ClearWater Market Commentary as of June 23rd, 2023

Here is the ClearWater Market Commentary as of June 23^rd, 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	-2.75%
1 Month	-2.52%
YTD	0.17%
1 Year	1.86%

^{As of 2023/06/23- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nasdaq	-1.40%	28.90%
S&P 500	-1.58%	10.83%
Dow Jones Industrial	-1.76%	-0.87%
S&P/TSX Composite	-2.75%	0.31%
Russell 2000	-2.84%	3.43%
FTSE 100	-3.21%	2.64%
Shanghai Composite	–3.25%	1.99%
MSCI EAFE	-3.40%	7.90%
CAC 40	-3.52%	9.66%
DAX	-3.70%	12.67%
WTI Crude (Oil)	-3.70%	-13.70%
Nikkei	-4.16%	11.71%
Hang Seng Index	-5.96%	-7.28%

^{As of 2023/06/23- Source: www.marketwatch.com}

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

US economy (S&P 500 -1.58%):

• The major benchmarks closed lower in a holiday-shortened trading week. The Nasdaq Composite suffered its first weekly decline in two months, while the S&P 500 Index recorded its first drop in six weeks. Growth stocks outperformed value shares, while large-caps fared better than small-caps.
• Signs that further Federal Reserve rate hikes lay ahead seemed to weigh on sentiment for much of the week. In prepared testimony before Congress on Wednesday and Thursday, Fed Chair Jerome Powell stated that “nearly all [policymakers] expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” Indeed, the Fed’s latest Summary of Economic Predictions revealed that a majority of those on the policy committee expect at least two more quarter-point rate hikes in the coming year—although futures markets continued to predict that was unlikely. 
• News on Thursday that the Bank of England and Norges Bank, Norway’s central bank, had accelerated their pace of rate hikes also seemed to intensify rate fears.
• Much of the week’s economic data seemed to deepen worries that tight monetary policy was pushing the U.S. into recession. On Friday, S&P Global reported that its gauge of U.S. manufacturing activity had fallen back to its lowest level since December and well below consensus estimates. The report also showed that suppliers were cutting prices at the fastest pace since the heart of the pandemic lockdown in May 2020, presumably in response to weak demand.
• Although Fed Chair Powell insisted to Congress that the labor market remained tight, weekly jobless claims hit 264,000, matching the previous week’s upwardly revised number, the highest level since October 2021. The housing sector showed some surprising strength, however, with housing starts coming in at their highest level in over a year and well above forecasts. Sales of existing homes also surprised modestly on the upside.

Canadian markets (S&P/TSX -2.75%):

• Canada’s main stock index dropped on Friday as the price of oil stayed below US$70 a barrel and losses in the base metal and battery metal stocks weighed on the Toronto market.
• The S&P/TSX composite index was down 162.67 points at 19,418.23.
• The tone of the markets shifted earlier this month after U.S. Federal Reserve chairman Jerome Powell said two more rate hikes south of the border are expected.
• Canadian real GDP (Q1) rose 3.1% (versus 2.5% expected), up from a downwardly revised -0.1% decline in the prior month. StatsCan’s April flash estimate pegs GDP growth at 0.2%. 
• Canada’s current account deficit (Q1) narrowed to $6.17 billion (versus $9.50 billion expected) from a downwardly revised $8.05 billion in the prior month
• The Canadian dollar traded for 75.76 cents US compared with 75.99 cents US on Thursday.
• The August crude oil contract was down 35 cents at US$69.16 per barrel and the August natural gas contract was up 14 cents at US$2.84 per mmBTU.
• The August gold contract was up US$5.90 at US$1,929.60 an ounce and the July copper contract was down nine cents at US$3.80 a pound.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• A disappointing economic recovery in China and hawkish comments by U.S. Federal Reserve Chair Jerome Powell contributed to the gloom in European markets this past week. Major stock indexes struggled.
• Recession fears pushed European government bond yields lower. Purchasing manager surveys showed private sector business activity has slowed significantly, weighing on 10-year German bond yields. French and Swiss yields also declined. 
• The BoE unexpectedly raised its key interest rate by half a percentage point to 5.0%—the highest level since 2008. The Monetary Policy Committee (MPC) voted 7–2 to step up the pace of policy tightening after the latest inflation data came in unexpectedly strong. 
• Headline annual consumer price growth failed to slow down for a fourth month running in May, sticking at 8.7%. Core inflation, which excludes volatile food and energy prices, accelerated to a 31-year high of 7.1% from the 6.8% registered in April.
• Norway’s central bank increased its key interest rate by 0.5 percentage point to 3.75%—the highest level since 2008—and indicated that it “will most likely” hike again in August to curb inflation that is “markedly above target.” The Swiss National Bank raised its benchmark interest rate by a quarter percentage point to 1.75%, the fifth consecutive increase, and did not rule out additional rate increases.
• Eurozone business output grew for a sixth month in June but almost stalled, pointing to renewed weakness in the economy after the recovery in the early part of the year, according to a purchasing managers’ survey data provided by S&P Global. 
• German producer prices rose in May at their slowest pace since July 2021, a sign that inflation may be easing. Annual producer prices climbed 1.0%, down from 4.1% in April. Meanwhile, the Ifo Institute predicted the German economy would contract 0.4% in 2023, more than the 0.1% forecast in March.
• Japan’s stock markets retreated from their 33-year highs. Some of the declines were attributable to profit-taking following the markets’ strong year-to-date performance. 
• Japan’s hot May core consumer inflation print weighed on sentiment, and fueled speculation that the Bank of Japan (BoJ) would revise upward its inflation forecasts in July. 
• The yen weakened again toward the levels that prompted Japanese policymakers to intervene in the foreign-exchange market late last year to halt its decline. Finance Minister Shunichi Suzuki said he was closely watching foreign exchange rates and that sharp currency moves were undesirable. 
• Japan’s core consumer price index (CPI) rose by 3.2% year on year in May, more than forecast; the number slowed from the previous month but remained well above the BoJ’s 2.0% inflation target. While the target has been surpassed every month for more than a year, the central bank has stuck to its projection that the year-on-year rate of increase in the CPI is likely to decelerate toward the middle of fiscal 2023.
• June flash Purchasing Managers’ Index (PMI) data showed a fresh fall in manufacturing output, as relatively muted demand conditions at home and abroad posed a headwind. Growth in services sector activity slowed but was still strong overall, as customer numbers and spending continued to rebound amid the waning impacts of the coronavirus pandemic.
• Chinese stocks retreated after a holiday-shortened week as investor confidence waned over a lack of stimulus measures amid the flagging post-pandemic recovery. In Hong Kong, the benchmark Hang Seng Index had its biggest drop in three months. Financial markets in mainland China were closed Thursday through Friday for the Dragon Boat Festival holiday, while the Hong Kong Exchange was closed on Thursday and reopened for trading on Friday.
• No major indicators were released in China during the week. However, mounting evidence that the country’s recovery is losing steam raised fresh concerns about the economic outlook. The lackluster results in recent weeks have led economists at several key banks to lower their 2023 growth forecasts for China, which is struggling with slowing export demand, a yearslong housing market slump, and weak business and consumer confidence.
• Chinese banks lowered their one- and five-year loan prime rates by 10 basis points for the first time since August 2022 as expected, after the People’s Bank of China (PBOC) cut its medium-term lending facility rate last week. While the drop was in line with the PBOC’s rate cut, some analysts predicted a larger reduction of 15 basis points in the five-year rate, according to Bloomberg.
• Beijing unveiled a four-year tax break package for consumers purchasing new electric vehicles (EVs) to lift sales and production in one of the world’s largest EV markets. The announcement was widely expected after the State Council called for an extension and optimization of tax breaks on EV purchases earlier in the month as it attempts to restore demand in the flagging sector.

What to watch this week:

• Bank of Canada, Reserve Bank of Australia, and Reserve Bank of India monetary policy announcements 
• Canadian employment and trade data
• US ISM Services PMI 
• Chinese inflation, trade, aggregate yuan financing and money supply data 
• Japanese GDP data 
• Eurozone GDP and retail sales data
• Global Purchasing Manager Indices

• 

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

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