Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank bank analyst Meny Grauman warned clients that higher for longer interest rates hurts Canadian banks too,
“The ‘Higher for Longer’ rate scenario hit U.S. banks stocks hard on Friday, but the reality is that Canadian banks are also vulnerable to shrinking rate cut expectations. After all, it is not just U.S. markets that are walking back rate cut expectations … The ‘Higher for Longer’ rate scenario in the U.S. has only intensified in the wake of March’s disappointing CPI print and a string of stronger-than-expected macro data points … the data have also been strong here in Canada, and while the Governor of the Bank of Canada left the door open to a June rate cut he also clearly indicated that policymakers are looking for further evidence that inflation is indeed moderating. On that front, an important test will come on Tuesday when we get Canada’s March CPI report, followed by remarks from the Governor himself, with some speculating that he will walk back last week’s comments about a June cut. With the group currently trading at a historical average forward PE multiple, we see downside risk to the stocks if cuts keep getting delayed, even as we see improving signs for capital markets revenues based on incoming U.S. results”
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Citi analyst Aakash Doshi jacked up his gold bullion price target,
“CITI’S TAKE: We upgrade our baseline gold price forecasts to our bull-case scenario from the 2Q Commodities Outlook and Wildcards 2024 reports. For 2024, this means a 6.8-per-cent bump to $2,350/oz; for 2025E, this means an admittedly massive 40-per-cent upward revision to $2,875/oz. This average price deck is consistent with our 0-3-month and 6-12m price targets updated at the beginning of April to $2,400/oz and $3,000/oz. While prospects of a May/June bullion price pullback have increased, in our view, we expect strong buying support at $2,200/oz. The yellow metal has gapped higher in recent weeks against a material back-up in real/nominal yields, more hawkish Fed pricing in STIR [short term interest rate options] markets, and a rallying US$. Financial gold demand seems to be playing catch-up with robust physical. … an eventual Fed cutting cycle and Treasury rally could be the bullish kicker to $3,000/oz”
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BMO senior economist Robert Kavcic notes that housing affordability is now the same as late 1980s,
“The 2024 budget is supposedly going to be about ‘fairness for every generation.’ Clearly there is an attempt here to resonate with the younger millennial cohort, which has been struggling with inflation and housing affordability challenges. But let’s not forget that their parents did, too. Boomers, the peak of which moved into their 30s in the late-1980s, grappled with deteriorating housing affordability amid rampant price growth and high interest rates. Fully appreciating that there is a lot to unpack on this, we’ll just leave it by saying that housing ‘unaffordability’ today almost precisely matches that of the late-1980s—both marking periods of peak homebuying demand from a massive population cohort. Meantime, Boomers arguably faced an even tougher inflation and job market challenge, with today’s tight labour market and fading inflation proving much less ‘miserable’. One last reminder: The late-1980s morphed into a terrible early/mid-1990s period in part because big budget deficits forced a deterioration in Canada’s credit, and various spillover effects. Policymakers can be kind to the current generation by avoiding some of those past mistakes; while penalizing the older generation that already went through the ringer would be a curious move”
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Diversion: “The Best and Worst Media Mergers of the 21st Century” – The Ringer (podcast)
Scott Barlow