Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Sal Guatieri detrained the ongoing investment drought in Canada,
“While the population and government spending have ramped higher to year-end 2023 (by 7 per cent and 11 per cent), consumer spending has slowed to a crawl in response to rising interest rates. The real laggard, however, is business spending on commercial structures, machinery and equipment, which is now 4% below pre-pandemic levels. That’s NOT a recipe for rising productivity, employment and living standards. Canadian entrepreneurs are also shying away from starting businesses. After rebounding strongly after the shutdowns, the number of active businesses slowed to a 0.4-per-cent year-over-year rate to November 2023, about half the normal pace in the three years before the pandemic. The figure is just 3 per cent above pre-pandemic levels. New businesses are the lifeblood of new jobs. Without them, unemployment will track upwards as a growing population finds itself increasingly out of work”
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Scotiabank strategist Hugo Ste-Marie noted the extent of the dominance of the U.S. economy and equities in the current market backdrop,
“Not only is the U.S. the only major country enjoying positive GDP revisions for 2024, but it’s also expected to display much stronger growth than its peers. Take Canada for instance, economic activity will expand in 2024, but revisions have been mostly downward recently, and growth will be much more tepid (at around 0.6 per cent based on consensus) as the economy appears much more sensitive to interest rate hikes… superior US economic momentum has translated in to superior earnings momentum, with the S&P 500 12-month forward EPS rising at a much faster clip than its peers over the past few months … some investors are seeing January US inflation numbers as a speed bump in a broader downtrend, we would argue that we have not seen much inflation progress lately. US headline inflation (CPI) stands at 3.1 per cent year-over-year, but it was 3.0 per cent year-over-year in June 2023, which was seven months ago. The core sticky CPI measures for the Atlanta Fed continue to run above 4 per cent over shorter time frames”
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Japanese equity markets have performed well of late, rising 32.7 per cent in the past 12 months in Canadian dollar terms and finally eclipsing the 1989 market peak. Citi analyst Ryota Sakagami believes the rally has further to go,
“The rally in Japan equities that began at the start of the year has continued, with the Nikkei 225 reaching an all-time high. Given the current environment in which Japan equities find themselves, with 1) the U.S. economy and the U.S. equity market firm, 2) the BoJ increasingly likely to maintain its accommodative monetary policy, and 3) the strength of the flow of funds into Japan equities, we think the maintenance of a bullish stance is warranted. We set the following targets: 45,000 [current 40,097] for the Nikkei and 3,100 [2720] for TOPIX. That said, we expect the rally that has seen the indexes ascend sharply of late to take a break for a while, with the Nikkei topping out at just over 40,500 and likely to stay rangebound for the time being”
Citi’s top analyst picks in the country are Yokohama Rubber, Mitsubishi UFJ, Sugi Holdings, Daichi Sankyo, Shin-Etsu Chemical, Mitsui Fudosan, Ibiden, Mitsubishi Electric, Fujifilm Holdings, Bandai Namco Holdings, Softbank Corp. and Mitsubishi Heavy Industries.
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Diversion: “I spend £8,500 a year to live on a train” – Metro UK