A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi strategist Dirk Willer recommends moving equity exposure away from the U.S. and into the U.K.,
“The Ukraine/Russia conflict has taken center stage. Typically geopolitical events offer buying opportunities. While a further oil spike is a risk, we find that oil price spikes are not a strong enough recession signal. In equity space, we continue to run with a relatively small overweight, as the lift-off by the Fed is typically followed by some indigestion. We diversify away from the US, adding the UK as a value centric overweight, hedged with a European underweight … spikes in oil can lead to recessions, and in those cases buying the geopolitical dip is a mistake. We find that oil spikes have a quite mixed history of predicting recessions. Even when manually excluding some sample points of oil spikes as they seem to be linked to genuine recoveries, still leaves us at a 50% hit ratio at best. As such we prefer to rely on signals from the US curve rather than on oil to position for a more recessionary climate.”
“Citi recommends increase weight in U.K. equities” – (research excerpt) Twitter
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Morgan Stanley chief U.S. economist Ellen Zentner predicts six rate hikes for the Federal Reserve this year and an earlier start to quantitative tightening ,
“We continue to see the FOMC delivering its first 25bp rate hike at the conclusion of its upcoming March 15-16 meeting, and now see the FOMC following that with consecutive 25bp rate hikes at its May, June, and July meetings. We see two additional rate hikes in the latter part of the year, in September and December, for a total of 150bps in rate hikes in 2022. Whereas we previously saw QT [ quantitative tightening] announcement coming at the conclusion of the FOMC’s July meeting, we now expect that announcement to come in June. We continue to see the FOMC targeting aggregate balance sheet runoff caps of $80 billion/month ($50 billion in Treasuries, $30 billion in MBS), with those caps phased in over a two-month period. "
“MS sees six Fed hikes in 2022 and an earlier start to QT than previous” – (research excerpt) Twitter
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BMO economist Doug Porter sees gold fulfilling its historical role as an inflation hedge,
“Gold has long been viewed as a safe haven and/or an inflation hedge. It may be living up to its reputation. Bullion prices touched $1900 on Thursday, or nearly $100 above the 200- day average. It is likely benefitting primarily on geopolitical concerns (i.e., Ukraine), but the persistence of inflation is no doubt adding another leg of support. The only time that gold has sustainably been above $1900 was during the summer of 2020 (peaking at $2067 in August), during a period of maximum economic uncertainty. Its prior peak was in August 2011, when the U.S. debt ceiling caused a downgrade and the Euro crisis was raging. Yes, gold does indeed thrive in “interesting” times. Sidebar: Adjusted for inflation, the all-time record high for gold prices remains the 1980 spike, which took bullion to the equivalent of $2400 in today’s dollar terms. "
“BMO: BULL-ion” – (research excerpt) Twitter
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Diversion: “The Stuff that Nobody Celebrates – Irrelevant Investor
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Scott Barlow