Daily research and analysis from The Globe and Mail market strategist Scott Barlow
CIBC Senior Economist Andrew Grantham discusses (disagrees) the argument that interest rates are not working to reduce inflation.
“Focusing on recent growth rates, it’s easy to jump to the conclusion that price hikes have yet to bite into consumer spending plans. In fact, inflation-adjusted spending on items considered most sensitive to interest rates rose nearly 15 percent after the first hike last year… Spending in these interest rate-sensitive areas is still 1 percent below Q4 ’19 levels. This would be worse per capita than the recent strong population growth and represents a shortfall of 10-15 percent from pre-pandemic trends… As airlines, restaurants and other service providers are still trying to hire workers and car dealers are still dealing with unfulfilled orders. They are evolving and cannot fully reflect the lack of spending in this area relative to the outbreaks that preceded the invasion. . In other words, price increases may be acting to dampen demand, and the real challenge in terms of growth rates is yet to come. If rate hikes are doing more to dampen demand than is apparent from a simple look at growth rates, history shows that the Bank of Canada’s recent rate hike (and any subsequent moves) were largely unnecessary and at worst wrong.
“Surely price hikes won’t work?” – CIBC Economics
***
Citi America strategist Scott Cronert isn’t concerned about the S&P 500’s price-to-earnings ratio, which has risen more than 20-fold.
“The PULSE framework is negative. PRice and UProtected, neutral SBody and LBalance, and positive Eearnings. The S&P 500’s P/E crash above 20 this week could make some investors and market forecasters even more bearish. However, valuation alone was not a good indicator of medium-term market direction. For context, weekly data since 1949 shows that the S&P 500 P/E tends to decline on average less than -1x when multiples break more than 20 times in the following six months. Additionally, 40 percent of the time the index’s P/E moves above the 20-time starting point. For us, a valuation alone is not enough to make a near-term bearish call. While we expect support and replenishment after significant earnings, our view is driven more by near-term expectations and EPS softness in 1H 2024.
***
BMO economists Aaron Goertzen and Eric Johnson assess whether household savings are saving the economy amid pandemic-related government stimulus.
“Conventional wisdom suggests that higher credit pressures should make Canadian households relatively more sensitive to changes in interest rates, but they have so far shown remarkable strength as monetary policy tightens… Inflation has clearly taken the steam out of home loans. Household credit growth has halved from an average of 7.0% in 2021 and an average in 2022 to an annualized 3.2% in 2023… The personal savings rate has risen from the low single digits to 25%. to spend In the year Between 2019 and the end of 2022, total household deposits held by chartered banks increased by $333 billion (or 30 percent)… Deposit balances continue to grow on a year-over-year and month-over-month basis. This is in contrast to the situation in the United States, where consumers are using their savings already… As it turns out, instead of using deposits to finance consumption, Canadian households are moving their money into interest-bearing products.
“Jump in Cash: What Household Finances Mean for the BOC?” – BMO Economics
***
Change direction: “Are you up? Mars helicopter finally meets after two months of silence” – Gizmodo
Tweet of the day:
[ad_2]