ClearWater Market Commentary as of July 15th, 2022

Here is the ClearWater Market Commentary as of July 15th, 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	-0.87%
1 Month	-2.67%
YTD	-12.11%
1 Year	-5.44%

^{As of 2022/07/15 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Russell 2000	0.70%	-22.27%
DAX	0.24%	-18.41%
Dow Jones Industrial	-0.20%	-13.90%
Nikkei 225	-0.45%	-6.96%
FTSE 100	-0.52%	-2.18%
CAC 40	-0.63%	-14.83%
S&P/TSX Composite	-0.87%	-12.08%
S&P 500	-0.90%	-18.90%
Nasdaq	-1.60%	-26.80%
Shanghai Composite	-2.10%	-9.90%
Hang Seng Index	-3.40%	-10.90%
WTI Crude (oil)	-7.10%	29.40%

^{As of 2022/07/15 – Source: www.marketwatch.com}

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

US economy (S&P 500 -0.90%):

• Stocks remained volatile in light summer trading, as investors absorbed inflation data and the first major second-quarter corporate earnings reports. Technology stocks were among the best performers in the index, helped by solid gains in Apple. 
• Energy stocks underperformed as international oil prices fell to levels not seen since before Russia’s invasion of Ukraine.
• Anticipation over the week’s important inflation data dominated sentiment even before the reports’ releases beginning Wednesday. Wednesday morning’s data uniformly came in hotter than expected, sending markets sharply lower. The Labor Department reported that the consumer price index (CPI) rose by 9.1% over the 12 months ended in June, the highest increase since 1981.
• Friday’s inflation data seemed to be interpreted as unambiguously good news, helping to spark a solid rally to end the week. Both import and export prices rose significantly less than forecast in June. Americans’ five-year inflation expectations declined sharply in early July to 2.8%, their lowest level in over a year. 
• The decline seemed to feed expectations that the Fed would move less aggressively than feared at its next policy meeting, raising rates by 75 basis points (0.75%) rather than the 100 basis points futures markets had begun to indicate.
• The yield on the benchmark 10-year U.S. Treasury note fell over the week, as an inversion in the closely watched 2-year/10-year segment of the Treasury yield curve, considered by some to be a recession signal, reached its widest level since 2000. (Bond prices and yields move in opposite directions.)

Canadian markets (S&P/TSX -0.87%):

• Canada’s main stock index broke a five-day losing streak but still ended the week lower as crude oil and gold prices struggled over the past five trading sessions
• The Bank of Canada (BoC) surprised markets with a supersized 100 basis point (bp) hike, the largest since 1998. The move brings the overnight rate to the mid-point of the BoC’s neutral range of 2.5%. 
• It was widely expected that the BoC would reach neutral sooner rather than later.The question for markets is how much? And for how long? 
• Echoing the sentiments from the most recent Fed minutes, the concern remains squarely on inflation and the risk of inflation expectations becoming unanchored. The Bank of Canada revised its inflation forecasts sharply higher across the board from its April meeting: Q2 –7.6%, Q3 – 8%, Q4 – 7.5%   
• June’s employment report shows a Canadian labour market becoming even tighter, pushing wages sharply higher in its wake. Conversely, when forecasting the path for interest rates, inflation and labour market conditions will be carefully weighed against how quickly economic growth deteriorates.
• The BoC cut its 2022 GDP growth target to 3.5% (from 4.2%), and to 1.8% (from 3.2%) for 2023. Meanwhile, housing activity continues to cool sharply, evidenced by another monthly decline in Canadian existing home sales – sales are now down 23.9% y/y in annual terms. The weakness inactivity continues to be reflected in home prices.
• The Canadian Real Estate Association’s home price index fell 1.9% in June, marking the largest drop on record and the third decline in a row.

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

European and Asian economies:

• Shares in Europe were flat to lower as central banks stepped up interest rate increases, raising fears of a global recession. 
• Core eurozone bond yields fell as worries grew that a cutoff of Russian gas might push European economies into a recession. Markets pared expectations for policy tightening as a result, causing core bonds to rally.  
• The euro broke below parity with the U.S. dollar for the first time in two decades as fears of a global recession intensified. Bank of France Governor François Villeroy de Galhau said on broadcaster France info that the European Central Bank is monitoring the euro’s decline because of its impact on inflation. 
• Russia closed the Nord Stream 1 gas pipeline supplying Germany for scheduled maintenance work until the following Friday. The German government is concerned that Russia may not fully reopen it on that date in retaliation against European sanctions, which could force Germany to impose rationing on industries and households to preserve winter stockpiles. Russia has already cut the flows to 40% of the pipeline’s capacity, citing delays in the return of equipment being serviced in Canada by German company Siemens.
• The European Commission (EC) will hold an extraordinary summit on July 26 to discuss a coordinated gas savings plan aimed at preserving European reserves should Russia cut off supplies.
• The European Commission lowered its economic forecasts for Europe and raised its prediction for inflation due to the continuing adverse impact of Russia’s invasion of Ukraine. According to its summer forecasts, gross domestic product (GDP) in 2022 is unrevised at 2.7% but is now seen slowing sharply in 2023 to 1.5% instead of to 2.3%, as previously forecast. Inflation is predicted to accelerate to 8.3% in 2022, up from a previous forecast of 6.8%. The rate for 2023 is also raised to 4.6% from 3.2%.
• GDP in the UK unexpectedly expanded 0.5% in May, after contracting 0.1% in April, a sign that the economy may avoid a contraction in the second quarter, as predicted by the Bank of England. 
• Italy’s ruling coalition fell, and Prime Minister Mario Draghi resigned after the Five Star Movement boycotted a vote on a cost-of-living bill. The right-wing party said that the government had not offered enough money to help businesses and households hit by high energy prices. Draghi will now attempt to form a new majority after President Sergio Mattarella rejected his resignation.
• Japan’s stock market returns were positive for the week. World leaders offered their condolences, and Japan mourned its former and longest-standing prime minister, Shinzo Abe, who was shot and killed on July 8 while campaigning for the parliamentary upper house election.  
• In another sign of policy continuity, Bank of Japan (BoJ) Governor Haruhiko Kuroda reiterated the central bank’s commitment to its ultra-loose monetary policy, stating that it will not hesitate to take additional easing steps as necessary.  
• Japan’s ruling LDP-Komeito coalition retained its comfortable majority in the parliamentary upper house election, signalling strong public support for Prime Minister Kishida’s government and its policy agenda.  
• With the electricity supply forecast to tighten, Kishida called for the restarting of as many as nine nuclear reactors to ease concerns about a power shortage. The government shut down all nuclear plants in the wake of the 2011 Fukushima nuclear disaster. The worst-ever heatwave recorded in Japan has prompted the government to warn of power shortages, as higher temperatures have translated into increased demand for energy, primarily air conditioners. Households and businesses were asked to enter a three-month energy-saving period.
• Chinese stock markets eased as data revealed that the country’s economy slowed sharply in the second quarter, and a growing movement among homebuyers to stop paying their mortgages hurt property and banking shares.  
• China’s GDP for the June quarter grew a worse-than-expected 0.4% from a year earlier, official data showed, compared with a 4.8% expansion recorded in the first quarter. Friday’s GDP followed reports of a rapidly growing number of Chinese homebuyers who have refused to pay mortgages for unfinished construction projects.
• Other economic data offered a more nuanced snapshot of China’s economy. Industrial production grew, e fixed asset investment increased. Retail sales rose 3.1% year on year in June and marked the quickest growth in four months after authorities lifted a two-month lockdown in Shanghai 
• Earlier in the week, data showed exports in June rose 17.9% from a year ago, the fastest growth since January and up from May’s 16.9% gain, while imports edged up just 1.0%, below forecasts.

What to watch this week:

• Canada inflation and retail sales data
• US housing data
• Europe and Japan’s monetary policy announcements
• Eurozone consumer confidence and inflation data
• UK retail sales, employment, inflation and consumer confidence data
• Global Purchasing Manager Indices
  

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

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