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business briefing

Briefing highlights

  • The ‘Canadian Eeyore trade’
  • Theresa May’s lyrics
  • Markets at a glance
  • BCE signals succession plan
  • CP forecasts top estimates
  • Danske Bank faces U.S. probe

Brian Belski calls it “the Canadian ‘Eeyore’ trade,” whereby Toronto-listed stocks are such a downer.

But Bank of Montreal’s chief investment strategist still expects Tigger to bound in any day now, and bring the S&P/TSX Composite Index up to 17,600 this year.

“According to our models, Canadian fundamentals are the strongest they have been in several years,” Mr. Belski said.

“For instance, earnings are consistently exceeding expectations and hitting new all-time highs, profitability is near peak levels, and estimates have been getting revised higher month after month,” he added in his latest outlook.

“However, the Canadian ‘Eeyore’ trade remains in full effect as the TSX hangs in limbo, with fears surrounding slowing emerging markets, widening Canadian oil price spreads and trade issues all weighing on TSX performance.”

Mr. Belski’s study came before Canada struck its new trade deal with the U.S., but that hasn’t changed his view that “Eeyore is alive and well,” he said.

The BMO strategist’s base-case scenario is for the TSX to hit 17,600. That’s still doable as “many of these fears fade in the fourth quarter and multiples begin to normalize,” he said.

He based that on the fact that “earnings trends support fourth-quarter multiple expansion, not the current contraction,” that a better than 8-per-cent rally in the last three months of the year is “not uncommon,” and that seasonal trends support such a pickup.

His bull case, by the way, would put the TSX at 19,000, which isn’t likely at this point as emerging markets and commodity prices slow.

His bear case, in turn, would see 14,500 should emerging markets and China stall out and U.S. stimulus initiatives “hit stumbling blocks.”

Just look at the latest “attractiveness score” rankings from Citigroup’s Chris Montagu, global head of quantitative research, and his colleagues.

“This month’s top-ranking countries are Italy, United States, Korea, Sweden and Hong Kong,” they said.

“Our model’s bottom five country picks are Canada, Spain, Brazil, Mexico and Malaysia.”

Which means Canada’s at the very bottom:

Note, too, the gap between the record-breaking Dow Jones industrial average and the lagging TSX.

That gap was also at a record as of late Tuesday, BMO chief economist Douglas Porter pointed out.

“The Dow is now almost 11,000 points clear of the TSX, and the ratio is now above 1.67 to 1,” Mr. Porter said.

“That may not sound all that astonishing, but to put it in some perspective, the Dow and the TSX were basically in line with each other as recently as seven years ago,” he added.

“And, comparing these indexes back almost 100 years, the TSX has, on average, been a bit higher than the Dow. (At one point in early 1980, the Dow was at less than 40 per cent of the TSX level - it’s been a bad four decades for the TSX, relatively.)”

That’s where things stand even after the “relief” from the new trade deal and even as some crude prices scale four-year highs.

“The performance gulf speaks more to the specific make-up of the TSX, as well as nagging competitiveness issues in Canada - which were not solved by the USMCA,” Mr. Porter said.

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The dancing queen

It takes some guts for a world leader to dance onto a stage when the world’s watching to see how you take on your critics.

To ABBA’s Dancing Queen, no less.

British Prime Minister Theresa May did just that Wednesday, making fun of herself after the snickers at her dancing on a recent trip.

British Prime Minister Theresa May dances onto the stage to deliver her leader's speech during the final day of the Conservative Party Conference, Oct. 3, 2018 in Birmingham, England.Anthony Devlin/Getty Images

Here’s the thing, though. She danced to these ABBA lyrics …

Ooh, see that girl Watch that scene

Digging the dancing queen

… when she should have been dancing to these:

Gonna do my very best

Baby, can’t you see

Gotta put me to the test

Take a chance on me

Take a chance, take a chance, take a chance on me

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Markets at a glance

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