Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
I mentioned a BofA Securities report yesterday providing a bearish short term outlook for copper. Today, Scotiabank analyst Orest Wowkodaw, while noting short-term headwinds, published a far more bullish outlook and noted top picks in the sector,
“Heightened global macroeconomic concerns from markedly higher interest rates and a relatively anemic recovery in post-lockdown Chinese demand to date, combined with a strong US dollar and elevated geo-political uncertainty from Russia’s war on Ukraine, continue to overhang the near-term outlook for the copper (Cu) market. While elevated fiscal and social license risks in Chile and Peru appear to be easing, the supply side remains under pressure due to critically low visible inventories (only ~5 days) and a tough operating environment (including labour shortages and extreme weather impacts). Overall, we continue to forecast a Cu market largely in balance near-term with very low visible inventories, before the emergence of large structural deficits driven by a lack of meaningful supply growth. Despite obvious near-term demand risks, we believe that Cu prices near ~$4.00/lb remain well-supported. Post Q1/23, we review the Cu equities in the context of current spot prices under several key relative metrics: (1) value, (2) growth, (3) leverage, and (4) capital return potential. TECK is our top pick, while FM and CS remain our other preferred picks for Cu exposure; we also recommend ERO, FCX, HBM, IE, and IVN.”
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BMO economist Benjamin Reitzes expects domestic food inflation to slow sharply in the next four months,
“Canada received some good news on the food inflation front, with April producer prices slowing further following the run-up over the last two years. Consumer prices tend to follow producer prices about 3-to-4 months later. Accordingly, we expect to see food price inflation (which was at 9.1% y/y in April) fall by about half through the summer months. This will be particularly welcome news for the Bank of Canada, as food prices have an outsized influence on inflation expectations. If energy prices stay contained as well, that would be a good recipe for short-term inflation expectations to fall back toward 2% through the second half of the year”.
“BMO: Domestic food inflation set to fall sharply” – (research excerpt) Twitter
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New York-based RB Advisors warned clients of an impending credit crunch,
“The key goal of tightening monetary policy is to reduce the flow of credit. It is also important to note that the weakest links always default first. This cycle is so far no different. Small, private, and flawed companies lead defaults of large, public, and seemingly financially sound companies… the weakest companies are feeling the heat of tighter lending standards and higher interest rates… repeat bankruptcies – those companies that have defaulted before and have now defaulted a second time – are nearly at all-time highs. An underlying poor business takes precedent over restructuring debt and wiping out equity holders .. small private companies (the types of companies found in private credit portfolios) are defaulting at an alarming rate compared to larger public companies. Small companies are typically the canaries in the credit mine… Right on cue, earlier this month (May 13/14) 7 large companies defaulted. And if RBA’s proprietary default model is any guide, bankruptcy filings should get worse.”
“Defaults accelerating: Beware the coming credit crunch” – RB Advisors
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Diversion: “One more dead in horrific eye drop outbreak that now spans 18 states” – Ars Technica
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