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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Scotiabank analyst Meny Grauman titled his bank earnings preview with the punchy, As We Head Into Winter, Is It Really Spring for Canadian Bank Stocks?,

“While it may look like springtime for bank stocks, we remain skeptical on that ideal outcome given the persistence of inflation over time. Despite a good week for the shares, we are not yet ready to declare victory on this front, especially in Canada where wage growth remains elevated and strong immigration flows and a tight housing market make a soft landing particularly tricky. As our newly revised annual estimates (including the introduction of our F2025 numbers) highlight, our base case is not a soft landing scenario but a “higher for longer” rate environment that will increasingly strain consumer finances… We forecast the sector generating core cash EPS of $2.07 in Q4/23, which is down 3 per cent quarter-over-quarter and down 7 per cent versus the prior year … We forecast dividend increases at BMO, NA, RY, TD among the large banks and EQB, CWB, and LB among the smaller banks … Heading into reporting we like the setup for BMO where we expect upside to synergy targets from Bank of the West. We also like the setup for CM (looking past some likely severance charges), as well as for EQB and CWB among the smaller banks. Contrast that with a more cautious outlook for TD given the risk of a large charge tied to AML issue in the U.S. (we estimate something in the range of $1 BB), and NA”


BMO chief economist Doug Porter uncovered the lowest domestic household credit growth in 30 years,

“Canadian households are finally reining in borrowing trends. The latest monthly credit data show that overall household debt rose a mere 2.9 per cent from year-ago levels in September. That’s the slowest pace in more than 30 years of data and compares with the nearby high of over 8 per cent in the spring of 2022. That latter spike coincided with the apex of the housing bubble, and a big cooldown in mortgage growth has accounted for the slowdown in overall credit growth. From a peak of 10.8 per cent in February 2022 (the very month before the BoC started hiking rates), mortgage growth has chilled to 3.2 per cent year-over-year. Notably, the latest credit growth trends are meaningfully below underlying disposable income growth (which has averaged roughly 5 per cent over the past five years). That’s the first time in more than three decades that household borrowing trends have substantially trailed behind income growth. For reference, average household credit growth over the past 30 years has been 6.5 per cent, versus income growth of 4.5 per cent. No mystery as to why the tables have turned—the severe tightening in monetary policy has imposed discipline on households”


BofA Securities analyst Doug Leggate summarized the content form the company’s latest energy conference which featured presentations from global companies, including major Canadian producers,

“The macro backdrop remains polarized between elevated spot prices supported by Saudi / OPEC intervention, and a 2024 outlook characterized by slowing demand growth & non-OPEC production growth led by Guyana (with Phase 3 start up on day 1 of our conference) and a full year of US oil output back above 13mm bpd … while $4.00 HH [Henry Hub] gas supports material upside for gas wtd E&P’s, we see any material shift towards gas as a potential headwind for oil weighted E&P’s… Top ideas that screen with the portfolio depth, capital structure and value are led by OXY, COP, XOM, CVX, OVV and APA. Increasingly we see Canadian oils displacing midcap E&Ps as the incremental investment opportunity to leverage commodity outlook where the backward-dated price structure points to a challenging year ahead for the US oils”.

Mr. Leggate has buy-equivalent ratings on Canadian producers Suncor Inc. (SU-T), Imperial Oil Ltd. (IMO-T) and Canadian Natural Resources Ltd. (CNQ-T).


Diversion: “The False Prophet of Edmonton” – Maclean’s

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