ClearWater Market Commentary as of September 23rd, 2022

Here is the ClearWater Market Commentary as of September 23rd, 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-5.53%
1 Month-7.01%
YTD-12.92%
1 Year-9.42%

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

Index PerformancesLast 5 DaysYTD
Shanghai Composite-2.07%-16.17%
FTSE 100-3.64%-5.57%
Hang Seng Index-3.83%-23.69%
DAX-4.07%-22.68%
Nikkei 225-4.12%-8.20%
Dow Jones Industrial-4.61%-18.57%
CAC 40-4.63%-19.18%
S&P 500-5.30%-22.51%
S&P/TSX Composite-5.53%-12.92%
Nasdaq-5.78%-30.53%
WTI Crude (oil)-7.10%5.20%
Russell 2000-7.43%-25.34%

As of 2022/09/23- Source: www.marketwatch.com


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

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

  • Stocks recorded a second week of pronounced losses after Federal Reserve policymakers revealed that they expected official short-term interest rates to continue going sharply higher over the next several months. 
  • The Dow Jones Industrial Average and S&P 400 Midcap Index fell to new intraday lows since late 2020, while the S&P 500 Index, small-cap Russell 2000 Index, and Nasdaq Composite managed to stay slightly above their bottoms in mid-June 2022.
  • What really seemed to concern investors more was the survey of Fed policymakers’ individual expectations for future rate increases, which showed that many expect rates to reach 4.50% by the end of the year and stay near there for much of 2023. 
  • The Fed Chair acknowledged that Americans’ longer-term inflation expectations “appear to remain well anchored” and noted that policymakers expected their preferred measure of inflation, the year-over-year change in the personal consumption expenditures index, to ease significantly in 2023, from a median of 5.4% to 2.8%.
  • But stocks then headed back lower after Powell acknowledged that “no one knows whether this process [of raising rates] will lead to a recession or, if so, how significant that recession would be.”
  • The selling accelerated Friday, seemingly fed by troubling developments in Europe and despite some modestly encouraging economic data. S&P Global reported measures of current manufacturing and services activity that both surprised on the upside. 

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

  • Rising fears around future economic growth weighed heavily on markets Friday, pushing Canada’s main stock index sharply down along with the commodities that underpin so much of it, while U.S. markets also dropped.
  • The S&P/TSX composite index has fallen almost 1,800 points since mid-August and is now approaching the closing low reached this year on July 14 of 18,329.10.
  • Canadian inflation decelerated to 7.0% (versus 7.3% expected), from 7.6% for August. The average of the Bank of Canada’s three core measures also slowed to 5.2% (versus 5.3% expected), down from 5.4%.
  • StatsCan reports that gasoline prices rose less in August (+22.1%) compared to July (+35.6%), on a year-over-year basis.1 However, on a monthly basis, gasoline prices fell 9.6% in August (following a decline in July of 9.2%). This was the largest monthly decline since April 2020.
  • Canadian retail sales for July fell (-2.5% versus -2.0% expected), following the prior months downwardly revised 1.0% gain.
  • On Friday the Canadian dollar traded for 73.69 cents US compared with 74.18 cents US on Thursday.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

  • European shares fell sharply for a second week, as central banks raised interest rates sharply, intensifying fears of a prolonged economic slowdown.  The UK pound fell to USD 1.09—a 37-year low.
  • Sweden’s central bank kicked off a spate of large interest rate increases in Europe and indicated policy may have to be tightened further to bring inflation under control, a judgment echoed by other central banks. The Riksbank raised its benchmark rate by one percentage point to 1.75%, which was more than expected. The Bank of England (BoE) lifted its key rate to 2.25% as well, hiking by 0.5 percentage point for the second month running. Markets had been pricing in the probability of a three-quarter-point increase in line with the U.S. Federal Reserve.
  • Eurozone business activity contracted for a third consecutive month in September as the economic downturn deepened, according to purchasing managers’ surveys
  • UK Chancellor of the Exchequer Kwasi Kwarteng unveiled a tax-cutting budget that also included supply-side reforms and a GBP 60 billion energy support package for households and businesses aimed at achieving 2.5% annual growth. The package includes reductions in the top and basic rates of income tax and the cancellation of increases in national insurance contributions (a payroll tax) and corporation tax.
  • Japan’s stock markets closed at their lowest levels in more than two months in a holiday-shortened week. The Nikkei tracked losses on Wall Street as a large interest rate hike by the Fed further widened the U.S.-Japan rate differential.
  • Japan intervened in the currency market to support the yen for the first time since 1998 after it fell below JPY 145 to the U.S. dollar. 
  • As expected, the BoJ maintained its ultra-easy monetary policy that includes setting a short-term interest rate at -0.1%. 
  • The central bank also said in a statement that the coronavirus pandemic funding program would be extended for another six months. The statement reiterated the need to monitor the impact of the coronavirus on the economy and maintain stability in financial markets.
  • Japan’s core consumer price inflation, which excludes volatile food prices, accelerated to an annual 2.8% in August, the fastest increase since October 2014.
  • Prime Minister Fumio Kishida said during a U.S. tour that Japan will remove the 50,000 daily cap on foreign arrivals from October 11, further relaxing border controls. Foreign visitors will no longer need a visa or to be part of a tour group to enter the country.
  • China’s stock markets fell as global growth slowdown fears gripped investors.
  • On Friday, the yuan currency fell to a near 28-month low and The People’s Bank of China (PBOC), which sets a reference rate each trading day for the onshore yuan versus the U.S. dollar, set the so-called fixing at its lowest level since early August 2020.  
  • Analysts regard any significant discrepancy between the market’s expectations of the fixing and where the PBOC sets the midpoint as a signal of how Beijing wants to influence the currency. The Fed’s aggressive tightening has boosted the dollar at the expense of the yuan and other emerging markets currencies this year. China’s surprise decision to lower key interest rates in August has also fueled the yuan’s slide.
  • An increasing number of economists have dialed back their growth forecasts for China, where the economy faces persistent headwinds from a property market downturn and continued coronavirus outbreaks. 
  • China’s economic growth is expected to lag that of developing Asia for the first time in more than three decades. Beijing’s official growth target this year is about 5.5%, a level that many economists believe is unattainable.
  • On the monetary policy front, the PBOC kept its benchmark lending rates unchanged at a monthly meeting.  

What to watch this week:

  • Canada GDP data
  • US durable goods orders, personal spending and income data
  • Chinese Purchasing Manager Indices (PMI) data
  • Japanese PMI, employment, retail sales, industrial production, and consumer confidence data
  • Eurozone employment data
  • Mexico and India monetary policy announcements

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

Thank you for checking out our ClearWater Market Commentary for September 23rd, 2022 If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.

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