Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities analyst Abhinandan Deb measures global financial risks using a wide variety of indicators, particularly credit markets and the costs of hedging volatility through futures markets.
Mr. Deb sees heightened risk, and warns investors against buying dips in 2022,
“Despite the Fed’s hawkish turn, momentum in buy-the-dip (BTD) has proved too strong, and reflexively, some are suggesting that this means markets aren’t afraid of central bank tightening. We caution against such an interpretation.
“In our view, persistent inflation risks driving the Fed put strike lower and increases the chances of a rude wake-up call when BTD – now on autopilot – stumbles, causing the market to look to the Fed for help that may not come easily. Given exceptional risk-adjusted equity returns over the last 20 months that few asset managers can match – and markets remaining fragile – we argue for continued vigilance and low carry-cost hedges, rather than solely relying on BTD momentum as one’s primary source of protection.”
The short version of this view is that inflation will prevent the Fed from rescuing weaker markets next year.
“BofA warns against buying the dip in 2022″ – (research excerpt) Twitter
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The global research team at Citi have uncovered a Canadian stock as a winner from current global supply chain disruptions (my emphasis),
" The Citi GPS report argues that ‘firms are likely to take steps toward increasing the size of their inventories and simplifying the structure of their supply chains. The open question is how vigorous and widespread such efforts will ultimately be’… Our Industrial Tech & Mobility teams have a plethora of companies who are deeply in involved in advanced Supply Chain solutions. In Europe they highlight Kion, Auto Store, Hapag Lloyd, Maersk, ZIM, Deutsche Post DHL; in Asia it is Shenzhou, Techtronic, Ashok Leyland, Mahindra & Mahindra, Cosco Shipping, Yang Ming Marine, International Container Services Terminal, and Westports; and in the Americas they hone in on Rockwell Automation, Honeywell, Aecom, Jacobs Engineering, CSX, Northern Southern, JB Hunt, and Traxion … Citi Consumer analysts highlight two companies in this space, including in the Americas, Gildan [Activewear Inc.]. is typically known as the low cost provider of their products (blank T-shirts, sweatshirts, polos), as their Honduras-based manufacturing operations give them an even greater advantage given current market dynamics vs Asia-based competitors.”
“Citi: Supply chain champions” – (research excerpt) Twitter
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Also from BofA, economist Carlos Capistran published his outlook for the Canadian economy,
“We expect GDP growth at 4.0% for 2022, a large rate considering that the historic average growth rate is 2.2% (1989-2019). Canada is in a position to have aggregate production back to pre-pandemic levels at the turn of the year. Canada likely will keep growing above potential in part helped by strong US growth and high oil prices and supported by high savings. One of the highest vaccinations rates in the world should also help. However, we expect some deceleration from 2021 as the auto sector is weak due to the global semi-conductors shortage and because fiscal and monetary policies are withdrawing stimulus… The BoC is done with tapering and it is currently setting the stage to begin its hiking cycle … there are four live meetings for lift-off: April, June, July and September 2022. Given how high inflation is (4.7% in October), we believe that the BoC will hike sooner rather than later so we expect the first hike in April 2022. We then expect the BoC to hike 25bp per quarter for a total of three hikes in 2022.But risks are for lift-off at an earlier date … We like selling rallies in USDCAD toward 1.30 [CADUSD US$0.77] and expect a turn back lower to 1.23 [CADUSD US$0.81] [ (1Q2022) and 1.20 [CADUSD US$0.83] (2Q2022). Why? (1) The BoC remains on track to preemptively lift rates in April (if not earlier), likely serving as a source of USDCAD downside pressure, according to history; (2) our commodity strategists are constructive and expect WTI to average $82/bbl next year, likely serving as a terms-of-trade and structural flow tailwind.”
“BofA likes CAD” – (research excerpt) Twitter
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Diversion: “Dinosaur-Killing Asteroid Hit Earth at a Particularly Bad Time” – Gizmodo
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Scott Barlow