Two Canadian stocks are among Morgan Stanley’s top picks in global mining

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Daily roundup of research and analysis from Globe and Mail market strategist Scott Barlow

BofA Securities analyst Ben Rangol is among the few who believe the Canadian dollar will trade lower for the remainder of 2020,

“The Canadian dollar has recovered over the past six months as global risk appetite skyrockets amid an oil recovery, easing Canada’s terms of trade shock . As the CAD is a highly cyclical currency, it has benefited from rising expectations of a V-shaped recovery and the outlook for global reflation. But at levels close to 1.30 [CADUSD of 0.75], the risk premium has shrunk too much, in our opinion. Proportional Restoration Amid Uncertain Global Risk Environment Should Bring USD / CAD Trade Close to 1.40 [CADUSD of 0.71] … The risks of Canada’s external financing are increasing. After the surge in debt inflows in 1 hour triggered by the BoC’s QE, portfolio flows reversed in a context of double current account deficit and net direct investment. In a context of precarious structural dynamics of supply and demand, the lack of financing of capital flows increases the risk of discontinuous adjustment of the CAD ”

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“@SBarlow_ROB BoA: CAD will drop for the rest of the year” – (research excerpt) Twitter

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Morgan Stanley remains true to its vision of a V-shaped global economic recovery and is subsequently bullish for metals and mining stocks.

Two national stocks are included in the research team’s top five global picks in the sector (emphasis added),

“Copper should be the winner of a reflation cycle. Tight fundamentals of supply and demand for the metal, low inventory levels, and strong price reaction to previous reflation cycles indicate positive price dynamics as inflation expectations continue to rise. As such, we are expecting prices to rise next year to reach US $ 3.50 / lb in 4Q21 (2021 average of US $ 3.36 / lb) in our base scenario… In our bullish scenario, prices could go up to US $ 4 / lb on average next year. Copper stocks price in a long-term copper price range of US $ 2-3 / lb. Top 5 picks around the world: In our global commodity equity coverage, we favor First Quantum, Freeport, Glencore, China Moly H and Lundin Mining. «

“@SBarlow_ROB MS: 2 Canadian stocks in the top 5 global mining picks” – (research excerpt) Twitter

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Unlike Morgan Stanley, economists at Citi remain skeptical of the prospects for a rapid exit from the pandemic (emphasis added),

“The three components of the leading indicator of global growth – sentiment, financial conditions and real activity data – capture the main factors underlying the outlook. Financial conditions have improved and are improving, but details under the aggregate are less optimistic. Currency appreciation, credit quality and inter-asset volatility are of concern. The real activity indicator is weak and the improvement has stagnated … The rebound from the depths of the COVID shock continues, but the outlook for recovering GDP levels has deteriorated since July (the last full cycle of forecasts). While the arithmetic of monthly data essentially guarantees robust growth rates, the positive pace is moderating, industrial production growth is stagnating and the acceleration in retail sales is a bad signal for recovery. The projected GDP level is struggling to reach the pre-COVID GDP level in 2021.… The outlook for industrial production is moderating even as most countries are still in contraction. For industrial production, the high-frequency presentation of the data shows the China-dominated trend slowing and rebounding earlier than the rest of the world. However, the y / y presentation through the July data (Figure 11) shows a moderation in the growth rate in the latest observations, and that the rebound in growth is far from reaching even positive territory.

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