Daily roundup of resedarch and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist sees “pressure below the surface” of Canadian household balance sheets,
“Canada’s household mortgage debt service ratio dipped in Q1, to a still-high 8.1% on a seasonally-adjusted basis. That’s just down from the highest levels since at least 1990 set in prior quarters. Below the surface, however, conditions continue to deteriorate as households are diverting more of their mortgage payments to interest, and less to principal. As of Q1, the interest portion rose to 5.5% of disposable income, or the highest since 1996—borrowing costs then were in the 6%-to-8% range, while overall leverage is higher today. At the same time, the principal portion has fallen to just 2.6%, or the lowest since 2012. This isn’t a crisis-level gap by any means, but a significant shift back toward conditions that would have existed before the era of low-for-long interest rates. And the shift underscores how thinking among real estate investors and borrowers more broadly is likely changing”
I’m continuing to watch retail sales data as the main indicator of credit stress and the next data point there comes out on June 21.
***
BMO global oil strategist Brian Leisen is concerned about the middle east conflict spreading to Lebanon,
“Since the start of the Israel -Hamas conflict, we have warned that an expansion of the war to Lebanon could be the pathway to a much wider regional conflict given Iran’s unyielding support for its most important proxy Hezbollah. On Tuesday, an Israeli airstrike killed senior commander Taleb Abdullah — the most senior Hezbollah official to be killed since the group entered the conflict on October 8 — prompting vows of further retaliation. Earlier in the week, Israeli weaponry targeted a convoy in the north near the Syrian border, which was allegedly transporting weapons from Iran and Syria, marking one of the deepest attacks in Lebanon since the 2006 war. We highlight that Hezbollah’s arsenal and military capabilities remain the most extensive among Iran’s regional proxies, with the group possessing between 120,000 and 200,000 missiles and … rockets in its arsenal, successfully downing an Israeli drone over Lebanon with surface -to -air missiles, and claiming the ability to evade Israeli air defense systems … We are closely watching whether Benny Gantz’s departure from the Israeli wartime cabinet will tip the scales in favor of a ground operation aimed at pushing Hezbollah back from the border and facilitating the return of 60,000 IDPs to the north of the country in advance of the opening of the new school year in September”
***
Citi strategist Chris Montagu monitors 93 global investment themes encompassing more than 5000 stocks. He published his monthly review on Thursday,
“Risky Business [global insurance] continue to be the highest ranked theme overall. The best Value theme is Biofuels while Global Tourism offers the best Growth exposure. Price Momentum is the strongest for Defence while Creator Economy [see below] has the best Estimates Momentum. The theme with the highest score on Quality is HR Tech. Bottom Themes — The lowest ranked themes consist mainly of Health Care themes though Greening the Home is currently at the bottom of the table, scoring poorly on all styles. CleanTech and Green Mobility are other green themes forming the bottom of the table with relatively poor momentum and quality characteristics”
“Creator Economy” is a broad category covering podcasts, education, ad-based video, fee-based video, eSports, social media, publishing, video games, the metaverse and eCommerce.
***
Diversion: “Just in time for Father’s Day: A list of what’s considered “dad rock” today” – A Journal of Musical Things