Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Candace Browning Platt, BofA Securities head of global research, summarizes the firm’s strategy reports and concludes that mild upside is the market’s path of least resistance but risks are rising.
“A reassessment of the three key drivers of equity markets – growth, liquidity, and sentiment/technicals – suggests there is still room for a mild upside in the short run, despite an intensification of the risks… Central banks are a key driver of equity markets. Just as expansionary policy has been instrumental in driving the bull run, policy normalization (particularly in the face of a potential slowdown in growth) will be negative for markets … the G-4 central banks’ balance sheet (Fed | ECB | BoJ | PBoC), which has a correlation of 0.96 with global equities since the Global Financial Crisis, is poised to contract post March 2022 by our projections, resulting in a headwind for equity prices … The breadth of our 41 proprietary growth indicators flagging a Bullish or Neutral signal has held up at high levels since peaking in May 2021. But the latest developments suggest that an inflection is imminent. The prior stance of central banks, which tends to lead the global business cycle, suggests an impending slowdown going into the first quarter of 2022.”
“Summary of global market indicators from BofA head of global research Candace Browning Platt” – (research excerpt) Twitter
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National Bank economist Stéfane Marion notes that Canada has the fastest growing population in the G7.
“According to data released earlier this week by the U.S. Census Bureau, the U.S. population grew by less than 393,000, or 0.1 percent in 2021. This growth rate, the lowest since the nation’s founding, is largely attributable to a decrease in net international migration, which fell to only 247,000. This is a noteworthy drop from the decade’s peak of 1 million in 2016. The situation in Canada could not be more different. According to Statistics Canada, our country welcomed 123,000 new immigrants in just the third quarter of this year, the highest number for any quarter since 1946. Our statistical agency estimates that our country’s population will increase in excess of 403,000 in 2021 (or 1%)… Canada now has the fastest growing population in the G7, surpassing the United States for the first time ever. This is quite a feat for a nation of less than 40 million people.”
“NBF: “Canada now has the fastest growing population in the G7″” – (research excerpt, chart) Twitter
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The Financial Times details a difficult year for bond markets.
“Global bond markets are on course for their worst year since 1999 … The Barclays global aggregate bond index — a broad benchmark of $68 trillion of sovereign and corporate debt — has delivered a negative return of 4.8 per cent so far in 2021… “We shouldn’t be too surprised that bonds are a bad investment when inflation is running at 6 per cent,” said James Athey, a portfolio manager at Aberdeen Standard Investments. “The bad news for bond investors is that next year looks tricky too. We have the potential for a further shock if central banks move quicker than expected, and I don’t think [riskier bonds] are particularly attractively priced.””
My concern here is that further weakness in fixed income markets could cause more intense selling of related ETFs where, in a lot of cases, the underlying holdings aren’t very liquid.
“Global bond markets on course for worst year since 1999″ – Financial Times (paywall)
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Diversion: The 50 Best Podcasts of 2021 – The Atlantic
Tweet of the Day: " COMMODITY INFLATION: The New Year is going to bring lots of price increases as retailers update their prices. The trend is already underway. Take a look at the support Twitter handle of some of the bigger brands (for example, IKEA UK below), and you will see lots of cases” – Twitter
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