Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO economist Shelly Kaushik sees signs that higher rates are hitting Canadian households,
“Canada’s household debt-to-income ratio rose 2.8 ppts to 184.5 per cent in Q1 (seasonally adjusted), from an upwardly revised 181.7 per cent in the prior quarter and just off last year’s record highs. On an adjusted basis, disposable incomes fell as government transfers receded and interest costs rose, with both factors more than offsetting the gain in compensation. Meantime, borrowing rose at the slowest pace since 2003 aside from the pandemic blip. Growth in mortgage loans was the lowest in 20 years as the Bank of Canada hiked rates once in the quarter before pausing … The household debt service ratio (interest and principal as a share of disposable income) rose from 14.4 per cent to 14.9 per cent in Q1, the highest since 2019 and just a tick below the all-time high posted in 2007 … Key Takeaway: Lower disposable income led to a deterioration in household debt ratios in Q1 despite a slowdown in mortgage demand following the Bank of Canada’s aggressive rate hike campaign. Meantime, elevated interest rates are pushing debt service costs higher, which are poised to climb further in the coming quarters as the BoC raised policy rates again in June. That will likely act as a notable headwind on consumption and broader economic growth through the rest of this year and into 2024″
“BMO: “Higher Rates Hitting Households”” – (research excerpts) Twitter
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BofA Securities analyst Tal Liani expects more upside from these cybersecurity stocks,
“We recently conducted a cybersecurity survey where we asked security executives about budgets and spending conditions, vendor consolidation trends, competitive dynamics, and market share expectations across the industry. The results agree with discussions we recently held at our BofA Global Tech conference, namely the strength of security budgets, a growing desire for vendor consolidation, and we flag endpoint security, network security, and SaaS-based security as the three key priority spend areas. Small vendors still carry weight in this market, especially ones that offer differentiated solutions, however, we view cloud-based vendors at scale like Microsoft, CrowdStrike, Palo Alto Networks, and potentially Zscaler, as having the greatest likelihood of providing investors with the highest long-term value creation’
“BofA: More upside for cybersecurity stocks” – (research excerpt) Twitter
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Credit Suisse U.S. equity strategist Jonathan Golub sees rising purchasing power boosting consumption,
“Yesterday, the BLS reported a 0.2-per-cent increase in real hourly earnings, ending a 2-year period of negative readings. While real weekly earnings remained negative, they have been steadily improving since June 2022, and are expected to turn positive in coming months. These measures capture the spread between nominal incomes and consumer inflation, and reflect purchasing power. Coupled with a robust labor market, positive real wages should help fuel demand”
This argument holds but the Fed will also be aware of rising real wages and for them it’s a reason to hike rates.
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Morgan Stanley analyst Adam Jones suggests Tesla Inc. could dominate what replaces gas station networks,
“Today’s gas stations pay a market price for their petroleum supply. What if Tesla ‘made’ its own electricity at a near zero marginal cost (and stable), stored on site with stationary batteries? It’s not hard to see logic of achieving dominance in the ‘filling station’ of the future … We think the consideration of Tesla supercharging stations should be seen in concert with the company’s vertically integrated capabilities in renewable energy and storage at scale. This is where things can get very interesting… EVs account for 7 per cent of new car sales in the U.S. year-to-date. By 2030, we estimate that US EV penetration will hit 25 per cent. By 2040 we forecast 75-per-cent penetration.”
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Diversion: “Google Claims Its AI Can Guess How a Shirt Will Fit on Every Body Type” – Gizmodo
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