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

BofA Securities analyst Ebrahim Poonawala published a report on Canadian banks entitled Feeling the Pain on Thursday,

“We expect the economic pain from higher interest rates to surface in 4Q22 and 2023 outlooks. We believe the immediate casualty is likely to be mortgage loan growth, we forecast +0.7% quarter-over-quarter for 4Q22 vs. +2.4% in 3Q22, with potential for a more broad-based slowdown in 2023. Our estimates also reflect a gradual build-up in performing PCLs (credit costs), reflecting the deterioration in the macro-outlook. BofA Economics forecast calls for Canada/US 2023 GDP growth of 0.8%/-0.4% YoY, a worsening vs. 1.8%/-0.1% forecast three months ago. BofAe EPS: -4% in median YoY growth for 4Q22 (vs. -3% reported for 3Q22) and +3% for FY23 (vs. +3% for FY22). Valuations: Stocks trading at 9.7x 2023 P/E vs 11.0x median over 5yrs pre-pandemic … TD Bank-TD, and RBC-RY to lead the pack in terms of continued boost to their net interest margins from higher interest rates … While the EPS boost from higher rates is well known for TD, the potential for a beat on margin expectations sets up the stock attractively. TD trading at 10.2x P/E vs. 9.7x peer median and 11.5x for RY (note RY has seen a bump in short interest recently). BNS appears “washed-out” at 1.3x P/Book and 8.4x P/E. Inline results could be enough to drive a positive stock reaction”

“Canadian bank stocks ‘feeling the pain’ acc to BofA” – (research excerpt) Twitter


TD Securities macro strategist James Rossiter published a somewhat bleak outlook for North America in a Thursday research report,

“Peak inflation is now shifting into the rearview mirror in much of the G10. Central banks are gearing down as they approach terminal rates, mostly in 23Q1 (the fed lags, reaching 5.50% in May 2023). Many economies are heading for recession: we expect Canada, the UK, and the euro area to experience winter recessions. The US is likely to witness stagnant growth in 23H1 before sliding into a recession in 23H2... Forward corporate earnings have not started correcting for the recession. We expect wider credit spreads, decompression between HY vs IG, and focus on higher-quality, lower-maturity exposures… Oil and gas prices remain sticky given geopolitics, supply decisions, and lack of investment. Base metals decline on the back of demand destruction. Gold likely trades lower on further real rate increases before rallying later in 2023. "


BMO senior economist Robert Kavcic noted that Canadian inflation levels have passed an important milestone,

“Core inflation in Canada (the old-school ex-F&E version) slowed to 3.7% annualized in the three months through October. That’s down from the high of above 8% earlier in the year, and more in-line with some of the readings seen in 2021, before inflation really ran wild. What’s most interesting is that the 3-month core rate now matches the Bank of Canada policy rate (3.75%). In other words, if the shorter-term run rate is more reflective of inflation momentum today, then zero-real policy rates might be at hand. Of course, we might actually need something tighter than zero real. And, we’ll need to see these softer core readings persist for longer before we (and the BoC) really can take comfort. But we’re getting closer… "

“Important milestone for Canadian inflation (BMO)” – (research excerpt) Twitter


Diversion: “How We Learn Fairness” – New Yorker

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