Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC materials analyst Jacob Bout is concerned about a global food crisis,
“The World Bank calculates there could be another 37% jump in food prices if the crisis continues. U.S. corn ($7.9/bu.), wheat ($10.7/bu.) and soybean ($16.9/bu.) are trading near their all-time highs driven by several factors creating the “perfect storm,” including: 1) continued uncertainties surrounding Ukraine’s crop exports, 2) elevated global import demand from China, 3) the rise of food protectionism, 4) potential drought-reduced supplies from the Americas, 5) high energy prices driving increased consumption of ethanol/renewable fuels, and 6) higher costs of fertilizer which may depress yields globally … U.S. Winter Wheat Drought Area Increases To 70%: The amount of U.S. winter wheat considered in drought conditions increased to 70%. Only 30% of U.S. winter wheat is rated in good to excellent condition, a 26-year low.”
Mr. Bout also noted that sky high potash prices are already hitting demand.
“CIBC: “Global Food Crisis Concerns Increase”” – (research excerpt) Twitter
Scotiabank analyst Meny Grauman argued that Canadian bank stocks look even better after U.S. bank earnings,
“We believe that the most recent US earnings season has been more consequential as it clearly illustrates why Canadian banks are better positioned than their US counterparts across a number of different facets including capital, credit, capital markets, and expenses … While rising rates are generally positive for banks, there is a potential downside that is playing out in the most recent US bank results. This is because left unhedged, rising rates drive mark-to-market losses on banks’ available-for-sale (AFS) securities holdings – securities balances that in many cases grew significantly over the pandemic … However, we know that the Canadian banks hedge these rate moves quite aggressively, and as a result the impact on Canadian CET1 ratios is expected to be very modest… we can clearly see that Canadian banks are better positioned to weather emerging macro tail risks better than their US counterparts. Even putting aside the absence of direct exposure to Russia in the Canadian banking system, the reality is that the Canadian banks have been much more conservative in releasing their pandemic-related credit reserves than their US peers”
Scotia does not think Canadian bank earnings will be as negatively affected by falling investment banking revenue as U.S. banks.
“Scotia: Canadian bank stocks look even better after U.S. bank earnings reports” – (research excerpt) Twitter
“Tempted by Canadian bank stocks during the sell-off? It could get worse” - Berman, Globe Investor
Wells Fargo analyst Roger Read sees more short term downside in the crude price although not with a lot of conviction,
“In the immediate timeframe, lockdowns of major cities in Chinaand the accompanying mobility declines supersede medium and long-term fundamentals, in our view. Oil prices should be under pressure given the largest ever SPR [U.S. Strategic Petroleum Reserve] release, rising interest rates and potentially decelerating economic expansions and clear demand risks within the world’s second largest consumer, in our view. That oil prices have fallen just over 20% in the face of at least the temporary loss of 20% of China’s or about 3% of global demand (i.e., approximately 3mmbpd) is fairly impressive in our view … How Low Can Oil Go? Not a question we can answer with any real confidence, but let’s assume 30%, 40% and 50% corrections from the absolute peak close(s) (Brent $127.98;WTI $123.70) reached on March 8, 2022. This implies a range of $64/bbl to $90/bblfor Brent and $62/bbl to $87/bbl for WTI-C. This does not represent any change to our forecast. Instead consider it a guide in terms of potential oil price volatility”
“Wells Fargo: How low can oil go?” – (research excerpt) Twitter
Diversion: “The scientist who co-created CRISPR isn’t ruling out engineered babies someday” – M.I.T. Technology Review
Tweet of the Day: [posted mid-trading day Monday]
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