Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Randy Ollenberger assesses the winners and losers as the TMX pipeline opening nears,
“Long-suffering western Canadian oil producers are finally about to get some relief as the TMX pipeline comes into service over the next several months. The pipeline is reported to be 98 per cent complete and expected to begin linefill in March, clearing the way for deliveries by the end of April … While the impending start-up of TMX has been frequently reported on, we think it is not adequately reflected in Western Canada Select futures prices or Canadian equity valuations … . Winners and losers. MEG and Strathcona demonstrate the largest cash flow improvement to a tighter WTI-WCS differential. Both Cenovus and Imperial Oil are net beneficiaries from tighter spreads, with the gains in their upstream business’ more than offsetting the loses in their downstream business. Suncor is relatively neutral to the change in differential. Overall, we expect refiners of western Canadian heavy oil to see relatively higher feedstock costs, which could weaken their margins”
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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report had interesting tidbits as usual,
“Record $12.1bn inflows to EM equities ($11.9bn to China) as PBoC eases after China stocks hit Oct’08 GFC lows & exodus of foreign investors; epic deflation of property stocks makes China the world’s most enticing contrarian long ‘trade’ … Q4 US nominal GDP up hot 6 per cent year-over-year, up sizzling 40 per cent since COVID low (fastest expansion since stagflationary ‘70s) … The ‘government bubble’ huge driver … Fiscal deficit 7.5 per cent of GDP under Biden, 6.6 per cent under Trump, both biggest since Great Depression/WW2 … Neither likely to campaign on ‘balancing the budget.’ The Biggest Picture: Goldilocks macro, Goldilocks yields (10-year UST 3¾% to 4¼%), U.S. stocks surging to new highs driven by monopolistic tech as AI “baby bubble” grows
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Also from BMO, senior economist Priscilla Thiagamoorthy noted that Canadian and U.S. spending rates are going in opposite directions,
“U.S. GDP growth blew past expectations in Q4. For all of 2023, the economy grew an above-potential 2.5 per cent. Stronger U.S. activity is good for global growth … Typically, robust activity south of the border provides a nice lift to the Canadian economy too. But, we’ve seen a diverging growth profile this cycle primarily due to the stark difference between U.S. & Canadian households. American consumers continued to flex their muscle in Q4 as spending climbed 2.8 per cent annualized. Meantime, Canadians remain under severe pressure. We won’t get Q4 figures from StatCan until the end of February, but it looks like consumer spending stalled for a third straight quarter. There are a few reasons for the divergence. One key contributing factor is the availability of the 30-year fixed rate mortgage in the U.S. — many homeowners were able to lock in mortgages when rates were at rock bottom, effectively shielding them from the Fed’s tightening campaign. Meantime, as the BoC’s recent MPR noted: “many Canadians are facing upcoming mortgage renewals and record-high levels of household debt.” That will result in muted consumer spending this year that will ultimately weigh on growth”
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Diversion: “Creeps Will Have a Harder Time Sliding Into Instagram and Facebook DMs” - Gizmodo
Scott Barlow