ClearWater Market Commentary as of October 14th, 2022

Here is the ClearWater Market Commentary as of October 14th, 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	-0.98%
1 Month	-6.32%
YTD	-13.42%
1 Year	-12.63%

^{As of 2022/10/14 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Shanghai Composite	3.73%	-15.24%
FTSE 100	3.00%	-15.73%
DAX	2.30%	-26.44%
Dow Jones Industrial	2.26%	-10.40%
CAC 40	2.06%	-22.10%
S&P 500	-0.10%	-17.22%
S&P/TSX Composite	-0.98%	–13.42%
Nikkei 225	-1.24%	-19.95%
Russell 2000	-1.39%	-25.97%
Nasdaq	-3.18%	-34.81%
Hang Seng Index	-5.52%	-22.68%
WTI Crude (oil)	-7.40%	-14.10%

^{As of 2022/10/14- Source: www.marketwatch.com}

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

US economy (S&P 500 -0.10%):

• The major indexes were mostly lower this week, as third-quarter earnings reporting season began in earnest and investors weighed inflation data and their implications for Federal Reserve policy. 
• By the end of the week, the S&P 500 Index had surrendered nearly half of its gains since its March 2020 bottom. 
• Within the index, the typically defensive health care and consumer staples sectors outperformed, while consumer discretionary and communication services shares lagged, dragged lower by heavily weighted Amazon.com, Tesla, and Meta Platforms (parent of Facebook). Likewise, slower-growing value stocks handily outperformed their growth counterparts.
• Stocks saw their biggest move on Thursday, with a sharp early drop followed by a 5.5% surge to the upside in the S&P 500 Index, marking its largest intraday move since March 25, 2020.  
• Even as the week brought the release of the first major third-quarter corporate earnings reports, all eyes seemed to remain on the macroeconomic environment, particularly inflation. Futures fell before the start of trading on Wednesday, after the Labor Department reported that producer prices rose 0.4% in September, double consensus expectations for around a 0.2% increase. 
• On a year-over-year basis, prices rose 8.5%, a tick above expectations but still the third straight monthly decline and well below March’s peak of 11.7%.The market response was rather benign, however, which may have been due in part to core (less food and energy) prices coming in roughly in line with expectations. Core prices rose 0.3% in September, and the year-over-year gain stayed at a one-year low of 7.2%, slightly below consensus expectations.
• Unfortunately, Thursday’s CPI inflation data showed that lower wholesale prices were not yet filtering down in a significant way to consumers—the trend was, in fact, in the wrong direction. 
• Core consumer prices rose 6.6% on a year-over-year basis in September. This was more than expected, above the previous March peak, and the fastest pace in four decades. Stocks fell sharply on the news but quickly rebounded due to the general sense that negative sentiment had reached extreme levels as well as to technical factors, such as the recent build-up in put options, which give the holder the right to sell at a specific price.
• If there was a silver lining to the report, it was that the price increases were mostly concentrated in medical services, transportation, and housing. Shelter prices climbed 0.7% in September, accounting for 40% of the rise in the core index, but many observers expect the rapidly cooling housing market to eventually spill over into the Labor Department’s calculation of owner-equivalent rents and the rental market itself.

Canadian markets (S&P/TSX -0.98%):

• Canada’s main stock index fell almost 300 points Friday after a surprising rise Thursday, pulled down by losses in energy and base metals, while the U.S. markets fell at a steeper rate. 
• Investors also weighed signs that the Bank of Canada interest rate hikes are taking a toll on the domestic house market. The Bank of Canada has raised interest rates by 3.0% since March to a 14-year high of 3.25% in an effort to subdue inflation. 
• With Canadian inflation data for September set to be released on Oct. 19, the market is still expecting persistent inflation numbers, as interest rate increases take time to work their way through the economy
• Canadian existing home sales for September fell (-3.9%) versus -1.0% expected), or -32.2% y/y. Cratering housing activity and soaring mortgage rates continues to weigh on prices. The MLS Housing Price Index decelerated to 3.3% y/y, slowing for the seventh consecutive month. Meanwhile, the average price has fallen 6.6% y/y
• The Canadian dollar traded for 72.17 cents US compared with 72.43 cents US on Thursday.
• The November crude contract was down US$3.50 at US$85.61 per barrel and the November natural gas contract was down 28.8 cents at US$6.45 per mmBTU.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe were little changed after suffering a sharp pullback in the week prior.  
• European Central Bank (ECB) Governing Council member Pablo Hernandez de Cos, governor of the Bank of Spain, said some shocks in the ECB’s downside scenario appear to have materialized, indicating that the economy could soon contract. 
• ECB Vice President Luis de Guindos reportedly said that the central bank is prepared for a possible technical recession (two consecutive quarters of negative growth) accompanied by high inflation. 
• Some policymakers, including ECB President Christine Lagarde, have indicated that rates might have to keep rising into next year.
• The UK economy unexpectedly shrank 0.3% sequentially in August due to a fall in industrial output. Meanwhile, the labor market tightened further. The unemployment rate fell to 3.5% in the three months through August, the lowest level since 1974, as the number of economically inactive people (those neither working nor seeking a job) jumped by a record amount. Wages, including bonuses, rose 6.0% year over year.
• Industrial production in the eurozone climbed 1.5% sequentially in August—much more than forecast and partially reversing a 2.3% monthly drop in July. Industrial output in France and Italy rose sharply but fell in Germany. The trade deficit, meanwhile, swelled for a 10th consecutive month in August to almost EUR 51 billion, up from EUR 34 billion in July, due to the higher cost of energy imports.
• The German government slashed its economic forecasts for the next two years because of price increases, energy shortfalls, and supply chain disruptions caused by Russia’s invasion of Ukraine.  
• Japanese equity markets started the shortened week trending sharply lower as traders returned from the long weekend on Tuesday. Fears around hawkish signals from the U.S. Federal Reserve, as well as a weak currency that has, so far, failed to respond to government intervention measures, undermined sentiment for much of the week.
• Only on Friday did Japanese stocks snap a four-day losing streak, soaring in response to a remarkable Thursday turnaround in the U.S., where equity markets closed sharply higher despite higher-than-expected U.S. inflation numbers.  
• While U.S. news was a key driver, Japanese markets also digested local data releases. A survey released midweek showed business confidence among big manufacturers fell for a second straight month to its lowest level in five months. However, this disappointment was followed by data showing that Japanese corporate goods prices grew the most in five months in September, according to the Bank of Japan.
• In the currency market, hawkish Fed rhetoric saw the yen weaken further against the greenback. Finance Minister Shunichi Suzuki said that the government is ready to respond to excessive currency volatility as the dollar/yen exchange rate rose above 146, touching a 32-year low for the Japan currency.  
• China’s stock markets rose after the weeklong National Day Holiday, lifted by supportive central bank comments and anticipation of policy signals during the Communist Party Congress, a twice-a-decade gathering of the country’s political elite that began on Sunday.  
• The People’s Bank of China (PBOC) will focus on supporting infrastructure construction and enabling quicker delivery of home projects, according to PBOC Governor Yi Gang. The central bank will also step up the implementation of prudent monetary policy and provide stronger support for the real economy, he added.
• The yuan fell to a near 28-month low in September. The yuan has lost more than 10% against the dollar this year and is on track for its biggest annual loss since 1994, when China unified its official and market rates, according to Reuters.
• In economic news, China reported that tourism revenue during the weeklong National Day break, typically a peak period for travel and consumption, fell 26% from a year ago and was equal to 44% of the revenue in 2019 as coronavirus restrictions led many people to stay close to home.
• Last week, the state-run newspaper People’s Daily stated in a commentary that China must stick to zero-COVID because the policy is key to stabilizing the economy and protecting lives. The commentary dampened hopes that Beijing would relax the country’s zero-tolerance approach to the coronavirus anytime soon, despite its impact on China’s economy.

What to watch this week:

• Bank of Canada Business Outlook Survey (Q3)
• Canadian inflation and retail sales data
• US industrial production and housing data.
• The Fed’s Beige Book
• Chinese GDP, industrial production, retail sales and fixed asset investment data
• Eurozone inflation and consumer confidence data
• UK inflation, retail sales and consumer confidence data
• Communist Party of China’s 20th National Congress
• 65 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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