A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch analyst Ebrahim Poonawala believes it’s ‘the moment of truth’ for Canadian bank stocks,
“Low expectations meet slowing momentum: Canadian banks are heading into 2Q earnings season with relatively low expectations. Although the banks have rallied 11% YTD, the group has lagged the broader TSX index, which is up 15%, and trades well below its historical valuation at 10.4x '19e EPS and 9.8x '20e EPS vs. a forward P/E avg. of 11.1x over the last five years. The discount reflects expectations for slowing revenue momentum and may help mitigate stock reaction to negative EPS revisions, in our view. Our recent conversations indicate a cautious view toward the group as investors brace for the impact to earnings growth from stalling GDP growth and a flat yield curve. That said, commercial loan growth is likely to once again be a bright spot… While bearish investors have been circling the group, we don't think that 2Q results will provide the negative catalyst that the bears have been waiting for in order to increase short positioning.”
“@SBarlow_ROB ML: "Moment of truth" for Canadian bank stocks” – (research excerpt) Twitter
“Canada’s big banks are about to report quarterly results - and analysts are hardly upbeat” – Berman, Globe Investor
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A significant widening of U.S. credit spreads would be the most reliable indicator of the end of the post-crisis bull market, according to Credit Suisse strategist Andrew Garthwaite and others.
A new Citi research report When safe turns ugly strongly suggests investors should keep an eye on corporate debt markets for the foreseeable future,
“In rare moments, the steady rhythm of ratings changes intensifies into a rolling wave of risk repricing that grows out of control, mowing down the credit profile of the majority of issuers within one or more major industry groups like pins at a ten-pin bowling tournament. Mass downgrade events are the high-grade credit market’s equivalent of default cycles, emerging in 2002, 2008, and 2016 … Indicators of credit fundamentals are puzzlingly weak for a market enjoying profit growth typically associated with stable or improved leverage metrics. “
“@SBarlow_ROB C on credit: When safe gets ugly’ – (research excerpt) Twitter
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I’m not sure what to think about domestic investor risks arising from the Huawei situation yet.
Technology stocks have taken a beating, but with the Chinese government ramping up anti-U.S. sentiment, I’m surprised markets have been as stable as they’ve been.
“Wall St. slides as Huawei fallout hits tech shares” – Reuters
“ Global stocks gain as U.S. eases Huawei restrictions” – Reuters
“ Chipmakers eye worst month since 2008 on Huawei ban, trade jitters” – Financial Times (paywall)
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CBC columnist Don Pittis wonders how the B.C. money laundering scandal could have gone on without opposition as long as it did,
“All available evidence suggests that international drug barons view Canada as a safe place to launder their illegal cash," said a Maclean’s magazine story cited in the tweet. “In fact, DEA agents laughingly refer to Canada as the ‘Maytag’ of the money-laundering industry.”
It was definitely not fresh news. That Maclean's piece was published about 30 years ago, in October 1989 … For governments, one of the political difficulties of deciding to crack down is that the inflow of money — estimated in the recent report by Maureen Maloney using the gravity model at about $50 billion a year nationally — boosts many of the things governments like to boost.”
“The disturbing question of why Canada's done so little to end money laundering: Don Pittis” – CBC
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Tweet of the Day:
Diversion: “The most watched tv show finales ever” – Axios
Column: “Why technology stocks are at risk for an even bigger tumble” - Barlow, Inside the Market
Scott Barlow