ClearWater Market Commentary as of September 2nd, 2022

Here is the ClearWater Market Commentary as of September 2nd, 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	-2.85%
1 Month	-1.78%
YTD	-9.20%
1 Year	-7.45%

^{As of 2022/09/02 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
DAX	1.22%	-17.81%
Nikkei 225	-0.82%	-3.96%
CAC 40	-0.88%	-13.78%
Shanghai Composite	-1.67%	-12.45%
FTSE 100	-1.97%	-1.40%
Dow Jones Industrial	-2.43%	-13.81%
S&P 500	-2.64%	-17.66%
Hang Seng Index	-2.85%	-16.86%
S&P/TSX Composite	-2.85%	-9.20%
Nasdaq	-3.22%	-25.66%
Russell 2000	-3.98%	-19.47%
WTI Crude (oil)	-6.50%	15.70%

^{As of 2022/09/02- Source: www.marketwatch.com}

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

US economy (S&P 500 -2.64%):

• Stocks finished lower for the week as investors continued to digest the implications of hawkish messages from Federal Reserve officials. 
• The S&P 500 Index extended the daily losing streak that began with Fed Chair Jerome Powell’s August 26 speech at the central bank’s Jackson Hole conference, widely perceived as hawkish, through Wednesday before rising marginally on Thursday.
• Value stocks continued to outperform high-valuation growth stocks, and large-caps held up significantly better than small-cap shares. 
• Energy shares suffered as oil prices declined below USD 90 per barrel for West Texas Intermediate crude, the U.S. benchmark.
• Stocks that fell short of earnings estimates or that issued disappointing earnings guidance were punished much more than those that beat estimates were rewarded. This resulted in significantly higher volatility among certain individual stocks than the broad indexes reflected, particularly for software companies with earnings that missed estimates later in the week.
• Friday’s August jobs report from the Department of Labor showed that the economy added 315,000 jobs last month, a number seen as solid though down from a revised 526,000 in July.
• The unemployment rate rose to 3.7% from 3.5% in July as the labor force participation rate increased. Earlier in the week, the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) for July indicated that job postings unexpectedly increased, reaching nearly two per unemployed worker.
• Public statements by Fed officials continued to reinforce the message that the central bank is determined to raise rates enough to get inflation under control.  
• The evidence of continued tightness in the labor market helped push U.S. Treasury yields higher, with the two-year Treasury yield reaching levels not seen since late 2007.

Canadian markets (S&P/TSX -2.85%):

• Although down for the week, Canada’s main stock index snapped its five-day losing streak on Friday, led by gains in the energy and mining sectors.
• Last weeks sell-off began when Federal Reserve Chair Jerome Powell gave a speech indicating the U.S. central bank will likely need to keep interest rates high for some time in order to bring inflation down. 
• All year, investors have been worried that overly aggressive central bankers could raise interest rates too high and tilt the economy into a full-fledged recession. That fear seemed to relax somewhat this summer, leading to a six-week stock market rally in late July and early August, but Powell’s speech immediately turned investor sentiment negative again.
• The S&P/TSX composite was weighted down even more by the declining price of crude oil this week.
• Natural gas prices also moved higher Friday on news that Russian energy giant Gazprom won’t resume the supply of natural gas through a key pipeline to Germany for now, citing what it said was a need for urgent maintenance work to repair key components, just hours before it was due to restart deliveries.
• The Bank of Canada will make its own interest rate announcement next Wednesday. Some of Canada’s major banks are forecasting the central bank will raise its key interest rate by three-quarters of a percentage point on Wednesday.
• The Bank of Canada hiked its key rate in July by a full percentage point – the largest single rate increase since August 1998 after a series of hikes that began in March. Previously, the rate had been at 0.25 per cent where it sat since it was slashed to near-zero early in the pandemic.
• The Canadian dollar traded for 76.21 cents US compared with 75.95 cents US on Thursday.

Performance 2022: S&P 500/400/600 Sectors

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

European and Asian economies:

• Shares in Europe fell sharply on fears that central banks could tighten monetary policy aggressively for an extended period. Worries that Russia might stop natural gas supplies to Europe also weighed on sentiment. 
• The UK pound posted its steepest monthly drop versus the U.S. dollar since October 2016, three months after the Brexit referendum, as economic and political uncertainty in the country intensified during the ruling Conservative party’s election campaign to replace outgoing Prime Minister Boris Johnson.  
• Eurozone money markets were pricing in a roughly 80% chance of an exceptionally large 0.75 percentage point rate hike by the European Central Bank (ECB) at its next meeting, after a chorus of hawkish comments by policymakers and data showing record inflation. 
• Inflation in the euro area accelerated more than expected to a record 9.1% in August, up from 8.9% in July. Surging energy and food prices were the primary drivers.
• The number of jobless people in the 19-country bloc dropped by 77,000 in July, leaving the unemployment rate at a record-low 6.6%, Eurostat said.
• Sources quoted by Reuters said Russia’s state-owned energy company Gazprom was ready to reopen the Nord Stream 1 pipeline to Germany as scheduled after a three-day outage for maintenance. However, after the market closed on Friday, Gazprom announced that a technical fault would extend the pipeline’s closure.
• Meanwhile, Gazprom said it would further reduce deliveries to French utility Engie due to a disagreement over contracts. Storage levels of natural gas for the coming winter have reached 90% of their capacity in France and more than 80% in Germany, officials said.
• Japan’s stock markets fell over the week. A hawkish outlook on U.S. interest rates dampened investor sentiment.
• The yen plunged on expectations of continued monetary policy divergence between the U.S. Federal Reserve and the Bank of Japan (BoJ), which remains committed to maintaining ultra-low rates.
• The Japanese currency breached the JPY 140 level against the U.S. dollar for the first time since 1998. Japan’s Finance Minister Shunichi Suzuki acknowledged the somewhat high recent currency market volatility and its potential negative impact on the economy and financial conditions. Furthermore, he said that the government was prepared to take appropriate action as needed to bring stability, working closely with monetary authorities in other nations.
• While the weak yen has been very supportive of Japan’s competitiveness and a boon for the country’s exporters, it has also pushed up the cost of importing energy and food, increasing the burden on businesses and households. As a net energy importer, Japan is impacted by surging energy prices.
• With core inflation having exceeded the BoJ’s 2% target for four consecutive months, the government has promised to take new measures to cushion the impact of rising food and energy prices.
• Prime Minister Fumio Kishida announced a further easing of Japan’s strict COVID-19 border controls, raising the cap on daily entrants to 50,000 from the current 20,000 starting September 7, as well as removing the requirement for foreign tourists to travel on tours with a guide. 
• Coronavirus cases in Japan remain elevated, but the government has refrained from imposing restrictions on movement, with vaccination rates among the highest in the world.
• China’s stock markets fell as coronavirus outbreaks in major cities triggered renewed lockdowns and dampened the economic outlook.
• As estimated by research firm Capital Economics, 41 Chinese cities, responsible for 32% of the country’s gross domestic product, are grappling with coronavirus outbreaks, the highest number since April.
• In geopolitical news, China said it would implement a landmark audit agreement it struck with the U.S. last month. Both countries signed a preliminary deal on August 26 that would allow U.S. accounting officials to review the audit papers of U.S.-listed Chinese companies, resolving a yearlong dispute that threatened to kick off about 200 Chinese companies from U.S. exchanges.
• The agreement marked a retreat from Beijing, which had refused to give U.S. regulators access to the audit papers of Chinese companies citing national security. The U.S. will monitor developments in the coming months to make sure China complies with the terms, said Securities and Exchange Commission Chair Gary Gensler.
• China has room to adjust monetary policy as stimulus measures to support the economy have been restrained and consumer inflation is under control, a People’s Bank of China spokeswoman said. Last month, China cut two key interest rates as Beijing stepped up efforts to revive an economy that has been slowing under a nationwide property crisis and continued lockdowns.

What to watch this week:

• U.S. Markets Closed for Labor Day
• ISM Non-Manufacturing/Services PMI (Aug)
• Apple hosts “Far Out” September Showcase
• U.S. Trade Balance (July)
• Fed Beige Book Release
• BOC Policy Meeting/Interest Rate Decision
• ECB Policy Meeting/Interest Rate Decision
• China Inflation Rate (Aug)

• 

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

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