Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities weekly summary of client investment flows finds a “stealth flight to quality” so far in the second half of 2021,
“IG [investment grade] bonds (LQD) & semiconductors (SOX) both back at highs, both leaders of ‘secular stagnation’ bull market; Brazilian real (BRL), world’s best ‘risk-on’ indicator, dithering above 5.00 level despite [Brazilian central bank] hiking 325bps in 5 months; stealth ‘flight-to-quality’ thus far in H2: utilities, health care, REITs best SPX performing sectors … EM [emerging market] stocks approaching 20-year low versus S&P500 ; big lows in EM normally triggered by cathartic events (LTCM, 9/11, Lehman) but EM unambiguously where the secular value is, e.g. EM bonds cheapest relative to US high yield in 20 years.”
“@SBarlow_ROB BofA: “EM bonds cheapest relative to US high yield in 20 years”” – (research excerpt) Twitter
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Morgan Stanley analyst Adam Jones sees a smaller, less profitable future for existing automakers as summarized in the firm’s daily research update,
“MS Research Analyst Adam Jonas finds there is quite high acceptance that ICE [internal combustion engine] vehicles are on a path of de-adoption. On this, he encounters little debate. But at the same time, he finds many investors assume that for every ICE-vehicle that goes un-sold, the legacy auto companies can sell one new BEV to take its place and this can leave the market share of the legacy OEMs [original equipment manufacturers] roughly constant to where it is today. Adam has very serious concerns about to such an assumption when considering the proliferation of all-new BEV [battery electric vehicles] startups and big tech players setting sights on software-defined BEVs. In his opinion, the end result of his thesis is that the legacy OEMs individually, if not collectively, must prepare for a future of being a smaller and less profitable enterprise.”
“@SBarlow_ROB MS: existing automakers must prepare for smaller and less profitable future” – (research excerpt) Twitter
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Also from BofA Securities, analyst Ben Randol expects the loonie’s slide to continue,
" The Canadian dollar has strongly outperformed in 2021 due to a virtuous cycle of global economic recovery, strong commodity price appreciation, a hawkish central bank, buoyant risk appetite and supportive speculative flows. We see reversal of the dynamic playing out into end year, driven by moderation in terms of trade. Accordingly, we upwardly-revise our USDCAD forecast path to 1.27 [CAD US$ 0.79] in 3Q and 1.30 [US$0.77] in 4Q. We expect stabilization at the 1.30 level around the turn of the year and for a return to the mid-1.20s as 1H 2022 unfolds, predicated on assumed Bank of Canada (BoC) liftoff and commodity price stabilization next year … We find that commodity price gains specific to Canada since last year have run vastly ahead of historical precedent (2002 & 2010) at this point in the global economic recovery. We are penciling in a -10% medium-term moderation in prices corresponding to about a 5% decline in Canadian terms of trade”
“@SBarlow_ROB BofA: “CAD: Slide to continue”” – (research excerpt) Twitter
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Diversion: “@SBarlow_ROB The $1 trillion infrastructure bill is a baby step toward the US grid we need” – M.I.T. Technology Review
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Scott Barlow