Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter made an important distinction,
“Governor Macklem sounded mostly dovish in remarks on Tuesday, noting that “we’ve been pleased to see inflation come all the way back to the 2% target.” And: “Shelter cost inflation remains elevated but has started to come down, and we are looking for it to moderate further.” Just the day before, we learned that one aspect of shelter costs—new home prices—were flat last month and have also been perfectly flat over the past year. The “house only” part is actually down 0.1% year-over-year, and that feeds into the CPI calculation. But, even as the headlines tell us that inflation has been tamed, the reality faced by consumers is that prices have vaulted in recent years to new higher levels and are not really coming back down. New home prices illustrate that point, which can also be captured by an even more basic item—bread prices. As the chart shows, both of these seemingly very different items jumped more than 20% from late 2020 to late 2022/early 2023 and then have stabilized since (or drifted down a touch). Reported inflation may be 2%, but what consumers feel is the near 5% annualized rise of the past four years. Aside: New home and bread prices have both tripled in the past 40 years, and nearly doubled in the past 20″
“BMO: “Inflation is lower, prices are not”” – (research excerpt, chart) X
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Morgan Stanley analyst Adam Jones downgraded the automaker sector because of some remarkable statistics,
“China produces 9mm more cars than it buys, upsetting the competitive balance in the West. Cutting ests on China, price/mix and lost share. There are better ways to play rate cuts. Upgrade dealers. Downgrade F, GM, RIVN, MGA, PHIN … Downgrading our US auto industry view to In-Line from Attractive. At a high level, our downgrade is driven by a combination of international, domestic and strategic factors that we believe may not be fully appreciated by investors. US inventories are on an upward slope with vehicle affordability (near record high ATPs and >$720/monthly payment) still out of reach for many households. Credit losses and delinquencies continue to trend upward for less-than-prime consumers. And China’s 2-decade-long growth engine has not stalled… it has reversed in terms of China profits flipping to losses and China producing nearly 9mm units more than it sells locally, a figure equal to 15% of non-China global volume. Even if these units don’t end up directly on US shores, the ‘fungibility’ of lost share and profit by key US players adds pressure here at home”
This is clearly not great news for auto parts manufacturers where Canadian companies figure prominently.
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Wells Fargo analyst Roger Read lowered his near-term forecast for oil prices,
“Slower China demand and US shale oil growth trends were both inevitable as scale and maturity unfolded. We expect the dominant factor into YE’24 and H1′25 will be an elevated risk of global oversupply as OPEC+ production restraint cannot last forever. Consistent with our prior forecasts, we see 2024′s supply tightness flipping to a modest excess in 2025, then balanced in 2026 and 2027. We lower our near- and medium-term oil price outlook to reflect the recent greater-than-expected price weakness. We expected weaker price fundamentals by late 2024 based on OPEC+ adding production. Our long-term price deck expectation remains $80/$75 Brent/WTI based on supply/demand fundamentals. We also see decelerating US shale production and Saudi Arabia’s apparent preference for >$70/bbl crude oil as supportive factors … , initially-tight market conditions cannot provide a bulwark against an oil price decline if supply/demand fundamentals shift unfavorably. We see headwinds for oil prices until there is clarity on either the global economic outlook (specifically China and OECD demand trends), or OPEC+ adroitly manages the anticipated production resumption”
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Diversion: “Belief That EVs Are Better for the Environment Drops” – Gizmodo