Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Copper is considered a vital ingredient for the secular electrification trend, but Citi analyst Tom Mulqueen sees weakness ahead for the commodity price,
“We forecast multi-year record copper mine production growth in 2023. This adds conviction to our 6-12 mth pt price forecast of $6,600, ~20% below current spot levels. We continue to recommend accumulating a bearish copper position of any size. In this note we detail our expectation for multi-year record growth in copper mine output in 2023 … We think copper’s price bounce since mid-July is the deep breath before the plunge. Copper’s rally since mid-July is a bull trap in our opinion. We see a Europe-led global recession developing over the next 6-9 months that will hit consumption and drive a pullback in copper prices… . Our take is that base metals markets are overly focused on this optimistic Fed narrative and are consequently failing to correctly price in the likelihood of a major demand shock as recession takes hold.”
“Citi is bearish on copper prices” – (research excerpt) Twitter
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BMO chief economist Doug Porter explains the importance of looking at the data without inflation-adjustments,
“On the surface, the Canadian Q2 GDP result appeared a tad soft, coming in 1 ppt below expectations at a 3.3% clip. However, this is the version of activity after it is scrubbed for price changes. Nominal GDP, on the other hand, rampaged ahead at a towering 17.9% annual rate in the quarter. That was driven by a 14.0% spike in the GDP deflator, the largest quarterly rise since 1974. (Or, as an astute client pointed out, when another Trudeau was in his third term as PM.) The massive increase in the deflator was led by a near-40% spike in export prices. Since import prices rose “only” 15%, Canada’s terms of trade shot upward in the quarter. The implication is that real incomes are actually rising much more forcefully than the headline GDP figures would suggest. Real GDI surged at a whopping 10.4% annual rate in the quarter, and up almost 8% y/y. Again, that is a “real” number—prior to the pandemic, the last time real incomes rose that quickly in Canada was at the very height of the tech boom in 2000 (when the BoC’s overnight rate was 5.75%). In turn, this income surge has boosted corporate profits (up 21% y/y), kept households flush (the saving rate was still solid at 6.2%), and supported government revenues.”
“BMO: “the last time real incomes rose that quickly in Canada was at the very height of the tech boom in 2000″” – (research excerpt) Twitter
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BofA U.S. quantitative strategist Savita Subramanian is still bearish, holding a S&P 500 target of 3600 that is well below current levels near 3950,
“Improved sentiment, especially following a 17% rally off the June lows, suggests the bulls haven’t fully capitulated yet. But optimism around a soft landing and 1H23 rate cuts has diminished following Jackson Hole, and there are still no real signs of a new bull market yet (see Relative Value Cheat Sheet). We also note that the market has yet to see the full impact of Quantitative Tightening (QT) - based on the historical relationship between Quantitative Easing and the market, planned QT implies a 7% market decline”
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Diversion: “Who Should Be the Next James Bond?” - i09
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