A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank commodity strategist Michael Loewen’s new client presentation is entitled “It’s Time to Get Long Energy,”
“The macro setup for energy is once again bullish; we believe we are at the beginning another upward cycle … Short-term tactical recommendation: [Long] Henry Hub exposure into the winter: North American natural gas markets have been under pressure, exemplified by Henry Hub contracts reaching twenty-year lows in H1/20. As demand shrunk, particularly in the industrial sector, and LNG export cargoes were curtailed, volumes wound up in bloating local inventories. Fundamentals have noticeably shifted into the autumn. With lower liquids drilling activity, associated volumes have dropped. Local demand is slowly picking up and LNG send-out volumes are expected to return to pre-COVID levels by November. All of these fundamentals, coupled with seasonally stronger demand due to normal weather could significantly draw down on inventories into the winter, thereby supporting higher pricing into the summer as well … Longer-term recommendation: [Long] benchmark WTI/Brent crude oil throughout next year. Global balances are currently under-supplied as a result of OPEC+ supply caps and sharply lower U.S. shale activity. As long as WTI remains in the low/mid-$40′s bbl range, shale E&Ps are unlikely to pick up new rigs, rather they will complete their DUC inventory in the attempt to keep production levels relatively flat and to pay down outstanding debt. Consequently, there will be a tipping point where under-supplied balances have drawn enough inventories to incentivize higher market prices and allow for OPEC+ to lift/soften supply caps.”
Scotia’s energy analyst Jason Bouvier has outperform ratings on Canadian Natural Resources, Enerplus Corp., Freehold Resources Ltd., and PrairieSky Royalty Ltd.
“@SBarlow_ROB BNS: It’s time To Get Long Energy” – (research excerpt) Twitter
“Oil rebounds as strong China trade data offsets supply concern” – Reuters
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Morgan Stanley U.S. equity strategist Michael Wilson remains bullish on the global recovery and thus his “Fresh Money Buy List” slants towards cyclical sectors, particularly financial and materials.
The featured stocks from the list in his most recent report are Ally Financial Inc., Citizens Financial Corp., Walt Disney Corp., Humana Inc., Johnson & Johnson, Linde PLC, Mastercard Inc., PVH Corp., S&P Global Inc. and T-Mobil U.S. Inc.,
“@SBarlow_ROB MS’s Wilson: Fresh Money Buy List” – (table) Twitter
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While Morgan Stanley is adamantly optimistic about the global economy, Bank of America global economist Michael Hartnett is becoming more skeptical (my emphasis),
“Four countries stand out in how they flooded the household sector with support. The US and Canada boosted DPI [disposable personal income] by about 10%, marking by far the biggest increase in the history of their data. Beyond the sheer size of the stimulus, what stands out is how weak these economies were anyway. For example, compare the US to the Euro Area. Over the two quarters US GDP fell only 4.2 pp less than Europe (-10.1% versus -14.3%) even though the growth in disposable income was 12.7 pp greater … We see downside risks—to varying degrees—in all of these countries, but for different reasons … In our view, the US is the most vulnerable. Korea, Canada and Australia continue to do a much better job of containing the virus. Moreover, their governments seem to be able to move forward with fiscal action as needed… We worry that the still high savings in the US is held by the healthiest households... most of the [U.S.] stimulus was designed to provide very short-term support”
“@SBarlow_ROB BoA: downside risk to growth for Europe, U.S.” – (research excerpt) Twitter
See also: “@SBarlow_ROB Barclays: “the US economy is downshifting to a slower recovery phase”” – (research excerpt) Twitter
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Diversion: “Waiting For A Star To Fall: A Tribute to 80′s Entertainment” – The Vintage Tribute (video)
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Scott Barlow