ClearWater Market Commentary as of September 1, 2023

Here is the ClearWater Market Commentary as of September 1^st, 2023:

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	3.41%
1 Month	1.53%
YTD	5.99%
1 Year	6.61%

^{As of 2023/09/01- Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
Nikkei	3.57%	13.07%
S&P/TSX Composite	3.41%	6.03%
Nasdaq	3.20%	34.10%
Russell 2000	2.77%	9.06%
MSCI EAFE	2.70%	8.50%
Shanghai Composite	2.53%	2.84%
Hang Seng Index	2.35%	-7.14%
S&P 500	2.24%	18.47%
FTSE 100	1.70%	4.77%
Dow Jones Industrial	1.42%	5.58%
DAX	1.08%	15.02%
CAC 40	0.67%	13.96%
WTI Crude (Oil)	0.20%	1.60%

^{As of 2023/09/01- Source: www.marketwatch.com}

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

US economy (S&P 500 2.24%):

• Hopeful signs on the inflation front helped the major benchmarks end with solid gains for the week, although stocks closed out their first negative month since February. A decrease in longer-term interest rates over much of the week provided a boost to growth shares in particular by reducing the implied discount on future earnings. Smaller-cap stocks outperformed, however, narrowing the significant year-to-date gap with large-caps.
• The market activity remained generally muted as summer vacation season came to a close. Markets were scheduled to be closed the following Monday in observance of the Labor Day holiday.
• As many observers noted, the week appeared to be one in which bad news for the economy was considered good news for stock prices, given the interest rate implications. On Tuesday, the S&P 500 Index recorded its best one-day gain since June, following news that job openings unexpectedly fell by 338,000 in July and hit their lowest level since March 2001. Job quits, considered by some to be a more reliable indicator of the strength of the labor market, also fell considerably.
• Friday’s closely watched nonfarm payrolls report appeared to confirm loosening labor market conditions. The Labor Department reported that employers added 187,000 jobs in August, somewhat above consensus expectations, but gains for the previous two months were revised lower by a combined 110,000. 
• Average hourly earnings also rose by only 0.2% for the month, a tick below expectations. Most notably, perhaps, the unemployment rate climbed from 3.5% to 3.8% to reach its highest point since February 2022. As 736,000 people re-entered the job market, the labor force participation rate hit 62.8%, its highest level since the start of the pandemic in February 2020.
• Even as the labor market slowed, hopes appeared to grow that the economy would escape even a substantial slowdown in 2023—the so-called no landing scenario. On Thursday, the Commerce Department reported that personal spending jumped 0.8% in July, above expectations and well above a 0.2% increase in consumer prices during the month. On Friday, the Institute for Supply Management reported that its gauge of manufacturing activity—although still indicating a contraction in the sector—climbed unexpectedly to its best level since February. A gauge of overall business activity in the Chicago region also surprised on the upside.
• Atlanta Federal Reserve Bank President Raphael Bostic appeared to give sentiment a boost on Thursday, telling a conference in South Africa that he believed the current level of interest rates was “appropriately restrictive” and on track to bring down the inflation rate to the Fed’s target of around 2.0%. Along with the inflation and jobs data, his comments seemed to bolster hopes that the Fed would forgo another rate increase this year. 
• The probability that the Fed would remain on hold for the rest of the year, as measured by the CME FedWatch tool, rose considerably over the week, from 44.5% to 59.8%.

Canadian markets (S&P/TSX 3.41%):

• Canada’s main stock index gained more than one per cent Friday on broad-based strength after the latest GDP report helped bolster hopes that the Bank of Canada could be done hiking interest rates, while U.S. markets were mixed.
• Gains in energy stocks were a big part of the market strength, with the price of oil closing in on US$86 per barrel and the TSX energy index up almost two per cent.
• Both the Bank of Canada and the Federal Reserve have interest rate decisions in September and are expected to hold their key rates steady.
• In Canada, new economic data was in less of a grey zone: Statistics Canada reported the economy contracted at an annual rate of 0.2 per cent in the second quarter, when economists were expecting an expansion.
• The surprise report appeared to boost confidence that the central bank will not only hold its key interest rate next week but perhaps even be done with its tightening cycle.
• Canadian real GDP (Q2) unexpectedly fell -0.2% (versus 1.2% expected). Moreover, the 3.1% gain in Q1 was also revised lower to 2.6%. The slower Canadian economic growth is starting to show up in the recent earnings results of Canadian banks. Softer earnings and higher loan loss provisions are a reflection of the state of consumers. 
• Canadian current account deficit (Q2) narrowed to $6.63 billion (versus $11.45 billion expected), from a downwardly revised $3.17 billion in the prior quarter.  
• The Canadian dollar traded for 73.64 cents US compared with 73.90 cents US on Thursday.
• The October crude oil contract was up US$1.92 at US$85.55 per barrel and the October natural gas contract was down less than a penny at US$2.77 per mmBTU.
• The December gold contract was up US$1.20 at US$1,967.10 an ounce and the December copper contract was up three cents at US$3.85 a pound.

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

Performance 2023: S&P 500

European and Asian economies:

• Major stock indexes advanced as European natural gas prices dropped and expectations grew that interest rates

• In local currency terms, main European indices ended higher on hopes that interest rates would soon peak and that a recession, while possible, would likely prove to be shallow and short-lived. Stocks also appeared to receive a lift from China’s efforts to bolster its economy. 
• European government bond yields edged lower as core inflation data and comments from policymakers suggested that the European Central Bank (ECB) could be nearing the end of its monetary policy tightening cycle. 
• The annual inflation rate in the eurozone was steady at 5.3% in August, according to a preliminary estimate from Eurostat, the European Union’s official statistical office. The core inflation rate, a measure of underlying price pressures that filters out volatile food and energy costs, slowed in line with expectations, coming in at 5.3%—a 20-basis-point improvement from July. (A basis point is 0.01 percentage point.)
• The minutes from the ECB’s July meeting called out the strong labor market in the euro area and suggested that a soft landing might be possible for the slowing eurozone economy. The seasonally adjusted unemployment rate stayed at a record low of 6.4% in July, matching a consensus forecast.
• German Consumer price inflation moderated in August to 6.1% year over year, matching a 14-month low hit in May. 
• Japan’s stock markets gained over the week, as some weaker-than-forecast U.S. economic data releases boosted expectations that the U.S. Federal Reserve was getting closer to halting its interest rate hiking cycle, supporting sentiment. Investors also welcomed China’s latest measures to boost its markets and economy.
• Seeking to alleviate the effects of high fuel costs on households and businesses, Japan’s government pledged measures to ease record-high gasoline prices and to extend its subsidy program for oil wholesalers beyond September until the end of the year.
• While the weak yen has pushed up gas prices, the government’s subsidies have helped keep overall levels of inflation down, supporting the case for the BoJ to maintain its accommodative stance. 
• On the economic data front, Japan’s unemployment rate unexpectedly rose to 2.7% in July from the prior month, against expectations of a 2.5% increase.  
• Concerns about a global, and particularly Chinese, economic slowdown weighed on Japanese companies’ capital expenditures in the period from April to June, which grew 4.5% year on year, the lowest annual gain in five quarters. Many firms became more cautious about increasing spending on plants and equipment amid negative developments in the Chinese property sector, given that the country is Japan’s largest trading partner.
• Chinese stocks rose after the government issued a series of stimulus measures aimed at reviving the economy. The blue chip CSI 300 Index and Shanghai Composite Index both advanced for the week. In Hong Kong, the benchmark Hang Seng Index rose for the week ended Thursday after financial markets were closed Friday due to the approach of a typhoon.
• The previous Friday, China’s central bank cut the amount of foreign currency deposits that domestic banks must hold as reserves. The reduction in the foreign exchange reserve  effectively freed up more foreign currency in the local market to buy the renminbi currency, which fell to its lowest level since 2007 against the U.S. dollar in August. 
• The raft of policy announcements signaled Beijing’s growing concern about the economy, which has been losing momentum this year. Disappointing data, deflationary pressures, record youth unemployment, and a deepening slump in the debt-laden property sector are some of the factors that have fueled an erosion of confidence in China’s economy.
• Country Garden Holdings, formerly China’s largest developer by sales, revealed in a filing that it might default on its debt if its financial performance continued to deteriorate. Meanwhile, China Evergrande Group, another major developer that is already in default, unveiled more losses and postponed credit meetings that were supposed to start this week. The problems in the real estate sector have fueled worries about contagion to other parts of China’s financial system, including the loosely regulated trust industry.
• While China’s economy has struggled to rebound from pandemic restrictions lifted in late 2022, recent stresses in the property sector and shadow banking system do not pose an immediate systemic risk as the government pursues its so-called common prosperity agenda. 
• However, with China recording quarter-on-quarter economic growth of just 0.8% as of June and recent trade activity coming off cyclical highs, we believe the country faces a period of below-trend growth.

What to watch this week:

• Bank of Canada policy announcement 
• Canadian trade and employment data
• US ISM Services PMI 
• US Fed Beige Book 
• China trade data 
• Japanese GDP and household spending data 
• Eurozone GDP and retail sales data 
• Reserve Bank of Australia policy announcement 
• Global PMIs

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

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