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

There has been numerous commentary attempting to gauge the market and economic effects of the Russian invasion of Ukraine, as summarized here. Energy shortages are an obvious concern but food security is also a huge issue, as the Financial Times highlights,

“Russia and Ukraine together account for a third of the world’s wheat exports, a fifth of its corn trade and almost 80 per cent of sunflower oil production … The disruption to supplies and the scramble to find alternative sources of grain will hit supply chains already struggling with high demand and rising prices because of poor harvests in key exporting countries such as Canada. “The food price inflation risk stemming from this conflict appears acute,” said Helima Croft, analyst at RBC… Lebanon imports 50 per cent of its total wheat consumption from Ukraine, followed by Libya at 43 per cent, Yemen at 22 per cent, and Bangladesh at 21 per cent.”

Earlier this week, a research report on scarcity by BofA Securities noted that drought conditions in the U.S. southwest are the worst in 1200 years and are expected to continue until 2030.

“Ukraine invasion could fuel inflation, putting central banks in delicate position as they look to hike rates” - Report on Business

“Russia attack on Ukraine set to hit global food supply chains” –Financial Times (paywall)

Russia’s Invasion: Economic Impact – BMO Economics

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Scotia analyst Mario Saric is bullish on domestic apartment REITs,

“We reiterate our strong disposition towards considering increasing our Apartment REIT allocation (just one Outperform right now) as regulatory visibility improves (Ontario Election, Federal Budget) and international immigration/students return, positioning the asset class as a “catchup growth trade” in our view. In terms of NTM ROR [next 12 months rate of return] , the top 3 CAD apartments in order are IIP [Interrent REIT] , CAR[ Canadian Apartment Properties REIT], and KMP [Killam Apartment REIT] . We also continue to like TCN [Tricon Capital Group Inc.] on expected superior NTM NAVPS growth”

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Citi U.S. equity strategist Scott Chronert predicts ‘a painful ride’ ahead for investors until energy prices normalize,

“Geopolitics rarely cause a full-blown recession. Equity corrections around wars and oil-market disruptions can be sharp but are generally short-lived. That said, for risk assets to stabilize, there needs to be a halt to the parabolic rise in energy/ags markets. Risk assets are concerned about high inflation, lower growth and an absent policy put. The oil market is uber-tight and can squeeze higher near term. Brent technical levels are $116-$120, and whilst overbought indicators are stretched, net speculative long positioning is not. How long can this last? Interestingly, for oil-related geopolitical events, crude often rallies into the event but sells off afterward. We are not as optimistic this time, but Citi commodity strategists expect supply to be forthcoming from US shale and OPEC, with a possible US-Iran deal on the horizon. This could shift the oil market into surplus over the coming months…it might be a painful ride until then.

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Citi credit strategist Matt King was the first (that I know of) who noted the strong correlation between central bank balance sheets and returns for the MSCI World Index. He notes that this relationship continues – the recent drop in equity prices has coincided with a decline in central bank reserves,

“That the addition or subtraction of hundreds of billions of dollars in global liquidity should have an impact on markets is of course neither surprising nor distressing. But that this should be happening almost inadvertently – or at least in ways and with impacts not fully appreciated by those adding the liquidity and tasked with upholding financial stability – is both. Though you might, and indeed we would, argue that this is merely the latest chapter in a long-running saga in which central banks’ narrow focus on consumer price inflation has led to their overlooking the impact of decades of easy money on asset price inflation… Disappointing YTD performance in markets is not just the result of an inflation surprise: since late 2021, central banks have drained $400bn in liquidity. Remarkably, this has occurred even as central banks thought they were still adding liquidity. But what matters for markets is not securities purchases, but changes in reserves. H2 could in principle see the opposite effect – in which a conscious effort at QT is offset by liquidity released from RRP [Federal Reserve Reverse Repo program] “

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Diversion: “The 50 Best Episodes of ‘Law & Order’” – The Ringer

Tweet of the Day: " Could Russia’s invasion of Ukraine start another world war? Retired Brigadier General Mark Kimmitt tells @MadisonMills22 what to expect https://trib.al/aAp5LDm " –(brief video) Twitter

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