Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities analyst Doug Leggate sees a potential lack of global oil supply as a factor that could drive commodity prices higher than current elevated levels in 2022,
“The most palpable data point that looks beyond short term oil price outlook this week is commentary from Saudi Aramco CEO Amin Nasser suggesting spare capacity may stand at just 3-4 million barrels per day – surprising perhaps given nameplate capacity vs a stale Oct 2018 OPEC+ baseline closer to 4.2mm bpd. Reflecting on what we view as implied production capacity limits at Russia / Saudi, along with declines in Nigeria & Angola, we suggest that supply risk in a post COVID demand recovery is skewed towards a much tighter market than is suggested by the steep backwardation implied by the current forward curve… we continue to view the US oils as materially undervalued, and leaving our sector strategy less concerned about short term commodity risk.”
“@SBarlow_ROB BofA: Less spare oil capacity than thought” – (research excerpt) Twitter
Morgan Stanley analyst Edward Stanley combed through conference call transcripts and venture capital deals to uncover that the metaverse is the next big market theme. The analyst outlined the trend for generalist investors in a Wednesday research report,
“[It] will take many years and cross company collaboration to allow users to seamlessly move across millions of experiences and take their digital avatars and possessions around with them … Millions of people play on Metaverse platforms every day, which typically take the form of social gaming … Companies – Roblox, Facebook, Naver – are building their own Metaverses within which there is access to millions of experiences that players can move in and out of … A ‘true’ Metaverse would allow for interoperability between experiences across all companies’ Metaverse platforms … The target audience at present is young gamers, mostly those under 17, but the average age is rising steadily … How is a Metaverse built? Chips, cloud, telecoms, hardware, 3D engines, game developers, rendering and spatial computing are all required. On top of this, creating the vast number of experiences required relies on content (weapons, avatar fashion, etc) made by creators, who are paid depending on their creations’ popularity … When will it move share prices? It already is for gaming stocks – see Roblox”
“@SBarlow_ROB MS: “The Metaverse for Generalist Investors”” – (research excerpt) Twitter
Bespoke Investment Group looked at previous periods of high inflation and the effects on equity market returns,
“While the current streak of 5%+ increases in y/y CPI joins only a handful of other periods since the end of WWII, the lengths of the five other streaks vary widely… With equities reacting negatively to this [Wednesday] morning’s hotter-than-expected CPI report, investors want to know what this now ‘persistently transitory’ inflation means for equity market returns.
“Looking at forward returns following each [period when inflation was above 5.0 per cent for six months] the results are mixed to say the least. In three periods, the S&P 500 was down three, six, and twelve months later, while another two periods were followed by positive returns over the following three, six, and twelve months. Lastly, the period following the sixth month of the first post-WWII streak was followed by what can only be characterized as flat returns over the following three, six, and twelve months.
“… One thing the two periods of positive returns have in common is that the elevated inflation readings did in fact end up being transitory. The streak in the early 1950s ended up lasting just over a year (13 months) while the streak in the early 1990s ended at seven months. At six months, the current streak still ranks at the short end of the spectrum relative to prior streaks, so bulls don’t need to panic yet. But the longer we see these elevated readings, the more of a headwind it will likely become for equities.”
Inflation has been less damaging to Canadian equities because commodity prices have historically climbed with inflation pressure.
“@SBarlow_ROB Bespoke: How inflation has affected equities historically” – (research excerpt) Twitter
Newsletter: “A timeline for oil and gas obsolescence” – Globe Investor
Diversion: “Experts From A World That No Longer Exists” – Collaborative Fund
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