Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A Canadian stock, AltaGas Ltd., has popped up on Citi strategist Chris Montagu’s list of top ten rated stocks (by sector) worldwide . The screening methodology combines relative value in terms of price to earnings (including expected earnings growth), price to book and price momentum.
The other nine stocks are Cyberagent, Isuzu Motors, Swedish Match, Equinor, Sampo A, Roche Holding, Mitsubishi, ASML Holdings and Norsk Hydro.
Mr. Montagu also provided a list of bottom10 rated stocks which includes Lumen Technologies, Sands China, and Clorox.
“@SBarlow_ROB Altagas hits Citi’s list of top ten global stocks’ – (table) Twitter
CIBC interest rate strategist Ian Pollick is concerned that the Bank of Canada’s hawkish turn has painted them into a corner,
“To say that last week was ‘chaotic’ would be an understatement… [Last week’s bond market pricing] … means that the curve will be entering the hiking cycle at extremely flat levels. By extension, [short term bond yields] will end up reaching inversion far too early in the cycle for the Bank to feel comfortable proceeding … Given where expectations are for the ultimate resting spot of the policy rate this cycle, which is around 2.0%, some 60.0% of expected hikes are now priced to occur in 2022 … Relative to the past two hiking cycles in 2010 & 2017, 2yr yields have never had as much priced into them this far ahead of liftoff … Other important reason we see the Bank unable to achieve the 2022 forwards reflects the underlying composition of debt in the economy… the impact of a 100.0bps of tightening today is very different than the impact of 100.0bps of tightening in earlier cycles. Figure 3 shows how much a 1.0% increase in the BoC policy rate will ‘cost’ in terms of consumer spending. Specifically, it shows how much households would have to reduce spending to fund higher interest payments on outstanding obligations, all other things being equal (like wages, for example). Given that this impact has climbed from 1.0% in 2000 to 2.0% today, the effectiveness of rate hikes has nearly doubled”
“@SBarlow_ROB important from CIBC’s rate strategist Ian Pollick. The Canadian yield curve is too flat’ – (research excerpt) Twitter
“@SBarlow_ROB More from Pollick: “how much households would have to reduce spending to fund higher interest payments on outstanding obligations” – (research excerpt, chart) Twitter
Credit Suisse analyst Mike Rizvanovic sees mortgage risk for the major Canadian banks as minimal as mortgage rate increases become imminent,
“Most of the uninsured book is still fixed-rate: While variable-rate mortgages accounted for 58% of new originations for the month of August 2021, almost three-quarters of the uninsured portfolio for chartered banks, in aggregate, was in fixed-rate mortgages … A sizable buffer from the Stress Test: Borrowers choosing a variable-rate mortgage are subject to a mandatory Stress Test. We note that the lowest five-year variable rate currently offered by a Big Six bank is 1.65% (2.45% prime rate minus 80 bps) with the borrower having to qualify at a much higher 5.25%. That provides a very large buffer of 3.6% … We note that the market is pricing in 4 rate hikes through 2023 and we believe that rate increases will be tempered by elevated consumer debt levels … We also note that strong home price growth over time has driven mortgage arrears in Canada to their lowest level since 1990.”
“@SBarlow_ROB Credit Suisse: Mortgage risk minimal for Canadian banks” – (research excerpt) Twitter
Diversion: “What Becoming a Parent Really Does to Your Happiness” – The Atlantic
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