ClearWater Market Commentary as of June 9th, 2023

Here is the ClearWater Market Commentary as of June 9^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	-0.65%
1 Month	-2.58%
YTD	2.62%
1 Year	-1.89%

^{As of 2023/06/09- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Russell 2000	3.27%	5.93%
Nikkei	2.17%	14.77%
Hang Seng Index	1.73%	-3.79%
MSCI EAFE	0.40%	8.10%
Nasdaq	0.16%	27.65%
FTSE 100	-0.11%	4.10%
S&P 500	-0.14%	10.84%
Dow Jones Industrial	-0.22%	0.76%
Shanghai Composite	–0.25%	4.37%
S&P/TSX Composite	-0.65%	2.61%
DAX	-0.84%	13.34%
CAC 40	-1.00%	10.24%
WTI Crude (Oil)	-2.00%	-12.40%

^{As of 2023/06/09- Source: www.marketwatch.com}

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

US economy (S&P 500 -0.14%):

• Stocks closed modestly higher in a week of relatively subdued trading ahead of the Federal Reserve’s policy meeting and rate announcement on the following Wednesday. The week was notable for the S&P 500 Index moving into bull market territory, or up more than 20% off its mid-October lows. It was also notable for broadening market gains, with small-caps outperforming large-caps, and value shares outperforming growth stocks. 
• An equally weighted S&P 500 Index also rose more than its capitalization-weighted counterpart for the first time in eight weeks and by the largest margin since late March.
• Several prominent investment conferences and events took place during the week, including the Paris Air Show and conferences on energy and consumer stocks, which seemed to drive sentiment. Apple’s annual developer’s conference also made headlines as the world’s most valuable public company unveiled its first major new product in several years, a virtual reality headset. Investors seemed to react negatively to the USD 3,500 price of the device, but the stock recovered some of its losses later in the week. 
• Oil prices rose Monday morning after Saudi Arabia announced a unilateral production cut over the previous weekend but fell back to end the week lower.
• The week’s relatively light economic calendar seemed to support investor sentiment—if not necessarily hopes that the economy would avoid a recession. On Thursday, the Labor Department reported that weekly jobless claims had jumped to 261,000, well above expectations and the highest level since October 2021. Continuing claims fell back unexpectedly and hit their lowest level in nearly four months, however.
• Data released on Tuesday showed a surprisingly large contraction in the services sector, but the silver lining for investors was evidence of a continuing decline in services prices, which have remained “sticky” in relation to moderating prices for goods, food, and energy. The Institute for Supply Management’s gauge of prices paid for services moderated to its lowest level since May 2020, while its gauge of overall activity in the services sector fell to 50.3, indicating virtually stalled growth (levels over 50 indicate expansion).

Canadian markets (S&P/TSX -0.65%):

• The market odds were split on whether the Bank of Canada would raise rates or remain with the status quo this week. Based on the tone of its official statement, the bank was firm on its decision to raise the overnight benchmark rate by 25 basis points TO 4.75%.  
• “Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target,” the bank said. It cited an “accumulation of evidence” that included stronger-than-expected first quarter output growth, a slight uptick in inflation in April and a rebound in housing-market activity. It appears the bank harbours concerns about inflation potentially maintaining a stubborn hold in the 3.5% to 4% range. The decision to raise rates implies a willingness to accept a potentially slower economy, knowing it can always revert to rate cuts in the future, if needed.
• Canadian employment (May) unexpectedly fell -17,300 (versus 21,300 expected), after the prior month’s 41,400 gain. Adding to the weakness was that the losses were all concentrated in full-time positions (-32,700). The unemployment rate rose to 5.2% from 5.0%, while the participation rate slipped to 65.5% from 65.6%.
• The impact on Canadian consumers isn’t fully known yet, with nearly two-thirds of Canadian mortgages locked into lower-rate terms that will only mature in the next three to five years. Therefore, the full impact of higher rates on the Canadian consumer’s budget has not yet completely sunk in.
• In the near term, it is expected there will be rally of the Canadian dollar versus the U.S. dollar. While this is all well and good for Canadian travellers and makes imports more affordable, it presents a challenge for Canadian exporters. Although a robust Canadian dollar isn’t typically beneficial for the Canadian economy, it does tend to put downward pressure on inflation, given the majority of our imports come from the United States.  
• Next week, we look forward to the U.S. Federal Reserve’s announcement, to see if it follows suit with a similarly hawkish approach, or if the Bank of Canada’s move represents an effort to align more closely with the Fed’s recent rake hikes and catch up with our southern neighbour.
• The Canadian dollar traded for 75.07 cents US compared with 74.86 cents US on Thursday.
• The July crude contract was up 26 cents at US$71.55 per barrel and the July natural gas contract was down six cents at US$2.29 per mmBTU.
• The August gold contract was up US$1.30 at US$1,979.90 an ounce and the July copper contract was up two cents at US$3.81 a pound.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• In local currency terms, the pan-European STOXX Europe 600 Index ended 0.46% lower amid caution ahead of central bank meetings in Europe and the U.S. Major stock indexes were mixed. 
• ECB officials acknowledge ease in inflation but indicate rates still need to rise.
• ECB President Christine Lagarde and Bundesbank chief Joachim Nagel reiterated their hawkish stance for more rate increases, pointing out that there were few signs of easing in underlying price pressures. 
• Median consumer expectations for eurozone inflation in the year ahead fell in April to 4.1% from 5.0% in March, according to an ECB survey.
• Revised data showed that the eurozone economy shrank by 0.1% sequentially in both the first quarter of this year and the final three months of 2022, meeting the technical definition of a recession.
• Meanwhile, flat eurozone retail sales in April indicated that consumption remained weak. Germany’s industrial sector also continued to deteriorate. Factory orders unexpectedly fell 0.4% compared with March, while industrial output grew 0.3% sequentially—less than the 0.5% uptick expected by economists polled by FactSet.
• The UK’s two largest mortgage lenders, Halifax and Nationwide Building Society, reported that house prices fell significantly in April, a sign that the market recovery may be faltering. Even so, the Royal Institution of Chartered Surveyors said its May housing market survey showed the main measures for house prices, new inquiries, and sales agreements improved month over month but remained in negative territory.
• Japan’s stock markets rose over the week, reaching fresh 33-year highs. Sentiment was supported by an upward revision to Japan’s first-quarter economic growth, on account of stronger corporate investment, as well as hopes that the services sector—which could benefit from rebounding foreign inbound tourism—will drive further expansion.
• The yen remained close to a six-month low against the U.S. dollar, trading in the higher JPY 139 range, as the ongoing monetary policy divergence between the dovish Bank of Japan (BoJ) and the other major central banks, which largely remain in tightening mode, weighed on the Japanese currency. The weak yen continued to benefit Japan’s exporters as well as boosting the attractiveness of local assets to foreign investors. needed, not ruling out any option available if necessary.
• Expectations that the central bank will again tweak its yield curve control framework have fallen to some degree as BoJ Governor Kazuo Ueda has repeatedly stated that the central bank will patiently continue with monetary easing until it achieves its 2% price stability target in a sustainable and stable manner, accompanied by wage increases. He said during the week that there is still some distance to achieving that target and that there is uncertainty surrounding the inflation outlook.
• Japan’s economy grew by more than initially estimated over the first quarter of 2023, according to revised figures released by the Cabinet Office. Gross domestic product (GDP) expanded by an annualized 2.7% quarter on quarter, ahead of the initial 1.6% reading and more than forecast by economists. Much of the upward revision to first-quarter GDP was due to stronger corporate investment, with businesses increasing their spending as sentiment remained resilient despite concerns about slowing global and particularly Chinese growth.
• Chinese equities were mixed after the latest inflation data increased concerns about the country’s faltering post-pandemic recovery. 
• May inflation figures pointed to rising deflation risks weighing on China’s economy, which is dealing with weak domestic and overseas demand, a sluggish property market, and high youth unemployment. China’s consumer price index rose 0.2% in May from a year earlier, compared with April’s 0.1% expansion, a 26-month low. Core inflation, which excludes volatile food and energy prices, slowed to 0.6% from the previous month’s 0.7%. The producer price index fell a worse-than-expected 4.6%, accelerating from a 3.6% decline in April, and marked the weakest reading since May 2020.
• However, the private Caixin/S&P Global survey of services activity rose to 57.1 in May, up from April’s 56.4, its fifth successive monthly expansion since Beijing lifted pandemic restrictions in December. The Caixin survey of manufacturing activity, released the prior week, also unexpectedly rose to 50.9 in May. The bullish Caixin data countered the official manufacturing Purchasing Managers’ Index (PMI), which contracted in May for a second consecutive month. Index readings above 50 indicate growth from the previous month.
• On the trade front, China’s exports fell 7.5% in May from a year ago, trailing estimates and marking the first decline in three months as global demand weakens. Imports shrank 4.5%, above forecasts.
• The latest data raised expectations that the People’s Bank of China (PBOC) would introduce further support measures to bolster growth. Economists predict that the PBOC may reduce the reserve requirement ratio and interest rates later this year to boost demand amid growing evidence that the post-pandemic recovery is losing momentum.

What to watch this week:

• US FOMC, ECB, and BoJ monetary policy announcements
• Canada National Balance Sheet and Financial Flow Accounts (Q1)
• Canadian housing data
• US inflation, retail sales and industrial production data
• Eurozone inflation, industrial production and trade data
• UK GDP, industrial production and trade data

• 

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

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