Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities’ monthly survey of global fund managers saw some big changes in terms of sentiment,
“Investors least pessimistic since Feb’22 but nowhere near optimistic enough to say positioning a sell catalyst; cash as % AUM [assets under management] still more than 5% … 68% say China reopen is inflationary, 66% say US$ to fall, 66% say it’s a bear rally, 65% say yield curve to steepen, 64% no Russia-Ukraine truce this year… last Nov net 77% predicted recession…in Feb just 24% do; global growth expectations now least pessimistic in a year (net 35% expect weaker economy); biggest “tail risk” still “higher-for-longer” inflation (i.e. monthly core CPI readings of higher than 0.4 per cent) … investors OW cash (42%), OW commodities (15%), UW equities (-31%)”
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Also from BofA, analyst Ebrahim Poonawala provided a preview of Canadian bank earnings,
“1Q23 results (begin Feb 24) could stall the year-to-date rally in bank stocks given the challenged growth outlook. Loan growth slowing driven by a slump in mortgage activity, moderating commercial growth; net interest margins should drift higher, but rising funding costs and inverted yield curve headwinds … EPS outlook muddied by M&A: BMO (Bank of the West, deal closed Feb 1, 2023), TD (pending First Horizon, Cowen), RY (Brewin Dolphin closed 4Q22; pending HSBC Canada). Our revised 1Q23 EPS forecast implies -7% YoY growth on avg. (vs. -2% for 4Q22) and -2% for FY23 (vs. +2% for FY22) ... TD Bank-TD has materially lagged YTD, partly due to concerns tied to peak NII [net interest income] . Upside surprise here or outlook for better-than-expected NII defensibility could drive a partial reversal of the recent underperformance.”
Mr. Poonawala’s sole buy-rated domestic bank is Toronto-Dominion Bank (TD-T) and he has an underperform rating on Canadian Imperial Bank of Commerce (CM-T). His profit estimates are below consensus for both the first quarter and 2023 as a whole.
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BMO chief economist Doug Porter discussed a large influx in Canadian workers,
“Perhaps the most amazing aspect of the latest jobs data was the fact that the unemployment rate did not budge despite one of the largest monthly gains on record. Recall, there are two sides to the job market—demand (from employers) and supply (from potential employees). Most of the focus has been on the surprisingly strong demand for workers, given the rapid run-up in rates. But, perhaps the bigger story and bigger driver here is the supply side. Essentially, there has been a huge influx of workers in recent months, reflecting both a rapidly rising population and increased participation. In fact, the part rate among those aged 15-64 hit an all-time high last month at 80.3% (after a dip last summer). Normally, this part rate recedes during an economic slowdown. Why the snap back? Improved child care affordability may be playing a role. Pandemic savings may be running low for many, with high inflation biting as well. Finally, and here’s one to turn theory on its head, could the rate hikes actually be causing the jobs boom (for now)? That is, higher mortgage costs are forcing some into the workforce. Something to ponder.”
“BMO: “there has been a huge influx of workers in recent months”” – (research excerpt) Twitter
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Diversion: “New research challenges the role of ‘love hormone’ in relationships” – CBC Radio
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