ClearWater Market Commentary as of March 3rd, 2023

Here is the ClearWater Market Commentary as of March 3^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	2.08%
1 Month	-0.85%
YTD	6.17%
1 Year	-3.84%

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

Index Performances	Last 5 Days	YTD
WTI Crude (Oil)	4.50%	-0.60%
DAX	3.18%	11.58%
CAC 40	2.99%	13.20%
Hang Seng Index	2.69%	3.81%
Nasdaq	2.60%	11.70%
S&P/TSX Composite	2.08%	6.24%
Nikkei	2.04%	3.84%
S&P 500	1.95%	6.07%
Shanghai Composite	1.72%	6.59%
MSCI EAFE	1.70%	6.50%
Dow Jones Industrial	1.66%	1.14%
FTSE 100	1.62%	6.65%
Russell 2000	1.38%	10.14%

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

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

US economy (S&P 500 1.95%):

• Stocks closed higher and regained some ground following their worst weekly decline in two months. Energy and materials shares were especially strong, while communication services were helped by a gain in Facebook parent Meta Platforms. 
• Sentiment also appeared to gain support from the S&P 500 Index staying above its 200-day moving average, a metric commonly followed by technical analysts and traders.
• While the week brought a number of important economic reports, their mixed nature may have been one reason for the market’s low volumes and muted reaction. The Commerce Department reported that orders for non-defense capital goods excluding aircraft, often used as an indicator of business investment, rose 0.8% in January, compensating for the 0.7% increase in producer prices over the month. However, overall durable goods orders posted their steepest decline since the height of the pandemic-related shutdowns in April 2020. Similarly, wholesale inventories fell for the first time since July 2020, but retail inventories (excluding autos) rose slightly.
• Other evidence suggested that the manufacturing sector, while still weakening, was contracting at a slower rate. The Institute for Supply Management’s manufacturing Purchasing Managers’ Index (PMI) ticked higher in February for the first time since May, although it remained in contraction territory at 47.7 (levels below 50 indicate slowing activity). The Institute’s services PMI fell slightly but less than consensus expectations and still indicated moderate expansion (55.1).
• The week’s biggest data surprise may have been an 8.1% jump in pending home sales in January, marking the second month of gains. The National Association of Realtors’ Chief Economist Lawrence Yun attributed the dip in mortgage rates over the new year and stated that “home sales activity looks to be bottoming out in the first quarter.”
• Comments from Atlanta Federal Reserve President Raphael Bostic appeared to help spark a modest rally on Thursday afternoon. Bostic stated that he still supported only a quarter-point rate hike at the Fed’s upcoming policy meeting despite the previous week’s hot inflation data. He also stated that the “Fed could be in position to pause by mid to late summer.”

Canadian markets (S&P/TSX 2.08%):

• Canada’s main stock index rose almost 250 points in a broad-based rally Friday, ending the week on an upswing as Wall Street stocks also posted strong gains.
• The rally was the cherry on top of what was Bay Street’s first week of gains after three straight weeks of losses. Last week in particular was a rough ride for Canadian equities, which saw their steepest losses since the start of 2023.
• Markets appear to be settling in after what was a swift rise and then a resulting fall in the first two months of the year. 
• Early in 2023, markets had rallied on hopes that cooling inflation would get the Fed to take it easier on its hikes to interest rates. But last month, the rally went into reverse after several reports on the economy came in hotter than expected. They included data on the jobs market, consumer spending and inflation itself at multiple levels.
• The strong data means investors have had to resign themselves to the likelihood of additional interest rate hikes by the U.S. Federal Reserve this year.
• As proof that investors are settling into their newly adjusted expectations, the yield on the 10-year U.S. Treasury bond fell back to 3.96 per cent from 4.06 per cent late Thursday. It was a respite from its shot higher over the last month as expectations about a more hawkish Fed helped to hike bond yields.
• In commodities trading, Gold Futures for April delivery was up 1.11% or 20.35 to $1,860.85 a troy ounce.
• Meanwhile, Crude oil for delivery in April rose 2.11% or 1.65 to hit $79.81 a barrel, while the May Brent oil contract rose 1.38% or 1.17 to trade at $85.92 a barrel.

Performance 2023: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe rose as markets overcame worries about interest rates and focused on signs of an improving economic outlook.
• Inflation in the eurozone eased to an annual rate of 8.5% in February compared with 8.6% in January, mainly due to falling energy costs, official data showed. However, core inflation, which excludes volatile food and energy costs and therefore provides a clearer picture of underlying pricing pressures, ticked up to 5.6% from 5.3%. 
• The eurozone unemployment rate in January held steady at 6.7%, close to record lows.
• European Central Bank President Christine Lagarde indicated that a further half-point interest rate increase would likely be forthcoming at the March 16 meeting. 
• Bank of England (BoE) Governor Andrew Bailey warned that policymakers may still have to raise interest rates above 4% but that another hike is not inevitable. “At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more,” he said in a speech. 
• The number of loans for house purchases approved by British lenders in January fell to the lowest level since 2009, excluding a big drop at the start of the coronavirus pandemic, BoE data showed. House prices declined in February by the most in 10 years, adding to signs of a slowing housing market, mortgage lender Nationwide said.
• Japan’s stock markets made gains over the week. Investors welcomed an emphasis on monetary policy continuity by Bank of Japan (BoJ) governor nominee Kazuo Ueda as well as signs that the Chinese economy was recovering from COVID lockdowns. Japan’s easing of entry requirements for arrivals from mainland China was another positive. However, uncertainty about the likely peak in U.S. interest rates curbed market gains.
• Speaking in the upper house of parliament, Kazuo Ueda, expected to succeed BoJ Governor Haruhiko Kuroda on April 9, reiterated the need to maintain accommodative monetary policy. He added that its merits—including improvements in corporate earnings and employment and an exit from deflation—outweigh the side effects on market functioning.
• Ahead of Kuroda’s final monetary policy decision on March 10, the latest inflation data added to speculation about whether the BoJ would pivot further away from its ultra-loose stance, including another modification of its yield curve control framework (or possibly scrapping it altogether). Although core consumer price inflation in the Tokyo area slowed in February to 3.3% year on year from an over 41-year high of 4.3% in January, due largely to government energy subsidies on household electricity bills, inflation exceeded the BoJ’s 2% target for the ninth straight month.
• As households grapple with intensifying cost-of-living pressures amid the rising cost of items such as food and energy, Prime Minister Fumio Kishida has ordered the government to draft additional measures to counter price hikes and support Japan’s fragile post-COVID recovery. The government’s last stimulus package was announced in October 2022 and was aimed at cushioning the impact on businesses and consumers of inflationary pressures and yen weakness.
• Chinese stocks rose for the second week ahead of the National People’s Congress (NPC) meeting as strong economic data raised prospects for a better-than-expected recovery. The meeting of the NPC, China’s parliament, starts Sunday, March 5, and is expected to last about one week. The meeting happens every five years and is closely watched for signs about economic policy shifts and any senior leadership changes.
• China’s official manufacturing PMI data rose to 52.6 in February from January’s 50.1, marking the highest reading since April 2012 as domestic activity picked up. Both production and new orders were strong as supply and demand recovered but raw materials remained in contraction. The nonmanufacturing PMI rose to 56.3 from 54.4 the previous month. Both indexes beat economists’ forecasts. 
• New home sales at China’s top 100 developers rose by 14.9% following a 19-month slump as demand recovered after the government lifted its zero-COVID policy and unveiled measures to bolster the property sector at the end of 2022. The real estate sector, which accounts for almost a quarter of China’s economy, has seen the first year-on-year growth since July 2021.
• In other news, Hong Kong lifted its indoor and outdoor mask requirement, marking the end of all major coronavirus restrictions in the city after almost three years. The city of Macau also scrapped its mask mandate as all cities in China returned to normalcy following the lifting of restrictions in December.

What to watch this week:

• Day 1 of Fed Chair Powell’s Congressional Testimony
• Wholesale Inventories (Jan)
• JOLTS Report (Jan)
• U.S. Imports and Exports (Jan)
• Day 2 of Fed Chair Powell’s Congressional Testimony
• China Inflation Rate (Feb)
• Bank of Japan (BoJ) Interest Rate Decision
• President Biden’s Budget Proposal to Congress
• Nonfarm Payrolls Report (Feb)
• U.S. Government Budget Balance (Feb)

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

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