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

Scotiabank analyst Meny Grauman assessed the potential negative effects of a U.S. credit crunch on domestic banks,

“Talk of tighter credit conditions in the U.S. is likely to impact Canadian bank results even beyond their direct exposure to the U.S. market. For a while now we have highlighted the fact that the operating environment for Canadian banks is getting tougher, and recent events in the U.S. only add conviction to that view. Besides the rising odds of a harder economic landing impacting numbers, we can add growing competition for deposits, continued quantitative tightening, increased regulatory and market scrutiny on liquidity and unrealized gains/losses, rising taxes, higher capital requirement (that may still move higher), and the ongoing implementation of the Basel III update … Looking ahead we expect loan growth across the group to continue to slow, but BMO should see a lift from the BoW deal which closed at the start of Q2, while TD will get a lift when (if?) it closes its announced acquisition of FHN… Although slowing credit growth by definition is a headwind to bank profitability, our analysis shows that Canadian bank stocks actually perform well during these periods). That counterintuitive result appears to be due to the fact that markets are forward-looking”

Mr. Grauman has “sector outperform” ratings on Bank of Montreal, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank.

“How a U.S. credit crunch would affect Canadian bank profits (Scotiabank)” – (research excerpt) Twitter


Domestic consumer confidence is improving despite the combination of high debt levels and rising interest rates, as BMO economist Shelly Kaushik noted,

“Canadian consumer confidence, as measured by the Conference Board, ticked up in March as inflation continued to ease. The report noted improvements in current and future finances as the Bank of Canada announced a pause in rate hikes in the month. And, the outlook for jobs brightened amid further tightening in the labour market—most people believe there will be as many job opportunities in six months as there are now, despite recession chatter. The effects of the BoC’s pause were sprinkled throughout this report; for example, British Columbians, who have the highest debt-to-income ratio in the country, are also the ones who reported the largest rise in confidence. Nationwide, it looks like confidence may be on an upswing after bottoming out late last year”

“”Canadians regaining confidence” (BMO)” – (research excerpt) Twitter


Citi global economist Beata Manthey’s quarterly report is called Leadership Change,

“Recent volatility in the banking sector has reminded us of the consequences of monetary tightening. Investors will be wondering what will break next—and we think attention will start shifting from risks of higher rates to risks of lower GDP and deteriorating fundamentals. The ongoing confidence crisis could limit banks’ risk appetite and reduce the flow of credit. Even before recent turmoil, lending conditions were already getting tighter. Concerns about deteriorating EPS mean our sector strategy is biased towards Defensives and quality Growth. We raise IT to Overweight to reflect the change in market leadership towards quality. We downgrade Financials to Neutral (from Overweight previously), as lingering concerns over the Banks sector and tightening credit conditions could continue to weigh on sentiment. We Underweight key cyclical sectors, including Industrials and Consumer Discretionary”


Diversion: “Read Old Books” – Collaborative Fund

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