Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Hugo Ste-Marie notes that his leading economic indicators models for Canada and the U.S. has been negative for many, many months,
“[Our] U.S. LEI [leading economic indicator] has also suffered a steep decline on a 6-M annualized basis, but it has not reached recessionary levels yet. In prior recessions, the final leg down in our LEI only occurred in the very early innings of the recession. For now, it’s running at levels witnessed in the mid to late 90s (95/98), i.e., still consistent with a possible soft-landing scenario. That said, our indicator (on a 6-M annualized basis) has been declining for thirteen consecutive months, and such long stretches of contraction have historically been associated with periods of economic contraction. While investors show signs of “recession fatigue”, keep in mind that the “lead time” to the recession is well over a year. In fact, the median lead time is around 15 months if we go back to 1980, with our LEI flashing red 19 months prior to the start of the GFC. [Our Canadian leading economic indicator] indicator has been declining for 17 consecutive months now…While our indicators suggest only a mild EPS decline for now, we’re probably getting closer to an inflection point in next few months (either they improve or get much worse)”
“Scotiabank: “US Proprietary LEI Contracting For 13 Consecutive Months”” – (research excerpt) Twitter
***
Jefferies’ GREED & fear report highlighted the danger of U.S. commercial real estate and why regional bank stress has only just started,
“The final point on the unfolding U.S. credit cycle is that, as previously discussed, commercial real estate is likely to be the area in coming quarters where the ‘private world’ connects with the commercial banking funded world. In this respect, the word is that US$1.5-trillion of commercial real estate loans are due to be refinanced in the next two years out of total US commercial real estate exposure of US$2.9-trillion, of which regional banks account for 67 per cent. GREED & fear was interested to hear in a webinar with Jefferies U.S. bank equity research team this week that commercial real estate accounts for an average of one third of regional banks’ loan exposure and that regional banks are now trading at an average of 1.4 times tangible book … As also previously discussed here, SVB will likely be viewed by historians as the first hint of the troubles to come in the world of private equity, just as the failure of New Century Financial in April 2007 was the lead indicator for the resulting problems in subprime “.
***
BMO economist Robert Kavcic described the nationwide tightness in the labour market,
“This week’s edition of Focus will look at the provincial economic outlook, and explore a few key themes at the regional level. One of the big takeaways is that there is a lot of uniformity in economic conditions across the country, which is usually not the case in a country with different provinces pushed and pulled by much different factors (e.g., oil booms and busts). One example is that labour markets are drum tight from B.C. to Newfoundland & Labrador, with every province at or near record low jobless rates (Alberta is furthest away since they have seen some extreme episodes in the past, but that labour market too is indeed tight). This is a much different environment than past periods where you’d have workers flying into Fort McMurray from Atlantic Canada to find work”
“BMO: “labour markets are drum tight from B.C. to Newfoundland”” – (research excerpt) Twitter
***
Diversion: “How Could This Have Happened?” – The Atlantic
Tweet of the Day:
Scott Barlow