Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA global strategist Ethan Harris published his year-ahead report for 2023 and it included specific reference to Canada,
“Global Letter: resilience, rate hikes, rotation and recession. A recession is very likely in the US, Euro Area and UK. Other regions will continue to weaken, with the exception of China. Inflation will come down, but it will take time for central banks to declare victory. The outlook is much more uncertain than normal and we continue to worry about geo-political shocks and sticky-high inflation … We expect [Canadian] GDP growth at 3.3% whereas a year ago we forecasted 3.8%. Still, above-3% growth is strong for Canada. The surprise this year was that inflation came much higher than what we expected, in part driven by the Russia-Ukraine conflict and in part by the tightness in the Canadian labor market … We expect the Canadian economy to decelerate to 0.8% in 2023. The main driver of the deceleration is higher interest rates. High US interest rates will decelerate the US economy which in turn will weaken demand for Canadian products… but a housing crisis is not our baseline. The risk to our GDP growth projection is to the downside as higher borrowing costs could have a larger impact on highly indebted households than what we assume”
“BofA’s 2023 look ahead for Canada” – (research excerpt) Twitter
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Goldman Sachs’ global equity strategist Peter Oppenheimer does not believe the bear market is over,
“In our view, the speed of the rise in interest rates (rather than their absolute level) has the potential to do more damage as investors are likely to increasingly focus on growth and earnings weakness. We continue to think that the near-term path for equity markets is likely to be volatile and down before reaching a final trough in 2023. So while near-term risks are to the downside in global equities, it is likely that they enter a ‘Hope’ phase in 2023; we expect overall returns between now and the end of next year to be relatively low … We would characterize the current bear market as ‘cyclical’ … These types of bear market typically experience falls of around 30%, last for 26 months and take 50 months to recover. This is milder than the 60% average falls in ‘structural’ bear markets, which are largely associated with major asset bubbles and private-sector leverage … Several conditions are typically met at bear market lows and, so far, we have not reached these conditions in the current cycle. In particular: Valuations tend to fall to cheap levels – consistent with an expectation of a recession. While equities tend to recover when the economic and profit backdrop is very weak, they do not typically recover until the rate of deterioration slows. A peak in interest rate expectations is not usually enough. Equities do not usually trough until inflation and interest rates peak. Positioning tends to be very low.”
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Morgan Stanley economists published their 2023 forecasts last week. Over the weekend, they discussed the conclusions that were debated most heatedly in an exercise I wished all research departments did annually,
“Unsurprisingly, we spent a lot of time on inflation … Our economists acknowledged the uncertainty but took some comfort in base effects, normalizing supply chains, and weaker labor markets. They also saw deflation (not just disinflation) in certain core goods such as autos and a reset in medical services prices exerting a steady drag on core inflation. To be clear, our US inflation forecast takes into account that while shelter inflation will slow, it will remain a persistent driver of above-target inflation for a few more quarters… Our FX strategists changed their bullish stance on USD to neutral, a notably outof-consensus call … the key to the outcome for markets seems to be whether a recession follows the end of a hiking cycle … Another topic of discussion was our housing strategists’ view that US housing will experience a significant decline in activity (sales, starts, and permits) comparable to the steep declines seen in the aftermath of the GFC, yet only a modest drop in home prices”
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Diversion: “Why Elon Musk Is Blowing Up Twitter’s Business” – The Atlantic
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