ClearWater Market Commentary as of May 13th, 2022

Here is the ClearWater Market Commentary as of May 13th, 2022:

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	0.50%
1 Month	-8.03%
YTD	-5.29%
1 Year	3.79%

^{As of 2022/05/13 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
DAX	4.84%	-11.69%
CAC 40	4.55%	-11.05%
FTSE 100	2.79%	0.46%
Shanghai Composite	2.13%	-15.71%
Russell 2000	1.74%	-20.16%
Nasdaq	1.50%	-24.54%
S&P 500	0.82%	-15.57%
Nikkei 225	0.67%	-7.98%
WTI Crude (oil)	0.50%	46.70%
S&P/TSX Composite	0.50%	-5.29%
Dow Jones Industrial	-0.15%	-11.40%
Hang Seng Index	-1.22%	-15.56%

^{As of 2022/05/13- Source: www.marketwatch.com}

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

US economy (S&P 500 0.82%):

• Stocks recorded another week of losses, as investors appeared to grow increasingly skeptical that the Federal Reserve will be able to achieve a “soft landing” for the economy by raising rates enough to tame inflation without causing a recession.
• Many cryptocurrencies plunged in value, further suggesting a strong risk-off environment.
• It marked the sixth consecutive weekly decline for both the S&P 500 Index and the Nasdaq Composite and the seventh for the Dow Jones Industrial Average—the longest stretch for the latter since 2001, according to The Wall Street Journal.
• There are five themes that seem to be behind the market’s continued declines: the Fed’s accelerated pace of monetary tightening, persistently high inflation data, worries about slowing growth, disruptions caused by China’s strict COVID-19 lockdowns, and Russia’s invasion of Ukraine.
• Negative signals on each theme arguably emerged during the week, but it may have been Wednesday’s inflation data that weighed the most on sentiment. Headline consumer inflation fell back a bit from March’s pace but not as much as expected, rising 8.3% year over year versus consensus estimates of around 8.1%; likewise, core consumer inflation (excluding food and energy) pulled back less than expected to 6.2% versus 6.0%. Core producer prices rose a bit less than expected in April, but March’s monthly gain was revised higher to a record 1.2%.
• Particularly worrying to investors may have been the 0.7% monthly surge in consumer prices for services (fewer energy services), indicating that inflationary pressures were moving beyond manufacturing and energy supply chains and becoming more broadly embedded in the economy. Airline fares jumped 18.6% over the month, for example, the largest increase on record.

Canadian markets (S&P/TSX 0.50%):

• Canada’s main stock index suffered its worst day in more than five months. Investors appeared to put aside dovish Federal Reserve comments a day earlier to instead focus on the magnitude of interest rates to come. All 11 major sectors on the TSX were lower.
• We witnessed a now-rare occurrence last week, with the TSX composite underperforming the S&P 500.
• Disappointing Q1 earnings for Shopify are the main culprit, with the stock closing the week down 11.3%.
• Energy companies maintaining their recent string of outperformance. All three of the major Canadian energy companies reporting earnings this week, Enbridge, Canadian Natural Resources and Pembina Pipelines, beat consensus, their profits buoyed by rising oil and gas prices.
• One factor behind the stickiness of high oil prices in 2022 has been the Organization of Petroleum Exporting Countries (OPEC) refusal to ratchet up its oil production quota, which the US and its European allies have been pushing for. 
• This week, OPEC once again disregarded their pleas and repeated their standard monthly 432,000-barrell production hike for the month of June. WTI oil prices rose 5.4% on the week, closing above US$110.
• Canada’s economy created 15.3k jobs in March (40k expected). The unemployment rate ticked down to 5.2% (from 5.3%, in line with expectations), but the participation rate weakened unexpectedly to 65.3%(from 65.4%, 65.4% expected.
• Canada’s Purchasing Manager’s Index (PMI) measures moderated from their historical highs in April.

Performance 2021: S&P 500/400/600 Sectors

European and Asian economies:

• Shares in Europe rebounded from earlier weakness to finish higher, despite ongoing concerns about inflation, tightening monetary policy, and the economic outlook.
• Finland’s President Sauli Niinistö and Prime Minister Sanna Marin backed the country to join NATO as soon as possible. Finland is expected to formally announce its decision on Sunday. Sweden indicated it would announce a similar decision on the same day. The Russian foreign ministry threatened unspecified “military-technical” retaliation. Previously, Russian officials have warned that they might place nuclear weapons in the Kaliningrad enclave on the Baltic coast.
• Russia imposed sanctions on European Union (EU) energy companies, including Gazprom Germania, which was taken over by Germany last month. Russia’s state-owned gas company Gazprom then said it would cut shipments to Europe via the Yamal pipeline, which runs through Poland to Germany.
• Earlier, Ukraine’s pipeline operator stopped flowing through one of the two pipelines transporting Russian gas through the country to Europe, blaming interference by Russian armed forces.
• Meanwhile, EU diplomats could drop proposals to ban Russian oil temporarily while moving ahead with other measures that would be part of the sixth package of sanctions. The ban is opposed by countries that rely on Russian oil supplies, including Hungary.
• European Central Bank (ECB) President Christine Lagarde said in Slovenia that the ECB’s bond-buying program could end “early in the third quarter” and be followed by a rate increase “only a few weeks” later.
• The comments are the clearest sign yet from Lagarde that the ECB could move on rates sooner rather than later.
• The gross domestic product of the UK unexpectedly contracted 0.1% in March, after stagnating in February, due mainly to a decline in service sector activity.
• The economy grew 0.8% in the first quarter, but this was below the 1.0% expected by economists and the 1.3% expansion that occurred in the fourth quarter of last year.
• Japan’s stock markets fell over the week, as expectations that the U.S. Federal Reserve would aggressively tighten monetary policy, concerns about slowing global growth, and the economic implications of the war between Russia and Ukraine continued to weigh on risk appetite.
• Against the backdrop of monetary accommodation being reduced in the U.S. and Europe, and amid some speculation that the Bank of Japan (BoJ) should also scale back its aggressive monetary easing, BoJ Governor Haruhiko Kuroda reiterated the central bank’s commitment to its current monetary policy stance.
• Against the backdrop of the war between Russia and Ukraine, Japan’s government agreed in principle on a ban on Russian oil imports with other Group of Seven (G-7) developed nations.
• The government also announced a strategic digital partnership with the EU following a meeting in Tokyo between Kishida and European Commission President Ursula von der Leyen. The EU and Japan agreed to cooperate increasingly on developing digital technologies, cybersecurity, and artificial intelligence.
• Chinese stocks rallied as a fall in coronavirus cases and reassuring comments from the securities regulator lifted investor sentiment. The broad, capitalization-weighted Shanghai Composite Index added 2.7%, and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose 2.1%.
• The China Securities Regulatory Commission aims to increase the participation of institutional investors in the country’s stock markets and expand the investible universe of the exchange link with Hong Kong, according to an interview carried on state media with Vice Chairman Wang Jianjun.
• The yuan weakened to CNY 6.80 per U.S. dollar from CNY 6.67 a week ago. The currency has fallen more than 5% against the greenback in the last three weeks amid rising U.S. interest rates, the Russia-Ukraine war, slowing domestic growth, and speculation that the central bank will act to slow its depreciation.
• The yuan’s slump is an unwelcome development for issuers of dollar bonds, many of which are in the debt-laden property sector and struggling with slowing sales, weak prices, and refinancing pressures. The property sector’s liquidity crisis continued as Sunac China Holdings and Zhongliang Holdings became the latest developers to discuss debt solutions for their repayment obligations.
• In economic readings, credit demand in April weakened as new loans fell to a worse-than-forecast CNY 645.4 billion yuan (USD 95.14 billion) from CNY 3.13 trillion in the previous month, as lockdowns in cities across the country hit economic activity. Export growth in U.S. dollar terms plunged to 3.9% year on year in April from 14.7% in March, while import growth in April was flat over a year ago and roughly unchanged from March’s pace. Both sets of data were higher than economists’ estimates.
• On the inflation front, factory gate inflation jumped a higher-than-expected 8% in April following the previous month’s 8.3% increase. Consumer inflation rose at an above-expected 2.1% year-on-year rate and accelerated from March’s 1.5% pace. Analysts said that higher fuel and food prices drove the increases in the factory gate and consumer inflation readings.

What to watch this week:

• US retail sales, industrial production and housing data
• Chinese retail sales, industrial production, and fixed asset investment data
• Japan GDP, industrial production, trade and inflation data
• European Central Bank April meeting Minutes
• Eurozone GDP, trade, consumer confidence, and inflation data
• UK employment, inflation, consumer confidence and retail sales data
• G7 Meeting of Finance Ministers and Central Bank Governors
• Australian Federal Election

• 

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

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