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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities foreign exchange strategist Howard Du thinks recent weakness in the loonie is overdone,
“Short-term: August USD/CAD rally has overshot vs cross-asset factors and we expect the pair to normalize lower over the next month… Specifically, we see [USDCAD] decline to 1.33 [CAD$0.752] by the end of Q3 … The month-to-date broad USD rally has been aggressive, particularly vs the high-beta currencies in G10. For USDCAD, the pace of the rally from July 31 would rank at 94th percentile since 1999. The CAD has notably weakened despite higher crude oil price in the first half of August. CA yields has increased with US yields in both nominal and real terms. So relative to interest rate differentials, current USDCAD spot appears to be too rich … s financial conditions tightened on the back of US Treasury selloff, risky asset had sold off. But compared to the decline for the S&P 500, CAD weakness also looks overshot”
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CIBC energy analyst Dennis Fong discussed the most important themes for the second half of the year,
“At a high level, we prefer companies with stronger balance sheets and resilient margins which could protect free cash flow generation from oil price volatility. We believe the Canadian large-cap companies still provide value for investors given the pace of de-leveraging and capital allocation plans which will eventually shift all free cash flow towards shareholder returns. We view there to be four broad themes that should guide investor positioning through H2/23 and 2024 … OPEC+ voluntary production cut outweighs recession concerns … Cost savings through efficiency improvements will continue to be a focus … Portfolio repositioning. As concerns around an economic recession moderated, we saw an increased interest in names with perceived higher torque to the oil price … Quarter-to-date crack spreads have moved above historical five-year average”
Mr. Fong has “outperformer” ratings on Canadian Natural Resources Ltd. (CNQ-T), Cenovus Energy Inc. (CVE-T) and Suncor Energy Inc. (SU-T).
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CIBC economist Benjamin Tal published Counting heads in Canada – a conundrum which argues that undercounted population growth is contributing to the housing affordability crisis,
“Lately there has been a growing focus on the rapid increase in the number of non-permanent residents (NPRs) in general, and foreign students in particular. In the following note, we suggest that the official number of NPRs that is widely quoted and used for planning purposes undercounts the actual number of NPRs residing in Canada by close to one million. That means that any policy aimed at capping the number of NPRs is more urgent than perceived … In 2013, the official forecast and the base for planning was that the Canadian population would reach 38.7 million in 2023. No less than 1.1 million of that 1.5 million forecast miss was due to a much larger than expected increase in the number of NPRs, and most of the remaining miss was due to stronger than expected immigration. Translating that figure into housing demand, that miss is equivalent to more than 2 years of building capacity … That’s a big number. But it turns out that the real number is much bigger… But two measurement issues related to the counting of NPRs suggest that the size of the miss might be closer to 2.5 million — a full million larger than the reported miss”
“Counting heads in Canada — a conundrum” – CIBC Economics
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