Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski offered four major takeaways from the second quarter of Canadian earnings reports so far,
“With 85 per cent of Canadian companies out with their results, second-quarter earnings are posting a solid 3.8-per-cent positive surprise on average. However, if Energy is excluded, the S&P/TSX is exceeding expectations by a much stronger 6 per cent on average … Here are four key takeaways from second-quarter earnings so far: 1. Stay Selective: Earnings dispersion remains wide, suggesting investors should remain highly selective. 2. Cyclicals Tailwind Intact … although momentum is fading for Technology: Cyclicals continue to beat estimates at a double-digit pace on average and are demonstrating net positive revisions to 2023 EPS estimates. However, the breadth of technology companies exhibiting positive revisions to annual estimates has started to decelerate. 3. Resource Sectors Continue to Struggle to Meet Expectations: Energy companies are barely beating downwardly revised estimates, albeit on the positive side the breadth of companies seeing positive revisions to 2023 EPS estimates is starting to improve. Meanwhile, the Materials continue to struggle to meet downwardly revised estimates. 4. Risks to 2023 EPS Target Driven by the Big 3 Sectors: Bottom-up 2023 EPS estimates are now 5 per cent below our 2023 EPS target. Since the end of the last quarter, the downward revisions to S&P/TSX EPS have been entirely driven by Energy and Materials, while all the other sectors have seen stable and improving EPS estimates”
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Citi analyst Ephrem Ravi cut his supply forecasts for copper but doesn’t expect this to support the commodity price in the near term,
“We forecast a weaker 1.8-per-cent rise in global copper mine output in 2023 with 4.4-per-cent growth in 2024 and 3.0% in 2025 — These softer, post-disruption, near-term mine output projections mainly result from our adjustments for lower revised guidance reported by 22 listed companies and other leading unlisted producers. We forecast total 2023 copper mine production of 22.2 Mt, down 310 kt from our prior 22.5 Mt estimate. Our revised 2024 projection is 23.2 Mt, down 154 kt from 23.3 Mt previously. We see 2025 output effectively unchanged at 23.9 Mt… We remain bearish copper near-term despite evidence of mine output constraints — Copper prices have declined 7 per cent so far in August, erasing July’s gains. Fading China stimulus optimism combined with disappointing domestic economic indicators and credit data have been key factors, alongside a synchronous recovery in US dollar strength following mid-July weakness. We remain cautious on prices due to a further anticipated deterioration in developed market demand and sluggish China growth over the next 6-9 months”
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In a separate BMO report, Canadian rates and macro strategist Benjamin Reitzes reports that housing construction is likely better than housing starts data indicates,
“Much of the sound and fury around insufficient home building in Canada focuses on housing starts, and how they were higher in the 1970s. A deeper dive into the data shows a slightly different picture. Housing completions (which reflects real-time supply) are running just shy of the fastest pace on record (March 2022), and have been consistently strong since mid-2021. Unfortunately, that’s still insufficient to accommodate current trends in population growth. It’s not that builders aren’t trying to keep up though, with a record number of units under construction (340k). To put that in perspective, that is around double 2015 levels. Despite all the criticism lobbed at the sector, home building is running at the fastest pace on record, suggesting there may not be much room to more rapidly increase supply. Maybe it’s time to give more thought on what role demand is playing in this drama?”
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Diversion: “Bank of Ireland ATM Glitch Hands Out ‘Free’ Money” – Gizmodo
Scott Barlow