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

Much has been written about the expected explosion of consumption as consumer balance sheets, boosted by fiscal support during COVID, lead to a spending binge. BofA Securities monthly Research Investment Committee (RIC) report, however, threw some cold water on this bullishness,

“Our economists estimate that US households now have $2.5-trillion of excess cash. In March we wrote that the most important question for 2021 would be what households do with all that extra money … However, we said that the ‘fiscal liquidity trap’ of record inequality would temper the pace of spending. 70% of the surplus is held by the wealthiest 20% of households. The richest 20% ... buy stocks (not goods & services) and save more. Wage inflation looks less risky given a peaking quits rate & lower jobless claims in states ending UI. The great risk is not rampant inflation but that Covid means permanently higher US savings.”

“@SBarlow_ROB This month’s RIC report from BoA is really good. Here’s a chart: “70% of the [current savings] surplus is held by the wealthiest 20% of households” so less pent-up demand” – (research excerpt) Twitter

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Morgan Stanley analysts Keith Weiss, Katy Huberty and Meta Marshall noted continued high corporate spending on technology and published their top picks in related sectors,

MS Research Analysts Keith Weiss, Katy Huberty, Meta Marshall and James Faucette highlight that following three quarters of significant rebound, the MS 2Q CIO survey suggests overall IT spending growth expectations at +3.8% have stabilized at levels almost back to the 10-year average of 4.1%, a faster pace of recovery versus the 2009/2010 cycle… the team believes strength in forward looking metrics provide reasons to be optimistic: 1) CIOs’ expectations for further positive revisions accelerated meaningfully from Q1, with an up-to-down ratio of 1.9x in 2Q21 versus 1.0x in 1Q21, and well above the 5-year historical 2Q average of 1.0x, 2) longer-term, almost 46% of CIOs expect IT budgets to increase as a percentage of revenues over the next 3-years, versus just 7% looking for a lower portion of IT spending, translating to an up-to-down ratio of 6.6x, more than doubling from 3.2x in 1Q, and 3) CIOs note less aggressive discounting by vendors, supportive of a more robust IT spending backdrop. The team also points out that Software related initiatives – Cloud Computing, Digital Transformation – remain at the top of the CIO priority list, with Security Software rising to join the top 3. With valuations within GARP names still inline (or below) historical averages, the software team’s OWs [overweights] tilt towards names well positioned for key secular trends with strong underlying unit economics and durable multiples: INTU ($511 PT), MSFT ($300 PT), CRM ($285 PT), NOW ($662 PT), and PANW ($515 PT).”

“@SBarlow_ROB now MS’s top picks in IT” - (research excerpt) Twitter

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Citi analyst Viswanathrao Kintali reiterated his bullish shorter-term forecasts for cobalt prices,

“An end to de-stocking and strong electric vehicle demand and global growth over the next 12 months is set to drive cobalt prices to $59,500/t ($27/lb),13% higher than spot prices. This is our most bullish 12-month target relative to spot across the main battery metals. We prefer nickel to the other battery metals taking a 3-month view… A sharp rise in EV sales this year has brought forward the strong demand growth outlook for the battery metals. EU penetration is set to be around 13% in 2021, up from 8% last year, and penetrations in China are set to rise to ~11% from 6% over the same period … Cobalt prices slid 20% from their ~$55,800/t high in March 2021 as EV battery supply chain stocking most likely eased post 1Q’21. The physical activity has picked up in the second half of June 21 suggesting that the lull is ending.”

“@SBarlow_ROB Citi is bullish on cobalt – (research excerpt) Twitter

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Diversion: “Warner Bros. and Dune Will ‘Overbook’ IMAX Theaters... to Watch a Trailer” – Gizmodo

Tweet of the day: “@TheStalwart This used cars chart is wild” – Twitter

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