Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski is even more bullish on Canadian equities after the first rate cut,
“Mid-Year Cuts Portend to a Catapult. With inflationary trends easing over the last several quarters, the Bank of Canada “proactively” entered the easing cycle on June 5. From our perspective, these more proactive easing cycles can be a strong positive catalyst for TSX performance, especially given the more tepid Canadian performance we have seen so far this year. While the pace of the easing cycle is certainly going to be data dependent, the trend is clear, with historical easing cycles lasting up to a year with nearly 200 bps of cuts on average. Furthermore, our analysis shows that these cycles can be divided into proactive “non-recession” easing cycles (1996, 1998, 2003, and 2015) versus more reactive “recession” easing cycles (2001, 2007, 2020). In fact, these two types of easing cycles show two clearly divergent performance paths for the S&P/TSX. In the more “proactive” periods like the current easing cycle, our work shows the TSX typically posting solid gains six months and 12 months after the first rate cut. This is in clear contrast to the more “reactive” easing cycles where the TSX typically sharply underperforms. Indeed, our work shows the first cut can be a clear inflection point as the market is typically soft heading into the first cut. As such, we believe the Bank of Canada proactively entering the easing cycle early could be a clear catalyst for our long-awaited Canadian “Catch-Up” trade”
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Scotiabank analyst Robert Hope outlined his top picks in a renewable power sector gaining momentum,
“OUR TAKE: Positive. We revisit renewable valuations following a series of positive news announcements in the sector, which has shifted sentiment for the group more positive and resulted in recent strong share price returns. Overall, the sector is seeing tailwinds from a more visible growth outlook driven by increasing power demand, the stabilization of interest rates, and improving supply chains. We increase our target prices by a median of 8% as we move up our target EV / EBITDA multiples by a median of ~0.2x to reflect a more visible growth profile. Even with this increase, we note that our target valuations remain well below the 5-year average and could continue to be conservative if fund flows into the sector accelerate. Our favourite renewable power names remain BEP, INE, and BLX. Given its size, liquidity, and strong growth profile, we believe BEP should be a go-to name for investors in the renewable space. Based on our conversations, it appears that the rate of change of sentiment is most positive for INE following its dividend cut and renewed capital allocation framework outlined this spring”
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Citi commodity strategist Max Layton is not optimistic about oil prices,
“It has been a spectacular year for some commodities, with copper, gold, and cocoa all reaching fresh all-time highs, not to mention benchmark gas prices rallying 25-60% over the past three months. The price moves have reflected different drivers, though the themes underpinning recent volatility are set to remain intact for years to come. Meanwhile, oil prices have been rangebound, with oil volatility trading near 10-year lows, and we expect this to continue through the 3Q’24. Our 0-3 mth forecast for Brent is $82/bbl, before prices head lower during 4Q and into 2025 when we expect them to settle at $60/bbl. We see the ongoing consolidation in copper and gold/silver as a buying opportunity. Our base case is for copper to reach new all-time highs of $12,000/t by around the turn of the year (+>20%), and gold reaching as high as $3,000/oz over the next 12 months (+>30%). We also highlight our new regime-independent gold price framework which we introduce in this note”
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Diversion: “What Do Dogs Know About Us? Man’s best friend is surprisingly skilled at getting inside your head” – The Atlantic