Canadian bank stocks ‘feeling the pain’: BofA Securities analyst

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

Feeling the Pain“We expect the economic pain from higher interest rates to surface in 4Q22 and 2023 outlooks. We believe the immediate casualty is likely to be mortgage loan growth, we forecast +0.7% quarter-over-quarter for 4Q22 vs. +2.4% in 3Q22, with potential for a more broad-based slowdown in 2023. Our estimates also reflect a gradual build-up in performing PCLs , reflecting the deterioration in the macro-outlook. BofA Economics forecast calls for Canada/US 2023 GDP growth of 0.8%/-0.

“Peak inflation is now shifting into the rearview mirror in much of the G10. Central banks are gearing down as they approach terminal rates, mostly in 23Q1 . Many economies are heading for recession: we expect Canada, the UK, and the euro area to experience winter recessions. The US is likely to witness stagnant growth in 23H1 before sliding into a recession in 23H2... Forward corporate earnings have not started correcting for the recession.

“Core inflation in Canada slowed to 3.7% annualized in the three months through October. That’s down from the high of above 8% earlier in the year, and more in-line with some of the readings seen in 2021, before inflation really ran wild. What’s most interesting is that the 3-month core rate now matches the Bank of Canada policy rate . In other words, if the shorter-term run rate is more reflective of inflation momentum today, then zero-real policy rates might be at hand.

 

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