Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities analyst Ben Rangol is among the few who believe the Canadian dollar will trade lower through the remainder of 2020,
“CAD has recovered over the last 6 months on the back of surging global risk appetite amid a recovery in oil, which softened Canada’s terms-of-trade shock. CAD being a highly cyclical currency, it has benefitted from rising expectations of a v-shaped recovery and global reflation prospects. But at levels near 1.30 [CADUSD of 0.75], risk premium has compressed too much, in our view. Restoration proportional to an uncertain global risk backdrop should see USD/CAD trade closer to 1.40 [CADUSD of 0.71] … Canada’s external financing risks are increasing. After the debt inflow surge in 1H triggered by BoC QE, portfolio flows have reversed amid twin deficits in the current account and net direct investment. Given a backdrop of precarious structural supply/demand dynamics, lack of capital flow financing increases the risk of discontinuous CAD adjustment”
“@SBarlow_ROB BoA: CAD to fall through rest of year” – (research excerpt) Twitter
Morgan Stanley is sticking by its view of a V-shaped global economic recovery and is subsequently bullish metals and mining stocks.
Two domestic stocks are included in the research team’s top five global picks in the sector (my emphasis),
“Copper set to be the winner from a reflation cycle. The metal’s tight supply-demand fundamentals, low inventory levels, and strong price response to previous reflation cycles point to a positive pricing dynamic as inflation expectations continue to rise. As such, we are forecasting prices to push higher through next year to US$3.50/lb by 4Q21 (2021 average of US$3.36/lb) in our base case … In our bull case, prices could rise as high as US$4/lb on average next year. Copper equities are pricing in a long-term copper price range of US$2-3/lb. Top 5 picks across the globe: within our global commodity equity coverage we favor First Quantum, Freeport, Glencore, China Moly H and Lundin Mining. “
” @SBarlow_ROB MS: 2 Canadian stocks among top 5 global mining picks” – (research excerpt) Twitter
Contrary to Morgan Stanley, Citi economists remain skeptical about the prospects for a quick recovery from the pandemic (my emphasis),
“The three elements of the Leading Indicator of Global Growth—sentiment, financial conditions, and real activity data—capture key factors underlying prospects. Financial conditions have improved and are looking up, but details below the aggregate are less sanguine. Currency appreciation, credit quality, and cross-asset volatility are all concerning. The real activity indicator is weak and improvement has stalled … The rebound from the depths of the COVID shock continues, but the prospects for recovery in levels of GDP has deteriorated since July (the last full forecast round). Whereas the arithmetic of month-to-month data essentially guarantees robust growth rates, the positive pace is moderating with growth in industrial production stalling and retail sales acceleration a faulty signal for recovery. The projected level of GDP struggles to attain the pre-COVID level of GDP in 2021. … Prospects for industrial production are moderating even as most countries still in contraction. For industrial production, the high frequency presentation of the data shows the pattern dominated by China slowing down and rebounding earlier than the rest of the world. However, the y/y presentation through the July data (Figure 11) show a moderating of the pace of growth in the last observations, and that the growth rebound has fallen far short of even positive territory.
Newsletter: “Twenty tech stocks set for outsized profit growth” – Globe Investor
Diversion: “We’re not ready for AI, says the winner of a new $1m AI prize” – M.I.T. Technology Review
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