Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Australian investment bank Macquarie warns Canadians to prepare for a 65-cent loonie, caused primarily by the divergent policies of the Federal Reserve and the Bank of Canada,
"Consensus continues to view the crude oil price as the primary driver of CADUSD, a legacy of the strong relationship that existed from 2001-9. In contrast, we believe the currency pair is primarily driven by relative monetary policy expectations as captured by the 2-year sovereign yield spread…Policy divergence suggests the 2 year sovereign yield spread can continue to widen... We lower our end-17 CADUSD forecast to $0.65 (prev. $0.69, cons. $0.74)… Our outlook assumes a BoC rate cut and our energy team's baseline forecast for $57 WTI crude in 4Q17. "
"@SBarlow_ROB Macquarie: get ready for 0.65 CAD in 2017 " – (research excerpt) Twitter
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I've listed Richard Bernstein as my pick for best strategist working, but Credit Suisse's Andrew Garthwaite is almost certainly my No. 2. Mr. Garthwaite recently published his year ahead strategy for 2017. His summary,
"We are overweight financials and have a small underweight of cyclicals. We believe cyclicals have, in aggregate, priced in c4% GDP growth in both the euro area and the US and a significant further rise in bond yields. In aggregate, we now slightly prefer defensives to cyclicals. On the cyclical side, our main overweights are: software (for the sixth year in a row), plays on mobile internet advertising, employment agencies and insurance. On the defensive side, our top overweights are: European telecoms, German REITs and concessionaries. Our key underweights are: consumer staples, Chinafocused capital goods, auto OEMs, Continental European retailing, UK office REITs, UK regulated utilities and asset managers"
"@SBarlow_ROB Garthwaite: cyclicals have run too far" – (research excerpt) Twitter
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Goldman Sachs threw some cold water on optimism regarding a U.S. fiscal stimulus plan. In essence, government spending will rapidly translate into wage inflation, requiring the Fed to raise rates faster. Goldman's Charles P. Himmelberg writes,
"Fed Chair Yellen has questioned the wisdom fiscal stimulus at full employment. As she put it in her press conference: "…my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now." Put more bluntly: fiscal stimulus this late in the expansion will almost certainly be met with more rate hikes..."
"@SBarlow_ROB GS: Fed to squash Trump rally" – (excerpt) Twitter
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Some wildly different views on the mid-term outlook for crude prices were published this morning. On the bearish side, an analyst from French utility Engie SA's predicts $10 oil,
"The falling cost of solar power and battery storage, rising sales of electric vehicles, increasingly "smart" buildings and cheap hydrogen will all weigh on crude, Thierry Lepercq, head of research, technology and innovation at the French energy company, said in an interview."
More optimistically (for investors in the sector) the International Energy Agency says peak demand for crude is much farther in the future than pessimists believe,
"A detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over … government policies, as well as cost reductions across the energy sector, enable a doubling of both renewables – subject of a special focus in this year's Outlook – and of improvements in energy efficiency over the next 25 years. Natural gas continues to expand its role while the shares of coal and oil fall back.
"We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal," said Dr Fatih Birol, the IEA's executive director. "But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.""
"Big Utility Sees Pathway to $10 Oil" – Bloomberg
"World Energy Outlook 2016 sees broad transformations in the global energy landscape" – IEA.org
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Tweet of the Day: "@NewtonGroupSM This Chart Shows Canadians Get Worst Deal Of Anyone On Wireless buff.ly/2hqB4z5 " – (including chart) Twitter
Diversion: "The Atlantic looks back at key cinematic moments in 2016, starting with the Coen Brothers' sharp 1950s Hollywood satire" – The Atlantic
Scott Barlow