Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Canadian rates and macro strategist Benjamin Reitzes warns clients that economic data is weaker than it appears on the surface,
“Canadian headline retail sales fell for a third straight month to start 2024 (down 0.2 per cent in March), as elevated interest rates and high prices continue to weigh on consumers. Volumes weren’t much better, falling 0.4 per cent, the second consecutive monthly drop. For all of Q1, volumes rose 1.1 per cent annualized, and are up 0.8 per cent year-over-year for March. While that doesn’t seem particularly soft given the challenging backdrop, the reality is far less rosy. The modest gain in retail activity comes despite population growth north of 3 per cent. That mean sales are FALLING on a per capita basis. Indeed, per capita volumes have been trending lower for about three years, and are just 0.5 per cent above 2018Q2′s pre-pandemic peak. Accordingly, there should be little question why Canadian consumer sentiment remains soft, and some retailers are struggling. While the April flash estimate points to a bounce in activity, there’s nothing in the retail figures that will keep the BoC from cutting rates at next week’s meeting”
“BMO: Retail sales worse than it looks” – (research excerpt, chart) X
***
Prominent JP Morgan global strategist Mislav Matejka favours defensive sectors over cyclicals,
“Historically, Defensives and bond proxies struggled when bond yields would be moving higher. This phase might be ending. Now, in Nov-Dec episode Cyclicals rallied as US 10-year yield nosedived 120bp, from 5.0 per cent to 3.8 per cent, but the background here was the market anticipation of activity acceleration, to be spurred on by Fed pivot and easing in financing conditions. That is why Russell2000 briefly beat S&P500 at the time. This time around, the backdrop could be the softening activity momentum, as seen in a notable fall in US CESI [economic surprise index] most recently, into negative territory. If bond yields are falling as economic growth is moderating, the sector leadership is likely to be more Defensively tilted. Indeed, in Q2 so far, Defensives are ahead in both the U.S. and in Europe. Additional considerations are: valuations - Cyclicals are generally trading stretched vs Defensives, past performance - the Cyclical run over the last 18 months has opened up a gap with PMIs, which has not closed yet”
The strategist’s top picks in European equities are Eni, Total Energies, Shell, CRH Public Limited, Rio Tinto, Norsk Hydro, Anglo American, Schneider Electric, Ashtead Group, Ryanair Holdings, Airbus, MTU Aero Engines Hldg, Stellantis, BMW, Inditex, Adidas, Richemont, Compass Group, Colruyt Group, Anheuser-Busch Inbev, Novo Nordisk ‘B’, Astrazeneca, Smith & Nephew, UBS Group, Natwest Group, Ing Groep, Intesa Sanpaolo, London Stock Exchange Group, Amundi (Wi), Dassault Systems, ASML Holding, ASM International, Deutsche Telekom, BT Group, RELX, Hellofresh, RWE, Enel and Segro
***
Scotiabank analyst Ben Isaacson’s report on lithium stocks included a link to important news for battery producers,
“Scientists have recently developed a new type of cathode material using iron to make lithium-ion batteries for electric cars. This would replace the more expensive and scarce metals such as cobalt and nickel and pave the way for cheaper, safer, and more sustainable batteries with higher energy densities. EVs might benefit from this new approach not only due to the cost-effectiveness of the new material but also because a collaboration co-led by an Oregon State University chemistry researcher is hailing it as a more sustainable alternative. ‘We’ve transformed the reactivity of iron metal, the cheapest metal commodity,’ Oregon State University’s Xiulei ‘David’ Ji stated. ‘Our electrode can offer a higher energy density than the state-of-the-art cathode materials in electric vehicles. And since we use iron, whose cost can be less than a dollar per kilogram – a small fraction of nickel and cobalt, which are indispensable in current high-energy lithium-ion batteries – the cost of our batteries is potentially much lower.’”
“Iron cathodes make lithium batteries cheaper, safer, more sustainable” – Interesting Engineering
***
Diversion: “Lazy Work, Good Work” – Collaborative Fund (Housel)