Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
National Bank Financial economist Matthieu Arsenau does not see a Canadian household debt crisis in the near term despite the ramp up in borrowing associated with the ongoing real estate frenzy,
“Households enjoyed the steepest jump on record for real disposable income in 2020 (+9.0 per cent) and a record increase in the savings rate. Excess savings – which we peg at 8.0 per cent of GDP – are currently hibernating in deposit accounts and are ready to be tapped by households … Households have enjoyed the strongest positive wealth effect since 2009 amid strong financial asset performance and surging home prices … The drop of debt service cost for homeowners is another important factor contributing to consumer strength. Indeed, Statistics Canada published data this month indicating a drop of 50 basis points over a year for the effective interest rate on mortgage debt. Can this trend endure? We think so… Despite our forecast of higher interest rates, we do not expect an interest payment shock for current homeowners through 2024″
“@SBarlow_ROB NBF: “No interest-payment shock in sight " for Canadian households” – (research excerpt, chart) Twitter
“BMO report calls on policymakers to ‘douse the fire’ on rapidly rising real estate prices” - Report on Business
***
Citi analyst Maximilian Layton expects a lucrative buying opportunity ahead in copper markets (my emphasis),
“Copper prices have fallen by ~$800/t, or ~8%, over the past month … The market is concerned about a litany of factors, predominantly macroeconomic, including increasing COVID-19 cases and related lockdowns in Europe, China credit tightening, concerns about a strengthening US dollar, and quarter end rebalancing … we see copper deficits becoming more visible over the next 3-4 weeks, and supporting prices physically as well as by attracting incremental speculative positioning. Though temporary physical headwinds are ample, we expect inventory draws to begin over the next month and become more material during May and June … We are strongly of the view that any further dip (if it happens at all) will be temporary and we recommend clients take or increase exposure to copper (particularly spreads) over the coming months. Specifically, we see a once in nearly 20-year opportunity for major refined copper inventory draws over the next 6 months.”
“@SBarlow_ROB C: “we see a once in nearly 20-year opportunity for major refined copper inventory draws over the next 6 months” – (research excerpt) Twitter
***
BofA Securities U.S. quantitative strategist Savita Subramanian prepared clients for the President Joe Biden’s expected massive infrastructure spending bill,
“The next fiscal package could be $3-4T, with major focuses on infrastructure, climate change, education and inequality. The market may already be pricing in additional stimulus, at least on one measure: the ratio of S&P 500 market cap to M2 money supply is 1.7x vs. the post-crisis avg. of 1.4x, indicating that over $2T of near-term M2 (rather than over time) would be needed on top of the prior $1.9T fiscal stimulus … A transition to a green economy will be front and center in any infrastructure bill, including investments in public transit, EV charging stations, energy efficient buildings, and climate-related R&D. Green infrastructure would be a net positive for the economy in the long-term, and Industrials and Materials are likely key beneficiaries. Commodities-driven companies could face headwinds unless they pivot from “brown” to “green” through acquisitions and aggressive goals… Amid US GDP forecasts of +7%/+5.5% in ’21/’22 from stimulus, we like GDP-sensitive cyclicals, small caps and value. And with the administration focused more on real inflation than asset inflation, global and US leadership could be very different. On capex, our quant work tells us that big spenders tend to underperform, but companies that get the money often outperform - we screen for those stocks in Table 1 to Table 4, and highlight re-shoring beneficiaries (Table 5) as well. Also see our analysts’ SMID ideas.”
The report includes a list of U.S. stocks most sensitive to infrastructure and capital expenditure. The top 10 are Kinder Morgan Inc., Intercontinental Exchange Inc., National Oilwell Varco Inc., Nasdaq Inc., Veritas Inc., Hologic Inc., Thermo Fisher Scientific Inc., Bank of New York Mellon Corp., Westrock Co., Schlumberger NV and NiSource Inc.
A separate stock screen uncovers “Top S&P 500 companies with highest sales sensitivity to non-residential fixed investment in Industrial/Other Equipment.” Topping that table are Incyte Corp., Vertex Pharmaceuticals Inc., Enphase Energy Inc., Lam Research Corp., CF industries Holdings Inc. and KLA Corp.
“@SBarlow_ROB BoA: ‘Table 1: S&P 500 companies with highest sales sensitivity to non-residential fixed investment in Structures” – (table) Twitter
" @SBarlow_ROB BoA: ‘Top 50 S&P 500 companies with highest sales sensitivity to non-residential fixed investment in Industrial/Other Equipment"” – (table) Twitter
***
Diversion: “Scientists Implant and Then Reverse False Memories in People” – Gizmodo
Tweet of the Day:
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Scott Barlow