Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO bank analyst Sohrab Movahedi published a report entitled Residential Mortgage ‘Survival Guide’ - Updated for Q3/23,
“Canadian RESL [real estate secured lending] balances at the ‘Big 6′ were up almost 3 per cent year-over-year to $1.7-trillion in Q3/23, below the 10-year CAGR [compound annual growth rate] of approximately 5 per cent; mortgages grew at 3 per cent year-over-year to $1.4-trillion while home equity lines of credit (HELOC) grew 5 per cent year-over-year to $271-billion. The slowdown in RESL from previous quarters is generally in line with management expectations, based on both housing conditions and deliberate management decisions. While the trailing 4-Q loss ratio on mortgages is above pre-pandemic norms, forecasted low unemployment rates are supportive of a well-behaved credit outlook; high-risk mortgages continue to make up a small portion of overall RESL. Our earnings estimates continue to reflect a moderation of RESL growth consistent with mid-single-digit growth … We take comfort in the historical relationship between mortgage loan losses and the Canadian unemployment rate. Based on the BMO Economics forecasted UER of 6.0 per cent in 2024, we continue to expect historically low RESL loss rates”
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BofA global strategist Nigel Tupper uncovered a marginal deterioration in planet-wide corporate earnings revisions. This is not good news in light of equity market earnings yields that have been generally below risk-free bond yields, limiting upside,
“In September, the Global Earnings Revision Ratio [number of companies with upside revisions divided by companies with lowered expectations] moderated from 0.90 to 0.78 as consensus earnings expectations softened but there are several pockets of strength. The Ratio is well above 1.00 in Japan but below 1.00 in other regions. By global sector, the Ratio jumped significantly for Energy on higher oil prices but fell for most sectors and remains lowest for Materials on weak China demand. In terms of cyclicals, the Ratio for the Risk style moderated during the month but remained above 1.00. Earnings expectations have been surprisingly resilient in recent years as central banks have tightened policy, but a globally synchronized earnings recovery has yet to materialize … The Ratio jumped for Energy (0.72 to 1.30), improved for Banks 1.09 to 1.19), and remained high for Insurance (1.05) and Software (1.05). In contrast, the Ratio remains lowest for the global Materials sector (0.48)”
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Morgan Stanley economist Mayank Phadke provided an update on the state of the post-pandemic global supply chain,
“The Morgan Stanley Supply Chain Index (MSSCI) contracted by 0.19 points in August, similar to the decline of 0.20 pts in the prior month. Containership rates continued to decline sharply m-o-m in August, like they did in July. While containership rates have shrunk to a quarter of what they were one year ago, they remain 60-140 per cent above pre-Covid levels. Shipping rates ticked up after declining for two straight months, while import air freight costs from Asia declined 18 per cent month-over-month. Global backlogs PMIs ticked up slightly, while global delivery times PMIs declined by 1 point, led by a 3-point contraction in Euro Area Manufacturing Suppliers’ Delivery Time PMI. The index remains below pre-Covid levels, reflecting still[1]elevated containership and air freight rates”
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Diversion: New study looks again at how alcohol influences attraction” – Ars Technica
Scott Barlow