ClearWater Market Commentary as of September 30th, 2022

Here is the ClearWater Market Commentary as of September 30th, 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	0.64%
1 Month	-4.58%
YTD	-11.25%
1 Year	-13.09%

^{As of 2022/09/30 – Source: www.marketwatch.com}

Index Performances	Last 5 Days	YTD
WTI Crude (oil)	0.95%	5.69%
Russell 2000	0.69%	-25.70%
CAC 40	-0.07%	-19.40%
S&P/TSX Composite	-0.20%	-13.09%
DAX	-0.49%	-23.40%
Nikkei 225	-0.86%	-8.99%
Shanghai Composite	-0.88%	-16.91%
FTSE 100	-1.85%	-6.68%
Nasdaq	-2.69%	-32.40%
S&P 500	-2.91%	-24.77%
Dow Jones Industrial	-2.92%	-20.95%
Hang Seng Index	-4.34%	-27.00%

^{As of 2022/09/30- Source: www.marketwatch.com}

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

US economy (S&P 500 -1.90%):

• Turmoil in UK financial markets and signs that the Federal Reserve still has some way to go in its efforts to temper inflation sent stocks to their third consecutive weekly decline, while the yield on the benchmark 10-year U.S. Treasury note briefly breached 4% for the first time since 2008. (Bond prices and yields move in opposite directions.) 
• The S&P 500 Index broke below its mid-June lows and fell back to November 2020 levels. The week closed out a third consecutive quarter of declines for the index for the first time since 2009.
• The equity market’s biggest moves came Wednesday, following a surprise decision by the Bank of England (BoE) to purchase long-dated UK government bonds. The BoE’s move caused extreme volatility before trading began on Wall Street, but the end result was an easing of recent upward pressure on interest rates and the U.S. dollar and a rally for stocks. 
• Markets reversed their gains on Thursday, however, with the selling seemingly caused by data showing continued resilience in the economy and inflationary pressures despite tightening monetary policy. 
• Weekly jobless claims fell to 193,000, well below consensus expectations and their lowest level since late April.
• Meanwhile, the core (less food and energy) personal consumption expenditures (PCE) price index, widely recognized as the Fed’s preferred inflation gauge, rose at an annualized pace of 4.7% in the second quarter—well above expectations of around 4.4% as well as the Fed’s long-term 2.0% inflation target.
• August’s monthly core PCE reading, released Friday, also surprised on the upside, rising 4.9% on a year-over-year basis, up from 4.7% in July. 
• Long-term inflation expectations appeared to remain anchored, however, with consumers polled by the University of Michigan expecting inflation to fall to 2.7% over the next five years, the lowest reading in over a year.
• The housing sector is feeling the immediate impact of the Fed’s rate hikes through rising mortgage rates—which breached an average of 7%—but even here the evidence was mixed. 
• New home sales surprised investors by rising nearly 29% in August to hit a five-month high. Yet pending sales of both new and existing homes—where contracts have been signed but not closed—fell slightly. 

Canadian markets (S&P/TSX -0.20%):

• A volatile trading week capped the quarter as an early rally evaporated to leave the S&P/TSX composite index with the barest of gains, while U.S. markets swung deep into the red.
• The trading, which saw North American markets give up what were gains of more than one per cent in morning trading, was emblematic of recent sessions that have been scattered but weighted to the downside as investors fear for the economy because of the determination of central banks to make borrowing money more expensive.
• In the end, the S&P/TSX composite index closed up 2.38 points at 18,444.22, marking a second negative quarter in a row. The index is now down 15.7 per cent since the end of March.
• The Toronto market was buffered from further losses as it recorded modest gains in information technology, utilities, health care, and especially the materials sector as investors poured into gold stocks.
• Canadian real GDP (Jul., m/m) slightly rose (0.1% versus -0.1% expected), following the prior month’s 0.1% gain. StatsCan’s August flash estimate pegs GDP growth at 0.0%.
• The Canadian dollar traded for 72.90 cents US compared with 72.96 cents US on Thursday.

Performance 2022: S&P 500 Sectors   

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

European and Asian economies:

• Shares in Europe fell amid disappointing corporate earnings and fears of recession. 
• UK government bond (gilt) yields ended higher after experiencing historic swings in the wake of the previous Friday’s announcement of a new UK fiscal plan proposing large tax cuts, energy subsidies, and sizable borrowing.
• The International Monetary Fund called on the UK to “revaluate” the plan to ensure fiscal and monetary policy aren’t working at cross purposes. U.S. Treasury Secretary Janet Yellen said the U.S. was also “monitoring developments very closely.” 
• BoE Chief Economist Huw Pill said the new fiscal policy and the adverse market reaction “will require a significant monetary response.” However, he signaled the bank did not expect to act on rates before its next meeting in early November. 
• Revised economic data unexpectedly showed the UK avoided a recession in the three months through June. Gross domestic product (GDP) increased by 0.2% instead of shrinking 0.1% as previously estimated.
• European Central Bank (ECB) President Christine Lagarde said at a hearing of the European Parliament that the economic outlook “is darkening” and that she expects business activity to “slow substantially” in the coming months as high energy and food prices curb spending power. She said output in the fourth quarter of 2022 and the first three months of 2023 would most likely be “negative.” 
• It is expected that the ECB would “continue hiking interest rates in the next several meetings in a bid to return inflation to 2% in the medium term.  
• Inflation in the eurozone accelerated to a record 10.1% in September from 9.1% the previous month, according to an official first estimate. The figure exceeded a consensus forecast of 9.7% and reinforced market expectations for another large increase in interest rates in October.
• The week started on a negative trend for Japan equity markets and ultimately finished as it began, with Japanese shares ending at a three-month low, despite some encouraging economic readings.  
• Concerns about the outlook for the global economy continued to weigh on the markets amid worries that the increases in interest rates around the world will lead to a global recession. The Fed and other central banks continue to tread a hawkish path, indicating that they plan to keep raising rates in an effort to combat stubbornly elevated inflation.  
• The strengthening of the U.S. dollar against Asian currencies continued to weigh on market sentiment. 
• The BoJ also confirmed that it will continue to purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit.
• Some ground was recovered later in the week, however, as the U.S. dollar dipped following news of the bond market intervention by the Bank of England. Separately, Finance Minister Shunichi Suzuki said at a meeting of the Asian Development Bank that the government would “take necessary action” to respond to undesirable, rapid speculative currency movements. 
• On the economic front, the news was encouraging as Japan’s industrial production and retail sales figures for August both beat expectations, while the jobless rate fell to 2.5% in the month.
• China’s stock markets fell as currency weakness and signs of a flagging economy fueled concerns about the outlook.
• The yuan fell to a 28-month low last Monday and has lost more than 11% against the greenback this year. The yuan is on track for recording its biggest annual loss since 1994, when China unified its official and market rates, according to Reuters.
• Like many emerging markets currencies, the yuan has weakened against a surging U.S. dollar boosted by the Federal Reserve’s aggressive interest rate hikes.
• The previous week, the PBOC asked state-owned banks to prepare themselves to defend the yuan by selling dollars from their foreign exchange reserves, Reuters reported, citing unnamed sources. Such a move would mark a significant escalation in Beijing’s efforts to stabilize the yuan compared with past efforts that were largely signaling and generally ineffective in the face of U.S. dollar strength.
• On the economic front, profits at industrial firms shrank 2.1% in the first eight months of the year from the prior year period, versus a 1.1% decline in the first seven months of the year, China’s statistics bureau reported. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to a worse-than-expected 48.1 in September from 49.5 in August, below the 50-point reading that separates growth from contraction.
• Meanwhile, China’s official manufacturing PMI slightly improved in September, but services sector activity contracted as ongoing coronavirus lockdowns continued to hurt consumer spending.
• Mainland China’s financial markets were scheduled to be closed for the Golden Week holiday, a seven-day holiday starting October 1 that typically marks a peak period for travel and consumption. However, ongoing coronavirus restrictions in major cities are expected to weigh on domestic tourism and retail spending this year.

What to watch this week:

• Canadian trade and employment data
• US ISM Purchasing Manager Indices (PMI) and employment data
• Chinese markets closed
• Eurozone retail sales data
• Australian and New Zealand monetary policy meeting
• Bank of Japan Summary of Opinions from Sept. 21-22 meeting
• OPEC+ meeting
• Global PMIs

• 

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

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