Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC analyst Paul Holden published a preview of Canadian bank earnings. He is bullish on the majority of the sector,
“There are plenty of reasons to remain positive on the banking sector – growing fee income, diminishing credit risk, record capital ratios and the potential to benefit from rising interest rates. While FQ2 results may be hindered by the lack of net interest income (NII) growth, many of the other positives should come through. Our FQ2 estimates are 6.5% higher than consensus, on average, and we believe there is capacity for further positive revisions to 2022E consensus. While valuation multiples are now at a modest premium to trailing five-year averages, we think there are sufficient potential catalysts that the sector can continue to trade well. We like the group as a whole and our favourite names are TD, BMO, BNS and CWB.
“@SBarlow_ROB CIBC bullish on the bulk of the Canadian bank sector as earnings reporting approaches” – (research excerpt) Twitter
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Institutional investors are asking BNS strategists whether the loonie can hit parity with the USD,
“In conversations with clients over the past week or so, a couple of common themes are emerging in questions surrounding our outlook; could the CAD return to parity and how long do we expect USDCAD to remain below 1.20 before the exchange rate “normalizes”? We addressed the first issue in a podcast recently; briefly, while circumstances are broadly similar now to the early 2000s when the CAD surged (soft USD, stronger commodity prices, hawkish BoC), there are some important differences. Back then, the dot com bust, followed by the housing market collapse left the US economy very weak, the USD was exceptionally weak as a result of this and the “twin deficit” burden while commodity prices were also exceptionally strong (crude oil rising to—and eventually through—$100) on the back of demand from a rapidly expending Chinese economy. So, as a rule, “never say never” but the likelihood of USDCAD returning to parity over the next few years seems unlikely.”
" @SBarlow_ROB BNS: Can the CAD hit parity?” – (research excerpt) Twitter
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Domestic inflation readings have been sky high recently but are not that remarkable (yet) compared with pre-pandemic levels, according to BMO economist Benjamin Reitzes,
" The big headline on Wednesday was that Canadian inflation jumped 3.4% y/y in April, a level not seen for just under a decade (May 2011, to be exact). However, the details of the 0.5% monthly advance were far more important, as base effects are providing a big lift to inflation… The most notable part of the April CPI report was that the gains were broad-based… While many of those increases likely aren’t repeatable, we could see similar types of price pressure elsewhere as rising commodity prices, supply chain disruptions and other factors feed through into prices. But before you get carried away, prices are up just 1.6% annualized over the past two years (a nod to Douglas Porter), which largely excludes any pandemic effect. Even so, a few more months of similar-sized monthly increases and the inflation talk is going to get an awful lot louder.”
“@SBarlow_ROB BMO: “[Canadian] prices are up just 1.6% annualized over the past two years” – (research excerpt) Twitter
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Newsletter: “Four investing lessons from the ‘Yale Model’ legend” – Globe Investor
Diversion: " It’s Sundress Weather in the Arctic” – Gizmodo
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Scott Barlow