If the recovery in United States and European growth continue to gather momentum, Canadian stocks may follow, suggests CIBC World Markets.
In a new report released Wednesday, CIBC notes that uncertainty continues to hang over markets. For example, it says that while oil prices have returned to a level where oil sands projects are viable once again, this hasn’t been enough to quash market worries. “Massive investment decisions aren’t just based on where things sit today, but on what the future is thought to hold. On that score, we still have too many doubting Thomses,” it notes.
Indeed, it says that futures markets are pointing to lower oil prices by mid-2016. “Add in concerns raised by a re-widening of the discount on Canadian heavy crude, and worries about future transportation bottlenecks, and we’re still waiting for more certainty that firm prices are here to stay before getting back into full gear on capital spending in the oil patch. That helps explain why Canadian oil stocks haven’t quite kept pace with the bounce in crude,” it says.
Additionally, the report says that the market requires greater certainty on global growth, and it sees signals in the U.S. and Europe that this may be on the horizon. “If what we’re seeing in the U.S. and Europe is a sign of things to come, we could be on the verge of bringing those doubting Thomases around,” it says.
CIBC notes that two key cyclical drivers for the U.S. economy, new home sales and manufacturing “continue to turn the corner”; and, it says that European data is pointing to a return to positive growth in the third quarter.
“Both the U.S. and Europe should benefit from a lighter fiscal drag come 2014. If so, we’ll have fewer doubts about Canada’s oil and non-oil export prospects, and scope for Canadian equities to play some much needed catch up to what’s happened stateside,” it says.