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

Citi analyst Anthony Pettinari digs deeper into U.S. infrastructure plans and finds a number of prospective winners,

“An infrastructure package could provide a substantial tailwind across E&Cs (engineering and construction) and drive further share price appreciation. Companies should benefit from ongoing self-help combined with potential tailwinds driven by federal stimulus ($1.9trn passed + proposed $2.3trn under discussion) focused on infrastructure investment in areas such as surface transportation (AECOM, Jacobs Engineering Inc.), broadband access (MasTec Inc. and Quanta Services Inc.), sustainability/clean energy (KBR Inc., Fluor Inc. and MasTec and power infrastructure (Quanta Services) … [Machinery stocks] would benefit from a wide-range of spending initiatives, which spans well beyond roads and bridges. While the major infrastructure-exposed stocks like Caterpillar Inc., United Rentals Inc., and MasTec stand to benefit, we see Buy-rated Timken Co. (renewables) and Eaton Group PLC (electrification) as two stand-outs within our coverage”

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“@SBarlow_ROB Biggest winners from U.S. infrastructure spending plans (Citi)” – (research excerpt) Twitter

***

BMO chief economist Doug Porter was blunt about inflation risks in his weekly Focus report,

“If you’re not just a bit worried about real inflation, then you’re not paying attention … The Bank of Canada’s commodity price index has sprinted 24% in the first four months of the year to its highest level since 2014. (I’m not even going to tell you that the index more than doubled from a year ago in April—the biggest increase in 50 years — because last April was the depths of the lockdowns.) The ex-energy index is at an all-time high … The U.S. core PCE deflator, aka the Fed’s preferred inflation metric, rose 0.4% in March, its largest monthly rise in more than a decade … U.S. employment costs rose 0.9% in Q1, the largest quarterly advance since 2006 … Asset price inflation continues to run amok. I won’t tell you about the wildness in Canadian home prices—average transactions prices up a record 31% year-over-year in March— because that’s so well-known. But broad measures of U.S. home prices are also now rolling at around 12% y/y, their strongest pace in at least a decade … Shipping costs are soaring … The Fed believes that the inflation bump we are about to see in the spring data will be transitory. Well, yes, but an earthquake is also transitory.”

“Prices Rising: Here, There and Everywhere” – BMO Economics

***

The ongoing excesses in the Canadian housing market have been well detailed in the Report on Business.

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Things may be reaching a crescendo here, but Morgan Stanley U.S. Vishwanath Tirupattur thinks the U.S housing market has plenty of room to run,

“Home prices as measured by the S&P Case-Shiller Index rose 12.2%Y, with prices surging across all 20 of the metropolitan areas tracked by the Index. That amounts to an increase of $35,000 in the median selling price for homes from just a year ago … we argue that this time is indeed different. Unlike 15 years ago, the euphoria in today’s home prices comes down to the logic of demand and supply, and we conclude that the sector is on a sustainably sturdy foundation … the Mortgage Bankers Association’s index of credit standards, which peaked at nearly 900 in 2006, has stayed well below 200 for almost a decade … Thanks to the demographic dividend, millennials continue to drive household formation at a rate 30-50% above the long-run rate of new household formation. Thus, demand for shelter is likely to remain robust for some time to come. As James points out in his latest Housing Tracker, affordability remains good despite sustained increases in home prices and mortgage rates inching higher.”

“@SBarlow_ROB MS: ‘We have strong conviction that we are not experiencing a bubble in US housing”” – (research excerpt) Twitter

***

Diversion: “1 in 5 electric vehicle owners in California switched back to gas because charging their cars is a hassle, new research shows” – Business Insider

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