Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Robert Kavcic believes domestic mortgage rates are soon headed lower from here,
“Canadian mortgage rates should now be at or near their peaks if the rest of this cycle plays out as expected. The BoC is expected to raise rates another 25 basis points next week, which could mark the end of the upward march in variable mortgage rates. Meantime, the rally in Treasuries and GoCs has pulled down 5-year yields in Canada to around the 2.8-per-cent mark, below the lows set in December last year. The current level looks more consistent with 5-year fixed rates in the 4.5-per-cent-to-5-per-cent range, although it takes some time to work through the system. This is still a massive shock compared to readily available rates around 1.5 per cent just a year ago, but the stall in upward momentum should help at the margin, and offer some confidence that the worst of the rate shock is behind us.”
“BMO: “Canadian mortgage rates should now be at or near their peaks if the rest of this cycle plays out as expected”” – (research excerpt) Twitter
Scotiabank strategists do not believe we’ve seen the short-term market bottom, and they like the defensive nature of utilities stocks as a result.
In a Thursday report, they presented the firm’s top North America picks in the sector,
“While the broad risk-on rally this year is favoring more cyclical sectors, we believe we have yet to see the full impacts of monetary tightening on growth and earnings. The Utilities sector displays attractive characteristics that should help it outperform in coming months. More specifically, Utilities usually show relative earnings/dividend strength during periods of economic stagnation/contraction. Not to say that they’re immune to a deteriorating macro landscape, but on a relative basis, earnings and dividends could be more resilient than the market, on average. We’re already seeing this for 2023, with consensus forecasts for market EPS down sharply over the past 3-6 months vs. flattish estimates for pure-play utilities. Moreover, these utilities are less likely than most to cut or suspend dividends in challenging times; we instead expect continued growth.
“We remain bullish on utilities as we’re drawn to their NT defensiveness and LT attractive growth outlooks; we forecast ~6%+ EPS/DPS, coupled with ~3%-4% yields. Our top U.S. picks remain DTE-US, NEE-US, CMS-US, and WEC-US, and among discounted stocks, we recommend AEP-US, D-US, and BKH-US; our favourite Canadian names remain ALA-CA and EMA-CA”.
“Scotiabank likes these NA utilities” – (research excerpt) Twitter
Morgan Stanley believes metals miners are the way to benefit from China’s economic re-opening,
“Our economists continue to upgrade their expectations on China reopening, calling for 5.7-per-cent GDP growth for 2023 (vs consensus at 4.8 per cent) … Commodities have outperformed equities for 2 consecutive years, a strong period already. For examples of a 3-year run, we need to look back to the 1970s – unusual but not unheard of. However, if we combine China reopening + easing with MS calls for further USD and treasury yield weakness, and upside risks to Europe’s economic outlook, 2023 could be shaping up as another good year for commodities. Metals and iron ore: Big moves already but room for fundamentals to catch up: Metals and iron ore have rallied strongly, driven largely by sentiment. However, if reopening remains smooth, combined with easing in property, we think fundamentals can catch up. Iron ore and aluminium are our top picks, particularly on any pullbacks (MSe Q2: Iron ore $140/t, 15-per-cent upside, Aluminium $2,800/t, 8-per-cent upside). Copper price risks are skewed to our bull case too (MSe base case $7,600/t by Q2 (17% downside)”
“MS: “Another good year for commodities?” – (research excerpt) Twitter
Newsletter: “Key strategist says bulls are trapped in a deceptive ‘hall of mirrors’” – Inside the Market
Diversion: “My Conversation with the excellent Rick Rubin” – Marginal Revolution
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