Canadian bank stocks look even more attractive after U.S. bank earnings reports, Scotiabank says

Daily digest of research and analysis by Globe and Mail market strategist Scott Barlow

Jacob Bout, materials analyst at CIBC, worries about a global food crisis,

“The World Bank calculates that there could be another 37% rise in food prices if the crisis continues. U.S. corn ($7.9/bu), wheat ($10.7/bu) and soybeans ($16.9/bu) are trading near all-time highs due to several factors creating the “perfect storm”, including: 1) continued uncertainties surrounding Ukraine’s crop exports, 2) high global import demand from China, 3) rising food protectionism, 4) potential reduction in supplies from the Americas due to drought, 5) high energy prices leading to increased consumption of ethanol/renewable fuels, and 6) rising fertilizer costs which can lower yields at the Globally… US winter wheat drought zone increases to 70%: The amount of US winter wheat considered under drought conditions has increased to 70%. Only 30% of US winter wheat is graded good to excellent, the lowest level in 26 years. »

Bout also noted sky-high potash prices are already hitting demand.

“CIBC: ‘Global food crisis raises concerns'” – (research excerpt) Twitter

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Scotiabank analyst Meny Grauman argued Canadian bank stocks look even better after U.S. bank earnings,

“We think the last earnings season in the United States was more important because it clearly illustrates why Canadian banks are better positioned than their American counterparts on a number of different facets, including capital, credit, markets capital and spending… While rising rates are generally positive for banks, there is downside potential that is evident in the latest results from US banks. Indeed, without hedging, rising rates lead to mark-to-market losses on banks’ available-for-sale (AFS) securities holdings – securities balances that in many cases have increased significantly over the course of the year. the pandemic… However, we know that Canadian banks are hedging these rates are moving quite aggressively and therefore the impact on Canadian CET1 ratios should be very modest… we can clearly see that Canadian banks are better positioned to deal better with emerging macroeconomic risks than their US counterparts. Even setting aside the lack of direct exposure to Russia in the Canadian banking system, the reality is that Canadian banks have been far more cautious in releasing their pandemic-related credit reserves than their U.S. counterparts.

Scotia does not believe Canadian bank earnings will be as negatively impacted by lower investment banking earnings as US banks.

“Scotia: Canadian Bank Stocks Look Even Better After US Bank Earnings Reports” – (research excerpt) Twitter

“Tempted by Canadian bank stocks during the sell-off? It could get worse” – Berman, Globe Investor

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Wells Fargo analyst Roger Read sees more near-term crude price decline, but not with much conviction,

“In the immediate term, the confinement of major Chinese cities and the decline in mobility that accompanies it prevail, in our opinion, over the fundamentals in the medium and long term. Oil prices expected to come under pressure given largest SPR on record [U.S. Strategic Petroleum Reserve] release, rising interest rates and the potential deceleration of economic expansion and clear demand risks among the world’s second-largest consumer, in our view. The fact that oil prices fell by just over 20% in the face of the at least temporary loss of 20% of Chinese demand or about 3% of global demand (i.e. about 3 mmb/d) is quite impressive in our opinion… How low can oil go? This is not a question we can answer with any real confidence, but assume 30%, 40% and 50% corrections from the absolute closing peak(s) (Brent 127, $98; WTI $123.70) reaches March 8, 2022. This implies a range of $64/bbl to $90/bbl for Brent and $62/bbl to $87/bbl for WTI-C. This represents no change from our forecast. Instead, think of it as a guide in terms of potential oil price volatility.”

“Wells Fargo: How Low Can Oil Go? – (research excerpt) Twitter

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Derivation: “The scientist who co-created CRISPR won’t ever rule out modified babies” – MIT Technology Review

Tweet of the day: [posted mid-trading day Monday]

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