Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO economist Robert Kavcic described how mortgage markets have tightened ahead of today’s Bank of Canada meeting,
“Canadian 2-year yields pushed to 4.4% on Tuesday ahead of Wednesday’s BoC announcement, the highest level since 2007. Five-year yields haven’t quite pushed through the highs set late last year, but they are up almost 80 bps since the early spring lows. It was those spring lows in bond yields that helped pull down fixed mortgage rates, especially those with shorter (e.g., 2- and 3-year) terms. Sub-5% rates in that space helped put a floor under housing activity and prices, even while variable rates pushed above 6% and didn’t look back. Now, it looks like those lower fixed rates are disappearing given the recent move in yields. Regardless of if the BoC raises rates on Wednesday, they’re probably going to talk tough, and the market has already priced in further tightening later in the year. We’ll see if this takes some momentum out of housing after a strong firming through the spring”
“BoC: “Mortgage Market Tightening Before Any BoC Moves”” – (research excerpt) Twitter
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CIBC bank analyst Paul Holden published his top picks in the sector after a disappointing earnings season,
“Earnings estimates saw a significant haircut following weaker-than-expected FQ2 results. The primary drivers were lower net interest income and higher non-interest expenses. Credit losses came in lower than expected and hence we have not yet seen a major revision on that front. With weak core earnings trends and credit as an overhang we maintain our defensive stance on the sector. NA and TD are our two Outperformers, both of which have higher-than-average CET1 ratios, higher-than-average LCR ratios and higher-than-average performing ACL ratios. Defensive attributes are strong… Funding cost pressures impacted FQ2 NIM and NII more than expected. Challenges are likely to persist at least one more quarter.”
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Citi strategist Shreyas Madabushi warns of volatility ahead for the metals sectors,
“Global soft indicators disappointed for May’23, driven by weakness across all of the key geographies. We are cautious on the outlook for metal consumption and prices over the next 6-9 months, though a July China Politburo easing could temporarily support the market … Global soft indicators disappointed for May’23, driven by weakness across all of the key geographies. We are cautious on the outlook for metal consumption and prices over the next 6-9 months, though a July China Politburo easing could temporarily support the market … We now prefer zinc across the industrial metals complex as the relative outperform for a tactical summer bounce as the market is now extremely short and prices are digging into the cost of production. We continue to recommend that investors buy the gold and silver dip into year-end … Lithium carbonate prices in China have almost doubled in the last month after reaching 2023 lows of ~$20k/t. Prices have now stabilized and are likely to trade in a tight range in the near term.
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Diversion: “The World’s Best Songwriters” – The Atlantic
Tweet of the Day: " China’s exports plunge by 7.5% in May, far more than expected CNBC” – Twitter

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