Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter’s forecast for the domestic economy was detailed in his weekly report entitled Canada Comeback,
“The broad-based strength in commodity prices is giving Canada its day in the sun. Supported also by solid Q2 bank earnings, a robust resource sector helped push the TSX to a steady string of all-time highs this week, with the index now within reach of the 20,000 mark. Its 13.4% year-to-date rise as of Thursday is a world leader — and would already be its third best full-year return in the past decade (if we stopped the clock today). At the same time, the Canadian dollar is at the top of the leaderboard this year as well, even with a tiny step back this week. The loonie is now up just over 5% in 2021, even as the trade-weighted U.S. dollar has largely churned sideways this year. The combination of a world-topping equity market and a world-leading currency means that foreign investors have absolutely thrived being in Canadian assets in 2021.. While each commodity has its own story —and a case can be made for a supercycle in a few specific names (say, copper)—demand for many will fade, while supply will eventually respond, in most cases. Overall, we thus believe that these are not the early days of a supercycle, as impressive as the commodity run has been in the past year.”
“The Next Stage: Canada Comeback” - BMO Economics
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Citi’s U.S.-focused bear market checklist is not yet signaling investors to exit equities, but equity strategist Tobias Levkovich is concerned about the S&P 500′s earnings yield,
“One has to see both amber and red signals combined readings above 50% to become very worried about animminent bear market, and it is showing 35% currently, with six red/danger readings … Our [equity earnings yield] model using BBB [corporate debt] yields instead of the 10-year Treasury shows that the market is overvalued at 1.72 standard deviations above the five-year mean”
“@SBarlow_ROB Citi’s bear market does not signal ‘get out of the pool’ just yet” – (table) Twitter
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Also from Citi, a report on strong robotics demand caught my attention. The current labour shortage – caused primarily by emergency government support for the unemployed – could result in spending on automation to limit wage inflation. It’s early days, but this might be a trend to watch,
“US industrial robot orders rose 17% year-over-year to $466mn in Q1, with volume up 23% to 9,100 units. A breakdown shows demand from non-auto users up 28%, with auto-related demand up 12%. This week the May ISM new order index should reaffirm the robust state of US manufacturing, something recently highlighted by US Equity Strategist Tobias Levkovich, who shone a spotlight on the planned 11.9% YoY increase in capex budgets this year (ex-energy). Our focus remains the main beneficiaries of higher spending on robotics and automation, and we think two of the top candidates are Fanuc and Amada, both of which generated 22% of total revenue from the Americas last year. Amada, recently reported April orders of +88% YoY, building on a 16% rise in Q1. We note April machine tool exports to the US also rebounded 65% YoY.”
“@SBarlow_ROB Citi: Robotics demand strong. Possible reaction to labour shortages?” – Twitter
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Diversion: “Thinking of buying a new couch? The price may have just quadrupled” – CBC
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Scott Barlow