ClearWater Market Commentary as of March 10th, 2023

Here is the ClearWater Market Commentary as of March 10^th, 2023:

In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  Events and Upcoming Events

Performance of Principle Indexes: 

^{As of 2023/03/10 – Source: www.marketwatch.com}

^{As of 2023/03/10- Source: www.marketwatch.com}

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

US economy (S&P 500 -3.08%):

• Stocks pulled back sharply over the week, as investors absorbed more tough talk from Federal Reserve Chair Jerome Powell and signs that he and his fellow policymakers still had work to do in cooling inflation and the hot labor market. 
• Financials led the declines within the S&P 500 and contributed to the pronounced weakness in value stocks. Concerns grew throughout the week about the health of SVB Financial, or Silicon Valley Bank, as customer pulled deposits after the technology-oriented regional bank was forced to sell and realize losses in securities held on its balance sheet in order to meet capital requirements—marking the second-biggest bank failure in U.S. history.
• Trading in SVB stock was halted Friday morning, and the Federal Deposit Insurance Corporation (FDIC) then placed the bank into receivership to protect depositors. Stocks in other regional banks fell in response, although only moderately, suggesting that investors concluded that SVB’s risk exposure was exceptional. Shares of the major “money center” banks (notably Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) held up better, in part because stricter banking regulations required them to previously mark down the value of some securities.
• Markets began their slide on Tuesday morning, after Fed Chair Powell testified before Congress that policymakers were prepared to speed up the pace of tightening and raise rates higher than anticipated if inflation maintains its current trajectory. He noted that the process of getting inflation down to the Fed’s long-term 2% target will likely be bumpy, referring to a broad reversal of the disinflationary trend in January, while adding that stronger recent economic data suggest the ultimate level of interest rates may be higher than expected. He also reiterated that history strongly cautions against prematurely loosening policy.
• Powell also referred to the challenges posed by the tight labor market, and the week brought mixed signals on how much success the Fed’s rate hikes have had in cooling wage pressures. Payroll processor ADP’s tally of private sector employment surprised on the upside when it was released Wednesday, showing an increase of 242,000 jobs in February, roughly twice January’s increase. 
• Separate data on job openings missed expectations, however, while fewer people than expected quit voluntarily—generally considered a better sign of how Americans perceive the job market. Weekly unemployment claims, reported the next day, also hit their highest level since late December, although some noted that several one-off, “idiosyncratic” factors may have been at work.
• Investors appeared especially uncertain how to react to Friday’s closely watched official payrolls report, which showed an increase of 311,000 nonfarm jobs in February, well above consensus expectations of around 200,000. The unemployment rate rose unexpectedly, however, from a January five-decade low of 3.4% to 3.6%.

Canadian markets (S&P/TSX -4.01%):

• Canada’s benchmark stock index fell on Friday to its lowest closing level in two months and bank stocks slid after the failure of a high profile U.S. lender in the technology sector spooked investors. It was down its biggest weekly decline since September. All ten major sectors ended lower. 
• The potential for additional interest rate hikes by central banks added to pressure on equity markets after the release of U.S. and Canadian employment data.
• The Bank of Canada (BoC) held the overnight rate steady at 4.50%, pausing for the first time since March of last year.
• The Canadian economy beat expectations by adding 21,800 jobs in February, putting pressure on the Bank of Canada to consider another rate hike after saying it wanted end its year-long tightening campaign.
• Adding to the strength were full-time jobs 31,100. Hourly wage rate for permanent employees accelerates to 5.4% y/y (versus 5.1% y/y expected), up from 4.5% y/y. The unemployment rate held steady at 5.0%, while the participation rate held steady at 65.7%. 
• Canada’s merchandise trade surplus (Jan.) widened to $1.92 billion (versus an expected $0.12 billion deficit), from a $1.19 billion surplus in the prior month (initially reported as a $0.16 billion deficit).
• The Canadian dollar traded for 72.43 cents US compared with 72.52 cents US on Thursday.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe fell along with global markets amid worries about stress in the banking system and the potential effects of a prolonged period of elevated interest rates.
• Bank of Italy Governor Ignazio Visco criticized European Central Bank (ECB) colleagues for making statements about future increases in borrowing costs when policymakers had apparently agreed not to give such guidance. The outburst, at the end of a speech in Rome, may hint at rising tensions among policymakers in advance of next week’s policy decision.
• Eurozone economic growth in the fourth quarter was revised down to 0% from an initial estimate of 0.1%.
• Consumer demand weakened in January. Retail sales grew 0.3% sequentially—much less than expected—and dropped 2.3% from year-ago levels.
• German industrial production rebounded 3.5% sequentially in January, recovering from the 2.4% decline registered in December. Increased output in energy-intensive industries and construction provided an uplift. 
• The UK economy rebounded by more than expected in January, driven by growth in the services sector, according to official statistics. Gross domestic product rose 0.3% sequentially, after contracting in December, official data showed.
• Japan’s stock markets registered modest gains for the week. This was despite a sell-off in Japanese bank stocks on Friday, following a slump in their U.S. peers, as well as the Bank of Japan’s (BoJ) decision to leave its accommodative monetary policy unchanged in March.
• The BoJ made no changes to its monetary policy at the final meeting chaired by outgoing Governor Haruhiko Kuroda, who steps down in April. 
• Investors’ focus now turns to the BoJ’s April meeting, which will be the first under incoming Governor Kazuo Ueda, whose appointment was confirmed by parliament on Friday. 
• Japan’s economic growth over the last three months of 2022 was downgraded to an annualized 0.1% quarter on quarter from a preliminary estimate of a 0.6% expansion. Prime Minister Fumio Kishida recently ordered the government to draft additional measures to counter price hikes and support Japan’s fragile post-COVID recovery.
• Chinese equities retreated as signs of weakening demand and a lower-than-expected 2023 growth target unveiled by Beijing tempered concerns about the country’s outlook. 
• Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started Sunday, March 5, and ends Monday, March 13. The target lagged most forecasts but represents a recovery from 3% growth last year, when coronavirus lockdowns, an ailing property sector, and weakening export demand led to China’s lowest economic growth in decades.
• At the NPC, Premier Li Keqiang said that China would seek to ensure economic stability and expand consumption this year and strive to become a mid-level developed economy by 2035. Premier Li also said that China would prioritize stable development in the real estate sector and guard against risks to top property developers as consumer sentiment remains cautious.
• Meanwhile, China’s parliament approved a plan for a sweeping reform of central government institutions under the State Council, the country’s cabinet. Reforms include the formation of a financial regulatory body and national data bureau and a revamp of the country’s science and technology ministry. The changes mark the biggest bureaucratic restructuring in years and come as China seeks to accelerate the development of critical technologies, such as advanced semiconductors, to reduce its reliance on U.S. technology amid rising bilateral tensions.
• China reported that its consumer price index rose 1% in February from a year earlier, trailing forecasts, down from a 2.1% rise the previous month. Core inflation rose 0.6% in February from 1% in January, while producer prices also fell more than expected due to lower commodity costs. The latest data affirmed that China’s inflation remains muted, unlike in the U.S. and Europe, and raised expectations that the central bank would maintain its supportive policy stance.
• In other economic news, Chinese exports and imports extended declines in the first two months of the year as the global economic slowdown hit trade activity.

What to watch this week:

• Canada’s National Balance Sheet (Q4)
• Canadian housing data
• US inflation, retail sales, and industrial production data
• ECB monetary policy announcement
• Chinese industrial production and fixed-asset investment data
• BoJ Minutes from Jan. 17-18 meeting
• Japanese trade and industrial production data
• UK employment data

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

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