Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO bank analyst Sohrab Movahedi provided a look ahead to Canadian bank earnings,
“For the “Big 5″ (excl. Not Rated/Restricted BMO), cash earnings are expected to be down 3% y/y, primarily owing to higher y/y provision levels of $1.7B. Credit will take the center stage again this quarter, with our estimates forecasting a PCL ratio of 22bps, up from a net recovery position of (2)bps last year, reflective of persistently robust loan growth and rising recession worries … We are looking for 7% pre-tax pre-provision earnings growth (led by TD), with spread income expected to deliver double-digit growth on the back of solid loan growth and margin expansion … Market sensitive segments (namely Capital Markets) are expected to be underperformers this quarter (industry-wide headwind of lower activity); we forecast resilient earnings growth in Personal and Commercial Banking (margin tailwinds and volume growth). CM, NA, and CWB shares are rated Outperform”
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BofA strategist Michael Hartnett’s weekly Flow Show report has become a must read for its bullet point bearishness,
“US 2s10s yield curve most inverted since Feb’82; inversion best lead indicator of recession past 50 years, but steepening best indicator recession has begun & “pivot” imminent; neither happening until historic low unemployment rates surge … recession coming … US pending home sales down 30 per cent year-over-year, lumber -70% from Mar’22 peak, global freight rates -75% from ‘21 peak, US PPI negative -0.8% … we say fade SPX >41k + hot Nov payrolls ends it … Rates shock so damaging to Wall St asset values in ‘22, but there’s been no rates shock on Main St; and Wall St beliefs (1. “Fed always blinks”, 2. “Stocks always go up”, 3. “Tech always leads stocks up”) challenged but by no means vanquished in ‘22;”
“BofA’s Hartnett .... still bearish” – (research excerpt) Twitter
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Scotiabank strategist Simone Arel finds reason for concern in the U.S. economic data,
“Our ISM activity tracker, which is based on regional surveys, points to a flattish ISM print in November for now. Again, that is a preliminary assessment based on surveys released so far. Still, the continued deterioration in our 6-month outlook component is more worrisome. It currently stands at 48 versus 49 [a reading of 50 indicates no change in month over month activity] a month ago and 56 in September.
Furthermore, digging into our tracker’s sub-components show that New Orders fell deeper into contraction territory. That’s a bad omen as further deterioration in new orders should lead to (1) Production coming down over time and (2) businesses eventually laying off employees (if new orders refuses to improve). Overall, we believe the ISM manufacturing will be heading below the 50 threshold in coming months, dragging earnings growth expectations with it.”
“‘Worrisome trends’ in U.S. data (Scotiabank)” – (research excerpt) Twitter
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Diversion: “For Alzheimer’s Scientists, the Amyloid Debate Has No Easy Answers” – Wired
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