A daily roundup of reserch and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities publishes a list of their proprietary indicators and how they’re changing. The consensus this month is that things are fine in the short term, but risks are rising,
“Over the course of the year, global equities have sustained their bull run; unsurprisingly, so have the drivers – global growth has remained above trend (83% of our growth indicators have either a Bullish or Neutral signal), the G4 central banks have added US$2.0-trillion to their balance sheets, and the S&P 500 index has gone without a correction for 425 days … The nature of business cycles dictates that at some point, the robust trends in global growth will inflect. We think it is a story for the second or third quarter next year … Our concern is, given that China accounts for close to a third of global growth, this weakness could gain speed and spread to other regions in the absence of the much-anticipated credit/monetary easing in China, of which there are scant signs as yet … We have been citing an actual contraction of the aggregate G-4 central banks’ balance sheet as the real ominous sign for financial markets. Given that we are not far from such a policy normalization, it is imperative to be mindful of the associated risks.”
“BofA on global policy risk” – (research excerpt) Twitter
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Morgan Stanley biotech analyst Matthew Harrison is a former PhD candidate in particle physics and health care hedge fund manager. Mr. Harrison is the primary source of projections regarding the effects of the pandemic on markets and the economy for Morgan Stanley research.
He discussed the potential impact of the Omicron variant and the research department provided a summary,
“MS Research Analyst Matthew Harrison highlights that current evidence suggests that Omicron is rapidly replacing Delta in South Africa, indicating it could become a new dominant variant. He notes that it will take ~1-2 weeks to have full evidence, but he believes that the market will price in a scenario where Omicron becomes dominant. He addresses the current evidence and his COVID stock outlook. He notes that 1) Transmissibility appears to be significant, 2) Reduction in vaccine efficacy is highly likely because the combination of known mutations suggests it should be worse than other variants, but by how much is unclear, and 3) Severity of disease remains unclear. Matthew notes that mRNA vaccines are likely to be preferred for their speed to market and likely to take the vast majority of the Omicron booster market which could lead to $20-50B in additional 2022 revenues. He points out that Antibodies such as those from Adagio (OW, $49 PT), Vir (Not Covered, but partnered with GSK LN, EW, GBp1580 PT) and AstraZeneca (AZN LN OW, GBp10000 PT) that have a broad neutralization profile against Omicron could also benefit.”
“MS on Omicron (firm’s strategists and economists use his projections btw)” – (research excerpt) Twitter
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Also from Morgan Stanley, U.S. oil and gas analyst Devin McDermott sees recent volatility in the sector as a buying opportunity,
“So far in 2021, demand has recovered from ~93 mb/d in 1Q to ~99 mb/d currently, now sitting only ~2% below pre-Covid levels. At the same time, constrained supply amid a measured unwind of OPEC cuts and pervasive capital discipline within US shale has resulted in remarkably steady inventory draws, averaging ~2 mb/d year to date — eroding all of the 2020 surplus and more… Oil outlook remains constructive for 2022, with OPEC’s Dec 1-2 meeting a near term catalyst to watch … MS Oil Strategist Martijn Rats estimates that oil prices already reflect a sharp weakening in demand ... Friday’s move was consistent with a ~4 mb/d fall in oil demand or a ~180 MMbbl rise in OECD inventories, an outcome which he views as unlikely … OW [ overweight]-rated OVV [ Ovintiv Inc.], FANG [Diamondback Energy] , [APA Corp] and COP [Conocophillips] offer compelling combinations of FCF [free cash flow] yield, valuation, leverage and cash returns, while EW-rated DVN [Devon Energy Corp] & MRO [Marathon Oil Corp.] also stand out.”
“MS sees buying opportunity in U.S. oil and gas” – (research excerpt) Twitter
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Newsletter: “Bank of America’s chief investment strategist is really bearish” – Globe Investor
Diversion: “Wonderwall of Snow Traps 60 People in Pub With Oasis Cover Band for 3 Days” – Gizmodo
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Scott Barlow