Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Helima Croft, RBC Capital Markets head of global commodity strategy, believes it’s now or never for crude prices,
“July is a critical month for the oil market. We have gone as far as suggesting that it’s now or never (or at least through the balance of this year) for the oil market from the perspective of reconciling cautiously optimistic sentiment with consensus of tight global paper balances [futures-related supply] . And while the recent upswing (spot WTI: up 8 per cent month-to-date) has helped to reaffirm the upside skew to sentiment, it is not yet clear that deep stock draws have taken hold (many expect draws in the 1.5 mb/d – 2+ mb/d range). The most obvious place to look is the US, where crude stocks have built by an average clip of nearly 375 kb/d during the first half of July. The first two weeks of July saw crude stocks increase by 5.2 mb … Net/net, demand in most regions has held up reasonably well, but record output from the US Gulf has been the swing barrel driving the fundamental framework on either sides of the Atlantic”
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Scotiabank strategist Hugo Ste Marie voiced some concern about TSX earnings,
“According to Bay Street’s consensus, profitability is expected to sequentially rebound by 4.4 per cent to $344 in Q2/23 following Q1′s slump (down 9.3 per cent quarter-over-quarter). Despite the rebound, Q2/23E is set to remain 12 per cent lower than the Q2/22 peak of $390. However, sell-side projects a rapid rebound in subsequent quarters leading to a new all-time high in Q3/24E and double-digit EPS growth next year. Revenues should also see a recovery from what is expected to be their cycle low in Q2/23. As in the US, this rosy scenario is predicated on margins bouncing back near their 2021/2022 highs and a robust economic acceleration. While this is not our primary scenario, Q2/23 profits estimates look achievable for now… The TSX’s H2/23 and 2024 profit prospects remain doubtful in our view.
“We see the following factors that could weigh on earnings: The pace of earnings cuts accelerated in 2023E, and few sectors are spared , Macroeconomic indicators are decelerating, Most commodities trade below sell-side forecasts , PCL [provisions for credit losses] charges will remain a headwind for banks’ earnings, 2024 profit margins forecasts are optimistic”
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Citi global strategist Nathan Sheets discussed the ongoing divergence in global manufacturing versus services growth,
“Global growth is running below-trend this year but considering the size and extent of recent headwinds is holding up relatively well. Underneath this resilient global picture there continues to be a marked divergence between strong services and languishing manufacturing sectors. As a result, manufacturing-intensive economies like China and Germany are struggling while more services-based ones like the United States are outperforming. While goods inflation has fallen notably, services inflation is still running high across a wide range of economies. Moreover, we see a variety of factors such as tight labor markets and strong travel demand that pose upside risk to services prices going forward. As such, we see central banks maintaining tight policy for some time to come and look for global growth to slow further in coming quarters. Still, some recent inflation data have been encouraging, and the probability of “soft landing” scenarios has risen”
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Diversion: “A few pieces of good news on climate change” – M.I.T. Technology Review
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