ClearWater Market Commentary as of October 21st, 2022

Here is the ClearWater Market Commentary as of October 21st, 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	1.32%
1 Month	2.94%
YTD	-11.15%
1 Year	-11.36%

^{As of 2022/10/21 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nasdaq	5.20%	-30.60%
Dow Jones Industrial	4.90%	-14.50%
S&P 500	4.70%	-21.30%
Shanghai Composite	3.25%	-18.03%
S&P/TSX Composite	1.32%	-11.15%
DAX	1.05%	-19.29%
FTSE 100	0.93%	-14.94%
CAC 40	0.38%	-14.81%
WTI Crude (oil)	-0.50%	13.20%
Russell 2000	-1.08%	-23.57%
Nikkei 225	-1.82%	-21.41%
Hang Seng Index	-3.97%	-25.75%

^{As of 2022/10/21- Source: www.marketwatch.com}

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

US economy (S&P 500 4.70%):

• Stocks recorded strong gains, as investors appeared to react to some prominent earnings reports and hints that the Federal Reserve might moderate its pace of interest rate hikes. 
• The S&P 500 Index enjoyed its best weekly gain in nearly four months, while the Dow Jones Industrial Average marked its third consecutive week of gains. Energy shares outperformed within the S&P 500, as oil prices proved resilient despite the announcement of a release from the U.S. Strategic Petroleum Reserve.  
• The week started off on a strong note, due to a reversal in the UK government’s fiscal stimulus plans. They also noted that investors appeared to be climbing the proverbial “wall of worry” after the previous Friday’s steep decline. Better-than-expected quarterly results, guidance, and buybacks from Goldman Sachs and Lockheed Martin also seemed to provide a broad boost to sentiment.
• More tough talk from Fed officials appeared to cause a pullback at midweek. On Tuesday afternoon, Minneapolis Fed Bank President Neel Kashkari said in a speech that “if we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping [rate hikes] at 4.5%, or 4.75% or something like that.” Futures markets reacted by pricing in the federal funds rate nearing 5% by the Fed’s March 2023 meeting and remaining at that level into the second half of next year.
• Friday morning, however, stocks bounced after The Wall Street Journal reported that “some officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy.”  
• The week’s economic calendar offered mixed evidence on how deeply the Fed’s rate hikes are cutting into growth. Our traders reported that the weak housing market was a focus in Wednesday’s pullback following sharp declines in mortgage applications and housing starts, along with analysts’ downgrades of home supply stores Home Depot and Lowe’s. 
• An index of homebuilder sentiment also fell more than expected and hit a 10-year low. On the other hand, manufacturing production rose more than expected in September (up 0.4%), and jobless claims for the week ended October 15 fell much more than anticipated to their lowest level since late September.
• The hawkish Fed comments pushed the yield on the benchmark 10-year U.S. Treasury note to a 14-year high of 4.33% on Friday morning.  

Canadian markets (S&P/TSX 1.32%):

• Canada’s main stock index ended up almost 300 points on Friday, buoyed by gains in the base metals sector, while markets in the U.S. were also up, as investors are getting the sense that the end of the central banks’ aggressive rate hiking cycle is near.
• Canadian National Railway Company and Canadian Pacific Railway Ltd. are reporting this week, which are generally good bellwethers for the Canadian economy. There are also some sizable materials companies, plus utilities and Shopify all releasing financial data that the market will be keeping an eye on. 
• The Bank of Canada Q3 Business Outlook Survey indicated a deterioration in sentiment. Sales growth expectations remain negative, while investment and hiring intentions declined. More than half of firms see a >50% of recession. The Survey of Consumer expectations highlighted increasing inflation concerns, with the 1-year and 3-year forecasts jumping higher.
• Canadian CPI inflation (Sept.) slowed slightly to 6.9% (versus 6.7% expected), from 7.0%. The average of the Bank of Canada’s three core measures was unchanged at 5.3% (versus 5.2% expected).
• Canadian retail sales (Aug) rebounded 0.7% (versus 0.2% expected), following the prior month’s upwardly revised -2.2% decline. StatCan’s preliminary estimate for September calls for a -0.5% decline.
• The Canadian dollar traded for 72.92 cents US compared with 72.84 cents US on Thursday.
• Canadian retail sales data for August was released Friday, showing slight gains in sales but with warnings that sales likely dipped heading into the fall.
• The December crude oil contract was up 54 cents at US$85.05 per barrel and the November natural gas contract was down 40 cents at US$4.96 per mmBTU.
• The December gold contract was up US$19.50 at US$1,656.30 an ounce and the December copper contract was up 6.4 cents at US$3.47 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 the resignation of UK Prime Minister Liz Truss and the scrapping of her fiscal policies. 
• Political and economic confusion deepened in Britain as Truss resigned after 45 tumultuous days in office, making her the shortest-serving prime minister. Her government collapsed in the wake of the market turmoil sparked by her proposals to slash taxes and boost borrowing and spending. Conservative Members of Parliament will hold a vote on a new leader on October 28. Still, Chancellor of the Exchequer Jeremy Hunt pressed on with a new budget due October 31 that will seek to undo most of Truss’s tax pledges and cut spending to plug a GBP 40 billion hole in the public finances.
• A surge in food prices reignited an acceleration of UK inflation in September. The consumer price index rose 10.1% year over year—matching July’s 40-year high—an acceleration from the 9.9% inflation rate registered in August. 
• Core inflation, which excludes food and energy prices, also climbed, hitting a 30-year high of 6.5%. British shoppers cut their spending that month as well. Retail sales volumes dropped 1.4% in September from August. Meanwhile, GFK’s consumer confidence index, a closely watched measure of how people view their finances and economic prospects, plumbed 50-year lows in October.
• German producer prices in September climbed 2.3% sequentially and 45.8% year over year, as energy prices continued to soar. Metals, intermediate goods, capital goods, durable, and non-durable goods also recorded significant price increases.
• Japanese equities ended a choppy week of trading lower than they began as global recessionary fears and further currency weakness remained prevalent themes. Despite a solid midweek rally, as investors picked up battered stocks at knockdown prices following recent market weakness.
• U.S. inflation data released the previous week seemed to hit Japan’s markets with delayed impact, amid growing expectations that the Federal Reserve could announce another 75-basis-point hike in interest rates at its November meeting.
• Yen weakness was again in the spotlight after moving above the 150 level versus the U.S. dollar, a 32-year low. Amid some expectations this level would trigger a meaningful policy response, Finance Minister Shun’ichi Suzuki merely reiterated that he is “ready to take decisive action” against the currency’s sharp moves. 
• In a move to curb rising bond yields, particularly at the longer end, the Bank of Japan initiated emergency bond-buying operations late in the week, purchasing bonds with maturities between 10 and 25 years on Thursday and Friday.  
• Data late in the week showed that Japan’s core inflation, excluding the impact of tax hikes, hit 3% for the first time in over three decades. Meanwhile, Japan’s largest labor organization, the Japanese Trade Union Conference, announced that it will seek the biggest pay raise for union members in nearly 30 years in response to high inflation.
• China’s stock markets recorded a weekly loss after Beijing delayed releasing key economic data without explanation.  
• China’s statistics bureau announced last Monday that it would postpone releasing third-quarter gross domestic product (GDP) and other key indicators, including monthly readings of industrial production, fixed asset investment, and retail sales. The data were originally scheduled for release the next day. The bureau did not say when it would publish the data.
• The delay raised speculation that the third-quarter GDP report would show that China’s economy was on track to miss the official growth target of around 5.5% this year and that officials sought to avoid any fallout from its release during the weeklong Communist Party congress, which began October 16. The twice-a-decade gathering of the country’s top leadership was expected to wrap up on October 23 and hand President Xi Jinping a third five-year term as party chief.
• The onshore yuan fell to its weakest closing level against the U.S. dollar since the 2008 global financial crisis despite the efforts of state banks to support the currency. The onshore yuan closed Friday at 7.2494 per dollar, its lowest close since January 14, 2008.
• Chinese technology shares retreated, pressured by reports that officials from the Ministry of Industry and Information Technology held emergency meetings with domestic chipmakers regarding the Biden administration’s recently announced restrictions on tech exports to China. The U.S. export curbs will likely have a chilling effect on U.S.-China relations over the long term and push both countries further down the path of decoupling.
• Property developer shares advanced, aided by reports that the China Securities Regulatory Commission will allow certain companies with small property interests to raise money by selling domestic shares.

What to watch this week:

• Bank of Canada, European Central Bank, and Bank of Japan policy announcements
• Canadian GDP
• US Q3 GDP, durable goods orders, personal spending, and wage data
• Chinese GDP, industrial production, retail sales, trade, and fixed asset investment data
• Japanese employment data
• Eurozone consumer confidence data
• The UK to announce next Prime Minister
• Global Purchasing Manager Indices
• 166 S&P 500 and 36 S&P/TSX companies report earnings

• 

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

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