ClearWater Market Commentary as of November 11th, 2022

Here is the ClearWater Market Commentary as of November 11th, 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	3.40%
1 Month	9.74%
YTD	-5.24%
1 Year	-7.64%

^{As of 2022/11/11 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nasdaq	8.10%	-27.60%
Dow Jones Industrial	8.07%	-25.56%
S&P 500	6.17%	-11.21%
Shanghai Composite	5.90%	-16.20%
S&P/TSX Composite	4.13%	-17.15%
DAX	4.10%	-7.10%
FTSE 100	3.40%	-5.24%
CAC 40	3.37%	-8.63%
WTI Crude (oil)	3.25%	13.97%
Russell 2000	0.80%	-15.10%
Nikkei 225	-0.23%	-2.49%
Hang Seng Index	-3.90%	18.30%

^{As of 2022/11/11- Source: www.marketwatch.com}

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

US economy (S&P 500 6.17%):

• The major indexes recorded strong gains as investors celebrated reassuring inflation data and bond yields fell. The S&P 500 Index recorded its best week since June and hit its best intraday level in two months. 
• After the release of consumer inflation data on Thursday, the index recorded its largest daily gain since April 2020. Growth stocks—technology and internet-related shares, in particular—benefited the most from falling yields, which typically increase the perceived value of future profits. 
• The signal event of the week was Thursday morning’s release of the Labor Department’s consumer price data for October. The headline consumer price index (CPI) rose 0.4% in October, less than consensus expectations of roughly 0.6% and bringing the year-over-year increase to 7.7%—still well above the Federal Reserve’s target, but the slowest increase since January.
• Even more encouraging for investors may have been the year-on-year core (less food and energy) reading, which fell back to 6.3% from a 40-year high of 6.6% in September. Prices for used cars and trucks fell by 2.4% in October, while prices for apparel and medical services also pulled back. The cost of shelter continued to keep inflation elevated, however, rising 0.8% in October, the biggest increase in over 32 years.
• Thursday’s rally may have also owed something to policymakers’ response to the data. Fed officials spoke on Thursday and stated that they thought the pace of rate increases should slow and perhaps stop at a lower terminal rate. Federal Reserve Bank of Cleveland President Loretta Mester took a more cautious tone, stating that policy should “become more restrictive.”
• Most of the rest of the week’s economic data were largely in line with consensus expectations. The notable exception was the Friday morning release of the University of Michigan’s preliminary gauge of November consumer sentiment, which fell unexpectedly to its lowest level since July. The survey’s lead researcher attributed the drop in part to poor buying conditions for durables given high prices and interest rates.
• Tuesday’s midterm election results and the chance that the Democratic Party might retain some control of Congress may have weighed on markets when they opened on Wednesday morning, with some investors favoring a divided government that would restrain new spending and regulation. 
• The collapse of a leading cryptocurrency exchange on the same day drove a further decline in Bitcoin and other currencies and appeared to foster some broader market volatility.

Canadian markets (S&P/TSX 3.40%):

• The S&P/TSX composite continued its rally Friday, rising more than 120 points and closing above 20,000 points for the first time since late August, while U.S. markets also rose.
• The gains Friday are being led by tech, and other growth investments that have been sensitive to continued inflation and rising rates.
• Positive inflation data from the US, China’s announcement on easing some of its COVID-19 restrictions, as well as Russians withdrawal from Kherson (a potentially positive signal for the war in Ukraine which has contributed to uncertainty for months on end) all contributed to positive returns for the week.  
• But the markets are also still rising on the inflation data from Thursday that triggered those gains in the first place, which was lower than expected, prompting optimism that central banks might start to wind down their rate hikes.
• The Canadian dollar traded for 74.40 cents US, according to XE.com, compared with 74.75 cents US on Thursday.
• The December crude oil contract was up US$2.49 at US$88.96 per barrel and the December natural gas contract was down 36 cents at US$6.23 per mmBTU.
• The December gold contract was up US$15.70 at US$1,769.40 an ounce and the December copper contract was up 16 cents at US$3.91 a pound.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe rose on slowing inflation in the U.S. Better-than-expected results this earnings season also appeared to lift investor sentiment, although the economic backdrop remains challenging.  
• The UK’s GDP in the third quarter fell by 0.2% sequentially, the first quarterly decline since the start of 2021, when the country was in a coronavirus lockdown. However, analysts in a FactSet survey had expected the economy to shrink by 0.5%. Although output fell 0.6% in September, the quarterly contraction was smaller than expected because the drop in August was revised to 0.1% from a previous estimate of 0.3%, and the increase in July was revised up to 0.3% from 0.1%. 
• The Bank of England (BoE) forecast in September that the third quarter would be the start of a recession that could last two years.
• BoE Governor Andrew Bailey said in a local newspaper interview that interest rates were likely to rise further in the coming months, although he was hopeful that inflation would peak this winter. He said it could take between 18 months and two years to tame inflation.
• The European Commission forecast that the eurozone economy would contract in the final quarter of this year by 0.5% and shrink by a further 0.1% in the first three months of 2023—a technical recession—due mainly to higher energy prices triggered by the war in Ukraine. Economic growth in 2023 is predicted to slow to 0.3% from 3.2% this year. The commission also raised its forecast for inflation to 8.5% this year, 6.1% next year, and 2.6% in 2024.
• After a string of soft German economic data for September, industrial production surprised on the upside, rising by 0.6%, sequentially. However, the drop in August was revised lower to 1.2%, largely due to logistics problems caused by low river levels and surging energy prices.
• Japanese equity markets rose over the week, with the Nikkei 225 Index gaining 3.9% and the broader TOPIX Index 3.3%. Sentiment was shaped by the lower-than-expected U.S. consumer price inflation print, which raised expectations that the U.S. Federal Reserve could adopt a more dovish monetary policy stance. 
• A relaxation of coronavirus restrictions in China also provided a boost. Meanwhile, the Bank of Japan (BoJ) asserted that it would retain its ultra-loose monetary policy to underpin the fragile economic recovery. 
• Following a meeting with Prime Minister Fumio Kishida, Haruhiko Kuroda, the governor of the BoJ, repeated the message that the “one-sided and rapid weakening of the yen is undesirable for the economy,” according to Bloomberg. The yen is hovering around a 32-year low against the U.S. dollar, largely due to the divergence in monetary policy between the U.S. and Japan. Kuroda reiterated that the central bank needs to continue supporting the economy and seek to ensure that sustainable inflation is achieved, primarily through wage growth.
• The Japan Tourism Agency announced a plan outlining its goals for 2025, which is when it aims to have inbound tourism recover to levels seen before the coronavirus pandemic. The agency expects travel demand to rise in line with increased global air traffic. Furthermore, events to be held during that year, including the World Athletics Championships in Tokyo and the Expo 2025 in Osaka, are expected to give visitor numbers a boost. Yen weakness increases the attractiveness of Japan to foreigners as it means that their purchasing power is higher.
• Given its high dependence on other countries for computer chips and other key components, Japan’s government announced new investment in semiconductor development and production, looking to remain a key player in global technology. A new company will work on developing next-generation, or “post-5G,” semiconductors, which are expected to be crucial for artificial intelligence and automated driving systems. Japan will work closely with the U.S. on the endeavor, and the government anticipates that investing in such technology will lead to both growth and jobs.
• Shares in China received a late boost from the surprise drop in U.S. inflation but trailed most other global markets as investors worried about new signs of economic fragility. News of additional support for the troubled housing market helped provide some relief to property stocks. Chinese officials ordered second-tier banks to extend another USD 56 billion in loans to developers, according to Bloomberg.
• A surge in COVID cases, with the number of daily cases reaching above 10,000 for the first time in over a year, threatened further lockdowns and appeared to weigh on sentiment for much of the week. 
• Nevertheless, Friday’s rally also seemed to have been helped by a relaxation in China’s strict “zero-COVID” policy. Reports had surfaced over the previous week that the government was preparing to ease travel restrictions and other measures following the recent re-election of President Xi Jinping. 
• The week’s economic reports were limited but demonstrated the toll that lockdowns and slowing global demand have taken on China’s economy. Exports fell 0.3% in October, well below the 4.3% increase that analysts polled by Reuters had predicted and the first drop since early in the pandemic. Imports also fell 0.7% as weakening domestic demand compensated for increases in purchases of most commodities.

What to watch this week:

• Canadian housing and inflation data
• US retail sales, industrial production and housing data
• Chinese industrial production, retail sales, and fixed-asset investment data
• Japanese GDP, industrial production, trade and inflation data
• Eurozone industrial production, GDP, trade, and inflation data
• UK employment, inflation, retail sales, and consumer confidence data
• G20 Summit
• 15 S&P 500 and 12 S&P/TSX companies report earnings

• 

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

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