Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
It’s not easy to find signs of aggregate consumer financial stress in Canada but as BMO senior economist Sal Guatieri points out, there has been a concerning jump in business insolvencies.
“The May data on Canadian insolvencies show growing stress for both consumers and businesses, especially the latter. Consumer insolvencies have largely returned to pre-pandemic norms, and are likely to rise further if interest rates stay high and the jobless rate rises. Of greater concern is that business insolvencies have already overshot 2019 levels at a time of reasonably healthy economic activity. … Businesses showed amazing resiliency during the Great Recession. But they are already under stress even before an expected mild economic slump”
“BMO: “Canadian Businesses Under Pressure”” – (research excerpt) Twitter
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Citi analyst Ephrem Ravi maintains his bullish stance on battery-related commodity prices.
“In order to enable the Energy Transition and meet related customer and government demands, automakers are set to consume dramatically more industrial and battery metals over the coming years … We estimate that the value of automaker industrial and battery metal consumption outside of China may rise by $140bn to $230bn between 2023 and 2030 (+15% p.a), from ~$90bn at present, using spot prices. The bulk of the increase may come from lithium (+$87bn), alongside nickel (+$19bn), copper (+$14bn), and aluminium (+$14bn), assuming broadly unchanged prices from recent levels … We estimate that the value of desired metals hedging from automakers outside of China might quadruple from ~$23bn at present, to ~$80bn by 2030″
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Also from BMO, analyst Sohrab Movahedi calculates that the major banks will be making less profits from basic lending operations.
“The Q2/23 results at the Canadian Banking Segment (making up nearly half of the “Big 6′s” total earnings) marked the first quarter of negative earnings growth since Q4/20, with group earnings down 4% y/y. The 4% y/y decline in earnings is reflective of double-digit revenue growth (NIM [net interest margin] expansion and resilient loan growth) that was more than offset by higher expenses and normalizing PCLs [provisions for credit losses]. The segment’s profitability, as represented by the group’s ROA [return on assets], was down y/y from 128bps to 114 bps (in line with the pre-pandemic average of 114bps), primarily reflecting the negative impact from higher PCLs. Looking ahead, the combination of a slowdown in