ClearWater Market Commentary as of July 7th, 2023

Here is the ClearWater Market Commentary as of July 7^th, 2023:

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	-1.61%
1 Month	-0.31%
YTD	2.30%
1 Year	4.25%

^{As of 2023/07/07- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	4.30%	-8.20%
Nikkei	-0.68%	12.44%
S&P 500	-0.79%	13.00%
NASDAQ	-0.90%	30.50%
Shanghai Composite	-1.24%	3.70%
S&P/TSX Composite	-1.61%	2.46%
Russell 2000	-1.69%	5.87%
Dow Jones Industrial	-1.74%	-0.20%
FTSE 100	-2.40%	1.37%
Hang Seng Index	-2.58%	-9.22%
MSCI EAFE	-2.60%	10.00%
DAX	-2.64%	12.58%
CAC 40	-3.16%	10.36%

^{As of 2023/07/07- Source: www.marketwatch.com}

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

US economy (S&P 500 -0.79%):

• Stocks closed lower in a generally quiet week, due to the holiday-shortened week and investors awaiting the release of second-quarter earnings reports.
• Growth stocks held up modestly better than value shares. Tesla, which has a heavy weighting in the Nasdaq Composite and growth indices, provided a boost after reporting better-than-expected sales, as did its smaller electric vehicle rival, Rivian. Conversely, disappointing trial results for AstraZeneca’s new lung cancer drug weighed on the health care sector.
• The main factor weighing on sentiment during the week appeared to be Wednesday’s release of the minutes from the Federal Reserve’s last policy meeting. The minutes revealed that, while the decision not to raise rates in June was unanimous, some members would have preferred another increase. Expectations that rates would remain “higher for longer” were deepened Thursday, after Dallas Fed President Lorie Logan, one of those who argued for a rate hike in June, told a gathering of the Central Bank Research Association that she anticipated two more rate increases in the remainder of the year. In response, markets began pricing in a roughly 44% chance of two or even three quarter-point hikes by December.
• That probability fell back to end Friday at around 36%, however, seemingly in response to data indicating a slowdown in the job market. The Labor Department reported that employers added 209,000 nonfarm jobs in June, modestly below expectations and the lowest number since December 2020. The previous two months’ gains were also revised lower by a total of 110,000 jobs. The unemployment rate edged down from 3.7% in May to 3.6% in June. The report also revealed that the number of people employed part time for economic reasons jumped by roughly 11% in June, “partially reflecting an increase in the number of persons whose hours were cut due to slack work or business conditions.”
• The Institute for Supply Management’s (ISM’s) Manufacturing Purchasing Managers’ Index (PMI), released Monday, seemed to confirm a renewed slowdown in job growth, indicating a contraction in hiring trends in the sector for the first time since March.

Canadian markets (S&P/TSX -1.61%):

• Canada’s main stock index was down more than 100 points Wednesday amid broad-based weakness, while U.S. stock markets also slumped.
• It’s been a quiet week to start the quarter as investors await payroll data on Friday and the start to earnings season in the U.S. next week.
• Minutes from the U.S. central bank’s last meeting showed growing divisions among policymakers, with some pushing for another hike even though the bank ended up pausing.
• Canadian employment (Jun.) rebounded by 60,000 (versus 20,000 expected), after the prior month’s 17,300 decline. The hourly wage rate for permanent employees decelerated to 3.9% y/y. The participation rate rose to 65.7% from 65.5%. The unemployment rate rose climbed to 5.4% from 5.2%.
• Canada’s merchandise trade balance (May) flipped to a deficit of $3.44 billion (versus a $1.2 billion surplus expected), from a downwardly revised $0.89 billion surplus in the prior month.
• Despite what this could mean for demand for oil, the price of crude rose more than three per cent Wednesday due to headlines in the Middle East about some potential supply disruptions out of Iran. That’s alongside production cuts announced earlier this week from Saudi Arabia and Russia which have helped boost the price of oil.
• The August crude contract was up US$2.00 from Monday at US$71.79 per barrel and the August natural gas contract was down five cents from Monday at US$2.66 per mmBTU.
• The Canadian dollar traded for 75.34 cents US compared with 75.65 cents US on Tuesday.
• The August gold contract was down US$2.40 from Monday at US$1,927.10 an ounceand the September copper contract was down three cents from Monday at US$3.77 a pound.

Performance 2023: S&P 600 Sector   

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

European and Asian economies:

• Major stock indexes declined on fears that central banks might need to keep tightening monetary policy. Investors were also disappointed by a lack of specific measures to bolster the Chinese economy despite more pledges of support from government officials.
• German data for industrial production, factory orders, and exports pointed to continuing economic weakness in the second quarter. Output in May fell 0.2% versus April, disappointing consensus expectations that had called for industrial production to come in flat. New orders surged 6.4% in May on increased demand for ships, spacecraft, and military vehicles. However, on a three-month basis, this metric was still down 6.1% sequentially. Exports continued to be volatile, unexpectedly shrinking 0.1% month over month. Imports increased 1.7% in May.
• Eurozone factory gate prices fell 1.9% sequentially in May, mainly due to a drop in energy costs, according to the European Union’s statistics office. Retail sales volumes in the eurozone were flat for a second month in May, as increased spending on non-food items offset declines for food and automotive fuel. On a year-over-year basis, retail sales fell 2.9%, marking an eighth consecutive monthly decline.
• Consumer inflation expectations for the next 12 months moderated further in May, according to the European Central Bank’s (ECB’s) monthly survey. Survey participants see inflation at 3.9% in a year’s time, down from 4.1% in April.
• ECB President Christine Lagarde stuck to her hawkish stance, saying in an interview with a French regional newspaper that policymakers “still have work to do” to reduce inflation that is projected to be above the 2% target in 2024 and 2025.
• Rising mortgage rates continued to take their toll on the UK housing market in June. House prices fell 2.6% year over year, the marked the largest such decline since 2011.
• Japan’s stock markets fell over the week from their 33-year highs as investors locked in profits, particularly in strongly performing technology stocks. Sentiment was dampened by increased anticipation that the U.S. Federal Reserve would raise interest rates in the second half of the year. The Bank of Japan’s (BoJ’s) ultra-accommodative monetary policy and historic yen weakness, which continued to boost Japan’s export-oriented firms, cushioned losses, however.
• The yen strengthened to around JPY 143 against the U.S. dollar from about JPY 144 the prior week, amid some lessening in expectations that the BoJ would intervene in the foreign exchange market to prop up the Japanese currency. Finance Minister Shunichi Suzuki said that Japanese and U.S. authorities were in close contact on currency moves. Japan’s monetary authorities have previously asserted that all options are on the table to cope with excess volatility in the foreign exchange markets.
• Following the spring “shunto” labor talks, which concluded in March and secured the biggest pay increases in decades, nominal wages in Japan rose 2.5% year on year in May, well ahead of expectations. Households were still worse off in real (inflation-adjusted) terms, which weighed on consumption. The BoJ is closely watching for wage growth to become sustainable, with an eye on next year’s shunto negotiations. The central bank is adamant that the achievement of its 2% inflation target be accompanied by rising wages.
• Chinese equities retreated as the latest economic data raised concerns about the country’s sputtering post-pandemic recovery.
• The private Caixin/S&P Global survey of manufacturing activity eased to 50.5 in June from May’s 50.9 as expansion of manufacturing output and new orders softened. Index readings above 50 indicate growth from the previous month, while those under 50 denote contraction.
• The Caixin survey of services activity fell to a lower-than-expected 53.9 in June from 57.1 in May, its sixth successive monthly expansion but lowest reading since January. The weak Caixin data were in line with the official Manufacturing Purchasing Managers’ Index, which contracted in June for a third consecutive month.
• Premier Li Qiang, the country’s second-highest ranking official, pledged to “spare no time” in implementing a batch of targeted policies to strengthen China’s post-pandemic recovery. Li stated that China is at a critical stage of economic recovery and industrial upgrading and that comprehensive, well-coordinated measures are necessary to stabilize growth and employment, Bloomberg reported, citing state-run media. However, Li did not offer details on any specific measures.
• In central bank news, China’s leadership appointed Pan Gongsheng, deputy governor of the People’s Bank of China, as the top Communist Party official at the central bank. The move positions Pan to be the central bank’s next governor, The Wall Street Journal reported, citing unnamed sources. Economists interpreted the move as reinforcing policy stability, consistent with the central bank’s current approach of modestly cutting interest rates and encouraging banks to lend more to targeted areas.

What to watch this week:

• Bank of Canada and RBNZ monetary policy announcements
• Canadian housing data
• US inflation data
• US Fed Beige Book
• Chinese money supply, aggregate financing, inflation and trade data
• German inflation, industrial production, and trade data
• UK GDP, employment, and industrial production data
• ECB Minutes from June 15 meeting
• 12 S&P 500 and 4 S&P/TSX companies report earnings
  

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

Thank you for checking out our ClearWater Market Commentary for June 7^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.