Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD Securities senior macro strategist Robert Both sees “more bark than bite” in U.S. tariff threats,
“President Trump has opened another front in his trade wars by threatening a 25% tariff on all imports from Canada and Mexico in response to US concerns around border security. We believe this is a negotiating tactic to apply more leverage ahead of the USMCA renewal in 2026, but it should not be taken as an empty threat as the President has tools to impose new tariffs without congressional approval. The potential impact from new tariffs would be severe and unwind three decades of trade liberalization across North America. Canadian exports to the US account for 18% of GDP, but the growth headwind will be proportional to the impact on US demand and whether American firms can find substitutes for Canadian imports. We would also expect a proportional response from Canada with a 25% tariff on all US imports, and for the Bank of Canada to look through the impact on domestic inflation by cutting further into accommodative territory. FX: This type of trade rhetoric is exactly what we expected, underscoring the theme of disruption in the global trade order. While we do think Trump will come in hard and fast on trade early in 2025, we do think there is more bark than bite here, at least as it relates to Canada. Keep in mind that USD positioning and short-term valuations are quite stretched here so we’re not taking the bait. We remain bullish the USD, and expect USDCAD to visit 1.45 [US$0.6897] in early 2025, but do prefer to await better entry levels, especially as USDCAD high-frequency fair value sits at 1.38 [US$0.7246] .”
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BMO energy analyst Randy Ollenberger assesses the risk of U.S. tariffs on the sector,
“President-elect Donald Trump has stated that he intends to levy a 25% tariff on imports of all goods from Canada and Mexico. We do not believe that tariff’s will be applied to imports of Canadian oil and gas. This is because the U.S. needs those imports and cannot easily or economically replace them with domestic U.S. production, especially Canadian heavy oil imports. Indeed, we believe that Trump’s presidency could be positive for Canadian oil producers if he successfully resurrects the Keystone XL project and curtails Iranian crude oil exports … . The U.S. refining system is highly reliant on imports of Canadian heavy oil. Canada is the largest producer of heavy oil in the world and primary source of oil imports to the U.S., accounting for 61% of total oil imports. Heavy oil represents 75% of the oil that the U.S. imports from Canada, with the vast majority going to the U.S. Midwest PADD 2 market. The configuration of these refineries, web of pipeline connections, and the demand for asphalt means it would be virtually impossible to replace imports of Canadian heavy oil with alternative sources of supply”
Mr. Ollenberger has outperform ratings on MEG Energy Corp., Tourmaline Oil Corp., Suncor Energy Inc., ARC Resources Ltd., Imperial Oil Ltd., Canadian Natural Resources and Cenovus Energy Inc.
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BofA Securities’ Australia-based quantitative strategist Nigel Tupper released an update on his global wave model, which is one I watch closely,
“In aggregate, the Global Wave moved sideways last month as two weaker components were offset by four positive components. A peak signal is only triggered when the aggregate of all the data deteriorates by a quantitatively determined significant amount. In the past, a positive signal from the Global Wave was positive for global equity markets and cyclical global sectors including Financials, Tech, and Industrials. By global style, Risk and Momentum tend to perform best in an upturn, while Quality and Dividends tend to underperform. Four components improved, two moderated During the month, a lower Global Earnings Revision Ratio and weaker Industrial Confidence weighed on the Global Wave. In contrast, four components contributed positively including lower Unemployment, narrower Credit Spreads, stronger Consumer Confidence, and slightly higher Capacity Utilisation”
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Diversion: “Who Americans spend their time with, by age” – Marginal Revolution