Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Art Woo asked Will Canadian Energy Get Drilled? ,
“Although it makes no logical sense from a U.S. economic perspective to tax Canadian energy, it could occur. Tariffs would be a blow to Canadian energy, but not catastrophic. However, if Canada were to respond by restricting or halting crude oil exports to the U.S., that would be a completely different story … The majority of U.S. refineries are more reliant on heavier, cheaper grades of crude oil to produce motor gasoline and diesel than the lighter grades that the country largely extracts itself. Thus, U.S. refineries have historically needed to import heavier crude from the likes of Canada, Mexico and even Venezuela. Meanwhile, U.S. drillers have in turn exported their lighter grades overseas. This rather unique production/ refining structure in the U.S. explains why Canadian officials are contemplating the nuclear option of restricting crude oil exports. It also explains why many energy analysts are of the view that Trump may opt to exempt crude oil if he does indeed follow through on hitting Canada with 25-per-cent tariffs. Nonetheless, if Canadian producers are hit by a 25-per-cent levy, it seems quite likely that they will have to absorb a (significant) portion of the tariff as opposed to passing it on to U.S. refineries and consumers. This is because many U.S. refiners, particularly those located along the coasts (Gulf Coast, West Coast and East Coast), will likely attempt to source alternative supply from overseas. This would force Canadian producers to adjust downward their prices”
“Will Canadian Energy Get Drilled – BMO Economics
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Scotiabank strategist Jean-Michel Gauthier detailed significant changes to the TSX Dividend Aristocrats TXDV-I index,
“S&P Dow Jones Indices announced its annual changes to the TSX Dividend Aristocrats Index last Friday after the close. All changes will take effect after market close on Friday, January 31. Adds: GEI [ Gibson Energy] (+0.8M shares, 0.8x ADV [ average daily volume]), ALA [AltaGas Ltd.] (+0.3M shares, 0.3x ADV), EFN [Element Fleet Management] (+0.2M shares, 0.2x ADV), TA [Transalta Corp.] (+0.2M shares, 0.03x ADV)
“Deletes: CF (-1.6M shares, 11x ADV), AEM [Agnico Eagle Mines] (-0.1M shares, 0.04x ADV), PAAS [Pan American Silver] (-0.4M shares, 0.1x ADV), CAS [Cascades Inc.] (-0.7M shares, 1.9x ADV), ABX [Barrick Gold Corp.] (-0.3M shares, 0.01x ADV) Major Flows: Watch out for ARE [Aecon Group] (-0.8M shares, 1.6x ADV), MI-U [Minto Apartment REIT] (+0.4M shares, 1.6x ADV), ENGH [Enghouse Systems] (+0.2M shares, 1.4x ADV).
“Names with positive flows and a net liquidity need greater than 0.5x ADV have lagged the index recently, and could thus experience more positive price performance as we approach the rebalance date”
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AI-related U.S. stocks are set to open sharply lower after a demonstration of China’s Deepseek which might represent a cheaper, more efficient mousetrap, as Jefferies analyst Edison Lee described in an early Monday research report,
“The market naturally will worry about demand growth in computing power. We have been highlighting our concern about AI’s ROI, as the massive investment in GPUs (eg, just NVDA’s 2024 GPU rev could > US$200bn) has generated little return. We have seen model improvement (at a high cost), but no concrete examples of AI monetization that could justify the investments. We believe DS’s [ Deepseek’s] success could drive two possible industry strategies: 1) still pursue more computing power to drive even faster model improvements, and 2) refocus on efficiency and ROI, meaning lower demand for computing power as of 2026. With a generous capital market, overseas AI companies have been going after model improvement at all costs. But DS could prompt investors to ask hard questions about these computing power investments. Therefore, US AI players' mgt could be under more pressure to justify further raising AI capex in 2026. The AI supply chain (ie, GPU, server ODMs, PCB, liquid cooling) is highly vulnerable to a de-rating”
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Diversion: “Would You Stand in Line to Sniff the World’s Most Disgusting Flower?” – Gizmodo