Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Macquarie economist David Doyle has been among the more bearish forecasters on the domestic economy, but, even so, his prediction of a 65-cent (U.S.) loonie and the end of the domestic credit cycle are still disquieting.
In his most recent published presentation, Mr. Doyle noted that the Bank of Canada and the Federal Reserve are "desynchronized" – tightening monetary policy in the U.S. and maintaining loose policy here – which will pressure the domestic currency.
Mr. Doyle used three charts to argue that lending-based economic expansion has "limited ability to extend further" as households are increasingly indebted and will demand less credit.
"@SBarlow_ROB Yikes. Macquarie sees USDCAD $1.53 (0.65) in 17/18. "Limited ability for cycle to expand further" – (charts, research excerpt) Twitter
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The term "Trump Trade" has been tossed around extensively in recent months to describe the post-election rally in economically sensitive market sectors and the sell-off in fixed income. Goldman Sachs published a report Monday that details exactly which market sectors are involved, and how performance will play out in the months ahead,
"The election of Donald Trump as US President in November 2016, initially were associated with a number of so-called 'Trump trades' doing well. For example, short EM, long USD, short duration, long inflation, long financials v. staples, long value v. growth and long cyclicals v. defensives all did will immediately following the election. This was associated with one of the highest levels of risk appetite since 1990 being reached in mid-December … From here we expect many of those same trends to slowly continue. Our rates strategists recently reiterated our view of further upside to Euro area and US inflation … we continue to have a cyclical tilt in our global equity portfolio sectoral preferences (e.g. we are OW financials and UW staples across regions) and have reiterated our Overweight equity, Underweight bonds view."
"@SBarlow_ROB GS: what to do with the Trump Trades" – (chart, research excerpt) Twitter
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British Petroleum PLC announced disappointing profit results and for more interesting reasons than the oil price. The change in the shape of the oil futures curve – a highly, highly underrated factor in energy stocks performance – removed oil trading profits,
"Oil traders thrived in 2015 and 2016 by taking advantage of an oversupply that led to an unusually strong contango market structure -- where contracts for future delivery trade higher than spot prices. The contango allows traders to buy oil cheap, store it and profit later by locking in their profit through derivatives in so-called 'cash-and-carry' deals."
"OPEC Output Cuts End Big Oil's Trading Bonanza" – Bloomberg
"@chris1reuters "US #shale is coming back, and it's coming back strong," says @SocieteGenerale as more #rigs drill better wells faster " – (four charts) Twitter
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A research report from the Federal Reserve Bank of New York paints a far rosier picture for the oil price than I did in print this morning,
"After three consecutive weeks of decline, demand expectations improved, driving oil prices up over the past week. In 2016:Q4, oil prices increased on net as a result of steadily contracting supply alongside strengthening, albeit volatile, global demand."
"Oil Price Dynamics Report" – Federal Reserve Bank of New York
"Here's the biggest risk for investors in the energy sector" – Barlow, Inside the Market
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Tweet of the day: " @BloombergCA Vancouver home sales plunge 40% as bubbly market loses fizz bloom.bg/2kFqI3v " – Twitter
Diversion: "A Trip Around Saturn" – The Atlantic
Scott Barlow