ClearWater Market Commentary as of July 1st, 2022

Here is the ClearWater Market Commentary as of July 1st, 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	1.06%
1 Month	-10.32%
YTD	-11.13%
1 Year	-6.47%

^{As of 2022/07/01 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Shanghai Composite	1.13%	-6.93%
Hang Seng Index	0.65%	-6.57%
WTI Crude (oil)	0.50%	43.80%
FTSE 100	-0.56%	-2.92%
S&P/TSX Composite	-1.06%	-11.13%
Dow Jones Industrial	-1.29%	-14.42%
Nikkei 225	-2.10%	-9.92%
Russell 2000	-2.15%	-23.05%
S&P 500	-2.21%	-19.74%
DAX	-2.33%	-19.34%
CAC 40	-2.34%	-17.08%
Nasdaq	-4.13%	-28.87%

^{As of 2022/07/01 – Source: www.marketwatch.com}

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

US economy (S&P 500 -2.21%):

• The major indexes surrendered a portion of the previous week’s strong gains, as worries grew that the Federal Reserve’s fight against inflation would push the economy into recession.
• The S&P 500 Index closed out its worst first half of the year since 1970, as was widely reported, although the decline was amplified by the index reaching its all-time high on January 3.
• Much of the week’s economic data missed consensus expectations, and some signals suggested that economic activity might even be slowing.
• Wednesday brought closely watched data on May personal consumption expenditures (PCE), which indicated that consumers were also pulling back. Adjusted for inflation, purchases fell 0.4% in May, the first decline in 2022, driven by a 1.6% drop in goods purchases; purchases of services rose 0.3%, but much of the increase was driven by spending on housing and health care.
• The PCE data were enough to push the Fed’s GDP model estimate of annualized growth in the second quarter down to -1.0%. If confirmed, this would meet one commonly accepted definition of a recession—two consecutive quarters of negative growth—given the 1.6% contraction in the first quarter. However, many economists note that a record trade deficit early in the year skewed the data.
• Nevertheless, much of the week’s data suggested continued, if slowing, expansion.
• While anecdotal reports of scattered hiring freezes and layoffs continued to intensify, weekly jobless claims came in roughly in line with expectations.
• The silver lining for investors in the PCE data was a downside surprise in inflation signals. The Fed’s preferred inflation gauge, the core (less food and energy) PCE price index came in at 4.7% for the 12 months ended in May, slightly below expectations and the lowest level since November.

Canadian markets (S&P/TSX -1.06%):

• Energy and technologies helped push Canada’s main stock index lower as a shrunken U.S. economy last quarter and aggressive comments from Fed officials had investors worrying about weaker demand and a potential recession.
• The TSX is down 14 percent so far in 2022 and 13 percent lower in the second quarter, but U.S. markets are on track to have the worst quarters since at least the 2020 pandemic.
• The energy was the biggest laggard, losing 3.7 percent as crude oil prices slumped with Crescent Point Energy Corp. off 7.6 percent and Tamarack Valley Energy Ltd. down 6.6 percent.
• The government reported Wednesday that the economy shrank at a 1.6 percent annual pace in the first three months of the year.
• The S&P/TSX composite index closed down 144.10 points to 19,078.64.
• The August crude oil contract was down US$1.98 at US$109.78 per barrel and the August natural gas contract was down 7.2 cents at US$6.50 per mmBTU.
• The Canadian dollar traded for 77.65 cents US compared with 77.74 cents US on Tuesday.
• Materials, which include miners, forestry producers and fertilizer companies, dropped as bullion prices were lower.

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

European and Asian economies:

• Shares in Europe fell on fears that soaring inflation and rising interest rates could hit earnings and tip economies into a recession.
• While hawkish ECB policymakers continued to bring up the possibility of a 50-basis-point interest rate hike as early as July, ECB President Christine Lagarde reiterated guidance for an increase of 25 basis points followed by another hike in September, the size of which depending on incoming data.
• At the central bank’s annual conference in Portugal, she stated that the ECB needed to act “in a determined and sustained manner, incorporating our principles of gradualism and optionality” to tackle elevated inflation. She also said that a larger increase in the policy rate would be more appropriate “if the medium-term inflation outlook persists or deteriorates.”
• Eurozone inflation accelerated to another record high of 8.6% in June, driven by soaring energy and food costs, according to Eurostat’s early estimate.
• The UK’s current account swung into a record deficit of GBP 51.7 billion in the first quarter—or 8.3% of gross domestic product (GDP)—partly due to the soaring costs of fuel imports.
• Sweden’s central bank raised its benchmark interest rate by 50 basis points to 0.75%—the largest increase in more than 20 years—to stifle inflation.
• Japan’s stock markets generated a negative return for the week. The escalating risk of a global recession prompted by major central banks aggressively raising interest rates to combat inflation continued to pose a headwind.
• Worsening sentiment among Japan’s large manufacturers and a bigger-than-expected drop in industrial production also weighed on risk appetite.
• The Bank of Japan’s quarterly corporate survey showed that sentiment among large manufacturers deteriorated in the three months to the end of June. The worsening reflected concerns about China’s coronavirus lockdowns and prolonged supply chain constraints.
• The worst-ever heat wave recorded in Japan prompted the government to warn of power shortages, as higher temperatures have translated into increased demand for energy, primarily air conditioners.
• Chinese stocks advanced on the back of strong factory data and easing coronavirus restrictions for travellers.
• On Tuesday, China halved the quarantine times for inbound travellers. China’s President Xi Jinping said that the current pandemic strategy was “correct and effective and must be upheld unwaveringly.”
• In economic readings, the official manufacturing and services purchasing managers’ index (PMI) both rose above 50 in June as a drop in new omicron infections allowed the government to ease restrictions.
• The People’s Bank of China (PBOC) said it would employ structural policy tools to boost economic confidence following the central bank’s quarterly monetary policy committee meeting.

What to watch this week:

• Eurozone S&P Global Composite PMI (June)
• U.K. S&P Global Composite PMI (June)
• S&P Global Composite PMI (June)
• ISM Non-Manufacturing PMI (June)
• JOLTS Job Openings, Quits, Separations (May)
• FOMC Meeting Minutes (June Policy Meeting)
• Trade Balance; Export and Import Growth (May)
• Nonfarm Payrolls Report (June)
• China Inflation Rate (June

 

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

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