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

The economics and strategy team at Morgan Stanley released their global mid-year outlook and the news from this quarter is not great,

“The training wheels are still off and challenges continue. We see more equity de-rating, range-bound yields, and strength in oil, munis and mortgages … Falling PMI [manufacturing purchasing manager surveys] and earnings revisions mean the bear market is not finished. We see further de-rating and US weakness, while Japan outperforms. We continue to favor defensives and commodity producers. We see the S&P 500 at 3,900 by 2Q23 … Supply, demand, and carry continue to support energy over metals. We like oil over gold, and aluminium over copper. Brent to US$130 in 3Q22, US$120 by year-end … This tempest has three drivers, all of which are ongoing. First, enormous fiscal stimulus drove above-trend growth that is now moderating. Second, DM central banks have made an intentional decision to err on the side of caution and keep monetary policy easy even as that growth rebounded. The training wheels are off as policy tightening races to catch up. Third, events in Ukraine and China are creating a negative supply shock and more global inflation for a given level of growth.”

“MS mid-year outlook, “The training wheels are still off and challenges continue. We see more equity de-rating, rangebound yields, and strength in oil, munis and mortgages”' – (research excerpt) Twitter


BMO chief economist Doug Porter sees some relief ahead concerning gasoline prices,

“The headlines are full of items about record gasoline prices, and the potential for them to rise even further. Of course, this is maybe the last thing we need when inflation is already fraught, and consumer expectations are at risk of being unmoored. And gas prices are so important because of a) their high-profile status (what other price is constantly flashed publicly?), and b) the widespread importance of energy in all costs. Crude prices have quietly stepped back to around US$100 in recent days. Combined with a loonie of roughly $1.30/US$, that leaves a Canadian dollar price of ~$130/bbl (the blue horizontal line in the chart). Without a lot of comment, we would just note that this implies quite a gap with recent gasoline prices, which did not occur a year ago. The latest carbon tax hike would account for about 2.2 cents of the gap, but the rest must be due to a specific issue in the refined products market. Presumably, that issue will eventually resolve, and current crude prices point to at least some (eventual) relief at the pumps—assuming oil prices don’t pop again.”

“BMO: Relief ahead at the gas pump” – (research excerpt, chart) Twitter


Scotiabank analyst Ben Isaacson reports that global potash prices are softening, in part because U.S. crop planting is slower than expected,

“As of May 1, 14% of corn had been planted in the U.S., vs. 42% year-over-year and a five-year average of 33%. For soybeans, 8% had been planted on May 1, vs. 22% y/y and a five-year average of 13%. Cotton planting is in line with last year and the five-year average. Potash price declines accelerated last week, with Brazil and U.S. Gulf markets down $35 w/w to $1,140/mt and $750/st, respectively. Why? Simply put, demand in those regions have been slower than expected, despite exceptional farmer economics on paper. In Brazil, there is clear concern now about affordability, with very little potash moving inland, and therefore stock is building up at ports, creating downward price pressure. In the U.S., there is still bullish chatter about prices being tolerable through the summer, given limited supply availability, coupled with (anecdotal only) reports of less potash through the channel y/y, at least in the Corn Belt. Q1 potash imports into the U.S. were down 18% y/y to 2.9M mt, while Q1 Canadian exports were up 1% y/y to 5.0M mt. As a reminder, Canada exported 21.6M and 21.2M mt of potash in ‘21 and ‘20, respectively.”

“Scotiabank: global potash prices softening” – (research excerpt) Twitter


Diversion: Dana Carvey and David Spade’s podcast had longtime Saturday Night Live writer Jim Downey as a guest – Spotify (non-subscriber version)

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