Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets head of global energy research Greg Pardy published a bit of table pounding with Quality on Sale. Act Now,
“Our 2024 Global Energy, Power & Infrastructure Conference (EPIC) on June 4-5 in New York is timely especially given energy market turbulence following the June 2 OPEC+ Ministerial Meeting. In our eyes, quality energy producers have gone on sale. Corporate consolidation amongst US energy companies (including the $22.5 billion ConocoPhillips-Marathon deal) is ripping. And the new model energy producers have embraced globally fuses financial resilience with shareholder return optionality. Simply put, energy investing is no longer just about crude oil price volatility. Our hit parade of energy stocks is featured in our RBC Global Energy Best Ideas … Helima Croft—Head of Global Commodity Strategy, argues that the planned unwinding of 2.2 million bbl/d of voluntary cuts commencing in October 2024 can be paused/reversed depending on market conditions, and that we do not see this as an abandonment of the active market management principle … From where we sit, Canada’s oil sands landscape—characterized by resource abundance and extensive reserve lives—is the most attractive we have seen in over a decade. The 590,000 bbl/d Trans Mountain Pipeline Expansion is a game changer which affords excess takeaway capacity into 2027 and global market optionality that has yielded tighter WCS-WTI spreads”
Canadian producers in the best ideas list include Suncor Energy, Canadian Natural Resources, ARC Resources, and MEG Energy.
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Scotiabank strategists’ monthly chart book was released Monday,
“We often hear that Canadian banks are all the same, and while that is often the case it was certainly not the case in May. The spread between the best performing bank (RY +11.7%) and the worst performing bank (TD -6.7%) is a staggering 18%. In fact, we have to go back to the financial crisis to see a wider dispersion in monthly returns … According to economists, the Bank of Canada (BOC) is expected to deliver its first rate cut later this week. Keep an eye on the loonie. Canadian two-year bond yields are trading 70 bp lower than their U.S. peers, and the Canadian dollar has been weak in the last few months — suggesting Some monetary policy disconnect with the Fed is to be expected. However, if the BOC were to cut rates, and open the door for more cuts, a widening interest rate spread could send the loonie into a tailspin … While we are seeing much more divergence among the Magnificent 7 (MAG-7) this year (five are up, two down), the group continues to power ahead, benefiting from the Al craze and the parabolic rise in NVDA (+130% YTD). The Magnificent 7 ETF (MAGS) is up almost 28% YTD, easily Outperforming the S&P 500. Looking forward, however, the earnings growth gap between the MAG-7 and S&P 493 is expected to narrow, but not fully close. Will that be enough for the S&P 493 to regain leadership over the MAG- 7? It’s hard to tell, but a much tighter earnings growth spread could suggest that the S&P 493 will clearly look more competitive... in 2025″
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Citi foreign exchange strategist Daniel Tobon sees a selling opportunity for the loonie ahead,
“Consistent with our latest FX forecasts, we see CAD upside as capped in coming months. Inflation and activity data have largely surprised to the downside, while CAD’s beta to slowing US growth caps any reflation trade tailwinds. Thus, even amid dovish US developments, Fed-BoC pricing has remained relatively sticky in recent months. This keeps us bearish CAD against USD … Leveraged positioning is near max short … Those shorts have been added as USDCAD has remained range bound, where any CAD rally could see those positions quickly unwind. Punchline: the setup skews towards lower USDCAD on the day, but we like using any post-BoC pop in CAD as a tactical selling opportunity. In terms of levels, 1.36 [CADUSD $0.7353] on USDCAD has held as good support — if that gives way, the next support is the 200 day moving average at 1.3575 [$0.7366] followed by 1.3480 [$0.7418], where CAD shorts would once again look attractive”
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Diversion: “Brain drain from Canada” – Marginal Revolution