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

Scotiabank strategist Simon Fitzgerald-Carrier thinks copper prices will continue to climb,

“Copper has been on fire lately, appreciating by over 20% since the beginning of the year. The move can be explained by investors expecting a broad economic activity rebound since the global manufacturing PMI returned to expansion last February. In fact, the second derivative in most countries’ manufacturing PMI has turned positive recently, along with the overall sentiment. As shown in our upper Chart of the Day, this environment generally favors copper relative to gold. As such, copper is now outperforming the bullion by 15% YoY (blue line). While we don’t expect a pullback in gold prices, we think copper could continue to benefit in relative terms under these conditions. More broadly, we believe investors are starting to realize that new supply of copper is limited, while demand is expected to grow quickly, supported by massive infrastructure spending needed for a green transition/ expected AI revolution, and should lead to a large supply-demand imbalance (deficits) for the metal in coming years”

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The results of BofA Securities monthly fund manager survey (FMS) were summarized by investment strategist Michael Hartnett in his typically blunt style,

“Bottom Line: most bullish FMS since Nov’21 driven by optimism on rate cuts rather than EPS; 8/10 say cuts in H2 & no recession, FMS cash levels down to 4.0% (3-year low), stock allocation highest since Jan’22; sentiment not at “close-eyes-and-sell” levels but risk assets vulnerable to more evidence of stagflation … 1st drop in global GDP & EPS expectations since Sep’23 as US macro pessimism jumps … most crowded trade = “long Magnificent 7″ (51%), followed by “long US dollar” (12%) & “short China equities” (11%) … modest defensive rotation in May (to staples from industrials); in absolute terms investors have big OWs in stocks (large cap growth), health care, tech, Europe, commodities, big UWs in REITs (largest since Jun’09), utilities, UK, discretionary, bonds”

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The usual drivers of the loonie’s value – oil prices, bond yield differentials and copper – show little correlation with the currency in recent years but CIBC economist Avery Shenfeld has found a new variable to watch,

“While monetary policy divergences can impact the Canadian dollar, its broadest movements against the greenback have more often been a reflection of whether the US dollar is generally weakening or strengthening against a basket of major currencies. The euro is the most heavily weighted developed-currency alternative to the greenback. As a result, in the past two decades, there’s been an 85% correlation between monthly average levels for the euro’s exchange rate versus the USD and the Canadian dollar’s valuation against the greenback. Hence our forecast for a recovery in the euro next year, and a general weakening in the US dollar, is key to our view that the loonie will reverse the weakness we’ll see if the BoC eases more than markets now assume while the Fed stays closer to current expectations. The euro seems poised to rally because the greenback has been bid up aggressively on its usual safe-haven status during troubled economic times globally, to the point where it looks overvalued on trade fundamentals, and vulnerable to the mean reversion we typically see after long runs against the basket of other major currencies. We have both the Fed and the ECB easing more than market is currently pricing-in, with the extra rate cuts on the same order of magnitude, and therefore not having much sway over dollar-euro”

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Diversion: “Water in N.W.T.’s Great Slave Lake is now so low, some houseboats won’t float” – CBC

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