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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BofA Securities commodities strategist Doug Leggate made an important point about financial upheaval and the oil prices represented by futures markets,

“Spring Break in the Southern US [coincided with a] melt down in equities and an apparent liquidity squeeze indicative of an exit across all asset classes as funds move defensive. For now, the oil macro hasn’t materially changed; but just as the end of ‘cheap money’ roils the financial sector one can only assume the same higher cost of funds to carry speculative commodity positions has contributed to a near 13% collapse at the front of the [futures] curve, which has carried across the strip through any period that has the liquidity to be meaningful. Inventories are building with all three agencies (IEA, EIA & OPEC) forecasting a surplus in 1H23. That’s not new; but what needs to be watched is the scale of the expected deficit in 2H23 with an expected demand recovery led by China now juxtaposed against elevated equity market concerns, evidenced by the spike in the VIX and led obviously by the banks irrespective of multiple parties suggesting any characterization of contagion is overblown. But with the ‘shoot first, ask questions later’ mentality of a market that has painful corollaries of when the banks led the great financial crisis of 2008/9, there are other energy specific consequences worth noting.”


Credit Suisse global strategist Andrew Garthwaite warned clients against economically sensitive stocks,

“Non-financial cyclicals appear to be pricing in too much optimism: they are discounting a [global manufacturing] PMI of 60 [it’s currently 50] (implying 3.5% GDP growth); … Cyclicals implicitly assume we are early-cycle when in fact we are very late-cycle. Earnings revisions have been strongly supportive this year, but typically when relative earnings revisions have been at this level in the past, cyclicals have gone on to underperform the majority of the time. The macro red flags: The US yield curve last failed to predict a recession on this level of inversion in 1964. Lead indicators are consistent with a recession. Service sector inflation is double the Fed’s desired levels (requiring we think 4.5-5.0% unemployment to address it – which in turn requires GDP growth of zero for six months). The lags in the system are much longer than normal, increasing the risk of policy overkill. (Already bank lending conditions are consistent with a very sharp slowdown in growth, even before the further tightening that is likely to come after recent events.)”

“CS’s Garthwaite is unequivocal” – (research excerpt) Twitter


Citi bank analyst Keith Horowitz sees an opportunity for brave investors to buy large cap U.S. banks, as summarized in the firm’s weekly summary of prominent research reports,

“With the caveat that news flow is still dynamic, Keith and team note that this scenario avoids the outcome where uninsured deposits aren’t available. But who are the winners? “Large banks are clear winners, and questions remain for smaller regionals…but the issue will be where that line is drawn”, Keith and the team caution. Keith goes on to explain that they prefer large-cap banks with strong diversified deposit franchises and clean asset quality, namely JPM, WFC, and now adding PNC. “The recent pullback we believe offers a good opportunity to buy one of the best mgmt. teams among the large regional banks”, say Keith and team. Thus, they upgraded PNC to Buy for several positives including “larger benefit than most from asset repricing, good result from fair value analysis, clean asset quality, and strong deposit base”


Diversion: “What Have Humans Just Unleashed?” – The Atlantic

Tweet of the Day: “The “Fed Put” is back with assets on their balance sheet increasing $297 billion over the last week, the largest spike higher since March 2020. Thus nearly half of the Quantitative Tightening since last April was undone in a single week” – Twitter