Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Domestic GDP growth data released Wednesday was solid, but, as BMO economist Benjamin Reitzes noted in a research report released today, there’s still a long way to go,
“The recovery from the COVID-driven Spring lockdowns continued in July, with monthly GDP rising 3%. That puts the level of activity at 94.2% of February levels—still a very deep hole to dig out of. While July growth is below the prior two months, it should come as no surprise that momentum is slowing after the initial reopening surge. That trend should continue even if there are no further COVID-related issues (doubtful). Statscan also provided an estimate of 1% growth for August. Not great, but not bad either, and it keeps Q3 GDP on pace to climb at a 45%-to-50% annualized rate.”
"@SBarlow_ROB BMO on Cdn GDP: “still a very deep hole to dig out of” – (research excerpt) Twitter
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Scotiabank strategist Jean-Michel Gauthier detailed the decline of short selling in Canadian stocks (my emphasis),
“Short sellers continued to cover their positions through the September sell-off, according to data as at September 15. In Canada, the short interest ratio (SIR) went from a high of 3.01% in April to its lowest since January at 2.76%. In the U.S., the short covering was even more pronounced, tumbling to a SIR of 1.3%, its lowest level since the early 2000s. Looking at short activity through our SQoRE style indices in Canada, Quality has benefitted from the highest pace of short covering in the past few months … SIR on Canadian-focused equity ETFs highlight a similar trend. Since shorting the XIU [iShares S&P/TSX 60 Index ETF] is essentially betting against Canada, the 4% drop in SIR from March to September reveals a large sentiment change among global investors”
“@SBarlow_ROB Short sellers on Canadian stocks throw in the towel (Scotiabank)” – (research excerpt) Twitter
“Short sales on the TSX: What bearish investors are betting against” - Globe Investor
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A new report from UBS highlights Toronto, Munich, Frankfurt and Hong Kong as the cities most vulnerable to a housing market correction,
“Munich, Frankfurt, Toronto and Hong Kong topped the list of cities most vulnerable to a “sharp correction,” according to UBS Group AG’s annual Real Estate Bubble Index released Wednesday… “It’s clear that the current acceleration is not sustainable,” the report said. “Rents have been falling already in most cities, indicating that a correction phase will likely emerge when subsidies fade out and pressure on household incomes increases.” … The report says investors should consider selling properties and look for places to put their money that will bring higher returns. “Though real estate is often regarded as a legacy investment, now is certainly not the worst time for owners of multiple properties to consider profit taking,” said Claudio Saputelli, head of Swiss real estate investments at UBS Global Wealth Management.”
“These Are the Cities With the Riskiest Housing Markets” – Bloomberg
“For Toronto condo investors, the gravy train takes a detour” – Report on Business
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Bank of America analyst Ken Hoexter has increased price targets on rail companies, including Canadian National Railway Co., as business activity recovers more quickly than expected (my emphasis),
“Total carloads in 3Q are down -7.0% QTD, based on Association of American Railroads (AAR) data, approximately 220 bps better than our prior estimate, and approx. 1,280 bps better than 2Q’s -20%. Volumes reflected sharply through the quarter, improving from -9.7% year-year in July, to -7.6% in August, and -1.4% in September. Notably, 3Q’s penultimate weekly absolute total carloads were around 820k, the highest level in 41 weeks (December 2019), highlighting the V-shaped recovery that has emerged. This mirrors our BofA proprietary Truck Shipper Survey Demand Indicator, which approached its all-time high on September 24, after hitting an all-time low on April 23”
Mr. Hoexter raised his price target on the U.S.-traded CN Rail stock from US$107 to US$114.
“@SBarlow_ROB BoA raises targets on rails including CN” – (research excerpt) Twitter
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Newsletter: “Four reasons to buy stocks on any weakness” – Globe Investor
Diversion: “Study found that just 8% of people with COVID-19 accounted for 60% of the new infections observed among the contacts” – Los Angeles Times
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