Skip to main content

Inside the Market The loonie is cheap for good reason: global FX strategist

A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Last week, I recounted a stridently bullish view on the Canadian dollar from Citi research.

Over the weekend, Societe Generale foreign exchange strategist Kit Juckes accepted the fundamental drivers of a loonie rally, but outlined a much more even-handed outlook for the domestic currency,

Story continues below advertisement

“G10 currencies with good fundamentals are expensive, while those with bad fundamentals are cheap. The result is a becalmed FX market under dark skies … [Canada] country ‘feels’ cheap, from my morning coffee to my evening dinner… There are too many reasons to be gloomy about the Canadian dollar to forecast a sharp appreciation, and our forecast essentially looks for it to underperform others as the US dollar finally corrects in the face of a slowing economy … The threats facing the Canadian dollar include the impact on the domestic economy of the housing market slowdown, the impact of a slowing Chinese economy, the threat of continued trade tensions, even within North America, and indeed, the danger that oil prices drift lower as global growth slows.’

“@SBarlow_ROB SG: Plenty of reasons for CAD to be cheap” – (research excerpt) Twitter

***

Morgan Stanley U.S. equity strategist Michael Wilson predicted a difficult equity market environment ahead, particularly for investors who have crowded into high quality and defensive dividend stocks,

“Data points and analyst sentiment are falling and we think PMIs and earnings revisions are next. Decelerations and disappointments are mounting – Cass Freight Index, Retailer earnings, durable goods orders, capital spending, PMIs, May payrolls, semiconductor inventories, oil demand, restaurant performance indices, and our own Morgan Stanley Business Conditions Index (MSBCI).

"Looking at the MSBCI in particular, the headline metric showed the biggest one-month drop in its history going back to 2002 and very close to its lowest absolute reading since December 2008. … Investors have adjusted for decelerations by moving into assets with secular growth, quality, and some defensiveness and shunning the other ends of those spectrums. .. With many counting on the same stocks to ride out a slowing growth environment, a general sell-off in equities could force selling and liquidity issues that impact portfolios and make certain pockets of the market act less defensively than their fundamentals would suggest.”

“SBarlow_ROB MS: SPX prob ok, portfolios far less so” – (research excerpt) Twitter

Story continues below advertisement

“U.S. already in recession, Fed will cut rates back to zero: Rosenberg” – BNN Bloomberg

“[U.S.] Utility stocks have been on a tear, but worries are growing” – Bloomberg

“ Momentum stock picks, bonds bounce back and what CIBC’s Tal sees for ‘very difficult year’ ahead” – Report on Business

***

I’m not expecting markets on either side of the border to move much until the Federal Reserve statement on monetary policy on Wednesday.

BMO economist Doug Porter provided a nice summary of the global rate environment from a Bank of Canada perspective,

Story continues below advertisement

“The global growth outlook has been pared heavily, inflation expectations have receded sharply, and there are some flickering signs that investors are eying the exits. However, amid the much less certain growth backdrop, equities have generally held up well … Some have suggested that the Bank of Canada will have little choice but to eventually follow the Fed’s lead. We beg to differ. As argued in this week’s Focus Feature, the case for BoC cuts is simply not there … yet. Some have suggested that the loonie could rocket if the Bank doesn’t ape the Fed’s moves, but that ignores the fact that markets have 50 bps more easing from the Fed priced in than for the BoC this year’

“@SBarlow_ROB BMO: "the global growth outlook has been pared heavily, inflation expectations have receded sharply, and there are some flickering signs that investors are eying the exits " – research excerpt) – Twitter

***

Tweet of the Day:

Diversion: Josh Brown wrote a jarring account of a fictional asset management professional – an amalgam of real people he’s spoken with recently – losing their job. It’s hard to feel a ton of sympathy for overcharging fund managers, but I still found it interesting,

“I did everything I was supposed to do” – Reformed Broker

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter