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

BMO chief economist Doug Porter highlights rapidly falling housing prices in peripheral markets while taking a bit of a victory lap,

“For much of last year, we relentlessly harped on the wildness in Ontario housing markets in medium and small cities. One choice example was Chatham, where after decades of almost no growth, prices suddenly vaulted by roughly 90% in the first two years of the pandemic. The sprint lifted home prices in cities like this above Edmonton (which as recently as four years ago sported prices double that of Chatham), and almost to Calgary levels. A certain segment of analysts—i.e., almost everyone except us—assured us that this was all due to a shortage of supply, while rampaging investment demand amid rock-bottom rates had almost nothing to do with the sudden price spike. Strange how cities as widespread as Windsor, Welland, Woodstock, and Waterloo all simultaneously had a pressing supply shortage, after decades of no such talk in this region. Well, presto-changeo, the first moderate rate hikes have caused prices in these hot-house cities to suddenly plunge with precisely no change in the fundamental supply backdrop. Chatham, for instance saw a 20% price drop in the four months to June—one of the largest pullbacks in the country; and recall, this is before last week’s 100 bp mega hike weighs in. Do you suppose that in fact all along that it was out-of-control speculative demand that was the real issue?”

“BMO: “‘Hot-House Housing Markets Meet Mr Freeze”” – (research excerpt) Twitter

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Morgan Stanley strategist Michelle Weaver continues the firm’s tradition of highlighting trade ideas into earnings season, this time with a bearish slant

“2Q earnings season should be a negative catalyst for equities in the coming weeks … Looking ahead, margin growth is expected to be flat in 3Q but then is projected to accelerate, contributing positively to earnings growth for the out quarters beyond 3Q. We’re skeptical of this optimism … The dollar’s surge higher amid safe haven demand and hawkish Fed policy presents a headwind for US earnings. US companies in aggregate generate ~30% of sales abroad. Our math suggests that every percentage point increase in the dollar on a year-over-year basis provides an approximately 0.5ppt hit to S&P 500 EPS growth. Thus, the 16% year-on-year increase we’ve seen in the DXY index would translate into an 8% headwind for S&P 500 EPS growth, all else equal … Against that backdrop, we highlight 14 names for which Morgan Stanley Research analysts expect a near-term event to be a catalyst that should drive a meaningful move in each stock — 5 that we expect to react positively, and 9 that we expect to decline. We have been publishing this report since 2015 and this is the first time our analysts have submitted more stocks with negative catalysts than positive ones.”

The long ideas are EastGroup Properties, Eli Lilly, Gaming and Leisure Properties, Instructure and Marathon Petroleum. Short ideas are Chegg, Core Laboratories, DigitalOcean, HP Inc., Lazard, Logitech, SL Green and Telephone and Data Systems.

“MS: Still bearish on earnings” – (research excerpt) Twitter

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Citi does not sound overly optimistic about global economic growth in a report called Global Recession – a Clear and Present Danger,

“The global economy is in the midst of a marked slowing, and our baseline forecast accordingly calls for below-trend global growth this year and next. Notably, several major economies—including the United States and the euro area—are now expected to slip into recession over the next 12-18 months. Even so, the timing of these downturns varies, and they are seen to be relatively mild. On balance, our forecast sees the global economy skating through and avoiding a synchronized downturn. We note that these projections represent our modal views—i.e., the discrete outcomes that we judge most likely. But beyond the mode, the risks to our forecast look skewed heavily to the downside. As such, we also reaffirm our 50% recession call articulated in the last GEOS. Global recession is, indisputably, a clear and present danger.”

“Citi on global economy - ‘risks to the downside” – (research excerpt) Twitter

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Diversion: “Photos: The U.K. Reaches Its Highest Temperature Ever” – The Atlantic

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