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

Domestic and U.S. employment reports were released at 8:30 a.m. ET Friday.

In Canada, 63,300 new jobs were created when 25,000 were expected. For the U.S., 134,000 new jobs were announced relative to the consensus guess of 185,000.

Romas Budd is a fixed income portfolio manager from Scotiabank-affiliated 1832 Asset Management who thinks Canadian bond holders are set to take losses in the short term,

“'There is a real chance for Canadian bond market under-performance in the next couple of months,' said Budd, who has shortened the duration of his Canada bond portfolio. ‘It’s kind of funny that issuers have been preparing for that for quite a long time, but it seems to me that the buy-side haven’t really believed that rates were about to go up and stay up.’”

This does not, of course, apply to bond investors who hold bonds to maturity who will receive exactly the returns they expected, as always.

“Canadian Bonds Join Rout, Poised to Underperform as Rates Jump” – Bloomberg

“Rising yields test ‘blind faith’ in real estate and dividend investments” – Barlow, Globe Investor


BMO senior economist Robert Kavcic notes that the Canadian equity market is dirt cheap relative to the S&P 500, but it might be a “value trap” with the TSX continuing to underperform,

“The earnings yield spread between the TSX and S&P 500 reached similar levels, but in the opposite direction (i.e., Canada was expensive) around late 2010, and Canadian stocks subsequently underperformed in a major way. Argument that this is a value trap: The TSX simply doesn’t have the exposure to what is working right now at this stage of the cycle—technology and consumer discretionary—while it has plenty of exposure to banks, which tend to lag when credit growth slows … Arguments for outperformance: Sentiment toward Canada is about to turn with a major trade risk now removed, and it can only get better from here for Canadian oil. “

“@SBarlow_ROB TSX a value trap? BMO makes argument for and against” – (research excerpt) Twitter

“@SBarlow_ROB Garthwaite: "from here, global equities can rise and the US underperform"” – (Credit Suisse research excerpt) Twitter


There is a remarkable lack of discussion about Thursday’s yield-induced equity market sell-off Friday. In any event, Goldman Sachs argues that the speed of rising yields often matters more (for equity prices) than how far they climb,

“Higher bond yields do not necessarily result in lower equity prices. As we wrote in our Corporate Conundrums report, the speed of changes in bond yields often matters more for equities than the level. Equities typically post the strongest returns when bond yields are falling, but historically have also been able to digest gradually rising bond yields (less than 1 standard deviation, or 20 bp in today’s terms).”

“@SBarlow_ROB GS: "speed of changes in bond yields often matters more for equities than the level"” – (research excerpt) Twitter

“Red October rumbles on ahead of U.S. jobs data” – Reuters


Tweet of the Day:

Diversion: I don’t listen to a lot of podcasts, but this extended one with Matt Damon could have been twice as long and I would have found it too short,

“Matt Damon on ‘Rounders,’ ‘Good Will Hunting,’ and ’90s Hollywood” – The Ringer

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