Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter sees the potential for relief from food inflation:
“The big sticking point in the latest Canadian CPI was food prices, which just won’t let go. Instead of showing any signs of easing, grocery prices jumped 2.0% m/m, lifting the annual rate back up to the 40- year high of 11.4%. To be clear, this is a global issue, as U.S. food from home prices are up by a nearly identical 11.3% y/y. Food prices in the Euro Area are up more than 16% y/y, and 17% in Britain (the latter, replete with tomato shortages, apparently). Is there any hope for near-term relief? Producer prices don’t yet point to a big back down of food inflation, but raw material prices are sending a friendlier signal for consumers. In Canada, average raw material prices for crops and livestock have cooled notably from the scorching pace in late 2021 and early 2022. The costs typically take time to hit the store shelves though (the normal lag is roughly nine months). And even then, we are not looking at a pullback in prices, just a calming of the increases.”
“Relief could be ahead from food inflation (BMO)” – (research excerpt) Twitter
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BofA Securities U.S. quantitative strategist Savita Subramanian continues to see a sea change in markets,
“The problem children from the GFC (financials, homebuilders, materials) and from climate risk (fossil fuels) have been starved of capital for 10+yrs. Tech, blockchain, green – basically, disruption writ large - have enjoyed free money, amplifying the duration risk of the S&P 500. Tech consumption crescendoed with COVID’s demand pull-forward reminiscent of Y2K. We like the capital-deprived sectors; bloated growth sectors still need to rationalize capacity after overbuild. Infrastructure/net zero capex could drive commodities demand; supply discipline and capital discipline could smooth their earnings… Three sources of liquidity have dried up: QE, fiscal stimulus and corporate stimulus. The two biggest buyers of treasuries - China and Fed - are done. Fiscal stimulus is unlikely with gridlock plus deficit hawks’ nuclear option – using the debt ceiling to force spending discipline. Corporates’ COVID firing freezes and assistance are now belt tightening and layoffs. Cash is scarce and 5% more valuable: cash users (long duration growth) should cede leadership to cash sources (dividend growth, cash flow yield)”
“BofA: “Three sources of liquidity have dried up”” – (research excerpt) Twitter
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Diversion: " The 2024 U.S. Presidential Race: A Cheat Sheet” – The Atlantic
Tweet of the Day: " As a policy aside, the one country in the world that has done the most to clamp down on blind bidding in residential real estate is Sweden. Doesn’t look like it’s doing a whole lot for them” – Twitter
Scott Barlow