ClearWater Market Commentary as of June 2nd, 2023

Here is the ClearWater Market Commentary as of June 2^nd, 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	0.52%
1 Month	-2.52%
YTD	3.30%
1 Year	-3.68%

^{As of 2023/06/02- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Russell 2000	4.30%	4.58%
Nasdaq	2.00%	26.50%
Nikkei	0.98%	12.33%
Dow Jones Industrial	0.59%	0.98%
Shanghai Composite	0.55%	3.72%
S&P/TSX Composite	0.52%	3.30%
S&P 500	0.38%	11.00%
Hang Seng Index	-0.39%	-5.42%
MSCI EAFE	–0.50%	7.00%
FTSE 100	-0.87%	4.22%
WTI Crude (Oil)	-1.00%	-0.20%
DAX	-1.18%	14.30%
CAC 40	-2.24%	11.36%

^{As of 2023/06/02- Source: www.marketwatch.com}

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

US economy (S&P 500 0.38%):

• The major benchmarks ended with solid gains for the week, with the S&P 500 Index touching its highest intraday level since mid-August 2022. The technology-heavy Nasdaq Composite Index notched its sixth consecutive weekly gain and hit its best level since mid-April 2022. In contrast with the past several weeks, however, the rally was broad-based, with strong gains in both value and growth stocks, as well as small-caps. 
• News that the White House and Republican congressional leaders had reached an agreement over the preceding weekend to raise the federal debt limit and stave off a default on governmental obligations seemed to have limited impact on sentiment—perhaps because enough signals had previously emerged that a deal was imminent. The House of Representatives passed the bill by a surprisingly large margin on Wednesday, but this also seemed to have limited impact on markets. After the Senate’s passage of the measure late Thursday, the bill headed to President Joe Biden on Friday for his signature into law.
• Instead, investors appeared to return their attention to economic data. On Wednesday, stocks pulled back following news that job openings rebounded much more than expected in April and hit their highest level (10.1 million) since January.
• March’s data were also revised higher. The probability of a mid-June Federal Reserve interest rate hike priced into futures markets jumped to 71% on the news—compared with only 23% a month earlier.
• Friday’s closely watched nonfarm payrolls report also surprised on the upside, but the details in the report seemed to suggest that the labor market might be cooling. But the unemployment rate—estimated by surveys of households—also surprised by rising to 3.7% from 3.4%. Suggesting a more difficult job market for workers, the Labor Department reported that the number of people losing jobs or completing temporary jobs jumped significantly in May and reached its highest level since February 2022. 
• Another encouraging sign for interest rates and investors was the release Thursday of the Institute for Supply Management’s (ISM’s) Manufacturers Purchasing Managers’ index for May. The ISM’s gauge showed a seventh straight monthly contraction in factory activity, as expected. Encouragingly, however, prices paid for supplies and other inputs by manufacturers contracted at the fastest pace since December, defying expectations for a modest increase.

Canadian markets (S&P/TSX 0.52%):

• Canada’s main stock index jumped more than 350 points Friday, driven by gains in energy, industrials, financials and metals. Meanwhile, U.S. stock markets also rose after the latest round of jobs data showed better-than-expected hiring for the month of May even as unemployment rose and wage pressure eased.
• The Canadian economy expanded in the first quarter of 2023 at an annualized rate of 3.1%, stronger than consensus estimates of 2.5% and the Bank of Canada’s prediction of 2.3%. Gross domestic product (GDP) data stalled at the end of last year, but this Q1 bounce shows a resiliency in the economy. 
• The GDP report also showed a turnaround in the housing market as well as healthy consumer behaviour. Annualized household spending rose by 6.1% for goods (driven by motor vehicles and clothing sales) and 5.3% for services, (led by food, alcohol and travel).
• 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 74.43 cents US compared with 74.17 cents US Thursday.
• The July crude contract was up US$1.64 at US$71.74 per barrel and the July natural gas contract was up a penny at US$2.17 per mmBTU.
• The August gold contract was down US$25.90 at US$1969.60 an ounce and the July copper contract was up two cents at US$3.73 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 index clawed back losses after data showed that eurozone inflation had slowed, and the U.S. Senate approved a bill to suspend the statutory limit on government borrowing. Major stock indexes were mixed. 
• Headline inflation in the eurozone slowed to an annual 6.1% in May from 7.0% in April—below a FactSet consensus estimate of 6.3%. The core rate—which excludes volatile food and fuel prices—came in at 5.3%, which was also an improvement from the prior month and below expectations.
• European Central Bank (ECB) President Christine Lagarde reiterated in a speech that inflation was still too high and “it is set to remain so for too long.” She added: “That is why we have hiked rates at our fastest pace ever—and we have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.” 
• A European Commission survey showed that economic sentiment weakened more than expected, with this indicator slipping to 96.5 in May—its lowest level since November 2022. A stagnating economy, elevated inflation, and rising interest rates weighed on morale. Sentiment deteriorated among manufacturers, service providers, retailers, and constructors. However, consumers were slightly less pessimistic, as households became more positive about their financial situation.
• Business confidence in the UK retreated to its long-term average of 28% in May, after three months of rising optimism, according to a monthly sentiment index compiled by Lloyds Bank.
• UK companies surveyed by the Bank of England in May indicated that they intend to raise output prices and wages over the coming year, although they expect the pace to slow relative to a month ago. They plan to raise prices by 5.1%, down from 5.9% in April’s survey. Expected pay increases clocked in at 5.2% compared with the 5.4% recorded in the prior 
• Amid continued strong foreign investor interest, Japanese equities rose over the week. The indexes reached fresh 33-year highs, with the gains supported by strong domestic earnings and yen weakness. Sentiment was also aided by the passage of the U.S. debt ceiling bill and the avoidance of default, as well as some indications that the U.S. Federal Reserve could pause its interest rate hikes in June.
• Bank of Japan (BoJ) Governor Kazuo Ueda said it was premature for the central bank to discuss details of an exit from its ultra-easy monetary policy and that there was no set time frame for achieving its 2% inflation target, given uncertainty about the outlook for prices. He continued to emphasize the need for central banks to be more careful about how they communicate.
• According to preliminary data released by the Japan Tourism Agency, the country’s hotels and other accommodation facilities recorded over 10 million overnight stays by foreigners in April for the first time since the outbreak of the coronavirus pandemic three years ago. Inbound tourism was buoyed by the weak yen, an increase in international air traffic, and the start of Japan’s cherry blossom season. Expectations are high that tourism will rebound further following the lifting of Japan’s COVID border controls for all arrivals on April 29.
• Chinese equities rose after the U.S. Senate passed legislation to suspend the debt ceiling, removing the risk of a destabilizing U.S. default and reviving investors’ risk appetite. 
• China’s official manufacturing Purchasing Managers’ Index (PMI) fell to a below-forecast 48.8 in May from April’s 49.2, marking the second consecutive month of contraction and the lowest reading since December 2022. A reading above 50 represents an expansion from the previous month. Production activity fell into contraction for the first time since January, dragged down by declines in new orders and exports. The nonmanufacturing PMI also eased, falling to a weaker-than-expected 54.5 in May from 56.4 in April. The sector continued to grow but at the slowest pace since China lifted pandemic restrictions in December. Separately, the private Caixin/S&P Global survey of manufacturing activity unexpectedly rose to 50.9 in May from April’s 49.5 as output and new orders rose at the highest level in almost a year.
• Industrial profits fell 20.6% in the first four months of the year from the prior-year period, according to the National Bureau of Statistics, slightly narrower than the 21.4% decline recorded in the first quarter amid waning domestic and external demand.
• New home sales by China’s top 100 developers rose 6.7% in May from a year earlier, down from gains of more than 29% in the previous two months. The latest data from the China Real Estate Information Corp. was further evidence of China’s flagging post-pandemic recovery even after the central and local governments rolled out an array of stimulus measures at the end of 2022 to bolster the country’s property 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

Thank you for checking out our ClearWater Market Commentary for June 2^nd, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.