BMO senior economist surveys the commercial REIT sectors

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

BMO senior economist Sal Guatieri surveyed the commercial real estate market,

“After rebounding from the pandemic, the industrial segment has returned to more normal activity. Factories and warehouses that were poised to strengthen on cheaper credit and a low-valued currency must now confront a temporary downturn in exports. The multi-family residential market was recovering on lower mortgage rates, but the trade war has paralyzed buyers. A saturated condo market in the Greater Toronto Area will take time to clear, especially with aggressive immigration curbs. However, the market should recover next year as the economy improves. The retail property market was gaining traction prior to the trade war but is now expected to regress as the jobless rate rises. With more companies requiring in-person work, the office segment was starting to heal. Vacancy rates were steadying, albeit at sky-high levels. But expected layoffs and business losses will delay the recovery … Among all segments, industrial is the most vulnerable to trade protectionism. Many industries —such as steel, aluminum, chemicals, machinery, and computers—derive over half their revenue from U.S. sales, with motor vehicles exceeding 90%”

Read the full report here

***

OPEC nations leave voluntary production cuts behind, putting downward pressure on crude proices as BMO oil analyst Randy Ollenberger reports,

“An 8-member subset of the OPEC+ group has agreed to again pull forward unwinding its voluntary production cuts and increase production by 411,000 b/d for June. This follows a similar announcement in April to increase production by 411,000 b/d in May. While the move was arguably expected by the market, we expect the higher levels of production will continue to exert downward pressure on crude oil prices given the uncertain demand outlook and precarious state of the global oil market. The North American oil and gas industry is much better positioned to withstand lower crude oil prices versus previous downturns due to the combination of significantly stronger balance sheets and relatively low breakeven oil prices. Indeed, the Canadian Large Caps can continue to generate surplus free cash flow down to WTI prices of US$50/bbl and in some cases even lower”

Mr. Ollenberger has outperform ratings on Imperial Oil Ltd., ARC Resources LTD., Canadian Natural Resources, Suncor Energy Inc., Peyto Exploration and Development Corp., MEG Energy Corp., Tourmaline Oil Corp. and Cenovus Energy Inc.

***

Goldman Sachs analysts see a sharp slowdown in U.S. trade with Asia but little change in China’s position as the world’s dominant manufacturer,

“Given the recent imposition of US import tariffs, the trade disruption that’s imminent is beyond what was seen during President Donald Trump’s first term … The earlier round of tariffs on China had prompted the rerouting of goods through other countries such as Vietnam or Mexico. This is likely to happen again … In the same way that previous tariffs didn’t shift the center of gravity away from Asia, the US is likely to remain highly dependent on Chinese and Asian trade for a long time. Creuset’s team points out that China’s manufacturing workforce is approximately five times as large as those in the US, Mexico, and Canada combined”

“How global trade is shifting amid rising US tariffs” – Goldman Sachs

***

Bluesky post of the day:

Diversion: “What You Learned About Cell Division Is Probably Wrong” – Gizmodo