A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
American and Chinese officials are set to ratify phase one of a trade deal this week, but CIBC economist Avery Shenfeld is not impressed. In a report called “The Artlessness of the Deal,” Mr. Shenfeld wrote,
“Its hard not to be skeptical about the upcoming signing ceremony for the China-US Phase I trade deal given what we haven’t been told: its contents … the lack of disclosure suggests that its contents are likely to disappoint those looking for tangible progress in relieving trade tensions … All of this should be a reminder that the sigh of relief we heard in financial markets on news of this deal looks premature, particularly since after the 2020 election, we might be heating up the trade war on the European theatre of operations. The flash points there include autos, US concerns over subsidies to Airbus”
“@SBarlow_ROB CIBC: "The Artlessness of the deal" – (research excerpt) Twitter
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Financial Times columnist Rana Foroohar notes that commodity prices are close to record lows relative to equities,
“There are plenty of expensive assets in the world today … But one thing has remained reliably cheap — commodities. While the US equity market, which keeps ratcheting up to new highs, is almost as expensive as in the past 150 years, commodities are about as cheap relative to stocks as they’ve been in the past century … The looming threat of unfunded US pension and healthcare entitlements, coupled with the willingness of central bankers and policymakers to try to inflate it away by printing money — thus weakening the dollar — could make gold the hottest new asset class of the next few years.”
“Commodities may not stay cheap forever” – Financial Times (Paywall)
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Following the commodity theme, Chinese resource demand is the primary determinant of sector pricing. BMO’s Art Woo recently published a report detailing the country’s growth prospects,
“The risk that China’s economy could slip into a deep recession has fallen. Moreover, the current economic situation does not appear to be much worse than during the last downturn in 2015/16, which was highlighted by the bursting of the stock market bubble and the mini-devaluation of the renminbi… the Phase One deal will ease pressures on Chinese policymakers to significantly loosen policy settings. We now expect both the Ministry of Finance and the People’s Bank of China to continue tweaking fiscal and monetary policies, instead of introducing large-scale countercyclical stimulus.”
“@SBarlow_ROB BMO on Chinese growth: "current economic situation does not appear to be much worse than during the last downturn in 2015/16" – (research excerpt) Twitter
“China says ‘trade war is not over yet’ ahead of phase one deal signing that is just the ‘first round of a game” – South China Morning Post
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Citi U.S. equity strategist Tobias Levkovich sees improvement in earnings strength but remains concerned about the industrial sector,
“Upward forward guidance improved, and 54% of all estimate changes had climbed, before sliding in the past week. Indeed, we believe that these patterns have been meaningful contributors to the better underlying equity market performance over these last few weeks. Furthermore, a continuation of that movement may push indices even higher… the need for some industrial rebound is crucial. Too many investors seem to miss the powerful relationship between production shifts and the direction of corporate profits. Given a heavily weighted service economy and growing knowledge-based business activity, there is significant under-appreciation for the impact of cyclical conditions on fixed overhead cost absorption variances and operating margins.”
“@SBarlow_ROB Levkovich: earnings outlook improving but "the need for some industrial rebound is crucial" – (research excerpt) Twitter
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Diversion: BBC’s Desert Island discs podcast – guest is writer Michael Lewis (who, by his own admission, has horrific taste in music by the way) – BBC
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