Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Commodity prices have endured a major beating in recent weeks. Citi analyst Ephrem Ravi published Metals in freefall, what happens next? on Thursday,
“Metals prices have collapsed over the past month, reaching and then surpassing our bearish 0-3 month forecasts, alongside a doubling in European gas prices and rising recession probabilities, and a related drop in speculative positioning. We revise our previously bearish 0-3 point prices lower, copper to $7,500/t (from $8,500/t), aluminium to $2,500/t (from $2,700/t), nickel to $22,000/t (from $25,000/t), and zinc to $2,800/t (from $3,000/t). Very near term our order of preference from bullish to bearish is aluminium, copper, nickel and zinc … We see the next big move lower in metals as being driven by a recession scenario (most notably, in Europe) which would result in a collapse in energy prices and marginal costs, as well as ease up the balances. Copper positioning is now getting towards the lows of the past decade, prices are digging into our marginal cost forecasts”
Mr. Ravi believes zinc prices have further to fall, while copper may be bottoming in the short term.
“Citi slashes metals forecast after ‘collapse’,” – (research excerpt) Twitter
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I don’t usually get upset about missing a trade, but cybersecurity is an exception. The need for security was obvious from the number a major data hacks, but I could never pull the trigger on a stock (which probably would have been Palo Alto Networks) and missed out on major gains.
Morgan Stanley’s Wednesday daily research summary covered a mid-year outlook for the cybersecurity sector,
“MS Research Analyst Hamza Fodderwala highlights that the state of cybersecurity remains strong with spending intentions showing no signs of slowing and security budgets most defensible by far in a weaker macro scenario. He notes that core secular drivers including a more distributed workforce, digital transformation, and increased Cloud adoption is expanding the attack surface, resulting in an elevated threat environment and stronger security demand. Incrementally, his checks also point to a notable pickup in US Federal security spend in Q2 after a slower start to the year, with strong pipeline heading into Q3 (Fed fiscal year close). This should benefit multiple security vendors, particularly PANW (OW, $823 PT), ZS (OW, $225 PT), TENB (OW, $63 PT), and CRWD (OW, $215 PT), which came up most often in his checks. While far more defensible, Hamza highlights that security spend isn’t immune to the macro environment and some areas of softness are beginning to show. He points out that recent European channel partner conversations suggest early signs of longer sales cycles and budget approvals in late-Q2.”
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Also from Citi, strategist Robert Buckland’s Global Equity Quarterly registered concern about global profit estimates (my emphasis),
“In 1H22, expensive equity markets (US) and sectors (IT) derated sharply as rates were hiked and QE withdrawn. Value trades (UK) proved less vulnerable. Citi rates strategists think the bond sell-off is largely done, which should reduce equity derating pressures in 2H22. Risk 2: Lower EPS — Instead, we expect investors to increasingly focus on EPS risks. The bottom-up consensus still expects global earnings growth of 11% in 2022, followed by 7% in 2023. Top-down, we expect 0-5% in both years. Even that will be too bullish if global recession hits, which Citi economists now see as a roughly 50% probability event. Buying The Dip — Despite these risks, Citi strategists see value emerging. Collectively, we forecast a 17% gain in the MSCI AC World to mid-2023. Our global Bear Market Checklist (6/18 red flags) also wants to buy the dip.
“Citi: “The bottom-up consensus still expects global earnings growth of 11% in 2022, followed by 7% in 2023. Top-down, we expect 0-5% in both years” – (research excerpt) Twitter
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Diversion: “The World’s Thinnest Mechanical Watch Is No Thicker Than a Quarter and Costs $1,888,000″ – Gizmodo
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Scott Barlow