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

Scotiabank analyst Meny Grauman urges domestic bank investors to play defense,

“Q2/23 Bank Preview – The Best Offense Is a Strong Defense, and That Makes TD Our Best Idea. OUR TAKE: Negative … , recent events in the United States serve as a good reminder that investors need to focus on liquidity risk and not just credit risk when thinking about banks. That is not to say that worries about credit will subside, just the opposite as the market continues to take a keener interest in banks’ CRE exposure in particular… Broadly speaking, the failures of SIVB, Signature Bank and FRC should actually be viewed as further vindication of the Canadian banking model … BMO and BNS kick off another Canadian bank earnings season on Wednesday, May 24th and bank reporting wraps up the following week with NA on May 31th and LB on June 1st. We forecast the sector generating core cash EPS of $2.25 in Q2/23 which is down 7 per cent versus the prior quarter and down 5 per cent versus the prior year. Note that the year-over-year result is being weighed down by a normalization in loan loss provisions and for a number of banks very tough Q2/F22 comparables. … On average, our quarterly EPS estimates are below consensus, but we are above on NA and TD and modestly below on BMO, CM, CWB, LB, and RY… RY and NA have been the ‘go to’ defensive names in the space for some time now, we want to suggest that TD should in fact take that crown now that it has walked away from the FHN acquisition”


The results of BofA Securities’ popular monthly fund manager survey (FMS) were released and here are some highlights,

“Investors bearish, Fed done, risk assets resilient so long as the landing is soft; FMS cash levels high 5.6 per cent, allocation to bonds at 14-year high, to commodities at 3-year low … global growth expectations (down 65 per cent) worst in ‘23 but majority in macro “soft” landing camp (63 per cent) rather than “hard” (27 per cent) or “no” landing (4%); this corroborated by FMS investors forecasting a tiny 1% drop in global EPS in next 12 months… 61 per cent say Fed hiking cycle over, 1st Feb rate cut likely at Jan’24 FOMC … biggest tail risks are credit crunch/recession (33 per cent), high inflation/hawkish central banks (29 per cent); CRE [commercial real estate] seen as most likely source of credit event (49 per cent) … allocation to stocks creeping higher (5-month high); big rotation out of commodities, into tech stocks (highest since Dec’21 … most “crowded trades” are long big tech (32 per cent), short banks (22 per cent), short US dollar (16 per cent). Contrarian trades: long REITs, banks & value stocks; short bonds, tech & growth.”

“Some highlights of BofA fund manager survey” – (research excerpt) Twitter


BMO chief economist Doug Porter notes there’s ‘more buyers than sellers’ in the domestic home market,

“Even with a snapback in April, Canadian home sales are still down almost 20 per cent year-over-year and about 12 per cent below a long-term norm. However, listings have been even rarer, and are about 25 per cent below a long-run average. This mismatch between sales and new listings has tightened the market right back up again. As the chart suggests, the current sales-to-new-listings ratio of just over 70 per cent is higher than anything seen in the decade prior to the pandemic. In turn, such tightness normally points to a big pick-up in prices. (CREA says a 55-per-cent sales/listings ratio is normal, which is consistent with about 5-per-cent price growth.) Note that the market also got very tight back in 2001/02, and prices did not rocket—although that episode followed a long period of fallow in Canadian housing. Nobody would put ‘fallow’ and ‘Canadian housing’ in the same sentence for the past ten years. Unless listings suddenly pop, it looks like housing is poised to at least partially reheat again. "

“BMO: ‘more buyers than sellers’ in Canadian housing market” - (research excerpt, chart) Twitter


Diversion: “A cover band was playing a pub. Then Billie Joe Armstrong jumped onstage. Watch.” – A Journal of Musical Things

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