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

Citi analyst Maximilian Layton wrote that it might take months for global mining stocks to recover,

“Metals consumption in China took a massive knock during April, with industrial output falling year-over-year for only the third time in the history of the data. Our latest reading of the Citi China Copper End use Tracker (CCET) points to end use consumption declining by 9.4% y/y to levels below pre-COVID (2019 average) levels. These run rates imply copper and aluminium have shifted into surplus globally in April (aluminium as much as 3-4mt annualized), and it will likely take some time for the balances to tighten back up again. Luckily for bulls and the producers, the surplus is contained in China for now, either because of logistical constraints or because it has already been turned into products. But this is unlikely to last and we remain bearish near term.

“We see LME copper falling to $8,500/t on a 0-3 month view, aluminum to $2,700/t, nickel to $25,000/t, and zinc to $3,300/t over the same period. We don’t think the degree of the weakness in China can be fully explained by the lockdowns, and believe the economy has been deteriorating in the absence of sufficient government easing. We continue to recommend selling rallies until China gets ahead of the curve”

“Citi: “copper and aluminum have shifted into surplus globally in April”” – (research excerpt) Twitter


Morgan Stanley U.S. equity strategist Michael Wilson, who correctly forecasted the ongoing market volatility with research reports in mid-2021, has been traveling and summarized the mood of the professional investors he met on the road,

“Equity clients are bearish... a necessary condition for a sustainable low, but an insufficient one. While sentiment and positioning for active institutional investors is low, asset owner clients remain heavily exposed to equities. As they reallocate, this should further weigh on equity prices. We think 3400 [for the S&P 500] is a level that more accurately reflects the earnings risk ahead and expect that level to be achieved by the end of 2Q earnings season. Until then, vicious bear market rallies should be used to lighten up on the areas most vulnerable to the oncoming earnings reset … Earnings reports from major retailers raised cyclical concerns among investors last week as they pointed to margin pressure, a struggling low end consumer and excess inventory build. While we think the margin pressure and waning low end consumer demand dynamics have been largely understood by the market, we think the excess inventory element and the associated risk to pricing is less understood and is just now beginning to be reflected in stock prices”

The S&P 500 closed Monday at 3974, so 3400 is another 14.4 per cent lower.

“MS: “We think 3400 is a level that more accurately reflects the earnings risk ahead “”


Also from Citi, U.S. equity strategist Scott Chronert recommended clients buy high-quality stocks on market pullbacks,

“A more focused approach to Quality is looking for stable cash flow generators. Companies with lower variability in cash flow growth have outperformed more volatile cash generators of late. Consistent cash flow generation could be a sign of either pricing power, or business cycle defensiveness. Both of which we think are attractive in this environment… We build off the stable cash flow generation and low debt ratio sorting approaches noted above by layering in a de-rating component to the two screens included within. Quality stocks that have seen valuations notably drop below medium-term averages could be attractive portfolio additions as we work through a changing Fed policy backdrop, and building recession concerns.”

The non-financial stocks [Canadian investors tend to focus on domestic companies in the sector] on the list are DISH Network Corp., Alphabet Inc., Omnicom Group Inc., Sirius XM Holdings Inc., AT&T Inc., Warner Bros. Discovery Inc., Advance Auto Parts Inc., Domino’s Pizza Inc., General Motors Co. , Home Depot Inc., Ross Stores Inc., Estee Lauder Co.s Inc., Charles River Laboratories Intl, Danaher Corp., Intuitive Surgical Inc., Medtronic PLC., QIAGEN NV, Dover Corp., IDEX Corp., JB Hunt Transport Serv Inc., Middleby Corp., Rockwell Automation Inc., Akamai Technologies Inc., Genpact Ltd., Mastercard Inc., Berry Global Group Inc., WestRock Co., American Tower Corp., Digital Realty Trust Inc. and Sun Communities Inc.

“Citi: Beat down U.S. stocks with cash flow stability” – (Table) Twitter


Diversion: “The Most Mind-Blowing Images Ever Taken of Earth from Space” – Gizmodo

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