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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 described the effects of rising home costs on domestic inflation measures,

“The relatively modest rise in Canadian core inflation is notable in the face of firebreathing home prices. Overall shelter costs were up 4.3% y/y last month, the fastest since 2008, but that’s a long way from what home prices are doing. The CPI is driven by new home prices, which have risen a sturdy 12.9% y/y, a 34-year high—albeit barely half the rise in existing prices. (The MLS Home Price Index was up 24.4% y/y in June, which is what passes for “cooling” in Canada.) But this strength in home prices has been nearly offset by an ongoing retreat in mortgage interest costs; they were down 8.6% y/y, an all-time low. This metric gradually adjusts to mortgage rate changes over time, and will remain a brake on the CPI for some time yet. Meantime, in the middle, rents are starting to tick back up again after relief last year, rising just over 2% y/y.”

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“@SBarlow_ROB BMO: How ‘fire-breathing’ housing costs affect (and don’t) Canadian inflation” – (research excerpt) Twitter

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Citi analyst Andrew Kaplowitz noted the steady progress of infrastructure-related legislation through U.S. congress and attempted to identify the biggest U.S. winners from the eventual results,

“We still think that an infrastructure bill could likely be approved in fall 2021/into the end of the year. As we have highlighted earlier, potential incremental spending on surface transportation (roads/bridges), broadband, and water infrastructure bodes well for most of our E&Cs [engineering and construction companies] … We highlight ACM [Aecom Technology Corp.] & J [Jacobs Engineering Group Inc.] (surface transportation, airports, and water infrastructure) and PWR [Quanta Services] & MTZ [Mastec Inc.] (power/grid and broadband) as key beneficiaries. With recent relative valuation for E&Cs having pulled back (0.91x [the S&P 500 average] from a recent peak of 1.17x), we see today’s announcement as reflecting positive momentum relative to the passage of the infrastructure package that could again support multiple appreciation.”

“@SBarlow_ROB Citi’s top picks to benefit from U.S. infrastructure bill” – (research excerpt) Twitter

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The two stocks I watch to assess the extent to which robots and factory automation (FA) are affecting demand for labour are Rockwell Automation Inc. in the U.S. and Japan’s Fanuc Corp.. The latter reported earnings earlier this week,

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“Q1 orders of ¥224.5bn (+109% YoY, +8% QoQ) were a new record, surpassing our forecast of ¥187.5bn. Most of the beat came in the robo-machine division (+8% QoQ), which included a one-off boost in smartphone-related orders in China, although there was steady demand from makers of PCs/tablets. It was also encouraging to see QoQ order growth in the other two main divisions: FA (+8%, even with a decline in China) and robots (+13%). Orders grew 27% QoQ in Europe, with Asia/Japan (+10%), North America +4%, and China +1%. The book-to-bill ratio was 1.21x, up from 1.18x last quarter. Fanuc has raised full-year sales guidance to ¥728bn and OP to ¥194bn (OPM [operating margin} of 27%), but the CEO did highlight the impact of component shortages, which are delaying some shipments… There is a risk of a near-term adjustment for orders, but we think Fanuc remains one of the best placed names to benefit from secular growth in automation.”

“@SBarlow_ROB Tracking the rise of the robots (Fanuc)” – (research excerpt) Twitter

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Newsletter: The best kinds of wealth – Globe Investor

Diversion: “She risked everything to expose Facebook. Now she’s telling her story” – M.I.T. Technology Review

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