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Merrill Lynch getting bullish: ‘This is starting to look like an oil cycle!’

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading today on the Web

Merrill Lynch energy analyst Doug Leggate published a very bullish report on North American oil stocks,

"The EIA lowered expectations for 2018 oil production for the 4th consecutive month ... We see prospective US oil [production] growth below most commentator expectations and improving demand as incrementally positive for the timing of a rebalanced oil market, particularly absent significant new large scale black oil investment ex shale. This is starting to look like an oil cycle!"

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"@SBarlow_ROB ML:"This is starting to look like an oil cycle" – (research excerpt) Twitter

The technical view on the commodity price is becoming more bullish also: "@StuartLWallace WTI hitting its 200-day moving average... more on @TheTerminal via @alexlongley1 #OOTT " – (chart) Twitter

"@cbjom What a time to be alive if you are USGC #oil refiner [& still alive]: 321 cash margins $15/bbl vs $8/bbl (2016) vs $6/bbl (2015) #OOTT " – Twitter

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I get nervous when foreign news agencies effusively praise the Canadian banking system but in general they are worthy of the respect,

"Canada wins in three areas: growth, net interest margin expansion and return on equity gains, while Nordic banks lead in cost efficiency and share No. 1 with Australian lenders for top capital return, according to the note. Citigroup's top Canadian picks are Toronto-Dominion Bank and Royal Bank of Canada, both of which have a buy rating.

"The Canadian banks are outpacing the boring banks in growth through international expansion," the analysts said, with average loan growth at 5 percent compared with 3 percent for Nordic and Australian lenders. "They are also most geared to higher base rates."

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"Canada Has Best 'Boring' Banks in the World, Citi Says" – Bloomberg

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Weaker-than-expected economic data from China has metals prices under pressure Thursday. Citi, however, thinks Chinese economic weakness is temporary,

"August industrial production printed 6% y/y and fixed-asset investments (FAI) printed 7.8% y/y. Both numbers are below market consensus of 6.6% and 10.5% respectively. Weak industrial activities were likely due to weather disruptions in southern China, as well as to intensive environmental and safety checks which hit mining and manufacturing activities. As weather conditions moderated and peak construction season started recently, we anticipate sequential improvement of September macro data."

"@SBarlow_ROB Citi blames weather for weak China data" – (research excerpt) Twitter

"China's Slumping Cement Output Is a Better Guide to Real Economy" – Bloomberg

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"@TCommodity DCE Iron ore is crashing " – (chart) Twitter

See also: "The Bull Run in Emerging Stocks May Be Just Getting Started" – Bloomberg

"@nate_taplin First half of 2018 is suddenly looking a lot dicier for #China wsj.com/articles/china… " – (chart) Twitter

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Tweet of the Day: "@tracyalloway Looks like U.S. loan issuance could *easily* reach an all-time high this year. Citi: " – (chart) Twitter

Diversion: Auto racing is viewed by many as environmentally disastrous, but at Formula 1 level the teams represent vastly expensive, intensely competitive technology labs that eventually make all vehicles more energy efficient eco-friendly,

"It's Not Magic, It's Engineering!" – AMG Petronas

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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