Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotia Capital analyst Jason Bouvier assesses the winners and losers from the Trudeau government’s plan to jack up the carbon tax,
“There continues to be legal challenges against the Federal Government’s imposition of a price on carbon on the provinces. The Supreme Court of Canada will hear three cases to determine if the Federal Carbon tax legislation is constitutiona l… We see a higher carbon price as positive for companies who develop or own Canadian renewables (BEP, BLX, INE, NPI). It would be negative for companies with high cost Alberta merchant thermal generation – but we see CPX and TA’s renewable exposure offsetting this … We expect higher carbon taxes to have the greatest impact on oil sands producers and companies with refineries in Canada (SU and IMO). We anticipate that higher carbon taxes will decrease NAVs for oil sands/ integrateds and conventional producers by roughly 3% and 1%, respectively. OVV and ERF are the best positioned companies within our coverage space as most of their production is outside of Canada and they have the lowest GHG intensity.”
“@SBarlow_ROB Scotiabank: Winners and losers from the Trudeau govt’s higher carbon tax plan” – (research excerpt) Twitter
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Morgan Stanley strategist Matthew Hornbach notes that global central banks are expected to keep the monetary spigots fully open for 2021 and that is positive for risk assets, “G10 central banks will inject another US$2.8 trillion of liquidity next year – just in their government bond purchases. To put this in context, that’s more than twice the amount of liquidity central banks injected in any year prior to the one drawing to a close … if our economists are right and the global economy outperforms expectations, we think the ample liquidity environment will support riskier investments to the detriment of risk-less ones. That means the US dollar has further to fall against a host of G10 and EM currencies next year, and the safest investment of all – US Treasuries – will struggle to make ends meet. Of course, if central banks signal a reduction in liquidity earlier than we expect, or our economists’ buoyant expectations aren’t met, risky assets could experience a wobble, a theme that might very well feature in our 2021 mid-year outlook”
These risk assets definitely include the loonie, and likely also commodity prices if only because of a weaker U.S. dollar.
“@SBarlow_ROB MS expects a good year ahead for risk assets, thx to central banks but they also sound ready to pivot” – (Research excerpt) Twitter
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Citi economist Veronica Clark thinks Bank of Canada projections for domestic growth are likely too low (my emphasis),
“we continue to see upside risks to BoC growth forecasts from an earlier-than-expected vaccine, which could lead to some removal of accommodation in H1-2021 [first half of 2021] … New virus cases remain high and substantial activity restrictions remain in place, but weekly consumer confidence surprisingly rose to its highest level since March, likely on even more optimistic vaccine prospects… we continue to expect that strong growth with a widespread vaccine rollout around Q2/Q3 suggests the next change to monetary policy will be to remove [monetary] accommodation. Currently, our base case is that much more information about the vaccine rollout process will lead to an upward revision to BoC forecasts (which currently do not assume a vaccine until mid-2022) in the April MPR”
“@SBarlow_ROB Citi: Bank of Canada growth projections likely too low’ – (research excerpt) Twitter
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Diversion: " How Civilization Broke Our Brains” – Thompson, The Atlantic
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Scott Barlow