ClearWater Market Commentary as of November 18th, 2022

Here is the ClearWater Market Commentary as of November 18th, 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	-0.35%
1 Month	5.94%
YTD	-5.85%
1 Year	-7.30%

^{As of 2022/11/18 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
FTSE 100	0.20%	-1.41%
Shanghai Composite	0.13%	-15.07%
CAC 40	0.06%	-8.13%
Nikkei 225	0.02%	-4.63%
Dow Jones Industrial	0.00%	-7.10%
DAX	-0.02%	-10.30%
Hang Seng Index	-0.06%	-24.14%
S&P/TSX Composite	-0.38%	-5.91%
S&P 500	-0.70%	-16.80%
Russell 2000	-1.38%	-18.61%
Nasdaq	-1.60%	-28.80%
WTI Crude (oil)	-9.80%	6.70%

^{As of 2022/11/18- Source: www.marketwatch.com}

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

US economy (S&P 500 -0.70%):

• Most of the major indexes gave back a portion of the previous week’s strong gains and closed modestly lower. 
• Markets started off on a down note on Monday following comments from Federal Reserve Governor Christopher Waller over the previous weekend that the Fed has “a ways to go” before ending rate hikes. Tuesday brought some more encouraging inflation data, however, with core (less food and energy) producer prices in October remaining flat for the first time in two years. The report may have swayed Waller, who stated on Wednesday that recent inflation data had led him to favor a 50-basis-point (0.50 percentage points) hike at the upcoming policy meeting rather than 75 basis points.
• Growth stocks lagged value-oriented shares, which were supported by gains in the consumer staples sector. The energy sector underperformed, however, as European oil and natural gas inventories reached near-peak levels. 
• Dispelled reports of a Russian missile strike on Polish territory sparked a brief sell-off on Tuesday, but trading volumes remained muted for much of the week. Markets will be closed on Thursday, November 24, in observance of the Thanksgiving holiday.
• Investors kept a close eye on earnings reports from some prominent retailers and what they indicated about a potential economic slowdown. Target shares fell sharply after the company reported flagging discretionary spending in recent weeks, but better-than-expected results from Wal-Mart, Ross Stores, Foot Locker, and some other retailers offered a more positive picture. On Wednesday, the Commerce Department reported that retail sales excluding the volatile auto segment rose 1.3% in October, well above consensus expectations and the biggest gain since May.
• Conversely, industrial production fell unexpectedly in October, weighed down by weakness in the energy and materials sectors, and a gauge of manufacturing activity in the Mid-Atlantic region tumbled to its lowest level since May 2020. The week also brought another round of prominent layoff announcements, particularly from Amazon.com, which announced roughly 10,000 job cuts. Jobless claims over the previous week remained contained, however, with 222,000 workers filing for unemployment benefits—claims have remained within a tight range of 214,000 to 226,000 since late September.
• The U.S. Treasury yield curve inverted further during the week, driving the inversion in the two-year/10-year curve segment—historically, a typical but not conclusive indicator of a coming recession—to its deepest level in over 40 years. 
• Federal Reserve Bank of St. Louis President James Bullard said that the Fed’s terminal policy rate should reach a minimum level of 5% and may need to go as high as 7% to achieve the central bank’s inflation objectives. 

Canadian markets (S&P/TSX -0.35%):

• Canada’s main stock index gained almost 100 points Friday, boosted by strength in industrials and telecom, while U.S. markets were also up.
• Canadian existing home sales for Oct. rose 1.3% (versus -0.4% expected). The Teranet/National Bank Home Price Index contracted -1.5%, following the prior month’s -1.7% decline.
• Canadian CPI inflation (Oct) held steady at 6.9% (in line with expectations). The average of the Bank of Canada’s three core measures was at 5.4% (versus 5.3% expected).
• The Canadian dollar traded for 74.71 cents US compared with 74.91 cents US on Thursday.
• The January crude contract was down US$1.29 at US$80.11 per barrel and the December natural gas contract was down seven cents at US$6.30 per mmBTU.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Major regional stock indexes mostly gained ground. European government bond yields held near recent highs as European Central Bank President Christine Lagarde said interest rates need to rise more as policymakers seek to fight inflation. 
• UK finance minister Jeremy Hunt unveiled tax increases, spending cuts, and new fiscal rules in his Autumn Statement, with an eye toward repairing the public finances and restoring Britain’s credibility in international markets. To plug a fiscal hole of GBP 55 billion, the government will raise taxes by GBP 25 billion and cut spending by GBP 30 billion by 2027–2028. Much of a painful squeeze on public spending is slated to occur after the next general election in 2024.
• The economic forecasts of the Office for Budget Responsibility (OBR) accompanying the statement suggested that the UK is already in a recession and called for the economy to shrink 1.4% in 2023—the sharpest contraction in Europe.
• Inflation in the UK accelerated more than expected and hit a 41-year high of 11.1% in October, a significant increase from the 10.1% registered in September. Sharp increases in energy bills and food prices were the primary drivers. Meanwhile, the unemployment rate came in at 3.6% for the third quarter, a slight increase from the three months ended August 31. 
• Germany’s largest trade union, IG Metall, agreed to a below-inflation pay deal after five rounds of talks and warning strikes. The pay deal, which was below the 8% originally demanded by the union, sets a benchmark for Germany’s 3.9 million metal and electrical sector workers. Separately, investors became less pessimistic for a second month in November, apparently on hopes that inflation could soon slow, according to the ZEW economic institute.
• Japanese equity markets fell over the week as the rate of core consumer price inflation rose to a 40-year high, exerting fresh pressure on the Bank of Japan (BoJ), which nevertheless remains committed to its ultra-loose monetary policy stance. 
• The Japanese economy unexpectedly contracted in the third quarter of the year, further weighing on sentiment. Japan’s gross domestic product unexpectedly contracted an annualized 1.2% in the three months to the end of September 2022, weighed down by historic yen weakness.
• The country continued to struggle to regain momentum following the coronavirus pandemic, with concerns about a global economic slowdown posing a further headwind. Nevertheless, growing private sector demand, the continued reopening of the domestic economy, and the government’s stimulus measures should support a gradual pickup in economic growth.
• In political developments, Japan’s Prime Minister Fumio Kishida met with China’s President Xi Jinping at the Asia-Pacific Economic Cooperation summit in Bangkok, Thailand. In their first meeting since Kishida took office last year, the two leaders vowed that they would seek to improve bilateral relations between their countries, agreeing in principle to boost communications on security and to promote cooperation in areas including environmental protection, health, and cultural exchange.
• Mainland Chinese stocks were modestly positive for the week. Investors appeared to balance enthusiasm over easing COVID restrictions against worries about rising cases. 
• China’s National Health Commission announced that it was stopping mass testing in districts not at risk of community transmission. The Commission also announced plans to create new COVID-focused treatment centers, providing further evidence that the government was backing away from its “zero-COVID” policy despite official statements to the contrary.
• The impact of zero-COVID and the troubled housing sector on the consumer was evident in Monday’s October retail sales report, which showed sharp year-on-year declines in nearly all categories; sales of home appliances fell by over 14%, for example. Nevertheless, investors appeared to remain hopeful about recently announced support measures for the property sector. According to Reuters, officials have unveiled 16 new programs to shore up the property markets, including extending loans to both developers and homebuyers.
• A three-hour meeting in Bali over the preceding weekend between U.S. President Joe Biden and Chinese President Xi Jinping appeared to boost sentiment. President Biden characterized the unexpectedly long talks as “blunt,” but stated that he “absolutely believe[s] there need not be a new Cold War.” The two sides also agreed to restart negotiations on climate issues and other matters.

What to watch this week:

• Canadian retail sales data
• US Fed Minutes from Nov. 1-2 meeting
• US durable goods orders
• ECB Minutes from Oct. 27 meeting
• Eurozone consumer confidence data
• Germany GDP and inflation data
• Reserve Bank of New Zealand monetary policy meeting
• Global Purchasing Manager Indices
• 10 S&P 500 and 3 S&P/TSX companies report earnings

• 

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

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