CIBC Analyst Cuts Price Targets on the TSX, Oil and Gas

After the S&P/TSX composite index’s 487-point plunge on Tuesday, a decline of nearly 4%, Canada’s benchmark index is essentially in bear market territory after peaking on June 6. Oil is down roughly 30% from its summer high, natural gas is off 45% and a slew of other commodities have followed suit.

The meltdown has prompted CIBC World Markets to once again slash its year-end target for the materials-rich TSX to 13,000 from 14,300, which represents just 7% of upside from Tuesday’s close of 12,146.76. Its 2009 target falls to 14,000 from 15,250.

Jeff Rubin, CIBC World Markets chief economist and chief strategist said:

With Europe in recession and Japan and the U.S. economy in borderline status, world growth outlook is the weakest in years. But it is still nowhere near as weak as plunging resource stocks would suggest.

While his targets imply a slightly negative annual total return from the TSX this year, 2009 is expected to see a more typical return.

Mr. Rubin is also trimming his overweight position in energy stocks, moving financials up to full market weight and acknowledging that oil prices will likely lag CIBC’s targets. The firm cut its 2008 target for average oil prices from $125 per barrel to $115 and from $150 to $130 in 2009. CIBC’s natural gas target also moves down from $11 per million Btu to $9 this year and from $13 to $10 for 2009.

CIBC’s forecast for 3.7% global GDP growth this year and 3.9% in 2009 implies a stronger performance than the 2% to 2.5% increases that sparked the last two extended commodity recessions in 1998 and 2001, Mr. Rubin said.

He added:

As was the case in the 2001 recession, China has hardly noticed the U.S. downturn, and we shouldn’t expect other emerging giants like Russia, India and Brazil to notice that much either.

 

Comments

[kebu77:]

"The firm cut its 2008 target for average oil prices from $125 per barrel to $115 and from $150 to $130 in 2009."

In spite of OPECs announced intent to reduce production, look for the Saudis to continue its high level of production thru the Nov. election, in its second attempt to decide a US presidential election. (The case can be made that KSA succeeded in 2004 when it produced way over quota beginning several months before the election and Bush won by a hair - - compare KSA actual production to quota, April-October 2004.) This time, they will fail due to the political fundementals (Google: lichtman + 13 keys). Even so, if I was Obama, I'd be pissed for the next 4 to 8 years.

So Rubin may find, when the dust settles that the avg. oil price in '08 is closer to $100 than $115. Then, in 2009, geology oil fundementals replace the geopolitical issues and oil starts its march to the Maxwell-Pickens-Simmon... $200 level. Things happen, like KSA lets its wells rest, Iraq fails to settle down, the North Sea and Mexico continue their precipitous declines, the engineers running China continue their massive capital expansion, and 2009 marks the fourth straight year of declining oil exports (Google: "Jeffrey Brown" + "Export Land Model").

I suspect there's tension within CIBC that will resolve itself early in 2009. More bullish views will return as it, again, separates itself from the herd.

"Just my opinion, I could be wrong," but for starters watch the next eight weeks.

2008 Sep 12 01:48 PM