Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Avery Shenfeld still sees 1.5 percentage points in domestic rate cuts this year,
“The Bank of Canada isn’t ready, willing or able to bring interest rate relief just yet, but dangled some hints that lower rates are on the way later this year. The overnight target of 5 per cent was, as expected, left unchanged, as was the schedule for quantitative tightening. The statement dropped the earlier reference to a potential need to hike if inflation failed to cool, changing it into a less hawkish comment that they remain “concerned” about persistent core inflation. But in a growth and inflation forecast that’s little changed for the next two years, it sees weak growth in the first half of 2024 forecast with more disinflationary slack emerging, and an output gap estimate centred on negative 0.75 per cent as of the end of 2023. The pick-up in growth projected for the back half of the year is likely tied to their own expectations for lower rates at that time, since the Governor noted that the meeting has shifted from a discussion of whether rates are high enough, to one about how long they need to keep rates at 5 per cent. That’s a dovish tilt, but is still consistent with our call for a first rate cut in June, with as much at 150 bps of cuts on tap this year if, as we expect, we’ll need that to get the economy moving again after its current stall”
“Bank of Canada signals relief, but not just yet” – CIBC Economics
‘The BoC wants to pop the housing bubble’: How economists and markets are reacting to Wednesday’s rate decision - The Globe and Mail
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The relentless nature of major network hacks makes cybersecurity spending the most reliable within the broader technology sector, as Morgan Stanley analyst Hamza Fodderwala reports,
“Hamza Fodderwala’s CQ4 reseller checks were largely positive with healthier budget flush activity YoY and improving pipeline into ‘24. However, Hamza expects management teams will remain conservative on initial CY24 guides given broader macro uncertainty. Hamza favors OW [overweight] TENB [Tenable Holdings Inc.] ($60 PT) and FTNT [Fortinet Inc.] ($77 PT), and is slightly more cautious CHKP [Check Point Software] (EW, $144 PT), QLYS [Qualys Inc.] (UW, $150 PT), and NET [Cloudflare Inc.] (EW, $66 PT). On TENB, Hamza notes that topline upside may be limited, but margin surprise is not reflected in the shares. Hamza models TENB’s FY24 operating margin at 16.5 per cent vs consensus at 14.3 per cent. Still, Hamza remains more constructive on topline growth vs. consensus on a 12 month basis against easing CCB comps, reseller expectations for better growth in 2024, and an improving Cybersecurity budget environment … "
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BofA Securities U.S. quantitative strategist Savita Subramanian sees U.S. bank stocks as a potential ‘coiled spring’,
“Banks may be this year’s coiled spring. Active funds added 14ppt [percentage points] of exposure to Comm. Services (Tech, Media and Telecom or TMT) in 2023, driven by a move into ‘New Media’ industries (Entertainment +16ppt, Interactive Media & Svcs. +13ppt). Funds dropped exposure to Banks, despite the strong year-end rally. S&P 500 Bank exposure sits 12ppt lower than where it started 2023, just 3ppt off its SVB lows. New Media vs. Banks positioning is more than 1 std. dev. above average, a precursor to Banks historically outperforming New Media by 4ppt (avg since 2008) over the next 12-mths. An upturn in the cycle supports Banks, and our fundamental analysts see potential for re-rating”
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Diversion: “Tall Vehicle Hoods Really Are Increasing Pedestrian Deaths” – Wired