Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Avery Shenfeld suggests the unthinkable,
“Markets have thrown down their 50 basis point chip on the poker table, betting that the Bank of Canada will deliver an interest rate cut of that magnitude next week. But will the central bankers call that bet, or raise to 75? While a mega-move isn’t our base-case forecast, there are reasons to think that Governor Macklem’s team will give such a move more consideration than the 25 basis point cut that some economists are still projecting … What would be the logic of a 75 bp cut next week? Actually, it’s a bit tougher to argue against it. We sit on the CD Howe Institute’s shadow central bank committee, and all but two of the financial and academic economists on the panel recommended a total easing of 75 bps or more by December, and views at the BoC are likely similar. If a 3.5% or lower overnight rate is appropriate for three months from now, it’s hard to see why it wouldn’t be even better to get there sooner, in order to shorten the wait for its impacts to kick in … What might hold the Bank back from that step isn’t anything happening in Canada, but developments south of the border”
“I call your 50, or raise you to 75?” – CIBC Economics
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BMO REIT analyst Michael Markidis is looking for rate cuts to un-freeze the Toronto condo market,
“The S&P/TSX Capped REIT Index posted a 1.6% gain for the holiday-shortened week ended October 18, snapping a four-week streak of negative returns … 15 of the 16 index constituents ended the week in positive territory. The top three performers were AP (+5.8%), CRR (+2.4%), and CRT (+2.3%). Rounding out the low end of the spectrum were GRT (-0.0%), CAR (+0.4%), and BEI (+0.7%) … Rate cuts will hopefully thaw the frozen GTHA condo market. Per Urbanation, only 567 new condominium apartment units were sold in the Greater Toronto Hamilton Area in Q324. This represents the lowest quarterly figure in nearly 30 years. There are 89k units under construction (unchanged q/q and -14% y/y); ~24k, ~29k, and ~25k units are scheduled for completion in 2024, 2025, and 2026. However, starts have slowed materially. The year-to-date figure of 7,200 units is -53% y/y and -73% vs. the same period in 2022. Without a material acceleration in pre-sales, completions will fall materially in 2027/2028”
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Goldman Sachs analysts believe electric vehicle batteries will fall 50 per cent in price,
“Global average battery prices declined from $153 per kilowatt-hour (kWh) in 2022 to $149 in 2023, and they’re projected to fall to $111 by the close of this year. Our researchers forecast that average battery prices could fall towards $80/kWh by 2026, amounting to a drop of almost 50% from 2023, a level at which battery EVs would achieve ownership cost parity with gasoline-fueled cars in the US on an unsubsidized basis … “We are seeing multiple new battery products that have been launched that feature about 30% higher energy density and lower cost,” says Nikhil Bhandari, co-head of Goldman Sachs Research’s Asia-Pacific Natural Resources and Clean Energy Research. “The second driver is a continued downturn in battery metal prices. That includes lithium and cobalt, and nearly 60% of the cost of batteries is from metals.””
Goldman Sachs Briefings (newsletter) – Goldman Sachs
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In BMO’s weekly economics report, Robert Kavcic discussed the different paths of domestic and U.S. consumers,
“Don’t underestimate the U.S. consumer, they say. The Canadian consumer? Go ahead. A strong U.S. retail sales report for September further highlights the disparity in spending strength on the two sides of the border, which has weighed heavier on Canadian growth and contributed to earlier easing by the Bank of Canada—the divergence probably isn’t going to unwind in the near future. U.S. retail sales excluding gas were up a solid 2.7% y/y, 2 ppts stronger than in Canada. That’s a pretty stark contrast, especially considering the explosion in the Canadian population. In per capita terms, retail spending has maintained a solid growth clip in the U.S. while contracting outright in Canada since early 2022, with similar trends holding for real per capita consumption. Unsurprisingly, the widening of that performance gap neatly coincides with the start of the tightening cycle”
“Cdn Consumer Sinking, but U.S. Wants to Swim” – BMO Economics
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Diversion: “The Weak Science Behind Psychedelics” – The Atlantic