ClearWater Market Commentary as of July 22nd, 2022

Here is the ClearWater Market Commentary as of July 22nd, 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	2.08%
1 Month	-0.42%
YTD	-10.55%
1 Year	-5.97%

^{As of 2022/07/22 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nasdaq	4.17%	-24.36%
Russell 2000	3.79%	-19.84%
S&P 500	3.41%	-16.88%
Nikkei 225	3.40%	-3.79%
Dow Jones Industrial	2.66%	-12.22%
DAX	2.49%	-16.39%
CAC 40	2.36%	-12.83%
S&P/TSX Composite	2.08%	-10.55%
FTSE 100	0.92%	-1.28%
Shanghai Composite	-0.85%	-10.70%
Hang Seng Index	-1.36%	-12.12%
WTI Crude (oil)	-3.00%	25.80%

^{As of 2022/07/22 – Source: www.marketwatch.com}

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

US economy (S&P 500 3.41%):

• Stocks carried over momentum from late the previous week as investors appeared to welcome signs of a slowing economy and fading inflationary pressures. Consumer discretionary shares performed best within the S&P 500 Index, helped by rebounds in Amazon.com and Tesla, while the typically defensive health care and utility sectors lagged. 
• Stocks recorded much of their gains for the week on Tuesday, which was attributed in part to a suspicion on Wall Street that negative sentiment had reached extreme and unsustainable levels.
• The Bank of America released its Monthly Fund Manager Survey, which showed that funds’ cash holdings had reached their highest levels since 9/11, while their equity exposure was at the lowest levels since the recession and global financial crisis of 2007–2009. A record number of fund managers also reported taking on lower-than-normal risk. The survey seemed to spark a wave of short covering, as investors who had been betting that stocks would go down closed out positions.
• Investors also absorbed a number of prominent second-quarter earnings reports, many of which indicated a slowing economy but also some greater resilience in corporate profits and outlooks than many had expected.
• The major indexes fell back at the end of the week, however, after social media shares fell sharply. 
• Weekly jobless claims, reported Thursday, came in above expectations and hit their highest level (251,000) in nine months. Housing data generally disappointed, with housing starts and existing home sales missing consensus expectations.
• The weak economic data briefly pushed the yield on the benchmark 10-year U.S. Treasury note down to 2.73% on Friday morning, its lowest level in nearly two months.
• According to our traders, the primary market for investment-grade corporate bonds was active this week, driven in part by banks issuing new bonds after reporting earnings. Despite the uptick in supply, corporate credit spreads tightened alongside improved macro sentiment. Overnight demand from Asia focused on intermediate- and longer-maturity credits further supported market technicals.

Canadian markets (S&P/TSX 2.08%):

• Canada’s main stock index snapped a five-day winning streak on a broad-based decline including its largest sectors but still posted its best week in more than a year.
• Although earnings have largely come from the U.S., they do have an impact on sentiment toward Canadian stocks by association.
• Markets bounced back from a significant selloff because second-quarter earnings results weren’t nearly as bad as was expected as many companies have been able to pass on higher prices to maintain earnings.
• The energy sector decreased Friday as crude oil prices dropped to their lowest level in more than three months. The energy sector, like most of the commodity complex, is grappling with the potential for economic slowdown or recession, and so the commodities continue to be significantly off their highs.
• Canadian CPI inflation (Jun., y/y): accelerated to 8.1% (versus 8.4% expected), up from 7.7%. This marks the fastest pace since 1983. The average of the Bank of Canada’s three core measures (Jun., y/y) sped up to 5.0% (in line with expectations), up from 4.9%.
• Canadian retail sales (May, m/m) accelerated to 1.9% (versus 1.8% expected), up from a downwardly revised 1.1%. 
• Canadian housing starts (Jun.) fell to 273,800 annualized units (versus 274,000 expected), down from a downwardly revised 282,200 in the prior month.
• The Canadian dollar traded for 77.66 cents US compared with 77.55 cents US on Thursday. 
• Next week’s results will likely be dominated by an interest rate increase by the U.S. Federal Reserve and GDP numbers in the U.S. The Fed is expected to increase its rate by three-quarters of a percentage point.
• If the GDP numbers are negative, it will represent a technical recession. But it is expected markets will look beyond the headline number to what is driving that movement and the context of a still strong economy, good employment and wage gains.

Performance 2022: S&P 500/400/600 Sectors

European and Asian economies:

• European shares rose as market sentiment remained strong despite a series of discouraging economic data releases and the ECB decision to raise interest rates for the first time in over a decade.
• The ECB raised interest rates by 50 basis points as part of its efforts to curtail rising inflation. This larger-than-expected adjustment was combined with the announcement of a new bond-buying tool called the Transmission Protection Instrument, which was introduced as a measure against the surge in borrowing costs. The tool may also be used against any unprecedented market activity that could pose a serious threat to the transmission of monetary policy across the euro area.
• The eurozone economy showed signs of slowing, as output and new orders both declined for the first time since the start of COVID-19 lockdowns in 2020.  
• UK consumer price inflation reached a new 40-year high of 9.4% year on year in June—up from 9.1% in May. The main driver of inflation was an increase in fuel and energy costs and food prices. The UK labour market continued to tighten as the number of people employed continued to rise, and unemployment fell.
• Russia restarted Nord Stream gas flows to Europe following its closure for a 10-day maintenance period, but shipments remained at approximately 30% of previous capacity. The pipeline accounts for more than a third of Russian gas exports to Europe. The European Union announced plans for member states to cut demand by 15% amid Russian supply fears.
• Italian Prime Minister Mario Draghi resigned after the Five Star Movement, Forza Italia, and League parties boycotted the confidence vote that took place on Thursday. While Draghi won the vote 95 to 38, he said he wanted the widest possible backing to continue in the role. After parliament was dissolved following Draghi’s resignation, President Sergio Mattarella announced that the next election will take place on September 25.
• Japan’s stock markets rose over the week. As widely expected, the Bank of Japan (BoJ) maintained its ultra-loose monetary policy to support the country’s still-fragile economic recovery, continuing to diverge from other central banks’ tightening policies. 
• Japan’s currency has remained near 24-year lows, with BoJ Governor Haruhiko Kuroda attributing the weakness to the rise of the greenback against other major and emerging market currencies, rather than the BoJ’s accommodative policy stance.
• At its July monetary policy meeting, the BoJ left its short-term policy interest rate unchanged at -0.1%, while maintaining its long-term yield target and asset purchase program, with a view to achieving its inflation target of 2%. 
• The BoJ downgraded its forecast for economic growth, to 2.4% year on year in fiscal 2022 (from the 2.9% expansion it projected in April), while revising upward its outlook for inflation, expecting the consumer price index (CPI) to rise by 2.3%.
• Data showed softening expansion in activity across Japan’s private sector in July. Services activity growth slowed sharply while operating conditions in the manufacturing sector improved modestly. Regarding the year-ahead outlook, private sector firms were less optimistic, amid inflationary pressures stemming from sustained material shortages and the prolonged impact of the war between Russia and Ukraine.
• Japan’s daily COVID-19 cases rose to record highs, including in the capital Tokyo. While the government is watching the impact on the medical system with maximum caution, it has ruled out the possibility of imposing movement restrictions.
• China’s stock markets posted mixed returns after Premier Li Keqiang tempered expectations of excessive stimulus and indicated flexibility on China’s annual growth target. 
• At a meeting of global business leaders hosted by the World Economic Forum, Li said that as long as employment is relatively sufficient, household income grows, and prices are stable, slightly higher or lower growth rates are both acceptable. China issued a growth target of about 5.5% for 2022, but many economists believe that Beijing will have a hard time meeting its goal.
• The People’s Bank of China maintained interest rates as expected, keeping the one-year loan prime rate (LPR) unchanged at 3.70% and the five-year rate at 4.45%. 
• In corporate news, London-based lender HSBC became the first foreign bank to set up a Chinese Communist Party committee in its investment banking subsidiary in the country, the Financial Times reported, a move that could pressure other foreign banks to follow suit. HSBC said in a statement that such branches “are common and can be set up by as few as three employees,” but that they would have no influence on the business nor formal role in its day-to-day activities.
• On the regulatory front, China’s cybersecurity regulator fined Didi Global CNY 8 billion (USD 1.2 billion), potentially signalling an end to the government’s crackdown on the ride-hailing app and clearing a path for a public listing in Hong Kong. Didi was one of the most high-profile targets of Beijing’s clampdown on the country’s internet industry starting in 2020 when regulators unexpectedly cancelled the initial public offering of Ant Group.

What to watch this week:

• Federal Reserve monetary policy announcement
• Canada GDP data
• US GDP, durable goods orders, and personal spending data
• Eurozone GDP and inflation data
• 174 S&P 500 and 61 S&P/TSX companies report earnings
  
  

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

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