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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO analyst Ben Pham highlighted upside potential in the dividend-heavy energy infrastructure stocks,

“The U.S. dollar’s strength has turned into an earnings and FCF/sh tailwind for the Cdn. Energy Infrastructure sector. Over the last few years, it has more or less been a translation headwind partially offsetting energy infrastructure expansion growth. The U.S. dollar has benefited from its safe haven status and the Fed’s aggressive tightening cycle, pushing the USD/CAD to 1.37 (approximately 8 per cent year-to-date) with expectations towards 1.40 in the near-term. EMA [Emera Inc.], ALA [Altagas Ltd.], ENB [Enbridge Inc.], TRP [TC Energy Corp.], and FTS [Fortis Inc.] are the most sensitive to upward estimate revisions (range of +4-12%) given their high proportion of earnings generated in the US (we are currently modelling 1.25 USD/CAD). This should partially offset the negative valuation impact from rising interest rates that we flagged last week in our 2024 roll[1]forward report.”


Scotiabank strategist Jean-Michel Gauthier detailed the extreme levels of bond market volatility and the likely resulting actions of quantitative funds,

“UK 10Yr gilts tumbled by 49bp yesterday after a 137bp spike over 6 days. For now, the BoE’s plan to cap long-term yields seems to be working. Still, most other bond markets also suffered through the same rollercoaster (Canada 10Yr +18bp then -24bp over the same period, US 10Yr +46bp then -21bp). Hence, the MOVE index measuring US treasuries’ implied volatility from options has almost blown through its March 2020 high. If rising volatility is a common theme across asset classes in 2022 (see upper Chart of the Day), the increase has been far more pronounced in bonds (treasuries & corporates) and currencies than in equities or commodities. From a quant perspective, we believe this is likely to lead to further de-risking … Interestingly, the more severe rise in bond volatility implies that they would be the most sold asset class.”

“Scotiabank: “the more severe rise in bond volatility implies that they would be the most sold asset class”” - (research excerpt) Twitter


The global economics team at Credit Suisse slashed their forecasts for economic growth in their quarterly update. The global outlook section is called “The worst is yet to come” and the section on Canada is entitled “Headed into recession,”

“High inflation and tight labor markets lead us to raise our forecasts for interest rates significantly higher. Global central banks are now hiking at the fastest pace since 1979. We see little prospect for any pivots toward easing … We have cut our GDP growth forecasts. More tightening, rising real yields, energy price shocks in Europe, and China’s ongoing property market stress and Covid lockdowns have led us to cut our GDP growth forecasts. Global GDP is set to grow 2.6% in 2022 and just 1.6% in 2023… The US has entered a prolonged period of below-trend growth … The risk of a real interest rate shock to the Canadian economy is rising. The central bank is about to raise policy rates to 4.5% by early next year, among the highest in the developed world, but likely too high for the domestic economy. We expect the Canadian economy to fall into a mild recession by the second half of next year … However, by Q1 next year, signs of a meaningful deceleration in inflation and domestic economic vulnerabilities will likely emerge … Elevated interest rates should soon push the housing sector from the recent boom into a sharp contraction. Residential construction has risen to 40% of total investment, or 9% of GDP, a series high since official statistics started in the 1960s … Investment in the oil and gas industry, often an amplifier of past business cycle strength, has been absent in recent years. This is likely to undermine the longevity of the current expansion”

“CS: “The risk of a real interest rate shock to the Canadian economy is rising”” – (research excerpt) Twitter


Diversion: Fly on the Wall with Dana Carvey and David Spade, Guest Lorne Michaels (podcast) – Spotify (non-subscriber)

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