ClearWater Market Commentary as of July 29th, 2022

Here is the ClearWater Market Commentary as of July 29th, 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	4.03%
1 Month	3.02%
YTD	-7.08%
1 Year	-2.80%

^{As of 2022/07/29 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
S&P/TSX Composite	4.03%	-7.08%
Nasdaq	4.70%	-20.80%
Russell 2000	4.19%	-15.90%
S&P 500	3.70%	-12.02%
WTI Crude (oil)	3.60%	30.40%
CAC 40	2.98%	-17.90%
FTSE 100	2.90%	-8.36%
Dow Jones Industrial	2.09%	-8.40%
DAX	1.01%	-22.69%
Nikkei 225	0.70%	-15.56%
Shanghai Composite	0.29%	-10.44%
Hang Seng Index	-3.06%	-13.21%

^{As of 2022/07/29 – Source: www.marketwatch.com}

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

US economy (S&P 500 3.70%):

• Stocks posted solid gains despite another outsized 75-basis-point rate hike from the Federal Reserve (Fed) and news that the economy contracted at a 0.9% annual rate in the second quarter. (A basis point is 0.01 percentage points.)
• A “bad news is good news” dynamic appeared to have taken hold, with investors seemingly penciling in a lower terminal federal funds rate after the second-quarter economic contraction. Growth stocks outperformed value stocks on weakness in the retail sector.
• The retail bellwether said that food inflation was cutting into consumers’ discretionary spending, causing it to lower its earnings guidance.
• With 50% of the companies in the S&P 500 Index expected to report earnings during the week, investors focused on quarterly numbers from technology giants such as Amazon.com, Apple, and Google parent Alphabet. Amazon.com and Alphabet jumped on Wednesday after posting better-than-feared earnings results after the market closed on Tuesday.
• All eyes were on this week’s Federal Open Market Committee (FOMC) meeting, which concluded with Fed policymakers announcing a widely expected 75-basis-point rate increase on Wednesday. The FOMC statement noted some softening of spending and manufacturing, and many market participants seemed to interpret Fed Chair Jerome Powell’s post-meeting press conference as surprisingly dovish. 
• Combined with the stronger-than-expected quarterly earnings reports from Alphabet and Amazon.com, this led to a one-day gain of over 4% for the Nasdaq Composite Index and sharp gains for other indexes.
• On Thursday, the Commerce Department reported that gross domestic product (GDP) contracted by an annual rate of 0.9% in the second quarter. Consensus expectations were for an increase of 0.5%. The second-quarter GDP number marked the second consecutive quarter of contraction, which is one common definition for a recession. However, job growth, which remains strong, is as a primary indicator for the turning point in the current business cycle.
• The market seized on this downbeat news about the economy as a sign that the Fed could slow or stop its rate hikes sooner than expected, extending the stock rally through the end of the week. 

Canadian markets (S&P/TSX 4.03%):

• North American markets ended the last trading day of July on a high note, with Canada’s main stock index up over 200 points and U.S. markets all in the green.
• Canada real GDP (May) was flat (versus -0.2% expected), down from the 0.3% gain in the prior month. StatsCan’s June flash estimate pegs GDP growth at 0.1%, which would have the Canadian economy expanding solidly at 1.1% q/q or ~4.5% q/q annualized
• The S&P/TSX composite index closed up 236.21 points at 19,692.92, driven by strength in the energy, industrials and base metals sectors.
• A slightly-better-than-expected GDP report in Canada, a nice move higher in oil prices and pretty positive energy earnings helped push the index higher.
• The latest GDP reading showed the Canadian economy stayed flat in May, with economic growth slowing down as businesses faced ongoing supply constraints and rising interest rates. 
• The Canadian dollar traded for 77.98 cents US compared with 77.91 cents US on Thursday.
• The September crude contract was up US$2.20 at US$98.62 per barrel, hitting US$101.88 per barrel earlier in the day.

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

Forward P/E Ratios: S&P 400/500/600 Sectors

European and Asian economies:

• Shares in Europe gained ground, boosted by data showing that the eurozone economy expanded at a higher-than-expected rate of 0.7% in the second quarter. Markets largely shrugged off concerns about rising natural gas prices due to reduced Russian supply.  
• An early estimate of euro area inflation came in above expectations, hitting 8.9% in July—up from the 8.6% registered in June. The rise in headline inflation was driven by food and energy prices.
• European natural gas prices rose after Russia reduced gas supplies from the Nord Stream pipeline to 20% of capacity, citing the need for maintenance on another turbine. European Union (EU) energy ministers agreed that member states would cut their natural gas use by 15% over the winter. Only Hungary, which is heavily dependent on Russian energy exports, voted against the proposal.
• The IMF reduced its outlook for euro area economic growth in 2022 to 2.6% from its previous projection of 2.8% in April and lowered its projection for 2023 to 1.2% from 2.3%. The downward revision reflects the impacts of the war in Ukraine, particularly rising energy prices, as well as the potential for tighter financial conditions as the European Central Bank tightens monetary policy.
• Japan’s stock markets finished the week slightly lower, weighed down by a stronger yen, mixed domestic earnings releases, and the government downgrading its estimates for Japan’s economic growth.
• Global risk appetite over the week was boosted by tentative expectations that the U.S. Federal Reserve may need to slow down the pace of its interest rate hikes, given the U.S. economy contracted for the second straight quarter in the three months ended June 30.
• While the Deputy Governor of the Bank of Japan (BoJ), Masayoshi Amamiya, reiterated the view that that the BoJ must maintain massive stimulus for the time being, he added that the central bank must always be thinking about what means are available to exit easy policy. 
• The Summary of Opinions at the BoJ’s July monetary policy meeting showed that the central bank considers the prospect of the U.S. economy falling into recession and global financial markets experiencing a negative shock as risks that could affect Japan’s economy.  
• According to the central bank, Japan’s economy has picked up, mainly led by private consumption, which is expected to continue to recover. Inflation has trended upward recently due to higher import prices, but these pressures are expected to subside for a while in the next fiscal year—under these circumstances, the BoJ considers it necessary to persistently continue with current monetary easing under the price stability target of 2%. However, inflation in Japan remains low compared with other developed economies.
• At an inaugural meeting for green transformation, or GX—a critical component of Prime Minister Fumio Kishida’s new capitalism policy agenda—the government and business leader debated Japan’s transition to a greener economy. Topics included how Japan can achieve carbon neutrality by 2050 and the ways in which to ensure a stable energy supply, with a focus on the restart of nuclear plants. The government is aiming to restart nine nuclear reactors that have passed stringent safety standards implemented after the 2011 Fukushima nuclear disaster.
• China’s stock markets eased after a high-level meeting of the ruling Communist Party dropped calls that it will strive to meet its 2022 growth target and gave no indication of new stimulus. 
• “The meeting urged efforts to consolidate the upward trend of economic recovery, keep employment and prices stable, keep the economy running within an appropriate range, and strive for the best possible outcome,” state media reported. On Thursday, the IMF lowered its full-year growth forecast for China to 3.3% from its April forecast of 4.4% and reduced its 2023 forecast by half of a percentage point to 4.6%.
• The tech sector was weak after The Wall Street Journal reported that Jack Ma, founder of e-commerce giant Alibaba Group, was planning to cede control over Ant Group, the financial technology group spun off from Alibaba in 2011. Ant operates the world’s largest mobile payment app Alipay, which has more than 1 billion users and is indirectly controlled by Ma.  
• The property sector received a boost after Reuters reported that Beijing plans to set up a real estate fund worth CNY 200 billion to CNY 300 billion to support distressed developers. 
• U.S.-China tensions prevailed amid reports that the U.S. public company accounting regulator would not accept any restrictions on its access to the audit papers of U.S.-listed Chinese companies, the latest development in a long-running auditing dispute between both countries.  

What to watch this week:

• Canada trade and employment data
• US employment data
• Bank of England monetary policy announcement
• Eurozone employment and retail sales data
• Global Purchasing Manager Indices
• OPEC+ meeting
• 155 S&P 500 and 69 S&P/TSX companies report earnings174 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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