Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
National Bank’s monthly update on the housing market contains a lot of details on how it’s slowing but then notes that all 11 major markets saw price increases,
“On a seasonally adjusted basis, home sales decreased 4.1% from July to August, a second monthly contraction in a row following the renewed monetary tightening cycle of the Bank of Canada. On the supply side, new listings increased 0.8% in August, a fifth consecutive monthly increase. Another sign of a loss of momentum in the real estate market is the proportion of listings cancelled during the month, which continues to rise, a sign that some sellers are discouraged by recent interest rate hikes Overall, active listing increased by 1.9%, a third monthly gain in a row. As a result the number of months of inventory (active listings to sales) increased from 3.2 in July to 3.4 in August. .. The Teranet—National Bank Composite National House Price Index rose by 1.6% in August after seasonal adjustment. All 11 markets in the composite index were up during the month: Calgary (+3.5%), Vancouver (+2.8%) and Hamilton (+2. 4%) reported stronger-than-average growth, while Halifax (+1.4%), Quebec City (+1 3%), Toronto (+1.2%), Ottawa -Gatineau (+1.1%), Edmonton (+1.1%), Winnipeg (+0.7%). Montreal (+0.7%) and Victoria (+0.2%) were less vigorous”
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There is an enormous amount of U.S. corporate debt rated just above junk at BBB. There have been concerns for years that, when interest rates climbed or the economy slowed, a chunk of this debt would be downgraded, forcing fund managers to sell.
According to BofA Securities credit strategist Yuri Seliger, however, the situation is now being resolved in a much more positive way,
“So far in 2023 net upgrades from BBB to single-A have reached $100bn – the highest since at least 2010 and twice the previous record high of $50bn reached in 2019 (Figure 1). This upgrade cycle is the reflection of companies shoring up their balance sheets ahead of a potential recession, originally expected for this year. The biggest upgrades since 2020 include Anheuser-Busch InBev ($52bn), Barclays ($28bn) and Union Pacific ($25bn) … The record pace of upgrades has partially reversed the big downgrade cycle following the global financial crisis. The share of BBB-rated bonds in the IG index jumped from 37.9% in Jan-2010 to the record high of 51.9% in Mar-2021″
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Also from BofA, ESG strategist Dimple Gosai outlined the agriculture sector’s ongoing battle against climate change,
“Increasing yield losses are anticipated due to the direct impacts of extreme temperatures and precipitation on crop growth. By midcentury, the Southern and Midwest states are poised to be the hardest hit, with more frequent droughts expected. At the same time warmer winters will facilitate invasive pests, leading to a potential increase in destruction of 50% for wheat and 30% for maize as per University of Washington. These factors are estimated to cause annual losses of ~$50B, including $5B in direct crop losses and $40B in societal costs tied to food security and safety… As climate change exacerbates yield reductions, it threatens global food security, potentially placing 80M more people at risk of hunger … gene editing plays a crucial role in improving crop yields, introducing new functional traits, improving drought and heat tolerance, and enhancing crops’ nutritional quality. Meanwhile, cover crops can reduce GHG emissions from tillage and sequester carbon … everal public and private companies, including major names such as Bayer, Bunge, and Chevron, are participating in this growing cover crop market. Farmers are also motivated to use cover crops due to the emergence of a carbon credit market in the US, where co’s like Corteva, Nutrien, Bunge, ADM, Bayer, and UPL partner with farmers to implement sustainable practices.”
“These stocks benefit from agriculture’s fight against climate change” – (newsletter) Inside the Market
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Diversion: “Winners of Ocean Photographer of the Year 2023″ – The Atlantic
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