ClearWater Market Commentary as of May 5th, 2023

Here is the ClearWater Market Commentary as of May 5^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	-0.46%
1 Month	1.71%
YTD	-1.04%
1 Year	-0.44%

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

Index Performances	Last 5 Days	YTD
Shanghai Composite	2.13%	9.90%
Nikkei	0.88%	7.54%
Nasdaq	0.10%	16.90%
MSCI EAFE	0.00%	10.30%
S&P/TSX Composite	-0.34%	6.14%
Hang Seng Index	-0.42%	-0.37%
Russell 2000	-0.53%	-0.08%
DAX	-0.99%	16.61%
S&P 500	-1.76%	6.90%
FTSE 100	-1.83%	7.85%
CAC 40	-2.00%	16.80%
Dow Jones Industrial	-2.45%	0.43%
WTI Crude (Oil)	-7.10%	-11.10%

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

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

US economy (S&P 500 -1.76%):

• Despite a rally on Friday, the S&P 500 Index ended the week lower on comments from Federal Reserve Chair Jerome Powell that suggested a pivot to cutting rates might not occur as quickly as the market had hoped. 
• Uneasiness surrounding the need to raise the U.S. debt ceiling may also have weighed on sentiment, as U.S. Treasury Secretary Janet Yellen notified congressional leaders in a letter that the agency might not be able to meet its debt obligations “potentially as early as June 1.”
• Over the weekend, regulators took control of California-based First Republic Bank, which, like Silicon Valley Bank and Signature Bank, had struggled with large deposit outflows. JPMorgan Chase acquired most of the failed bank’s assets, and deposits not covered by federal insurance did not suffer losses. The regional banks subsector in the S&P 500 experienced significant volatility during the week, reflecting concerns about the potential for additional bank failures and the credit pressures that could arise if the economy slows and unemployment increases.
• As expected, on May 3, the Fed increased interest rates by 25 basis points, taking the benchmark fed funds rate to a target range of 5.00% to 5.25%. The statement from the Federal Open Market Committee (FOMC) omitted previous language about anticipating “that some additional policy firming may be appropriate” and emphasized that future actions would hinge on incoming data and economic developments.
• During the press conference, Fed Chair Powell strongly hinted that the fed funds rate might be near the peak level for this cycle. Nevertheless, Powell also kept the option for further monetary tightening on the table, stating that “a decision to pause was not made today.” Rate cuts, according to Powell, “would not be appropriate” in a world where inflation does not come down quickly.
• Data from the U.S. Department of Labor showed that the number of job openings shrank for a third consecutive month in March, falling to 9.59 million from 9.97 million. The decline was most pronounced in small business that have up to 49 employees. Still, with 1.6 job openings for every unemployed person, the labor market remains tight. The same report pegged layoffs at 1.8 million, an increase of 248,000 and the highest level since December.
• The nonfarm payrolls report that came out May 5 likewise showed strength in the labor market, with the economy adding 253,000 new jobs in April—higher than the consensus estimate of 179,000 and the 165,000 job gains recorded in March. Average hourly earnings increased 0.5% month over month, compared with a sequential uptick of 0.3% in March.

Canadian markets (S&P/TSX -0.34%):

• Canada’s main stock index rallied on Friday as a rebound in oil prices lifted energy shares, while improved outlooks from companies including Air Canada beat back concerns over a fallout from the U.S. regional bank turmoil.
• On Thursday, it posted its lowest closing level in four weeks, while it was down 0.5% for the week as oil prices swung wildly, the Federal Reserve raised interest rates, and jitters in the U.S. banking sector raised fears of tighter credit conditions.
• The move higher for the TSX came as domestic data showed the economy adding 41,400 jobs in April, which was far more than expected. Wall Street also posted strong gains as U.S. jobs data allayed fears of a recession.
• The Toronto market’s energy sector gained 3.4% as oil clawed back some of its recent sharp decline, settling 4.1% higher at $71.34 a barrel.
• The Canadian dollar traded for 74.85 cents US compared with 74.48 cents US on Friday.
• The June crude contract was up US$1.75 at US$73.09 per barrel and the June natural gas contract was up 10 cents at US$2.24 per mmBTU.
• The June gold contract was up US$6.90 at US$2,031.70 an ounce and the July copper contract was up four cents at US$3.93 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, European markets ended lower over the five trading days ended May 5, as recession fears and banking tremors continued to weigh on sentiment. 
• The ECB raised its key deposit rate by a quarter of a percentage point to 3.25%, as expected, after three increases of 0.5% this year. The bank also said it would halt its program of reinvesting money from its bond purchases by July. 
• ECB President Christine Lagarde said later that interest rates would rise to “sufficiently restrictive levels” until inflation was reduced to the 2% target. She said some policymakers had argued for an increase of half a percentage point, but the Governing Council was also concerned that turmoil in the banking industry was reducing the amount of credit to the economy. “Everybody agreed that increasing rates was necessary, that we are not pausing, that is very clear,” Lagarde said. “And we know we have more ground to cover.”
• Inflation in the eurozone accelerated in April to 7.0% year over year from the 6.9% registered in March, official data showed. However, the core rate excluding food, energy, alcohol, and tobacco—a measure of underlying pricing pressures—unexpectedly ticked down from a record level to 5.6%. Separately, the labor market appeared to tighten, with the jobless rate falling to 6.5%. In Germany, the jobless rate fell to 2.8%, the lowest level among bloc members.
• The UK housing market showed signs of stabilizing in March as mortgage approvals for home purchases rose for a second consecutive month. Lenders approved 52,011 mortgages, up sharply from 44,126 in February and the largest number since October. However, home loans are still below their average of around 70,000 before last September’s calamitous mini-budget proposal under former Prime Minister Liz Truss, which caused long-term interest rates to spike and prompted lenders to withdraw funds from the market.
• Norges Bank raised its key interest rate by a quarter of a percentage point to 3.25% to curb inflation and said it could hike again in June if the currency stayed weak.
• Japan’s stock markets rose over the first two days of the week, remaining closed for the rest of the period due to the Golden Week national holidays. The markets rallied on Monday, largely on a sell-off in the yen, boosting the outlook for Japan’s exporters. This followed the Bank of Japan’s (BoJ’s) decision at its April 27–28 meeting to maintain its ultra-easy monetary policy stance for the time being.
• Economy Minister Shigeyuki Goto said in an interview with the Reuters news agency that banking sector problems in the U.S. and Europe won’t impact Japan’s economy and financial system for now. He also said he expects the BoJ to guide monetary policy flexibly and appropriately, taking the economy and financial markets into account.
• To pave the way for the full normalization of social and economic activities, Japan’s government said it will reclassify COVID to a level on par with seasonal influenza from May 8. A panel of infectious disease experts gave the green light to the reclassification based on the current pandemic situation and the preparedness of the health care system for a potential countrywide resurgence in cases. This follows the lifting of remaining coronavirus border control measures ahead of the Golden Week national holidays.
• Chinese equities ended mixed after a holiday-shortened week as surprisingly weak manufacturing data tempered sentiment. 
• China’s official manufacturing purchasing managers’ index (PMI) fell to 49.2 in April from March’s 51.9, marking a return to contraction for the first time since December after Beijing abandoned its zero-COVID policy. The nonmanufacturing PMI also softened in April but remained above 50, the level separating growth from contraction. Separately, the private Caixin/S&P Global survey of manufacturing activity eased to 49.5 in April from 50.0 in March amid softening global demand. 
• The Caixin/S&P Global survey of services activity also weakened but remained in expansion territory for a fourth consecutive month. The downturn in factory activity in both surveys raised concerns that China’s post-COVID recovery is losing momentum.
• Domestic tourism during the five-day holiday rebounded to pre-pandemic levels. Approximately 274 million trips were taken from Saturday through Wednesday, marking a roughly 71% increase from a year earlier, according to the Ministry of Culture and Tourism. Spending activity over the break surged about 129% over the year-earlier period. The latest figures fueled optimism that a sustained recovery in the services sector could help offset manufacturing sector weakness and a fragile property market recovery.

What to watch this week:

• Wholesale Inventories (Mar)
• Consumer Inflation Expectations (Apr)
• NFIB Business Optimism Index (Apr)
• IBD/TIPP Economic Optimism Index (May)
• Consumer Price Index (CPI) Inflation (Apr)
• Producer Price Index (PPI) Inflation (Apr)
• Bank of England (BoE) Interest Rate Decision
• U.K. Gross Domestic Product (GDP) (Q1 2023)

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

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