ClearWater Market Commentary as of September 9th, 2022

Here is the ClearWater Market Commentary as of September 9th, 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	2.61%
1 Month	-2.01%
YTD	-6.83%
1 Year	-4.17%

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

Index Performances	Last 5 Days	YTD
Russell 2000	4.27%	-15.97%
Nasdaq	4.10%	-22.60%
DAX	3.67%	-17.15%
S&P 500	3.60%	-14.70%
Dow Jones Industrial	2.70%	-11.50%
S&P/TSX Composite	2.61%	-6.83%
Nikkei 225	2.27%	-1.95%
CAC 40	2.07%	-12.36%
FTSE 100	1.74%	0.45%
Shanghai Composite	1.27%	-10.98%
WTI Crude (oil)	-0.90%	14.50%
Hang Seng Index	-1.95%	-17.25%

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

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

US economy (S&P 500 3.60%):

• Stocks broke a string of three weekly losses, as investors appeared to grow more confident that the market had reached at least a temporary bottom after surrendering about half of its summer rally. 
• Some moderating inflation fears may have also been at work, and a midweek decline in oil prices—which briefly hit their lowest level since Russia’s invasion of Ukraine—caused energy shares to underperform within the S&P 500 Index, although the sector still recorded a gain. 
• The market’s upturn began Wednesday, which was largely attributed to a “relief rally” on light trading volumes. Federal Reserve Vice Chair Lael Brainard and Cleveland Fed President Loretta Mester also delivered comments that seemed to be more “dovish” than markets expected, with Brainard stating that she still believed the economy could avoid a recession as the Fed raised rates.
• There are signs that inflation was cooling quicker than expected also seemed to support sentiment. Stocks rallied after the Wednesday afternoon release of the Fed’s “Beige Book” summarizing economic reports from its branch banks. The report indicated that price increases were moderating in nine of its 12 districts, as “lower fuel prices and cooling overall demand alleviated cost pressures, especially freight shipping rates.” 
• The report also noted some declines in prices for steel, lumber, and copper. A surprise moderation in Chinese producer price inflation seemed to help foster a rally on Friday.
• The week’s light calendar of economic data brought what may have been confusingly mixed signals. The labor market appeared to remain on solid footing, with weekly jobless claims coming in much lower than expected (222,000 versus roughly 240,000) and hitting their lowest level since the start of the summer.

Canadian markets (S&P/TSX 2.61%):

• Canada’s main stock index climbed almost 1.9 per cent as commodity prices rose, U.S. markets gained and reported job losses in August suggested Bank of Canada interest rate hikes are working to slow an overheated economy.
• The unemployment rate climbed to 5.4 per cent in August, ticking up for the first time in seven months as the Canadian economy shed 40,000 jobs, Statistics Canada reported Friday. 
• The climb in the unemployment rate, rising from a decades low of 4.9 per cent in July, could contribute to a moderating of rate hikes going forward.
• It’s expected though that when we start to see the job losses, as a result of the Bank of Canada increasing rates, the BoC will take a more balanced approach. They’re still going to raise rates, but they may be slower as they raise rates.
• The potential easing of rate hikes helped push the S&P/TSX composite index up 360.34 points to close at 19,773.34 points in a broad-based rally.
• Growth stocks, including in the information technology and health care sectors, led the way in gains, rising 3.3 per cent and 4.2 per cent respectively. 
• Energy stocks continued a rebound along with fossil fuel prices, with the October crude contract closing up US$3.25 at US$86.79 per barrel and the October natural gas contract was up eight cents at US$8.00 per mmBTU.
• Overall the S&P/TSX energy index was up 2.65 per cent, including gains of 3.4 per cent from Canadian Natural Resources Ltd. and 3.3 per cent from Cenovus Energy Inc.
• The Canadian dollar traded for 76.72 cents US compared with 76.24 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 rose after some countries announced plans to deal with the energy crisis and boost their economies. 
• The British pound depreciated further against the U.S. dollar before retracing to roughly USD 1.16, a level near the low hit in 1985. This weakness appeared to stem, in part, from uncertainty about the economic agenda of new UK Prime Minister Liz Truss.
• The ECB increased its key interest rates by a record 0.75 percentage point in a bid to curb inflation. The deposit rate now stands at 0.75%, while the refinancing rate sits at 1.25%—their highest levels since 2011. 
• The central bank indicated that more rate increases are likely. “Over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations,” the ECB added.
• Truss announced that the government would intervene to help reduce soaring energy costs for British households and businesses. The Financial Times reported that internal government estimates showed the size of the package could be around GBP 150 billion—bigger than bailouts during the COVID-19 crisis—and would be funded by government borrowing. In Germany, Chancellor Olaf Scholz said the government will spend EUR 65 billion to shield households and businesses, raising the monies from a tax on electricity companies and a planned corporate tax.
• Separately, Finland, Sweden, Switzerland, and the UK pledged emergency liquidity support for electricity generators facing a potential cash flow crisis due to sharp increases in collateral required to hedge future production. European energy ministers are meeting to discuss intervention in the electricity market, with the main topics including price caps on electricity, potential price caps on Russian gas imports, windfall taxes, and efforts to improve energy efficiency.
• Bank of England (BoE) Chief Economist Huw Pill hinted in testimony to Parliament that the government’s energy bailout plan could force the central bank to raise interest rates further. Asked by MPs whether the package would mean higher rates, Pill replied: “In response to the question, will fiscal policies generate inflation—we are here to ensure that they don’t generate inflation…Our remit is to get inflation back to target.” “We do have work to do,” he added.
• Japan’s stock markets rose over the week, as the government announced new measures to help Japan cope with rising inflation, while the yen fell to its lowest level in 24 years, prompting fresh comments from officials. 
• The government announced a new package, due in October, to help the country cope with rising inflation. The package includes cash handouts to low-income households as well as measures to keep some commodity and food prices at current levels. Prime Minister Fumio Kishida stated that it was the government’s priority to protect both households and businesses from the impact of higher import prices due largely to the war in Ukraine.
• The yen’s fall to its lowest level in 24 years prompted fresh comments from Japanese officials. Following a meeting with the prime minister, Bank of Japan (BoJ) Governor Haruhiko Kuroda said that the recent rapid moves in the currency were undesirable as they destabilize corporate business plans. 
• Gross domestic product expanded at an annualized rate of 3.5% in the second quarter, higher than the preliminary estimate of 2.2% growth. The economy was boosted by the lifting of coronavirus restrictions, which encouraged business spending and private consumption. 
• While Japan’s economy has now regained its pre-pandemic size, there are some expectations that growth may slow due to the ongoing coronavirus pandemic, supply chain disruptions impeding production, rising prices, and global economic uncertainty.
• Following the death of Queen Elizabeth II, Kishida paid his respects, stating that she had made a great contribution to strengthening the ties between Japan and the UK.
• China’s stock markets rose as tame inflation data and expectations of further policy support prompted buying.  
• China’s consumer and factory gate inflation in August declined from July’s levels and came in below analysts’ expectations. Earlier in the week, official data revealed that exports and imports lost momentum in August as surging inflation curbed overseas demand, while coronavirus restrictions and heatwaves disrupted China’s output.
• On Friday, the People’s Bank of China (PBOC) set firmer-than-expected guidance for the yuan exchange rate against the U.S. dollar for the 13th straight trading day, a move viewed by analysts as part of the government’s efforts to slow the pace of the currency’s depreciation. Last Friday, the yuan recorded its fourth weekly loss against the dollar, according to Reuters, and is down nearly 8% against the greenback this year as of the end of August.
• Earlier in the week, China cut the amount of foreign exchange that domestic banks must hold in reserves, a move seen as an effort to bolster the yuan. The Federal Reserve’s hawkish policy has boosted the dollar this year and weighed on most emerging markets currencies. China’s surprise decision to lower key interest rates in August to boost a slowing economy has also contributed to the yuan’s slide.

What to watch this week:

• Consumer Inflation Expectations (Aug)
• U.K. GDP Growth (July)
• CPI Inflation Rate (Aug)
• CPI Core Inflation Rate (Aug)
• Germany Inflation Rate (Aug)
• U.K. Unemployment Rate (July)
• U.K. Inflation Rate (Aug)
• Eurozone Industrial Production (July)
• Retail Sales (Aug)
• Industrial Production (Aug)
• China Industrial Production (Aug)
• Eurozone Inflation Rate – Final Reading (Aug)

• 

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

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