Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi analyst Ephrem Ravi outlined his very bullish case for copper prices,
“Why the structural decarbonisation thematic should see $12k/t copper by 2025 (+50%)… We re-iterate our recommendation that consumers and long-term investors (especially those with relatively wide stops) gradually build copper exposure over the next 6-12 months. We see ~50 percent price increases by 2025 in our base case, a near doubling in prices in our bull case scenario, compared to 10-15 percent downside in our bear case scenario. Though we continue to see copper trading in a $7,500-$8,500/t range over the next 6-9 months, the medium-term base case price upside and upward price risk skew points to building longer term positions sooner rather than later… Copper’s unique characteristics could see it make oil’s 2008 bull run look like child’s play, should a bullish cyclical environment materialize at any point over the coming years. Copper is the only liquid commodity in the major commodity futures indices that has strong decarbonisation-related demand growth and is also seen as key to driving climate change mitigation. This leaves copper likely to continue to attract inflows from all corners of the investor universe over the next few years (active index, passive index, retail and institutional ETF investors, macro and micro hedge funds). The scale of these potential inflows are likely to overwhelm copper’s tiny physical market”
Citi mining analysts recommend Anglo American and KGHM in Europe, China Moly, MMG and Zijin in Asia. They have a neutral rating on Canada’s First Quantum Minerals (disclosure: which I own).
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Scotiabank analyst Robert Hope reiterated his top picks in the income-heavy energy infrastructure sector,
“We like the Alberta power producers (TransAlta, Capital Power) going into the quarter given the strong pricing environment, and our estimates are well above consensus. On the midstream side, Keyera continues to be a name we like as it should have a strong Marketing quarter given robust iso-octane margins, and the company could announce a dividend increase. Shares of TC Energy were weak following its recent asset sale announcement. That said, we believe progress is positive, and asset sales should help improve its funding outlook and leverage metrics. In the utilities, we are expecting a relatively straightforward quarter, with rate base growth offset by cooler weather in many jurisdictions. We are looking forward to hearing from AltaGas’ new CEO, Vern Yu, who assumed the role on July 1. Renewable power group valuations have exhibited a downward, albeit volatile, trend since last April. That said, we think valuations found a floor in late February and tested recently, and we continue to see a number of tailwinds for the group that are supportive of higher valuations. Our preferred renewable power names are Boralex, Brookfield Renewable, and Northland Power.”
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BMO economist Shelly Kaushik noted a flagging domestic consumer,
“Canadian retail sales disappointed with a 0.2% increase in May, rising much more modestly than suggested by the flash estimate previously published by StatCan. Growth in sales volumes was even more sluggish at just 0.1%. Volumes have been soft for the last couple of years, following big swings during the height of pandemic lockdowns. The Canadian economy is still expected to post a decent growth print in May given strength in wholesale and manufacturing volumes. But, consumer spending—a big driver of better-than-expected economic growth in recent quarters—appears to be losing steam in the face of still-elevated inflation and higher interest rates. And, StatCan’s advance estimate for June (flat), along with a 4.4% drop in wholesale trade, suggests growth could take a hit to close out Q2. Let’s hope those theatre concessions can help pick up the pace for July”
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Diversion: “Apple’s Incredibly Rare Sneaker From the ‘90s Selling for $50,000″ – Gizmodo
Tweet of the Day: “Not an exaggeration to say the Phillips curve has failed to “work” throughout my entire professional career. Sometimes the relationship between inflation and unemployment is flat, sometimes steep, sometimes inverted, sometimes it does the loop-to-loop” – Twitter