Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Goldman Sachs is reasonably constructive on the oil price but bearish on energy stocks, warning specifically that global dividend-paying producers are exposed to any weakness in the commodity price,
"Energy equities have now seen the strongest 12m performance vs. the market of any oil price recovery in at least 30 years, leaving limited scope for further capital appreciation, while elevated expectations leave room for disappointment. While commodity investors can potentially benefit from a carry trade in a backwardated oil curve, the equivalent for equity investors (dividends) remains under pressure in a lower oil price environment: We expect FCF generation to remain muted at our oil price forecasts, leaving dividends uncovered should oil prices surprise to the downside."
Top-rated Credit Suisse strategist Andrew Garthwaite published similar skepticism about mining stocks,
"All our macro proxies suggest industrial commodity prices should fall by 10-15%. Chinese real estate prices have peaked, suggesting iron ore should too, and some supply-side response is being seen at a time when inflation-adjusted commodity prices are back to long-run norms. The miners are discounting a sharp fall, but the mining capital goods stocks look expensive on book and earnings measures"
"@SBarlow_ROB GS: buy oil, not oil producers" – (research excerpt) Twitter
"@SBarlow_ROB 3h Garthwaite: commodity prices should fall 10-15%" - (research excerpt) Twitter
"It's the oil price, stupid" – Macleans
"Oil up as OPEC cuts outweigh rise in U.S. stocks" – Reuters
On backwardation "OPEC to Swell Investor Gains by Turning Market Upside Down" – Bloomberg
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A Bloomberg report warns of dire economic consequences for the Canadian economy if the U.S. enacts a border tax. It is important to remember however that the president has spoken against the plan. Domestic economic data has also been surprising to the upside in recent weeks,
" Deutsche Bank AG economists Robin Winkler and George Saravelos have calculated the amount of trade with the U.S. that countries stand to lose if they face a 20 percent penalty at the border. Mexico is the obvious biggest loser, but Canada and Asian manufacturing economies including Vietnam, Malaysia and Thailand would also be in line for a big hit."
"Here's a Glimpse of the Global Trade Carnage From a U.S. Border Tax" – Bloomberg
"Canada Manufacturing Sector Providing No Cure for Economic Ills" – Bloomberg
"One Tiny Widget's Dizzying Journey Shows Just How Critical Nafta Has Become" – Bloomberg
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I wrote about the loonie and despite the fact there was no real conclusion, I was happy with the results,
"I'm supposed to use all this data to predict the near-term course of the loonie, but there's no way I can do that. Not only would it require forecasting whether bond yields or the oil price will win the tug-of-war and take control over the domestic currency, it would also require a guess as to the effects of the latest random presidential utterance on the greenback."
"Canadian dollar caught in 'Trump trade' dilemma" – Barlow, Inside the Market
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Tweet of the day: "@NDR_Research Global #PMIs show strong start to 2017. Breadth improved. Forward-looking indicators point to momentum. bit.ly/2kv9Coj @AleGrindal " – (charts) Twitter
Diversion: "Matt Taibbi on Donald Trump's strange appeal: "He's what a lot of Americans would be if they had a billion dollars."" – Vox