Barlow’s Research Roundup: Top picks in Canadian technology and the real problem with tariffs

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Tariffs and business confidence

BMO senior economist Robert Kavcic discussed the deflating effects of new tariffs on business investment,

“The latest round of tariffs announced by the White House on Canada risks damaging business confidence further, and for longer. While it remains to be seen over the next 30 days if these new 50-per-cent tariffs will actually be put in place, the fact that they target goods currently covered under the existing trade agreement is not a good precedent. Even if a new trade agreement is reached, will it be binding in the minds of businesses? The disappointment here is that the economy had been showing signs of moving on from the initial tariffs shocks relatively well. Business investment in Canada just posted a strong two quarters, and survey results pointed to firmness ahead. Even on the trade front, exports to the U.S. have bounced back—granted much of that is price effects, but it has been spread across a number of sectors. One thing is pretty clear—the market is mostly brushing this off for now. The Loonie is modestly weaker, and the market is still pricing in about 50/50 odds of a BoC rate hike by December"

Tech picks

RBC Capital Markets analyst Paul Treiber provided top picks in Canadian technology ahead of earnings reports,

“Our view: We are previewing calendar Q2 earnings for 12 stocks in our coverage universe. The S&P/TSX Info-Tech sub-sector rose 6 per cent in Q2, but remains the worst performing sub-sector in the S&P/TSX year to-date, due to the sustained downward valuation re-rating of software stocks on concerns regarding AI disruption. While we expect Q2 results to be largely in line with consensus and believe the magnitude of the pullback in software valuations is an overreaction, we believe sentiment is unlikely to materially change in the short term. Among our covered stocks, we believe the best-positioned stocks for calendar Q2 results are Celestica, Shopify, Kinaxis, and Constellation”.

CAD is a funding currency

BofA Securities FX strategist Alex Cohen is recommending clients to sell the loonie to buy the Japanese yen,

“We still see further USD upside from here, but last week’s soft-ish US data has dampened enthusiasm after its post-FOMC run. With carry trades [selling low rate national bonds to buy higher yielding or appreciating national bonds] gaining in popularity in low market vol, we look for opportunities in G10 crosses where underlying economics might be masked in pairs that are not simply pure-play carry trades. This week’s G10 (ex-US) economic data provides a solid foundation to identify these relative nuances. Our bearish CAD view was enhanced by Monday’s soft inflation data and ratcheting up of trade uncertainty. We prefer to use CAD to fund our out-of consensus bullish JPY view, based on changing flow dynamics and backstopped by potential intervention/pension reallocation”

Mr. Cohen’s model uses carry (three-month bond yield) divided by volatility in a similar way that equity investors use risk adjusted returns.

Bluesky post of the day

Diversion

“‘RoboCop’ Is Officially Making His Return, Thanks to Amazon” - Gizmodo