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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO analyst Sohrab Movahedi assessed the mortgage exposure for Canadian banks in a report entitled Canadian Banks: Residential Mortgage ‘Survival Guide’ ,

“Canadian RESL [real estate secured lending] balances at the ‘Big 6′ were up ~10% year-over-year to ~$1.66 trillion in Q3/22 (highest y/y growth at BNS, lowest at RY), driven by double-digit uninsured mortgage growth; home equity lines of credit (HELOC) accounted for ~$265 billion (+10% y/ y), or ~16% of total RESL. Management commentary around Q3 results suggests that while Bank of Canada rate hikes (and higher mortgage borrowing rates) will dampen growth rates, credit quality of portfolios remain intact in part thanks to strength of household balance sheets. We tend to agree (and our published earnings estimates for the banks reflect this) … While slowdowns are expected on the back of a rising rate environment, consumer credit quality is expected to remain high, supported by strong Canadian consumer outlooks … Variable Rate Mortgage Demand Is Increasing: Variable rate mortgages make up between a quarter and a third of mortgage portfolios at the “Big 6″


Morgan Stanley commodity strategist Amy Sergeant discussed the importance of copper and aluminum supply for the transition to renewable power,

“Our new bottom-up modelling suggests 2030 copper and aluminium demand could be 24% and 26% higher than current levels. However, with investment in new supply lagging, we see larger deficits ahead, driving stronger medium-term prices … Between 2021 and 2030, we expect the share of energy transition-related end markets to jump from 20 to 29% of copper demand and 15% to 22% of aluminium demand … China’s role in demand growth will decrease: After driving 100% and 85% respectively of refined copper and aluminium demand growth over the last decade, China only contributes around 50% over the next decade … Our new modelling gives us more conviction in our LT demand forecasts to 2030 of 2.1% CAGR for copper and 2.2% CAGR for aluminium. Although lower than average 2010-2019 demand growth of 3.1% and 5.3%, we expect this to outpace supply growth, where expansionary capex announcements aren’t happening. We see probability weighted annual supply growth of 1.2% and 1.6% respectively, leaving deficits of 2.5 mtpa (9%) and 4.9 mtpa (6.4%) by 2030 … Alongside our incentive price analysis, we raise our real LT copper and aluminium price forecasts by 15% and 17% respectively …. but timing matters: While we see deficits ahead, we caution against trying to position too early”

“MS: “2030 copper and aluminium demand could be 24% and 26% higher than current levels”” – (research excerpt) Twitter


Also from BMO, economist Robert Kavcic published Housing Screws Keep Tightening,

“The full suite of Canadian housing data out on Thursday might hint at some stability in sales and market balance, but there is more adjustment yet to come. At this precise moment, it’s a bit of a unique situation where many potential buyers have preapprovals in hand from before the big wave of BoC tightening, while also looking at 10%-to-20% discounts on home prices. If you can buy at a discount with a mortgage rate that no longer exists, it could be enticing. But the bigger picture is that there is still an enormous interest rate shock to absorb. From an affordability perspective, the one-year increase in the carrying cost on an average home purchase in Ontario has only been rivalled in the late-1980s (and this incorporates already-lower prices). In other words, this is the sharpest tightening of housing conditions in a generation, and it will come with further adjustment…”

“BMO: “Housing Screws Keep Tightening”” – (research excerpt) Twitter


Diversion: “100 Years Ago in Photos: A Look Back at 1922″ – The Atlantic

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