Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi strategist Dirk Willer reiterated advice to short oil and also added a bet against the loonie in his latest Global Macro Strategy - Views and Trade Ideas report,
“Short oil a fundamental trade, with potential for a Trump kicker. More importantly, the reason why our oil strategists are bearish oil is not so much the idea that a Republican White House would lead to more drilling. Instead, the idea is more that large tariffs would negatively impact global trade, which would lead to lower oil demand, though this is more a 2025 story … RoW [rest of world] data closes the gap with the US, which is USD negative. G9 (G10 ex-US) economic data momentum has closed the gap with the US. US data has continued to undershoot consensus - leaving us in a macro environment that is historically bearish USD (US < G9 and US <0). That said, the USD may still benefit from possible election noise on the back of a very early US presidential debate. We think long AUDCAD can perform well in this regime, as AUDCAD benefits from a weaker USD to some extent, but in a more contained way. On top of that, we think CTOT [commodity terms of trade] dynamics as well as central bank policy divergence favour AUD over CAD”
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Scotiabank analysts Paul Cheng and Jason Bouvier expect geopolitical risk remaining a feature of global oil markets,
“We have maintained our Brent and WTI price assumptions. Over the past three months, the underlying oil market fundamentals have remained largely unchanged, in our opinion. On the geopolitical front, no real progress has been made on any near-term solutions for both the Middle East conflict and the Russia/Ukraine war. In addition, as the U.S. election is fast approaching, we don’t expect any progress between the U.S. and Iran on sanction negotiations. Simply put, we expect the elevated geopolitical risk premium is here to stay at least through the remainder of 2024. Global Oil Market Outlook: We reiterate our view that 3Q will mark the high point of oil prices for 2024. We see Brent prices averaging in the range of $85-$90/bbl this year. We maintain our previous estimate for 3Q24 at $88/bbl. We continue to forecast demand will exceed supply by 1.0-1.5 mmbbl/d in 3Q24 despite persistent leakage from some members of the OPEC+ group. Longer term, we remain optimistic that the market sentiment on global oil supply availability will begin to shift in 3-4 years and reiterate our recently revised higher long-term Brent price forecast of $75 (up from previously $65)”
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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report was typically punchy,
“Zeitgeist: “Until investors need to buy bonds, they ain’t selling tech.” … break below 4% (100-week ma) on 10-year Treasury and narrative shifts pronto from “soft” to “harder” landing … [BofA Securities ] private client holdings of Magnificent 7 stocks now two-thirds of holdings in all Treasury bonds with duration >1 year; same on institutional side where zero evidence clients selling stocks to buy bonds … Flows to Know: Crypto: biggest inflow in 5 weeks ($1.0bn). IG bonds: 37th week of inflows ($5.2bn) … Tech: chunky inflows continue ($1.9bn). BofA Private Clients I: $3.7tn AUM…62.3% stocks, 19.8% bonds, 11.1% cash; “Magnificent 7″ now 36% of GWIM [Global Wealth and Investment Management – high net worth advisory] top 200 common stock exposure.”
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Diversion: “The Mysterious Slowdown in U.S. Manufacturing Productivity” – Liberty Street Economics