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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

RBC economists warn Canadians that the next recession will be much harder here than in the U.S.,

“Eric Lascelles, chief economist at RBC Global Asset Management Inc., which oversees $430 billion, says while he doesn’t see signs of a debt crisis in the making, Canada’s households are clearly more stretched in terms of debt and spending than their American counterparts.

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"'There’s just no latent capacity to spend or to buffer a shock in Canada, and the U.S. is very well positioned,' Lascelles said by phone from Toronto. ‘You could lose your job and you would be okay in the U.S., or rates could go up and you’d be fine, or the economy could turn down and spending could continue. In Canada, you can’t really say that.’’’

There are a number of ways for the next recession to be bad and a lot of that depends on how quickly the household debt deleveraging process occurs. A slow repair of household balance sheets could be accompanied by a long but shallow recession while a rapid deleveraging would cause all kinds of problems and a deeper, more painful period.

“Why the next recession will hit Canadians harder than Americans” – BNN Bloomberg

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Morgan Stanley strategist Andrew Sheets sees “three overlapping problems” for markets and advises the company’s clients to retain a defensive portfolio strategy ,

“Markets face three overlapping problems: 1) Trade tensions, which look difficult to resolve without market pressure; 2) Cyclical indicators, which give more negative signs about the medium term; 3) High levels of confidence that Fed easing will support markets, despite still-easy financial conditions and a poor track record for returns when the Fed is easing amid weaker economic data… With risks to global growth skewed to the downside and the switch of our cycle model to ‘downturn’ at the end of April, we maintain a defensive tilt, especially in the US.’

Mr. Sheet is looking for a significant decline in the U.S. dollar and U.S. credit.

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“@SBarlow_ROB MS: The market's Three Overlapping Problems” – (research excerpt) Twitter

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CIBC’s Ian Pollick (a useful source for income investors who can gain access by the way) is now predicting rate cuts by the Bank of Canada in 2020,

“it’s still likely that a rate cut will be announced from the Eccles Building before the end of the year. While the Bank of Canada isn’t intrinsically tied to Fed policy, soft global growth means there’s even less reason to believe exports and associated business investment will be able to make up for slowdowns in other parts of the economy. That’s likely to leave the Bank of Canada reluctantly joining the rate cutting party in 2020…. by the end of 2019, the economy will begin to sputter again under the weight of slowing growth, and the BoC will be forced to ease policy in H1-20.’

“@SBarlow_ROB CM's Pollick: Bank of Canada will 'reluctantly' cut rates in 1H-2020” – (research excerpt) Twitter

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Citi U.S. equity strategist Tobias Levkovich has been fielding a lot of questions about a potential economic slowdown and also sectors and stocks that would benefit from a potential Federal Reserve rate cut,

“A substantial uptick of inquiries about economic weakness and the plausibility of an imminent GDP downturn has been noted with clients also asking us which groups do well if the Fed indeed cuts short term rates later this year. We would be watching for a sharp steepening of the yield curve, further increases in the percentage of industries experiencing down production year over year and worsening C&I lending standards. Credit conditions typically lead business activity (and thereby profitability) by nine months and has been a useful tool in the past. Similarly, the economy has slipped into decline almost immediately after the yield curve steepens significantly post an inversion.”

U.S. credit spreads – particularly high yield and BBB rated corporates – remain the key indicator to watch for investors concerned about the end of the market rally.

“@SBarlow_ROB Levkovich: "Credit conditions typically lead business activity (and thereby profitability) by nine months"” – (research excerpt) Twitter

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Tweet of the Day: New passenger jet design with seats in the wings,

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Diversion: “Wellness is a largely white, privileged enterprise catering to largely white, privileged, already thin and able-bodied women, promoting exercise only they have the time to do and Tuscan kale only they have the resources to buy,” – New York Times

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