ClearWater Market Commentary as of September 16th, 2022

Here is the ClearWater Market Commentary as of September 16th, 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	-3.03%
1 Month	-2.97%
YTD	-8.68%
1 Year	-3.84%

^{As of 2022/09/16 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (oil)	-0.90%	14.50%
Nikkei 225	-2.41%	-4.01%
FTSE 100	-2.75%	-1.65%
S&P/TSX Composite	-3.03%	-8.68%
Hang Seng Index	-3.10%	-20.15%
Shanghai Composite	-4.15%	-14.25%
CAC 40	-4.16%	-15.31%
Russell 2000	-4.70%	-19.91%
DAX	-4.80%	-19.68%
Dow Jones Industrial	-5.10%	-11.50%
S&P 500	-5.95%	-14.70%
Nasdaq	-6.89%	-22.60%

^{As of 2022/09/16- Source: www.marketwatch.com}

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

US economy (S&P 500 -5.95%):

• Stocks fell sharply as inflation fears intensified and short-term bond yields reached levels last seen in 2007. The S&P 500 Index recorded its largest weekly drop since mid-June and hit its lowest point on an intraday basis since mid-July. Growth stocks fared worst, with the technology-heavy Nasdaq Composite falling nearly 5.5%.  
• The defining event of the week appeared to be Tuesday’s consumer price index (CPI) report, which came in above expectations and dimmed hopes for some investors that the economy had moved beyond “peak inflation.” Headline prices rose 8.3% for the 12 months ended in August versus consensus expectations for an increase of around 8.1%.
• More concerning may have been that core inflation (excluding food and energy) jumped to 6.3%—its highest level since March and above expectations for a rise of 6.1%. A 0.7% housing cost increase in August was partly to blame, but rising food and medical care prices also contributed heavily. Core producer prices, reported Wednesday, offered a somewhat more hopeful story, continuing a year-on-year decline that began in April, falling to 7.3% in August from 7.6% in July.
• The week brought mixed messages on wage inflation, which has been a primary concern of policymakers. Media reports said that Goldman Sachs will soon cut jobs, joining a list of large companies, including Ford Motor and Microsoft, planning layoffs. Weekly jobless claims, reported Thursday, offered a different picture, falling to 213,000, their lowest level since early summer.
• Despite the evidence of a resilient U.S. consumer, a gloomy outlook on the global economy from shipping giant FedEx sent stocks sharply lower at the end of the week. After the market closed on Thursday, FedEx announced that it was pulling its earnings guidance for fiscal year 2023 due to “expectations for a continued volatile operating environment,” and its new CEO told a CNBC interviewer that he expected a global recession. FedEx stock fell by about 21% in trading on Friday.

Canadian markets (S&P/TSX -3.03%):

• North American markets ended the trading week in the red, with Canada’s main stock index down more than 170 points and U.S. stock markets falling amid inflation worries and a stark warning from FedEx about worsening trends in the economy.
• The Canadian index was also pressured by crude prices. Despite a moderate rebound today as investors bought the dip the brutal sell-off, crude remains set for a weekly decline as the demand outlook remains bleak for the fourth quarter. 
• The Canada National Balance Sheet (Q2) indicated that household finances deteriorated. Household debt-to-disposable income rose to 181.7% from 179.7%. Net worth as a percentage of disposable income fell to 1,001.3% from 1079.7%. Gross general government debt to GDP fell to 127.5% from 132.9%.
• Canadian existing home sales (Aug) fell (-1.0% versus -1.6% expected), following the prior month’s 5.3% decline. Sales are now down 24.7% y/y. Housing starts fell to 267,443 (versus 266,500 expected), down from 275,200.
• The Canadian dollar traded for 75.27 cents US compared with 75.76 cents US. As long as the U.S. dollar remains strong, the Canadian dollar is likely to continue to struggle against it.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe pulled back amid signs of a deepening economic slowdown.
• The British pound depreciated against the U.S. dollar, sinking to levels last hit in 1985. Fears of a looming recession contributed to this downward pressure, along with concerns that the Bank of England might deliver an interest rate hike of 0.5 percentage point at its next meeting, a smaller increase than the U.S. Federal Reserve is expected to announce.
• Inflation in the UK came in at 9.9% in August. This reading marked a decline from the 10.1% registered in July. Falling fuel prices drove this slowdown. However, core inflation, which excludes food and energy costs, quickened to 6.3% from 6.2%. Producer output (factory gate) prices were up 16.1% from levels a year ago—still elevated but an improvement from 17.1% in July.
• Gross domestic product (GDP) expanded 0.2% in July, after a drop of 0.6% in June, when there were two days of public holidays.
• The jobless rate fell to 3.6% in the quarter through July, the lowest level since 1974. However, the number of people in employment also shrank, a sign the labor market might be losing momentum. Still, pay grew more than expected in the three months ending in July due to a shortage of job applications, with wages, including bonuses, rising 5.5% on a year earlier.
• Official retail sales figures for August confirmed the slump in consumer confidence seen in recent surveys. Sales volumes dropped 1.6% sequentially—much more than the 0.5% drop expected by analysts—as sharply higher prices for energy, food, fuel, goods, and services appeared to discourage spending.
• Eurozone industrial production fell 2.3% sequentially in July due to soaring energy costs and supply chain bottlenecks. The decline was the biggest in more than two years and exceeded the 1.0% drop forecast by analysts. Production of capital goods fell the most.
• The European Commission published proposals that could raise up to EUR 140 billion to soften the impact of soaring energy costs. The measures include a windfall tax on fossil fuel company earnings, a cap on the revenue of non-gas power producers, and a reduction in electricity demand at peak times each month.
• Japan’s stock markets fell over the week.
• The Japanese government announced that it will drop its COVID-related ban on individual tourists and remove its limit on daily international arrivals to the country.  
• Rumors circulated midweek that the Bank of Japan (BoJ) would intervene in currency markets to stem the yen’s slide against the U.S. dollar, but the central bank ended up taking no action. The Fed’s rapid rate hikes while the BoJ stands pat have helped drive the yen steadily lower against the greenback in 2022.
• China’s stock markets fell as currency weakness and downbeat property data overshadowed surprisingly strong factory output and retail sales indicators. 
• The People’s Bank of China drained liquidity from the banking system for the second straight month but held interest rates steady as it sought to ease selling pressure on the yuan resulting from a widening policy divergence with the Federal Reserve. China’s central bank has recently set a string of stronger-than-expected yuan fixings against the U.S. dollar and reduced banks’ foreign reserves requirement to stabilize the currency.
• The Fed’s hawkish tightening stance has boosted the dollar this year, pressuring most emerging market currencies, while China’s surprise decision to lower key interest rates in August has accelerated the yuan’s slide. 
• On the economic front, China reported better-than-expected growth in factory output and retail sales last month. Industrial production rose 4.2% year on year in August, up from 3.8% in July, while retail sales jumped 5.4% year on year from July’s 2.7% growth
• However, the property sector extended its slump. New home prices in 70 cities, excluding state-subsidized housing, fell in August for the 12th straight month, according to official data. New housing starts slumped 46% in August from a year ago compared with July’s 45% drop, reflecting a collapse in land sales and poor sentiment among property developers.
• The property sector’s travails are one of several mounting headwinds facing China’s economy that have left many economists skeptical that it will reach Beijing’s growth target of about 5.5% this year.  

What to watch this week:

• FOMC announcement and Summary of Economic Projections
• Canadian inflation and retail sales data
• US housing data
• Eurozone and UK consumer confidence data
• Bank of England monetary policy announcement
• Bank of Japan monetary policy meeting
• Japanese inflation data
• Global Purchasing Manager Indices

• 

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

Thank you for checking out our ClearWater Market Commentary for September 16th, 2022 If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.