Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Avery Shenfeld attempted to guess how high Canadian borrowing rates will go,
“Inflation isn’t quite as heated [as the U.S.], the GDP recovery has underperformed that of the US, and we’ll have lots of mortgages from 2020-21 coming up for resetting at higher rates towards mid-decade, all reasons why the BoC is unlikely to overshoot the neutral rate … As they begin a tightening cycle, central bankers don’t know with certainty where the neutral rate lies, but they know it when they see it. A slowing in the economy that threatens to take the economy away from a starting point of full employment, or a drop in inflation to below target, can be signposts that rates are above neutral… One important driver of the neutral rate, demographics, should be exerting some further downward pressure on the US neutral rate for this cycle … Structural changes in the economy lean the same way, towards a lower rate of interest needed to get the same capital spending. Today’s corporate giants are less likely to be capital-intensive steel mills or oil refineries … All of this suggests that the finish line for this tightening cycle in Canada likely lies in the 2.25-2.5% range.”
“Canadian rate hikes: Where’s the finish line?” – CIBC Economics
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Goldman Sachs chief U.S. equity strategist David Kostin described the differing views of hedge fund managers and household investors,
“Leveraged investors have participated in the current sell-off by aggressively reducing their equity exposure. Short covering by these participants helps to explain why some of the longest duration equities have recently risen sharply in the face of rising interest rates and a more hawkish Fed. In contrast, households have bought $93 billion in US equity funds year-to-date. Households will continue to deploy some of their $15 trillion in cash holdings into the equity market. Strong buyback activity and slower issuance will drive $700 billion in net demand from corporations. Geopolitical uncertainty will support positive demand for US equities from overseas investors. We forecast pension and mutual funds will be net sellers of $900 billion of equities.”
“Kostin: HFs delevering, households buying” – (research excerpt) Twitter
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BofA Securities European equity strategist Eric Lopez sees seven ways Russia’s invasion of the Ukraine has changed the global economy for the foreseeable future,
“Defence spending will increase significantly, in our view. We anticipate an additional EUR150-200bn per annum for the Industry … We now expect new regulation to coexist with ESG, as well as a more granular approach. Is “G” the new “E”? …Energy independence is the number one strategic priority. It will take a long time - we think longer than most anticipate … Energy transition is the enabler for Europe’s energy independence objective... It doesn’t come without challenges but it means more growth for renewables (wind and solar), hydrogen, electricity and gas infra, nuclear, biofuels, EVs and energy efficiency … Reshoring and security of supply is needed to be more independent…s ructural challenges for Europe to remain competitive. Higher gas and energy prices mean that high energy intensive industries could be priced out .. higher Inflation and interest rates for longer”
“BofA: 7 ways Russia’s invasion has changed the global economy for the foreseeable future” – (research excerpt) Twitter
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Diversion: “[Discussing] Will Smith’s slap with Jimmy Kimmel” – The Ringer (podcast on open Spotify)
Tweet of the Day:
“Estimated wheat export shortfall from Russian invasion: 7 million tons.
Sounds like a lot! Unless you look at total global production, which last year was 778 MILLION TONS. The war shortfall is 0.9% of the global wheat crop! Not 25%! " – Twitter
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