of the week’s volatility appeared to be due to technical factors. Heavy flows in and out of index-focused exchange-traded funds (ETFs) indicated that many investors were trading equities as an overall asset class rather than based on the week’s earnings reports or other fundamentals.
• The declines left the Nasdaq in correction territory, or down more than 10% from its mid-November highs.
• Fears that the Federal Reserve will need to act aggressively to curb inflation loomed large over sentiment.
• The latest housing market data were mixed. Housing starts and permits in December surprised to the upside while existing home sales slumped over the month. An unexpected jump in weekly jobless claims seemed to have the biggest impact on markets. Claims rose to 286,000, the most since mid-October.
• Many observers attributed the increase in claims to the spread of the omicron variant of the coronavirus. The week brought encouraging news of a nationwide decline in cases, particularly in New York and other large cities.
• Continued Ukraine-related tensions between the U.S. and Russia also weighed on sentiment.

Canadian markets (S&P/TSX -4.25%):

• Canada’s main stock index was down for the week amid continued concerns of rising interest rate fears and growth worries.
• The TSX suffered its biggest decline of 2022 as tech dragged down the index, led by Shopify extending its losses.
• However, energy products are still almost up 17% year-to-date, and Canadian banks are up over 3% year to date.
• Geopolitical concerns following a report that the U.S. has approved arms shipments from Baltic NATO members to Ukraine to fend off a Russian incursion also dampened sentiment.
• Canada’s latest inflation reading was the highest since 1991. The year-over-year inflation rate for December edged up to 4.8% from 4.7% in November.

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

European and Asian economies:

• Shares in Europe ended lower, as expectations grew that the European Central Bank (ECB) would raise interest rates this year and that the Bank of England (BoE) would also need to tighten its monetary policy.
• However, ECB President Christine Lagarde came out last week saying that is “very unlikely” to raise rates in 2022 as geopolitical tensions over Ukraine intensified.
• Despite increasing numbers of COVID-19 cases, some countries started to ease restrictions.
• ECB President Christine Lagarde rejected calls for the central bank to raise interest rates more quickly than planned to curb record inflation. She said, that the cycle of economic recovery in the U.S. is ahead of that in Europe.
• Lagarde reiterated that inflation would stabilize and “gradually fall” back below target by the end of the year.
• Deep divisions in the ECB’s rate-setting Governing Council emerged at the December meeting, minutes showed. The majority agreed that “substantial monetary support was still needed” for inflation to stabilize. However, some members warned that inflation might stay higher for longer and said that they could not support the “overall package” of adjustments to the bank’s asset purchase programs.
• Japan’s stock market returns were negative for the week.
• Amid record new coronavirus infections nationwide, the government placed Tokyo and 12 other prefectures under a quasi-state of emergency, which weighed on sentiment.
• As widely expected, the Bank of Japan (BoJ) maintained its dovish stance at its January monetary policy meeting, keeping short- and long-term interest rates unchanged.
• The BoJ upgraded its forecasts for economic growth for 2022, expecting gross domestic product (GDP) to expand year on year in real terms by 3.8%.
• The central bank also upgraded its forecasts for the consumer price index (CPI) in FY 2022 to 1.1% from October’s projected 0.9%, mainly reflecting a rise in commodity prices and the pass-through of that rise to consumer prices.
• Separate economic data showed that exports rose 17.5% year on year in December, boosted by an easing of supply bottlenecks toward the end of 2021. Imports rose 41.1% year on year over the same period, on higher raw material costs and a weaker yen.
• In a special address to The Davos Agenda 2022 virtual event, Prime Minister Fumio Kishida emphasized that Japan’s economic recovery will be driven by digitization and investments in green technology and human capital.
• Chinese markets posted a weekly gain as the government stepped up monetary easing measures and signalled additional support for the beleaguered property sector.
• Last Monday, the People’s Bank of China (PBOC) unexpectedly reduced the interest rate on one-year medium-term lending facility (MLF) loans, the central bank’s first reduction since April 2020. In response, Chinese banks cut their loan prime rates.
• China’s central bank sets the MLF rate, upon which domestic lenders set their loan prime rates or the de facto benchmark for new loans.
• Following the rate cut, PBOC Vice Governor Liu Guoqiang said that China will roll out additional policy measures to stabilize the economy and pre-empt downward pressures.
• At the end of the week, the PBOC cut the interest rates on its standing lending facility (SLF) loans—another key monetary policy too.
• The SLF program allows financial institutions to obtain temporary liquidity from the central bank. Additionally, the PBOC is drafting rules to make it easier for cash-strapped property developers to access funds from sales still held in escrow, according to Reuters.
• Regulatory pressure on China’s tech sector continued as ByteDance, the owner of TikTok, said that it was disbanding its group-level strategic investment team.
• In economic readings, China’s gross domestic product expanded at a better-than-expected 4% in the fourth quarter of 2021, slowing from the third quarter’s 4.9% expansion pace.

What to watch this week:

• Canada and US monetary policy announcements
• US durable goods orders, personal spending and income, and wage data
• Eurozone GDP data, money supply data
• Global Purchasing Manager Indices
• 105 S&P 500 (including Apple, Microsoft and Tesla) and 7 S&P/TSX companies report earnings

• 

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

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