Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities commodity strategist Javier Blanch published his short and mid-term forecasts for global oil prices,
“Coupled with limited US shale supply growth and OPEC’s tight grip on the market, we now expect the reopening of China to result in Brent crude oil prices averaging $88/bbl in 2023, down from $100/bbl prior, and $90/bbl in 2024. Why? Russian oil output has exceeded expectations in recent months due to lax EU/US sanctions (see Oil’s Potemkin problem). Yet oil prices should still recover as mobility in the Asian region gains steam over the next 18 months. Moreover, if Europe and the US avoid recession, world oil consumption could increase year-on-year by 1.8mn b/d in 2023 and 1.4mn b/d in 2024. Thereafter, oil demand should embark on a much slower growth path into 2025 and beyond, averaging just 400k b/d in 2026-28 in our projections… However, this oil demand slowdown as electric vehicle (EV) sales ramp up into the end of the decade should meet limited supply increases due to structural underinvestment in the energy sector. In this “race to the bottom”, we continue to believe Brent prices will average $60 to $80/bbl through 2028 to keep the oil market balanced”
“EVs and oil prices (BofA)” – (research excerpt) Twitter
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Strategists at Scotiabank discussed the ongoing weakness in large-cap tech stocks,
“US Tech behemoths have been losing some steam lately, with the Nasdaq underperforming the S&P 500 by over 550bp so far in 2023. Weaker profit trends partly explain why the rally recently hit a wall as Tech endured a couple of months of EPS contraction .... S&P 500 Tech, Media & Entertainment, Internet Retailing (TMI) 12-month forward EPS fell into contraction territory in October 2022, and now exhibits weaker EPS trends (down 8.8 per cent year-over-year) than Defensives (down 5.1 per cent), Cyclicals ex-TMI (up 1.2 per cent) and Resources (up 35 per cent). Compared with the sector leadership seen since 2021, a huge trend reversal is currently occurring. Until recently, in the post-pandemic era, EPS growth level for Tech corroborated its valuation gap. Disappointing earnings explains why investors aren’t ready to pay a significant premium anymore. ... TMI 12M Fwd PE is still on the upswing, with the sector trading at 21.7x on compressed earnings. In our view, as long as Tech earnings continue to disappoint and sport negative revisions, elevated valuation levels could prove hard to sustain, and outperformance harder to generate. "
“”U.S. tech dominance on shaky grounds” ( Scotiabank)” – (research excerpt) Twitter
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Morgan Stanley economist Seth Carpenter reiterated his predictions of a U.S. soft landing,
“With inflation running higher than at any point since the 1970s, we have another key difference. The Federal Reserve (and other DM central banks) is hiking rates to bring inflation down. This hiking cycle is the first since the 1970s with that motivation. Put differently, in most previous cycles, hiking rates went along with strong growth, and when growth and earnings showed signs of slowing, policy retreated. This time, the Fed is intentionally raising rates to slow growth substantially below the potential growth rate of the economy and plans to keep them high while the economy slumps. This central bank strategy is clearly a key difference relative to other cycles.
“So, where does this discussion leave us? Why is it important to highlight the differences in this cycle? We have had a “soft landing” view for the US for a long time. The pushback has consistently been that previous cycles have not had soft landings, so it is not reasonable to forecast one now. We were comfortable that there were enough differences in the cycle to produce a different outcome. The market narrative has shifted toward us,”
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Diversion: “6 Times Hollywood Was Right About Getting ‘Too Close’ to AI” – Gizmodo
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