Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
As a firm, Citi remains bearish, but strategist Robert Buckland’s “Five Questions, Five Answers” research report is useful for both optimists and pessimists,
“Is This Bear Market Done? Not yet. There is a giant bid/offer battle going on out there. On the bid we have $5.5trn of global central bank asset purchases over the next 12 months. On the offer we have a likely 50% collapse in global EPS over 2020. ... Can Valuations Help? Not really … What Indicators Are You Watching? PMIs, infection data, [earnings revisions], credit spreads … What Will The Recovery Trade Look Like? V-shaped, pro-cyclical. Recovery trades are always V-shaped and led by cyclical stocks … What Is Bear Market Checklist Saying? Buy the dip. The BMC is not a market timing tool. It has already made its call about this sell-off. It wants to buy the dip because, unlike 2000 and 2007, it didn’t see much froth at the preceding market peak.”
“@SBarlow_ROB C: The 5 key questions for investors” – (research excerpt) Twitter
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Credit spreads – borrowing costs for companies – are a more important indicator for me than equity prices.
Unfortunately, UBS is finding some cracks in credit markets,
“Our macro-equity baskets show clear concerns about credit and growth risk. UBS Equity Growth Indicator (EGI) was down 7% this week and implies an ISM of 45.5 vs. 47 last week while our credit basket fell nearly 7% for the week as stocks with low beta to credit spreads rose 4.6% while those with high credit betas fell 1.3%. At the sector level Retail (+9.8%) and Semis (+6.8%) led vs. Banks (-10.8% and Energy (-5.2%).”
In short, companies with weaker balance sheets need to participate before equity rallies become sustainable.
“@SBarlow_ROB UBS: "Growth and credit sensitive baskets show cracks in the rally's foundation" – (research excerpt) Twitter
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CIBC – the banking side not the economists in the capital markets research department – are concerned about a “toxic combination” of high debt and unemployment in Canada,
“'We do have a highly indebted Canadian consumer that we’ve been talking about for quite some time, and just under half of Canadians live paycheck to paycheck,' said Laura Dottori-Attanasio, who oversees Canadian personal and business banking at CIBC. ‘If you add that people are no longer working and generating cash flow, I do think it makes for a toxic combination that’s going to be much more difficult to overcome the longer this takes to resolve.’”
“Risks rising with 'toxic' pairing of debt, joblessness, CIBC says” – BNN Bloomberg
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Column: “How the loonie survived the crude price crash” – Barlow, Inside the Market
Diversion: “What Mackenzie King’s diaries reveal about the day Franklin Delano Roosevelt died” – Maclean’s
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Scott Barlow