Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter posted a remarkable chart comparing population growth and housing starts,
“Appreciating that we have tilled this ground many times before…but apparently the message is only taking root with a select few … The ongoing and relentless focus on the supply side of the Canadian housing market is completely missing the point. To be sure, we need supply, and lots of it. But, as my colleague Robert Kavcic would say, there is no version of reality where supply can be ramped up enough to meet the tidal wave of demand seen over the past few years … For 30 years, the number of housing completions lined up reasonably well with a bit more than half the growth in the adult population. And, contrary to popular belief, nationwide affordability was manageable—until 2021, when the affordability dam broke. This chart suggests that we now need at least 500,000 completions; the country has never managed even half that tally in a single year”
“BMO: “there is no version of reality where [housing] supply can be ramped up enough to meet the tidal wave of demand” – (research excerpt, chart) X
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RBC Capital Markets head of global energy research Greg Pardy believes merger and acquisition activity is about to heat up in his sector,
“Strong balance sheets support consolidation. In our minds, fortified balance sheets have opened the door to intensified M&A activity via increased funding capacity. Indeed, estimated net debt levels for our global producer coverage group at the end of 2023 are about one half that of 2020 … US producers and others may seek to pivot into Canada’s Montney (explored in RBC Imagine: Canadian Natural Gas - Going Global), which offers a still early-stage condensate-rich play that will benefit from improved egress via LNG Canada, slated for start-up in late-2024″
The stocks on the potential acquisition target list are ARC Resources, Ashtead Technology, Calfrac Well Services, California Resources, Camavon, Chord Energy, Comet Ridge, Cooper Energy, Crew Energy, Diamondback Energy, Enerplus, EnLink, Equitrans Midstream, Galp, Gibson, Hunting, Kelt Exploration, Lucero Energy, Marathon Oil, MEG Energy, Obsidian Energy, Origin Energy, Ovintiv, Permian Resources, Plains All American, Range Resources, Santos, STEP Energy Services, Tamarack Valley, Targa Resources and Western Midstream.
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The foreign exchange strategy team at Citi recommended shorting the US dollar against the loonie (a long Canadian dollar trade) and got stopped out as markets went the other way,
“We were stopped out of our short USDCAD trade for a loss of 1.2 per cent. We initiated the trade on February 1 (spot ref 1.3390, targeting 1.30 with stop at 1.3550) on the back of potential US-CA data divergence, already-hawkish Fed pricing, and crowded USD positioning. While we still see scope for seasonal US data weakness and for upside surprises to fade, we entered the trade too early and were stopped out on this morning’s above-consensus US CPI print”
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BofA Securities Research Investment Committee (RIC) report uncovered a novel investing strategy,
“Buy-rated sector changes: stocks reclassified to a more suitable sector have led the S&P 500 by 2-4% three months after the shift, on average. This simple change requires $6tn of investment funds to rebalance. We show the history of sector changes and flag five Buy-rated stocks that could be moved soon”.
The stocks are First Solar (technology to industrials), Bunge Global (staples to materials), Teledyne (technology to industrials), Uber industrials to discretionary) and PTC (technology to industrials)
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Diversion: “Scientists found a stone age megastructure submerged in the Baltic Sea” – Ars technical