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

Scotiabank strategist Hugo Ste-Marie emphasized the importance of the copper price as an indicator for the global economy and markets in Tuesday’s “Dr. Copper Breaking Out,”

“Copper is often seen as a good barometer of global economic activity and its recent breakout is sending a positive message, in our opinion… the next major resistance to watch stands around US$2.70/lb, and if exceeded, we would expect the upswing to extend toward the US$2.85/lb zone over time… As we flag in Exhibit 2, the copper-to-gold performance usually tracks the year-over-year (y/y) change in the world manufacturing PMI closely. Positive EPS revisions around the corner. If the bounce in copper prices is sustained, it is likely to translate into positive EPS revisions for the base metal stocks down the road.”

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The loonie, for now, is also tracking the copper price more so than crude or relative bond yields.

"@SBarlow_ROB BNS: “Dr. Copper Breaking Out” - (research excerpt) Twitter

***

CIBC analyst Chris Couprie doesn’t seem to be too worried about the effects of working from home on office REITs in the near term (my emphasis),

“The question of whether workers can function remotely has echoed off home office walls since the majority of the Canadian office population has been working remotely from mid-March onwards…. Numerous factors including labour force demographics, job responsibilities, technology, management tools, and requirements for collaboration will all have an impact on adoption rates, as well as office space requirements. Well-located and functional properties with access to amenities should still be in demand from tenants, as employers will still seek to provide attractive atmospheres for employees who are full time or flexibly in the office. We think changes will take place over time (e.g., on lease renewal) and, looking to the end of the current development cycle, with an increase in WFH adoption it is reasonable to assume that office vacancy rates could at the very least rise moderately from current levels.”

“@SBarlow_ROB CIBC: "Working From Home And Office Real Estate Back To Work… Or Work From Home?" – (research excerpt) Twitter

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Citi U.S. equity strategist Tobias Levkovich argues that corporate debt deleveraging might be the next big trend and this has important implications for stock values (my emphasis),

“Credit loss provisions have increased and spreads have widened. [Commercial and industrial] lending standards have tightened, commensurate with more expensive financing terms … Not surprisingly, investors are rewarding higher-quality (balance sheet) stocks in this backdrop, and this could signal a requirement to deleverage, as buying back stock may not be an option to enhance returns. .. Remember that credit has been used to generate growth plus higher ROEs, and that could be more challenged in coming years … Cyclicals do not generally outperform Defensives until the default cycle gets near peaks. At the consumer level, delinquencies are important for Consumer Durables as well as Autos & Components plus Retailing. Hence, it still may be early in the process of seeing bankruptcies to determine if there is a clear path to stock price recovery.”

“@SBarlow_ROB C: "Cyclicals do not generally outperform Defensives until the default cycle gets near peaks" – (research excerpt) Twitter

***

Bank of America is forecasting a “Build America” boom in capital expenditure that will benefit healthcare, industrials and defense companies, and technology. The analysts provided a list of U.S. ETF stock symbols they expect to benefit – IHI, IHE and XBI for healthcare. ITA, XAR, PPA for Defense and aerospace. ROBO and ARKQ for industrial technology. SMH and SOXX for semiconductors and IRBO and IHAK for “future tech.”

“@SBarlow_ROB BoA predicts 'Build America" capex boom’ – (research excerpt) Twitter

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Newsletter: “What we know (and don’t) about what’s driving the market rally” – Globe Investor

Diversion: Pitchfork music is asking famous songwriters what song they wish they’d written, “The One Song Carly Rae Jepsen Wishes She Wrote” – Pitchfork

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