ClearWater Market Commentary as of May 12th, 2023

Here is the ClearWater Market Commentary as of May 12^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	-0.81%
1 Month	-1.08%
YTD	5.34%
1 Year	1.06%

^{As of 2023/05/12- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nikkei	1.42%	9.07%
S&P 500	0.77%	7.72%
Nasdaq	0.40%	17.40%
Dow Jones Industrial	0.14%	0.57%
CAC 40	-0.52%	16.19%
FTSE 100	-0.54%	7.27%
DAX	-0.57%	15.94%
Russell 2000	-0.78%	-1.16%
Hang Seng Index	-0.80%	-1.14%
S&P/TSX Composite	-0.81%	5.29%
MSCI EAFE	-0.90%	9.40%
WTI Crude (Oil)	-1.70%	-12.70%
Shanghai Composite	-2.48%	7.17%

^{As of 2023/05/12- Source: www.marketwatch.com}

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

US economy (S&P 500 0.77%):

• The major indexes ended mixed for the week as the flow of first-quarter earnings reports neared its end. The technology-heavy Nasdaq Composite outperformed, helped by a surge in Google parent Alphabet following the unveiling of its new artificial intelligence-based search platform.
• The narrowly focused Dow Jones Industrial Average lagged, weighed down by Disney, following its report of a decline in subscribers to its streaming platform, Disney+. Financials stocks underperformed, dragged lower by ongoing concerns over the strains facing certain regional banks. 
• The week’s economic calendar was relatively light overall but included highly anticipated inflation data. On Wednesday, the Labor Department reported that headline consumer prices had risen 4.9% over the year ended in April, a tick below consensus expectations and the slowest pace in two years.
• Core inflation, which excludes volatile food and energy prices, was in line with expectations over the period, rising 5.5%. However, “supercore” inflation, which, depending on the definition, measures services inflation less housing costs and is rumored to currently be the Federal Reserve’s preferred gauge, rose only 0.1% for the month—the lowest reading in nearly three years, according to Reuters. 
• Fed officials did not seem to moderate their inflation and interest rate expectations in reaction to the data, however. In stark contrast to the three rate cuts priced into futures markets by January 2024, New York Fed President John Williams repeated on Wednesday that he did not expect a rate cut later this year.
• According to the CME FedWatch Tool, as of the end of the week, investors were pricing in only a 0.7% chance that the Fed would keep rates steady through the end of 2023—although this was up a bit from the 0.1% chance the week before.
• Along with banking stresses and tightening credit conditions, another factor weighing on sentiment seemed to the upcoming deadline to increase the debt ceiling—the statutory limit on federal government borrowing—before the U.S. Treasury Department has exhausted its “extraordinary measures” to pay the government’s obligations. U.S. Treasury Secretary Janet Yellen has warned that the deadline could come as early as June 1.
• Americans polled by the University of Michigan expected annual inflation to run at 3.2% over the next five years, the highest level since 2011. 

Canadian markets (S&P/TSX -0.81%):

• Canada’s main stock index eked out a minute gain Friday with technology stocks weighing down the index, while U.S. markets moved lower.
• Debt ceiling headlines will likely continue to be the main focus this week with the June 1 deadline for a deal approaching. 
• Meanwhile, Canada will get its inflation data on Tuesday, providing another look into how the Bank of Canada’s fight against rising costs is faring after its own rate pause. 
• The Canadian dollar traded for 73.89 cents US compared with 74.20 cents US on Thursday.
• The June crude contract was down 83 cents at US$70.04 per barrel and the June natural gas contract was up eight cents at US$2.27 per mmBTU.
• The June gold contract was down 70 cents US at US$2,019.80 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, major stock indexes posted mixed results. 
• ECB President Christine Lagarde said in an interview with the Nikkei newspaper that the central bank “has moved in a very deliberate and decisive way in order to fight inflation,” adding, however, that “we still have more ground to cover.” She said that “there are factors that can induce significant upside risks to the inflation outlook” and that “we are still in a situation where uncertainty about the path of inflation is high, so we have to be extremely attentive to those potential risks.” Lagarde’s comments echoed the views hawkish policymakers have expressed since last week’s quarter-point rate increase.
• The ECB could raise its deposit rate beyond the peak 3.50% level currently expected by the market. Persistently strong inflationary pressures support hiking rates in the short term.  
• German manufacturing orders shrank more than expected in March, declining 10.7% sequentially on a seasonally and calendar-adjusted basis—a sign that the economy might be heading for a recession. German manufacturing orders shrank more than expected in March, declining 10.7% sequentially on a seasonally and calendar-adjusted basis—a sign that the economy might be heading for a recession.
• The Bank of England (BoE) raised its key interest rate by a quarter point to 4.25%, with policymakers voting 7–2 to increase borrowing costs to the highest level since 2008. The central bank also raised its inflation forecast, admitting it had underestimated the strength and persistence of food price increases. The updated projections call for inflation to slow to 5.1% by year-end, instead of the 3.9% that the central bank had forecast in February. The BoE also revised its economic growth forecast, projecting zero growth in the second quarter, as opposed to a 0.7% contraction.
• The UK economy grew 0.1% in the first quarter, skirting a forecast recession, official data showed. However, gross domestic product in March unexpectedly fell 0.3% sequentially amid widespread decreases across the services sector, the statistics office said.
• Signs of strength in corporate earnings supported Japan’s stock markets over the week. Some concerns about China’s economic growth, as well as the U.S. debt ceiling and potential default, dented sentiment, however.
• Data released during the week showed that wage growth remained sluggish in March, supporting the Bank of Japan’s (BoJ’s) dovish stance. 
• Investors continued to watch for any indication that the Bank of Japan could move away from its ultra-accommodative monetary policy stance. BoJ Governor Kazuo Ueda stated during the week that once the outlook indicates that sustainable and stable 2% inflation will be achieved, the central bank would like to end yield curve control and proceed to shrinking its balance sheet. 
• The summary of opinions at the BoJ’s April meeting concluded that the spring “shunto” labor-management wage negotiations had seen favorable developments, but the issue remains whether these would take hold next year, such as whether wages would continue to rise sufficiently relative to prices. 
• Chinese equities retreated in the first full week of trading after the five-day Labor Day holiday as investors grew concerned about the strength of the country’s recovery. 
• China’s consumer price index (CPI) edged up 0.1% in April from a year earlier, down from a 0.7% rise in March. The latest CPI marked the lowest rate since February 2021 and missed economists’ forecasts, according to Reuters. Core inflation, which excludes volatile food and energy prices, was unchanged from the previous month, suggesting little demand-driven inflation in the economy. The producer price index fell a worse-than-expected 3.6% and marked the weakest reading since May 2020. April’s CPI reading trailed the government’s 2023 consumer inflation target of around 3% growth and raised concerns that China may have entered a deflationary period. 
• The latest data appeared to support expectations that China’s central bank will ease policy in the near term to support an economy that has lately showed signs of losing momentum following a post-pandemic rebound. 
• China’s official manufacturing Purchasing Managers’ Index unexpectedly contracted in April for the first time since December, when Beijing abandoned its zero-COVID policy.

What to watch this week:

• U.S. Retail Sales (Apr)
• Industrial Production (Apr)
• Business Inventories (Mar)
• Retail Inventories (Mar)
• Euro Area GDP Growth Rate – Second Estimate (Q1 2023)
• Japan GDP Growth Rate – Preliminary Estimate (Q1 2023)
• Canada Inflation Rate (Apr)
• Euro Area Inflation Rate – Second Estimate (Apr)
• Existing Home Sales (Apr)
• 2023 G7 Summit in Hiroshima, Japan

• 

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

Thank you for checking out our ClearWater Market Commentary for May 12^th, 2023. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.