ClearWater Market Commentary as of October 1st, 2021

Here is the ClearWater Market Commentary as of October 1st, 2021:

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	–1.23%
1 Month	-3.22%
YTD	15.59%
1 Year	24.39%

^{As of 2021/10/01- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Oil ($/bbl)	2.40%	56.10%
FTSE 100	-0.25%	9.06%
Shanghai Composite	-0.41%	2.74%
Hang Seng Index	-0.71%	-11.73%
S&P/TSX Composite	-1.53%	15.59%
Dow Jones Industrial	-1.56%	12.15%
Russell 2000	-1.72%	13.51%
CAC 40	-1.80%	17.65%
S&P 500	-1.94%	16.00%
DAX	-2.66%	10.50%
Nasdaq	-2.69%	13.02%
Nikkei 225	-5.94%	3.65%

^{As of 2021/10/01- Source: www.marketwatch.com}

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

US economy (S&P 500 -1.94%):

• A Friday rally moderated the losses, but the large-cap benchmarks and Nasdaq Composite index recorded their biggest weekly drops since February and rounded out the worst monthly declines since the onset of the pandemic, seemingly weighed down by inflation and interest rate fears.
• Declines within the S&P 500 were broad-based, with only energy shares notching a gain.
• The fiscal policy environment also appeared unsettling. The possibility that the federal government would experience another partial shutdown was averted late in the week when the Senate and the House of Representatives passed, and President Joe Biden signed, a short-term spending bill. No progress was made in raising the federal debt limit, however, and Treasury Secretary Janet Yellen warned again that the limit needed to be suspended or raised by October 18 in order for the Treasury to meet its obligations.
• While most observers agree that an actual default on the country’s debt is highly unlikely—especially given that Democrats may turn to tools to do it unilaterally—substantial market volatility followed previous episodes of brinkmanship a decade ago.
• Meanwhile, the outlook for the USD 1 trillion infrastructure bill also remained clouded. Democratic leaders abandoned plans for a vote on the bill on Thursday evening, following demands from progressives in the party to link its passage to a separate bill focusing on health care, education, climate measures, and other social policy priorities. 
• The week’s inflation data were arguably not alarming, with the Commerce Department’s core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rising 3.6% over the 12 months ending in August, matching consensus.

Canadian markets (S&P/TSX -1.53%):

• A positive start to October last week helped the markets mitigate some of the deep losses for the week, as a potential new COVID-19 drug renewed optimism about the recovery.
• Merck announced on Friday its experimental COVID-19 pill reduced hospitalizations and deaths by half in people recently infected with the coronavirus. This would be the first pull shown to treat COVID-19 and highlights a potentially major advance in efforts to fight the pandemic.
• Overall though, the S&P/TSX index snapped its seven-month winning streak and scored its largest monthly decline since last October despite hefty gains in the energy sector. The quarter has been relatively flat as strong gains from earlier in 2021 have moderated somewhat.
• This volatility we witnessed in September however is in-line with historical choppiness we typically see this time of year.
• Canadian markets were helped by GDP numbers that showed growth in August and a smaller-than-expected decrease in July. Statistics Canada said the real gross GDP dropped 0.1% in July and an initial estimate for a 0.7% increase in August.
• The service sector is improving and job vacancies continuing to decrease, which is a sign that the economy continues to recover even though it’s a bumpy ride.
• Energy continued to rally despite a drop in natural gas prices as crude oil reached a near three-month high.

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

European and Asian economies:

• Shares in Europe fell sharply amid fears that the economy might be sliding into a period of low growth and high inflation.
• On a year-over-year basis, there appears to be strong inflation in the Eurozone as consumer prices jumped 3.4% in August—up from 3% a month earlier and the highest level since September 2008. Higher energy costs were a big part of this upsurge. Core inflation, a metric that excludes volatile food and energy prices, accelerated to 1.9% from 1.6%.
• European Central Bank (ECB) President Christine Lagarde acknowledged in testimony to the European Parliament that inflation in the eurozone could exceed the central bank’s forecasts, which have already been raised twice this year. She said, however, that an increase in inflation would be temporary.  
• Bank of England (BoE) Governor Andrew Bailey said that UK gross domestic product probably won’t recover to pre-pandemic levels until early next year—a few months later than previously predicted. The BoE will keep a “close watch” on inflation expectations and the labour market for signs that temporary price pressures are becoming more persistent.
• In election news, Germany looks like it might face months of coalition haggling. The left-of-center Social Democratic Party (SPD), led by Olaf Scholz, won the German general election by only a small margin. The SPD and the center-right alliance of the Christian Democratic Union and Christian Social Union (CDU/CSU), in power for 16 years, are now expected to vie for the support of the Green Party and liberal Free Democrats to form a majority coalition government—likely a lengthy process. Angela Merkel will stay on as a caretaker chancellor.
• Japanese stocks followed the lead of U.S. markets and declined during the week but still remain in positive territory for the year-to-date period.
• Former foreign minister Fumio Kishida won the Liberal Democratic Party’s (LDP) presidential election by beating Taro Kono in the leadership runoff. The victory gives Kishida a nearly certain path to succeed Yoshihide Suga as Japan’s prime minister. Impact on financial markets should be limited as government policy is expected to remain largely unchanged, particularly in the near term.
• Kishida is seen as a consensus builder who will continue to push forward with the structural reform agenda introduced by Suga. In terms of fiscal policy, he has mentioned the need for additional support for the economy, although he has provided few details. Kishida’s views on monetary policy appear to be in line with those of Bank of Japan (BoJ) officials as he has noted the importance of avoiding deflation and keeping the 2% inflation target.
• Chinese stocks ended a holiday-shortened week on a mixed note. The CSI 300 Index of large-cap stocks edged slightly higher, while the Shanghai Composite Index declined from the previous Friday’s close.
• Positive news concerning indebted property developer China Evergrande Group supported investor sentiment. On Wednesday, Evergrande said that one of its units would sell roughly 20% of its stake in Shengjing Bank Co. to a state-owned enterprise for USD 1.5 billion to help reduce its debt load. News of the asset sale came as Beijing is prodding government-owned companies and state-backed property developers to buy some of Evergrande’s assets.
• Separately, the People’s Bank of China (PBOC) pledged to ensure a “healthy property market” and to protect homebuyers’ rights in a statement following the central bank’s quarterly monetary policy committee meeting. The PBOC has said there will be stress in the short term.
• Despite the magnitude of Evergrande’s debt problems, many analysts do not think that a default by the company will cause systemic risk in China’s credit markets. A more likely outcome is that there will be a well-managed deflation of the company’s debt balloon. Though Evergrande ranks among China’s major developers, it accounts for a small amount of total revenue in a fragmented industry, and any impact on the country’s banking system will be manageable.
• Ultimately, Beijing will likely focus on managing the social fallout of Evergrande’s unfinished housing units, followed by property supply chain suppliers owed money by the company.

What to watch this week:

• Canadian and US employment and trade data
• Chinese money supply and aggregate financing data
• Eurozone retail sales data
• New Zealand and India monetary policy announcements
• OPEC+ meeting
• Global Purchasing Manager Indices

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

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