ClearWater Market Commentary as of June 16th, 2023

Here is the ClearWater Market Commentary as of June 16^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	0.42%
1 Month	-1.85%
YTD	3.05%
1 Year	5.52%

^{As of 2023/06/16- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
DAX	3.23%	17.00%
Nasdaq	3.20%	30.80%
CAC 40	3.10%	13.66%
Hang Seng Index	2.48%	-1.40%
MSCI EAFE	2.40%	8.70%
WTI Crude (Oil)	2.40%	-10.40%
FTSE 100	1.87%	6.05%
S&P 500	1.59%	12.60%
Nikkei	1.57%	16.56%
Shanghai Composite	0.84%	5.39%
S&P/TSX Composite	0.42%	3.05%
Dow Jones Industrial	0.14%	0.90%
Russell 2000	0.12%	6.49%

^{As of 2023/06/16- Source: www.marketwatch.com}

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

US economy (S&P 500 1.59%):

• Favorable inflation and growth signals appeared to help stocks continue a rally that began with only a few interruptions in late May. The S&P 500 Index notched its longest stretch of daily gains since November 2021 and its best weekly performance since the end of March. The market’s advanced narrowed a bit, however, as reflected in the renewed outperformance of growth stocks and large-caps. 
• Several signs emerged that the economy was arguably enjoying a “Goldilocks” expansion of continued growth alongside falling inflation. On Tuesday, the Labor Department announced that the consumer price index had increased at a year-over-year pace of 4.0%—still double the Federal Reserve’s target, but down from the prior month’s 4.9% and the slowest pace since March 2021. On Thursday, the Labor Department revealed that producer prices had declined 0.3% in May, marking four declines over the past six months.
• While falling producer prices partly reflected an ongoing contraction in the manufacturing sector (as well as a substantial drop in food and gasoline prices), investors received some good news on the consumer side of the economy. On an overall basis, retail sales rose 0.3% for the month and 1.6% over the past 12 months, marking the first year-over-year increase since January. 
• Weekly jobless claims were unchanged, however, defying consensus expectations for a decline from the previous week’s 20-month high.
• The hopeful inflation data may have helped investors absorb a somewhat hawkish outlook from Fed policymakers. On Wednesday, officials announced that they were holding the official federal funds target rate steady in the 5.00% to 5.25% range. However, the “dot plot” summarizing each policymaker’s rate expectations suggested that this was more of a “skip” than a durable “pause” in their rate-hiking schedule, as the median rate projection suggested two more quarter-point hikes by the end of the year.
• Fed Chair Jerome Powell in a press conference stressed repeatedly that the policy committee had not made any decision about raising rates and that any further moves would depend on incoming growth and inflation data. “We’ve moved much closer to our destination,” Powell also allowed, “which is that sufficiently restrictive rate, and I think that means by almost by definition that the risks of sort of overdoing it and…underdoing it are getting closer to being in balance.”

Canadian markets (S&P/TSX 0.42%):

• Markets gave back some of their gains but still finished the week strong. Canada’s main stock index drifted lower Friday, pulled lower by energy, technology and base metals, while U.S. markets also ended the day down after a busy week of economic data and an interest-rate pause from the central bank.
• The big news item for the week was the Federal Reserve’s decision to hold its key interest rate steady for the first time since it began its tightening cycle last year. While the announcement was largely anticipated Wednesday, the central bank indicated it could raise rates twice more this year to continue its fight against inflation.
• Investors got a mixed bag of economic reports this past week, with inflation cooling in May even as retail sales unexpectedly strengthened, applications for jobless benefits higher than expected, and manufacturing contracting.
• The Canada National Balance Sheet (Q1, seasonally adjusted) reported that the household debt-to-disposable income rose to 184.5% from 181.7%. Net worth as a percentage of disposable income climbed higher to 1,001.6% from 971.9%. Gross general government debt to GDP edged down to 124.9% from 125.9%, while net debt government-to-GDP fell to 25.3% from 26.0%. 
• Canadian existing home sales (May) rose 5.1% (versus 12.1% expected), after the prior month’s 11.3% gain. Sales have risen for the fourth consecutive month, bringing the annual rate to 1.4% y/y, the first positive reading since 2021.
• The Canadian dollar traded for 75.77 cents US compared with 75.46 cents US on Thursday.
• The August crude contract was up US$1.12 cents at US$71.93 per barrel and the July natural gas contract was up 10 cents at US$2.63 per mmBTU.
• The August gold contract was up 50 cents at US$1,971.20 an ounce and the July copper contract was down a penny at US$3.89 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 as the U.S. Federal Reserve refrained from raising rates this month. Hopes that China might implement stimulus measures likewise appeared to lift stocks. Major equity indexes also advanced. 
• The ECB raised its key deposit rate by a quarter-point to 3.5%—the highest level in 22 years. ECB President Christine Lagarde said after the meeting that policymakers “still have ground to cover” and that they would probably tighten borrowing costs again in July, unless there was a “material change in the baseline outlook.”
• The ECB also raised its forecasts for headline and core inflation across the three-year time horizon, strengthening the case for continued monetary tightening. The central bank also pared its estimates for economic growth. As part of an effort to shrink its balance sheet, the ECB confirmed that it would stop reinvesting the proceeds of its asset purchase program from July.
• Industrial production in the eurozone rebounded by a greater-than-expected 1.0% in April due to a strong increase in capital goods output.
• Meanwhile, investors in Germany were slightly less pessimistic in June. An economic sentiment index compiled by the ZEW research institute came in at -8.5 points, up from -10.7 points in May.
• A rebound in UK economic growth and stronger-than-forecast labor market data supported market expectations that the Bank of England (BoE) would continue raising interest rates in July. The economy grew 0.2% sequentially in April, after contracting 0.3% in March. Increased output in consumer-facing services, car sales, and education drove the gains. Separately, annual average wage growth, excluding bonuses, climbed to 7.2% in the three months through April, while the unemployment rate receded to 3.8% after rising to 3.9% in the three months through March.
• BoE Governor Andrew Bailey told the House of Lords Economic Affairs Committee after the figures were released that the labor market was “very tight.” He added: “We still think the rate of inflation is going to come down, but it’s taking a lot longer than we expected.”
• Japan’s stock markets registered strong gains for the week. The markets’ rally to their highest levels in over three decades was supported by the Bank of Japan’s (BoJ’s) decision to leave its ultra-loose monetary policy unchanged, which had been widely anticipated. Stronger-than-expected Japanese export and machinery order data also boosted sentiment. Investors exercised some caution, however, after the U.S. Federal Reserve refrained from raising rates but hinted at more hikes to come.
• At its June meeting, the Bank of Japan left its ultra-loose policy settings unchanged, meeting investor expectations. By a unanimous vote, the central bank kept its short-term interest rate at -0.1% and that of JGB yields at around 0%. 
• Building inflationary pressure has heaped pressure on the BoJ to pivot from its easing stance. However, the BoJ stuck to its projection that the year-on-year rate of increase in the consumer price index (CPI) is likely to decelerate toward the middle of fiscal 2023. 
• There was speculation during the week that Japan’s Prime Minister Fumio Kishida could dissolve the lower house of the Diet by the end of the current parliamentary session if a no-confidence motion against his Cabinet was submitted by the main opposition party, the Constitutional Democratic Party of Japan (CDPJ). The CDPJ did submit a no-confidence motion, having criticized Kishida for failing to explain how key policies would be funded, but this was voted down in Parliament. Such motions are not uncommon and have little chance of being carried as the lower house is controlled by the ruling Liberal Democratic Party and Komeito, its junior partner.
• Chinese stocks soared after the central bank cut several interest rates, raising hopes for more stimulus to industries that are slowing amid the fading post-pandemic recovery. 
• The People’s Bank of China (PBOC) cut its medium-term lending facility rate by 10 basis points to 2.65% on Thursday, marking the first reduction since last August. The central also bank rolled over RMB 237 billion into the banking system compared with RMB 200 billion in maturing loans. Analysts predict that the central bank’s pivot toward stimulus may lead to targeted support for some industries as Beijing steps up measures to bolster the recovery.
• A trio of indicators showed that China’s economic activity weakened last month. Industrial output, retail sales, and fixed asset investment grew at a slower-than-expected pace in May from a year earlier, according to official data. Unemployment remained unchanged at 5.2%, but youth unemployment jumped to a record 20.8% in May. The lackluster data in recent weeks have led economists at several key banks to lower their 2023 growth forecasts for China, which is dealing with slowing export demand, a yearslong housing market slump, and weak business and consumer confidence.
• New home prices in 70 of China’s largest cities rose 0.1% in May in its fifth successive monthly expansion but slower than April’s 0.3% growth. China’s property sector showed signs of stabilizing earlier this year after the government rolled out a rescue package to help cash-strapped developers last November. But recent weeks’ evidence has suggested that the recovery momentum in the property sector is slowing, which has fueled calls for more stimulus.

What to watch this week:

• Canadian retail sales
• Bank of Canada Summary of Deliberations for June 7 policy meeting 
• Bank of England monetary policy announcement
• US housing 
• Fed Chair Powell delivers semi-annual Monetary Report to Congress 
• Bank of Japan Minutes from Apr. 27-28 meeting 
• Japanese industrial production and inflation data 
• UK retail sales
• Global Purchasing Manager Indices

• 

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

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