Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Robert Kavcic believes domestic rents may have peaked,
“Contrarian take warning: Canada’s rental market might be at peak stress, with two forces working to dampen rent growth in the years ahead, if not triggering declines in some areas—there is already evidence of rents ebbing in some markets. The first big factor is on the demand side, where torrid population growth is set to cool into 2025. If planned federal caps on nonpermanent residents materialize, Canada should see population growth slow from north of 3% to about 1%—which will directly impact rental demand. The second big factor is on the supply side, where a record number of units are currently under construction. As these units reach completion, many of which are investor-owned, they should add to rental supply. The combination of these forces could quickly change market dynamics. For real estate investors: prices aren’t rising, cash flow is already tight at current cap rates…so what happens if the narrative of endless population and rent growth changes? Unfortunately for inflation, changes in market rent move very deliberately into the CPI, so it would be a while before there is relief in official inflation measures.”
***
TD Cowen analyst Greg Barnes details how a ban on Russian uranium imports caused a spike in the commodity price,
“Passage of legislation to ban the import of Russian nuclear fuel by the U.S. Senate by 2028 last week is likely to impact the global nuclear fuel market, not just the U.S. market … Not surprisingly, the uranium spot uranium price rallied on the news. The UxC spot uranium price has climbed $5.85/lb over the past week (+6.6%) to $93.85/lb and has climbed >10% from the recent low of $85/lb in mid-March. The April month-end term price is $75.00/lb. The U.S. Senate passed H.R. 1042 (The Prohibiting Russian Uranium Imports Act) during the evening of April 30, catching most industry participants by surprise ... Specifically, the law bans unirradiated low-enriched uranium (i.e., uranium that has not been in a reactor) that is produced in Russia or by a Russian entity from being imported into the United States. However, the Department of Energy (DOE) may waive this ban if the DOE determines that (1) no alternative viable source of low-enriched uranium is available to sustain the continued operation of a nuclear reactor or a U.S. nuclear energy company, or (2) importation of the uranium is in the national interest … Cameco management noted on the recent quarterly conference call that it believes that one of the reasons that term contracting volumes have been slower so far this year has been uncertainty about the timing and impact of the potential ban on Russian imports. With that uncertainty now largely lifted, we believe that there could be an uptick in contracting”
***
In Wednesday’s newsletter I discussed a recent report by CIBC managing director Ian de Verteuil arguing that conservative, low volatility stocks are unlikely to outperform for the foreseeable future,
“Low Vol has been the dominant quantitative investing strategy in Canada for years. The approach has worked on two levels. First, the de facto low volatility nature of the strategy appeals to conservative investors. Returns may not be as favourable as say Quality or Momentum investing, but as the argument goes, the ride is smoother … Going forward, we think Low Vol is unlikely to outperform in the long term. While 10-year interest rates appear to have found a level after a significant move higher, Low Vol’s limited exposure to commodity stocks will weigh on relative returns if the cycle for resources is extended. As well, traditional Low Vol favorites (Banks, Telecoms and Grocers) seem to face consistent political and regulatory headwinds.
To be clear, Low Vol approaches clearly still deliver on their “brand.” They continue to offer investors a moderation of market volatility and have in the past outperformed (often meaningfully) in periods of negative returns for the S&P/TSX”
“Canadian Low Vol Under The Microscope” - CIBC Research
***
Diversion: “Dell responds to return-to-office resistance with VPN, badge tracking” – Ars Technica
Scott Barlow