Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD Securities macro strategist Robert Both predicts that public sector labour action will cause slower GDP growth.
“We expect the Public Sector Alliance of Canada (PSAC) strike to weigh on Q2 GDP after 155k federal employees walked off their job on April 19th in one of the largest disputes in recent history. Labour disputes are not captured in headline employment, so this will not affect Labour Force Survey job growth in April (or hours worked, given the timing of the reference week). However, it should have a much larger impact on GDP. We estimate a 0.1-0.2pp drag on monthly GDP for every week the dispute persists. A longer timeline for resolution would also introduce larger spillovers to other sectors.
This dispute will ultimately be revolved via negotiations or return-to-work legislation. The latter appears unlikely, especially with the federal government’s minority status, but a large settlement would also carry some risk for wage/inflation expectations. The BoC has already warned that current levels of wage growth are inconsistent with a return to 2% inflation”
“TD: Public sector labour action a drag on GDP growth” – (research excerpt) Twitter
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BofA Securities quantitative strategist Nigel Tupper warned clients of global earnings deterioration as the earnings revision ratio – the ratio of profit guidance raises to cuts – continues to fall,
“The Global Earnings Revision Ratio fell from 0.79 to 0.66 in April as uncertainty continues regarding the rate of disinflation and the extent of potential policy response. Earnings downgrades now outnumber upgrades in all regions and all global sectors. Similarly, the Global Sales Revision Ratio fell from 0.94 to 0.82 during the month as top line estimates softened in all regions and most global sectors. A falling Global Earnings Revision Ratio could weigh on equity returns and delay any significant cyclical rotation … Globally, the Ratio is below 1.00 for all sectors. The Energy sector had one of the highest Ratios throughout 2021 and 2022, but now has the lowest Ratio (0.42) among all global sectors. The Ratio is also low for Tech Hardware (0.42) and Media (0.53). In contrast, the Ratio is highest for Industrials (0.82)”
“BofA: Global earnings guidance continues to deteriorate” – (research excerpt) Twitter
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PIMCO economist Vinayak Seshasayee and Allison Boxe predict that the Bank of Canada will soon begin to cut interest rates.
“We continue to believe that the inflation picture looks less worrying in Canada relative to other developed market economies, and that the BOC has made more progress toward achieving its inflation objective than other DM central banks. On a three‐month annualized basis through March 2023, core CPI is running at 3.1% in Canada, 10 basis points (bps) above the top of the BOC target range, versus U.S. core CPI at 5.1%, well above the Federal Reserve’s (Fed) target of 2% … Looking ahead, we expect the BOC to remain on hold as global spillovers and the lagged effects of tightening continue to weigh on the Canadian economy. Further out, we expect both the Fed and the BOC to begin easing around the same time, perhaps toward the fourth quarter of 2022″.
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Morgan Stanley analyst Rahul Anand sees weakness ahead for lithium prices in the short term but an eventual strong economy.
“While the Chinese market appears in surplus right now, we still see a deficit market for 2023. As de-stocking continues for now – China’s EV battery inventories are about 150GWh; three months of supply on last year’s volume – there is likely still further downside. When demand growth resumes – even if at a much softer pace than in 2022 – and near-term supply is con[1]strained, we see the China spot price stabilising at US$25k/t by 3Q22…
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Diversion: “America’s Death Trap” – The Atlantic
Tweet of the Day: “Quants have bought more than $170 billion of global equities in the past month. “The buyers are out of ammo,” Goldman warns” – Twitter