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

The macroeconomic analysis team at RBC Global Asset Management sees rising risks of recession,

“In addition to the pre-existing supply chain and inflation morass, the combination of increasingly aggressive central banks, a stumbling China and the commodity shock emanating from the war in Ukraine have naturally further dimmed the growth outlook, with the high level of uncertainty surrounding many of those and other variables highlighting the possibility of scenarios sharply worse (though also considerably better) than the base-case outlook. Over the next twelve months, we continue to flag a recession risk for North America of around 30%, with the European risk somewhat higher given a greater exposure to Ukraine – at around 40%. These probabilities are three to four times higher than usual, although it must be emphasized that they nevertheless mean that a continuation of the economic expansion is the most likely outcome for the coming year… But it is important to think beyond merely the next twelve months. The risk of recession at some point over the next two years may well be above 50%, and potentially by a significant margin”

“RBC: “The risk of recession at some point over the next two years may well be above 50%, and potentially by a significant margin”” – (research excerpt) Twitter

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Scotiabank analyst Ben Isaacson noted a sharp drop in potash demand caused by much higher costs,

“Potash demand continues to struggle, due to uncooperative weather, a better-than-expected potash run last fall, as well as continued sticker price shock. Q1 potash imports were -19% year-over-year in China, -63% y/y in India, +1% y/y in Brazil, and -11% in South Korea (not a market we normally talk about, but a data point nonetheless). In Brazil, while record-high soybean and corn prices still support potash application, demand is stalling during what should be a busy time for potash transactions in Brazil. CRU suggests shipments there could be down 20% to 30% this year. In Southeast Asia, we expect demand to be 15% to 20% lower y/y, although Q1 import data may not fully reflect”

“Scotiabank: “Potash demand continues to struggle”” – (research excerpt) Twitter

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BMO commodity analyst Colin Hamilton noted numerous signs of slowing global manufacturing activity that may limit resource demand in the months ahead,

“It should come as no surprise that industrial production fell across our major economies in March. In the U.S., year –over -year growth slowed from 7.5% to 5.5%, Europe seems well set on its way to an industrial recession, and in China the COVID -related lockdowns and logistic issues saw the pace of growth decline to 5%, with fears this could have been even lower. And with April set to show further evidence of both China’s issues and the impacts of commodity price inflation, growth concerns may be quickly coming to the fore. The number of countries in manufacturing expansion fell for the fifth consecutive month (though at 81% this still covers the vast majority) … Struggles are ongoing in the [Chinese] property sector where confidence remains low and where consumer confidence has been hit by equity market turmoil and geopolitical concerns. However, given the impact of COVID -related lockdowns spreading across the country, expectations are already formed that April data will look much weaker, as certain key parts of the economy somewhat grind to a halt. Notably, the China Passenger Vehicle Association is reporting a 13% discount to retail prices for auto sales in April thus far, and sales themselves are down >30% year over year”

“BMO: “It should come as no surprise that industrial production fell across our major economies in March.”” – (research excerpt) Twitter

My column in print today highlights the declining attractiveness of domestic REIT yields,

“The current indicated yield on the S&P/TSX REIT index is 3.8 per cent, and the current five-year government of Canada bond yield is 2.6 per cent. This makes the yield differential or “spread” 1.2 percentage points for the average REIT. The average spread over the past 15 years (the maximum data available) has been 3.9 percentage points. In strict yield terms, REITs offer a much smaller benefit relative to bonds now – the lowest since June, 2007″

“REIT yields haven’t been this unattractive since 2007″ – Barlow, Inside the Market

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Diversion: “It looks like Duran Duran is going to win this year’s fan voting for The Rock and Roll Hall of Fame” – A Journal of Musical Things

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