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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss the health of the office real estate sector. TD Asset Management Colin Lynch joined us.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from Wednesday's Bank of Canada rate decision.
And in today's a broker education segment, Bryan Rogers will shows how you can test out your trading ideas before buying on the platform.
So here's how you can contact us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
First trading day of the week. We will start here at home with the TSX Composite Index.
Sort of been struggling to stay in positive territory today. Right now back about 14 points, pretty modest, just about seven takes. Among the most actively traded names on the TSX at this hour are Shopify. Last time I checked, Shopify was putting points on the table.
Indeed, nothing too outstanding, at 109 bucks and change, the stock is up 1.7% but rallying along with some US tech names. Canadian natural resources added 8353, down a little bit more than 1%.
South of the border, we have a little bit more drama.
The S&P 500 closing at a new all-time high on Friday, carrying that momentum into today's session.
I'm not a math expert but if you close on an all-time high and you've got green on the screen, you're at a fresh all-time high. 17 point to the upside, about 1/3 of a percent. The Dow 30 joined the party today as well in terms of hitting a new high.
Clawing their way back over the last two years when the interest rate hikes began and the market started pulling back, the Dow touching a fresh high today. We will see if they can hold that into the close. I also want to check in on the tech heavy NASDAQ. A lot going on with the tip stocks last week doing the heavy lifting. Some of the big tech names are rallying and we have some upside here. 63 point, a little shy of half a percent.
Bit of a different story for Archer-Daniels-Midland.
Down a little more than 20%. The CFO, Chief financial Ofc., has been placed on leave. They have cut their earnings outlook and all of this follows a probe of their practices.
A lot of drama on that front. And that's your market update.
While the office vacancy rate in Toronto has pushed higher recently, our featured guest today says that if you look past Canada's largest city, there are some signs of strength for office properties.
Joining a centre discusses Colin Lynch, managing director and had a global real estate investment trust TD Asset Management. Great to have you back on the program.
>> Thanks for having me.
>> We do need to start with Toronto. It is the largest market. We are not seeing office properties rebound perhaps as much as people had hoped. What's going on in Toronto?
>> Centre of the universe, as described. Toronto is an interesting market because it has many portions to that market. We got the downtown financial Corp., we got Bloor Street which is to the north, further to the north you got St. Clair, Eglinton, at North York Centre.
Just five or six notes just along one street.
Before you go further east or west along King St., East working West, before you get to places like Scarborough or Mississauga centres, Vaughn, lots going on.
But you're right, vacancy is up.
But not uniformly.
And different places are experiencing different things.
One of the stronger places that we have seen has been around the Eglinton St. Clair notes. As an example, traditionally not the first place you would look at office but what you do see his rate strengths around that note.
You have really affluent communities, a lot of new things moving into that area, think restaurants and a lot of vitality. Blue Street has been a little bit more challenged. Clearly the concourse that runs from Bloor and Young over to Bai and Young, but it really has been a building by building story on that street.
Come further south into the financial core… >> Where we are sitting right now.
>> Precisely. There are two pieces to that story.
One piece has to be about quality.
And like every period of economic dislocation, and I put what we are living through still into the bucket, even though we had COVID which had a big impact, nevertheless there is a flight to quality.
So if you are a tenant and you work in a class B space, so a little bit older, a little bit less shiny and newer, a little bit less well transit connected, not as great from an environmental social governance perspective, energy efficiency, but you are paying this rent and I got an opportunity to move into a brand-new building with great amenities that's connected to a subway station or union station in Toronto, guess what?
You will do that.
So we are seeing that, which is called the flight to quality. But that being said, there are some buildings, even in the downtown core, that don't fit that new generation of shiny new building that's it really well transit connected and those buildings are struggling.
And we are seeing vacancy rise significantly more in those buildings. So there is a flight to quality dynamic, and we see that in every economic period.
We are, however, looking at vacancy versus physical occupancy, seeing teacups in physical occupancy. It is slow but we have been seeing this since late 2021 and it's a steady and gradual kind of ticket. Not so much on Tuesday, Wednesday, Thursdays and the core.
Because they are, we are not completely at home but we are sort of in the broad range of normal, it's more on the Monday they are seeing a little bit of to cut there. All to say we are solidly in the hybrid working environment.
I don't think we are moving from that. But the nature of that work in terms of the number of days in office on average is still slowly adjusting in the centre of the universe.
>> My field research, taking the train and every day, I always notice on Monday morning, there are a few more people on the platform. That's Toronto.
Talking about the hybrid sort of work arrangements taking hold, what about moving outward across the country. Is there still that reticence to return to office or are we seeing a pickup?
>> A lot of times we tend to focus on Toronto or on Montréal or even on Ottawa and, of course, they are in the national consciousness. We think very heavily on those cities. We forget to realize that there are other cities and cities like Winnipeg and Saskatoon, Regina, there are cities like Edmonton, Halifax and St. John's, so there, we are actually seeing a lot more pronounced return to the office. In places like Regina and Saskatoon, most people are in the office between 4 to 5 days a week.
In places like Winnipeg, is close to 4 to 5 days a week.
In places like Calgary and Edmonton, it's between 3 to 4 days a week on average. We measure these things on the basis of hours in the office per week and the max is about 37.5 because a lot of people are unpaid for lunch.
>> What's going on? Why do they want to be in the office?
>> I'm sure the coffee is amazing.
It's actually commute times. So the commute in a place like Saskatoon or Regina might be a 10 minute drive where is in Toronto, a 10 minute commute for many people would get you may be 5% of the way there.
>> 10 minutes would be a dream.
>> So that's a very big driver. The smaller centres have better commutes in general and so therefore the barriers to getting into the office are much lower in some of the smaller centres. What that means is more people in the office and what we see from a vacancy perspective, a leasing perspective and a general sentiment on the office is much more optimistic and some of the smaller centres that it is in the big, large centres like Toronto or Ottawa, Montréal. In Vancouver, we still have a bit of hybrid for sure but even there, for different reasons, we have a lot more people living amidst office hours.
So a lot more people don't have materially larger commutes. We actually do see a bit more return to office.
>> Fascinating dynamics. This is also, if this year plays out as opponents have said, as the markets are betting for the year, rate cuts. A lot of people are waiting for that from the central banks.
When and if they do, what kind of effect could that have on office?
>> That's another great question. Certainly, we expect that the rate cuts will generally be positive for office valuations.
The question is, why are the rate cuts coming?
The rate cuts are coming because we have severe economic dislocation. That's generally, historically, not great for the office.
If there are less jobs and less people working at different companies, that's generally not good. There is a school of thought that says, however, in severe economic dislocation, folks would be more incentivized to come physically into the office.
>> Show their face.
>> That we have never seen that dynamic in the past, so it's hard to quantify and measure that. There is a very large school of thought that that could be the case.
Let's say a hard landing is off the table and we have rate cuts because we are having a softer landing which means flat or negative job growth. Flat is this scenario. Then from a capital valuation perspective, certainly it's a positive for the office sector like it is for the other sectors like real estate.
Investors into real estate have many things to choose, not just real estate, they could choose public stocks and they look at dividend yield send they look at yields on bonds. If rates are coming down, that almost makes the bar of competition for real estate lower, which means that for well performing offices that are producing income and therefore cash flow, that becomes more attractive for investors looking for yield.
So certain offices will perform much better.
There will still be challenged offices regardless of whether rates come down by 100 basis points or 200 basis points. At the end of the day, if income is really low, then valuations will still be quite low because income is low. So you still need to look at what is the fundamentals of that office and what is the leasing in that office, what is the rental rate in that office and not to go into too much detail, but there is call it gross or topline rents and there is the actual rents the tenants are paying because they tend to get incentives.
And when you have economic dislocation, those incentives become larger which means that even though the topline rent is constant, the actual rent the landlord is receiving is going down.
See you have to look at that dynamic as well and for buildings that are challenge, that dynamic is a lot more present than for buildings that are less challenged.
Even in a declining rate environment, it helps the office sector generally, but you really do have to look at what is the quality of the offices that you are investing in. It still matters.
>> Always great insights with Colin Lynch. We are going to get your questions on real estate for Colin in just a moment's time. A reminder of course we started off the conversation with office but we are talking all things real estate today.
You can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Macy's are in the spotlight today. The department store chain rejected a $5.8 billion takeover bid from two investment firms. BC says it has concerns about the deal financing and valuation. Arkhouse Management and Brigade Capital Management have offered $21 a share to take Macy's private. Right now, the stock at 1810, it's up about 2.7%. We got another fleet of Boeing planes coming under scrutiny. At the US Federal Aviation Administration is were commending a visual inspection of the door plugs on the Boeing 737-900ER aircraft. The plugs on that aircraft are similar to the ones on the Boeing 737 MAX 9 Plains, which have been grounded after a midair panel blood earlier this month. Also want to check in on shares of Gilead Sciences they are under pressure today. That's after lung cancer drug developed by the bio for a giant failed to pick key goals in a phase 3 study. The stock is and about 10%.
Gilead is saying is looking for other ways to put the drug to use. Let's check in on the markets. We will start from Bay Street with the TSX Composite Index. In negative territory, down 31 points, a little more than 1/10 of a percent. South of the border, the S&P 500 closed at a record high on Friday, building on those games today although we are fading a little bit off the highs of the session. We are still green so still at a new high but pretty modest 10 points, or just 1/5 of a percent.
We are back with Colin Lynch, taking your questions about real estate so let's get back to them.
Viewer wants to look your outlook for residential real estate right now.
>> It's generally more positive.
More positive in Europe and Asia and relatively positive in Australia.
So what do I mean by all those geographies? Let's start in Canada. In Canada, we still have exceptionally high demand.
There are government announcements out even today but with those announcements to the side, we are still at historic levels of immigration to the country. But even if we didn't have those immigration levels, we have dynamics that our people are still generally moving from smaller centres to bigger centres. The divorce rate is high and family sizes in terms of number of kids people have is actually going down and continues to go down. What does that mean? That means that the demand for units of household accommodation, that demand grows even if population is generally flat.
And we have seen that in other countries like Japan. In Japan, the population is declining, yet the demand for homes in Tokyo is increasing. So that's Japan. In Canada, we have a rapidly growing population, plus all those other factors, so that's demand.
Lots of growth. Supply, Limited. And actually new supplies going down. Why? Rates are very high. It's really expensive for folks to build right now, but also it's expensive for people to buy right now at the cost it takes to build. Plus, you have a long time that it takes still for projects to get approved by different municipal governments across the country. So, Limited supply, tons of demand, low vacancy, means growing rents. It's a question for the country. It's becoming a lot less affordable from the perspective of living in these spaces for sure but in terms of supply and demand in pure economics, quite attractive.
>> What's going on in the states? We have seen their economy perform more resiliently than Canada.
>> That economy has been quite strong.
There are a couple of dynamics. Let's go back to demand, supply. Demand is a bit more tepid. Why?
Because immigration is a bit more tepid as a portion of the population of the US. More importantly, as a proportion of units of homes in the US. And that's where you get to the supply.
There is a lot more new supply. It is easier in several states around the US and in particular think about the Sun Belt states, so the Carolinas and Georgia, Tennessee, etc., the Sun Belt states, Florida, easier to build new supply.
So back to demand and supply.
New supply, not as much demand and what we are seeing is negative rental growth in certain places in the US.
Now, where we are not seeing that dynamic layout as significantly are the places that were having issues three years ago, like the eastern seaboard.
Why is that the case? Because three years ago, people were moving out of places like New York City.
Now people have moved back into those places so we are still having this post-COVID sort of recalibration happening. Step back from that and look at more generally, yes, more supply, not as much demand.
In places like Europe, more difficult to build new homes so therefore supply has been more constrained.
Demand is a bit more constrained. But there, the differences you don't see as many participants in that market. That's rapidly changing, but if you sum it all up, you don't see as many generally across Europe.
Ditto for Australia. Australia has not really seen any institutional participation in what we call in United States and apartment buildings, like condos, built for sale individual units. That's rapidly changing due to some perspective changes in the tax code in Australia and we think that that will create, those changes get confirmed, a whole new residential space in Australia and that would be quite exciting because Australia is similar to Canada: tons of immigration, so demand is really high, and we have yet to see how supply response. In the interim, there will be interesting opportunities in Australia.
>> Interesting stuff there. You briefly mention affordability. We have of you were wondering how you are viewing the affordability issue here in Canada?
People are worried about homeownership.
>> It's a legitimate concern. When you look at why things cost as much as they do, when you've had a significant ramp and cost building so that's all the inputs, whether it's steel, concrete, etc., all have increased in price. But also labour has increased as well in terms of costs. Plus, you have longer time span intervals but for people that are developing land, and they generally have to pay for investing in that land and the amount of time it takes to build.
Rates have increased significantly and so in the period of time that they are working on all these approvals, they are paying for all those loans so that has to get recouped, as long as they are for-profit builders. So it creates a challenging dynamic that the cost to build requires a high sale price in the sale price for those looking to buy can be quite unaffordable because the mortgage cost for those looking to buy are quite high.
So therefore, lots of folks have moved to renting, which creates demand for units and unfortunately, we are not really building what we need to build in order to satisfy that demand. It takes a long time.
It takes two years to get approvals, another 3 to 4 years to build, so if you start today, you might be looking at a 2030 or 2029 completion.
As a result, you see very low vacancy and increasing rent. So yes, it is a problem for sure.
>> Are there is solutions being put out there that have caught your attention?
There probably won't be one thing though.
>> I was part of a group of individuals, some from the private sector, some from nonprofits, charities and others that have played roles in government to be gathered in Ottawa and we actually put out a report and that report was considered within the cabinet, the federal cabinet in the late summer, late August or September. The point is, that report had 15 recommendations. So far, as far as I can tell, we have partially implemented one and are moving on a couple of others.
One of those was the GST and really it should be the HST for new construction.
We need a strategy around labour. We need more people to help us build these buildings. We need a faster approval process, more streamlined approval process and we need a strategy to procure equipment and materials and construction materials on a national scale. We need more standardization. And that allows, if you think the post-World War II construction, that allows for things to happen. There are 15 of these and all 15 I think are important because one, that addresses some of the call at market rate rental and even some of the affordable rental but there is also social housing and there's also shelters and there is as much need for focus there, and that has to involve both governments, federally, provincially and municipally, and the private sector as well. You need funding and all the things I've mentioned in terms of procurement of labour and materials, collaboration and nonprofits vectors.
Building new shelters and low income housing is expensive.
You help to close that financial gap a bit faster.
So the collaboration between the spaces, profit, for-profit and nonprofit.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for Colin Lynch on real estate in just a moment sign.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
If you're looking to test out your trading ideas before you actually buy, what progress tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
All right. Clearly, we had a problem with that segment because that was not Bryan Rogers, it was just a blank screen.
I heard Bryan, I don't know if you heard him or not. We are just going to move on.
Of course, there is a learning centre in WebBroker.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we're back with Colin Lynch, take your questions about real estate.
We were going to give you a break there, but you're not getting one. You are back in the thick of it.
Let's take another audience question. What's the state of retail real estate?
>> Yeah, that has been really positive relative to what we saw from 2020 to 2022. Certainly, we saw the return of foot traffic to 2019 levels across most formats.
Think enclosed shopping centres, think downtown retail, we call it high street retail. That's been very positive.
Also positive for investors in retail has been the place where inflation has been captured.
When you go when you buy goods and they cost more.
There are a proportion of leases that are tied to the revenue of the tenants occupying the space.
So those leases, clearly for landlord, the rent has increased because the tenant is doing a lot more revenue and partially because of people and partially because goods cost a little bit more. That's in one dynamic that's been quite positive. It's not uniform in terms of retail.
In certain places close to the downtown have been more challenged because there's been less people in the downtown. But other places that have been sort of connected to trends but in other areas of Ottawa have done exceptionally well. So in general, retail has had one of its best years in the last five and even going to the last 10. The question is, how does that perform going forward? And that goes back to what is the economy like? If we are in soft landing territory where job growth is either flat, slightly negative or slightly positive and we have rates going down, I would say retail is going to do well.
If you have a hard landing, retail is going to be impacted like everything else in the economy.
Obviously, there is e-commerce.
>> I wanted to ask you about that. Is the good fortune of bricks and mortar retailers coming at the expense of online and all those warehouses that goods move through?
>> Yes. Certainly in the last year and a bit.
You see e-commerce penetration and that's flatlined in this part of the world.
You captured it exactly right. Going back to 2022, you wanted to get out, spend, get into physical places.
And that sort of excitement has continued and we've seen that flatlining in terms of all the warehouse side in terms of demand for space, if you go back to 2022, people were looking intensely at new developments and they still are but one of the measures of that is land pricing. There is such exceptional demand that in some markets the land prices are changing every week which is an exceptional thing.
We are far from that now. If anything, land prices are coming down.
So I would say if you look at that space, the industrial space and warehouses, we've seen more of a normalization so e-commerce, I believe, will continue to take up and so that means over the long term there will still be more and more demand for warehouses because e-commerce participants will continue to grow in new participants will come into the market.
So long term, that space is quite healthy but when you look at rental growth and how is income for an investor in real estate moving, we saw that have a dramatic increase in now we've seen that.
Now, zeros here. We are still above zero but we have come way down and I would look at that and say, that's actually healthy, that's a normalization in the market.
We have seen vacancy spike. Also expected because if people are not building… If people are not taking up as much warehouse space and people are still building space, that means that vacancy will increase but it has increased from unsustainably low levels to more normalized levels.
>> Interesting stuff there. Another audience question.
Viewers saying we hear a lot about the risks around residential mortgage renewals this year. What about for commercial real estate?
>> I think in the news there's been a lot around a few things, one of them as investors and offices. Some of them defaulting on their debt and I think that is a very legitimate concern. I think that is more concerning in the US than it is in Canada partially because there is a slightly different dynamic in the US. We have a lot more participants, particularly from the equity side, investing in offices, and the debt side, loaning money to folks that are investing in offices.
So when things get tough, people are more likely… And the problem with some of the investing with that is the person that is holding that debt really didn't plan to run the building.
So that usually is a tougher dynamic. In Canada, we have a smaller number of participants, a smaller number of lenders and people have, as a result, long memories.
If you hand back the keys to one landlord and say in five years he wants to borrow to buy another office building, everybody knows that you handed back the keys.
So if you get a loan, the rate you get is going to be different because everyone remembers. Now that's not to say there won't be defaults. There have been defaults.
But what we have seen is a low number of defaults in Canada so far and I believe that there will be a lower number relative to for instance the states. Am I concerned about defaults in other parts of real estate?
Not really. Caveat small being retail in the US. We saw a lot of defaults in retail, it has been healthier, and the economy in the US has been quite strong so not a big concern.
Really if there is a place to be concerned about defaults right now is the office space and certainly more the US and Canada.
>> A bit of a follow-up here. We had someone wondering about the CBA loans. That was a big story last week.
But those small businesses that took loans during the pandemic to get through are facing a deadline.
What will happen if some of those businesses can make a go of it?
>> If you are a small business and received a loan and you have a maturity coming due, that is a very significant thing and so we certainly understand some of the pain that some of those small businesses would be going through perhaps.
When you step back, however, let's look at real estate in general. We have a lot of space.
So residential and certainly warehousing tend to be less impacted. You're really talking about office and retail. Will call at half of the space, maybe a little bit less. Then, who occupies the majority of that space? It tends to be much larger enterprises. So think in office space, big banks, insurance companies, and think the governments. They tend to take hundreds of thousands of millions of square feet of space. In the retail space, you do have a lower number of department stores then 30 years ago. That space was really dominated by department stores. Now, there are department stores and specialty retail. Thanks places that you buy your shoes from, but also electronics retailers. We can think of a bunch of them that occupy a lot of space. All to say the spaces that are occupied by a lot of the recipients of those loans, they tend to be smaller businesses and tend to occupy less space.
Therefore, the impact of that volatility on the office and retail space writ large is a bit more minor, not to minimize the impact on those small businesses, it's undoubtedly quite significant, but in terms of the impact on the real estate space is quite minor.
>> Interesting stuff. You'll get back to questions for Colin Lynch on real estate in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right. Let's do a check in on the S&P 500. It closed an all time high on Friday so any been on the screen means new highs for that broad read of the American market.
Now, the S&P… Actually, we are looking at Advanced Dashboard. This would be the TSX 60, not the S&P 500.
Let's do it answer here and see what we are looking at.
It's a bit of a mixed day out there.
Shopify is rallying with some of the big US tech names.
It was up around two or 3% earlier, of about 1 1/3 of a percent right now. A real mixed bag and energy, real mixed bag and the financials.
Mixed bag for materials as well.
Kinross is and First Quantum is down.
On Wednesday, the Bank of Canada is going to have a rate decision. Odds of a rate cut took a hit last week.
We had stronger than expected data. How do we weigh it out and how is the BOC going to wait out? Anthony Okolie now joins us with TD Economics perspective.
>> This year is shaping up to be a difficult one for the BOC. Because of the strong inflation print we saw a recently and the strong turn and the Canadian realist a market as well. Last week we saw the bond market sold off, the Canadian two-year and tenure were up 30 basis points ahead of the BOC's decision this week and rate cut expectations, they moved from April to March for several reasons. Inflation is heading in the wrong direction. Expectations for headline CPI actually were headed expected to head higher on base year effects because the impact of low prices in December 2022.
While this happen as expected, what was a surprise was a shift higher in the core inflation rates, as the chart shows.
More worrisome is that the Bank of Canada score CPI measure, that's the three month annualized rate, it was up 3.6% versus 2.9% in the most recent data.
Now, a second concern, of course, was housing data which surprised higher. Home sales were up 9% month over month. The average house price was up for the first time since last spring.
That was when the Bank of Canada started its rate hikes. The improvement of housing may have been boosted by warmer in December weather. But this is adding to concerns by the BOC. 1/3 reason is Canadians continue to spend at shopping malls. Late last year, as the chart shows, retail sales for November highlighted consumers buying clothing, shoes, jewelry, doing the holiday shopping season. While sales were dragged lower by a drop in spending at food retailers, StatsCan/estimate for December showed that Canadians like the open up their wallets during the last month of the year.
Well housing and inflation data got a lot of attention, the BOC surveys of consumer sentiment continued to weaken. Where does this leave the BOC for its meeting this Wednesday?
Given the upturn in data, TD Economics says that it's unlikely that the Bank of Canada will start rate cuts this Wednesday.
What they believe is that the BOC might maintain its cautiousness, focusing on the fact that the job is not yet done. With markets believing that markets will soon show weakness in the data, the expectation is that the Bank of Canada will start cutting rates in the spring of this year and that's in line with TD Economics Outlook for a cut in rates by the second quarter of this year. Of course, we will have coverage of the Bank of Canada's rate announcement this Wednesday. I will be speaking with the lane of TD Asset Management with an immediate reaction to the BOC's announcement right after the meeting.
>> Great stuff. I look forward to that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, let's get you an update on the markets.
Let's get back into TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat map function. A few of the market movers. We showed you the TSX 60 before Anthony showed us a list take a look at the S&P 100.
The topline number is still in positive territory on my screen. It's modest, 14 points were 1/3 of a percent.
The S&P 500 is pushing higher into record territory.
What is actually happening today? If you look at the financials, down at the bottom, they're putting points on the table. These are heavyweights. You got Citigroup up almost 3%, Bank of America up more than a full percent along with Wells Fargo. In the tech space, it's interesting. It's not really the chipmakers which brought points to the table last week to bring the S&P 500 to an all-time high. AMD is taking points off the table.
But you got quiet strength, but a percent in Apple and Google and some other names as well.
A few interesting dynamics playing at South of the border to keep the S&P 500 in record territory. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Colin Lynch from TD Asset Management. We'll squeeze in one more of your questions. Here's an intriguing one. The rise of artificial intelligence.
Is it having any impact on real estate?
>> That's a great question. Certainly, so far, the impact has been minimal but that's not to say that the impact in the future won't be great. There are areas where AI could play a role. If you look at investing, we use a lot of data in order to determine where are rate sitting, where are market sitting. If you think about buildings and leasing and grants and all of the information that we use across all the buildings in every city, that's a lot of data and the synthesis of that data, the prediction potential of that data, the connectivity of that data to other data in the economy or in the financial markets, I think that in the totality of what can be done, we are probably at a 3/10 in terms of the industry so AI could play a huge role there.
But also if you think about, okay, let's put that to the side. He got a building.
How are people using, occupying, functioning within that building?
And all the elements of the building, not just for instance an office tower or apartment building, the units or where people are doing work by amenities and retailers in the concourse on the ground floor, think whether people are using the gym or the conference room and how they are using it and it what hours?
There's a lot of insight that can be generated there so that we can deliver a better experience and then think about the environmental goals.
Whether it's windows or materials in the windows and how those windows react for instance of the sun, temperatures, heating and cooling, we are not there yet perfectly in terms of if you work in offices sometimes you're probably thinking it's really hot and other times… >> It's cold in here today.
>> Precisely.
All of those areas in terms of prediction, you can connect that to how your building systems work relative to real-time information. So all to say, there is a ton of potential for AI. We are not really capturing it yet, partially because the spaces rapidly evolving but the potential impact, and I didn't even talk about risks like hurricanes and floods and earthquakes. But the potential impact on the real estate market is significant.
>> Always a great conversation and fascinating insights.
>> Thanks for having me.
>> Thanks to Colin Lynch, head of global real estate investments at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
join us for tomorrow show. Bryan Armour, Dir. passive strategies research for North America at Morningstar Research will be our guest. He wants to take your questions about exchange traded funds.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss the health of the office real estate sector. TD Asset Management Colin Lynch joined us.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from Wednesday's Bank of Canada rate decision.
And in today's a broker education segment, Bryan Rogers will shows how you can test out your trading ideas before buying on the platform.
So here's how you can contact us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
First trading day of the week. We will start here at home with the TSX Composite Index.
Sort of been struggling to stay in positive territory today. Right now back about 14 points, pretty modest, just about seven takes. Among the most actively traded names on the TSX at this hour are Shopify. Last time I checked, Shopify was putting points on the table.
Indeed, nothing too outstanding, at 109 bucks and change, the stock is up 1.7% but rallying along with some US tech names. Canadian natural resources added 8353, down a little bit more than 1%.
South of the border, we have a little bit more drama.
The S&P 500 closing at a new all-time high on Friday, carrying that momentum into today's session.
I'm not a math expert but if you close on an all-time high and you've got green on the screen, you're at a fresh all-time high. 17 point to the upside, about 1/3 of a percent. The Dow 30 joined the party today as well in terms of hitting a new high.
Clawing their way back over the last two years when the interest rate hikes began and the market started pulling back, the Dow touching a fresh high today. We will see if they can hold that into the close. I also want to check in on the tech heavy NASDAQ. A lot going on with the tip stocks last week doing the heavy lifting. Some of the big tech names are rallying and we have some upside here. 63 point, a little shy of half a percent.
Bit of a different story for Archer-Daniels-Midland.
Down a little more than 20%. The CFO, Chief financial Ofc., has been placed on leave. They have cut their earnings outlook and all of this follows a probe of their practices.
A lot of drama on that front. And that's your market update.
While the office vacancy rate in Toronto has pushed higher recently, our featured guest today says that if you look past Canada's largest city, there are some signs of strength for office properties.
Joining a centre discusses Colin Lynch, managing director and had a global real estate investment trust TD Asset Management. Great to have you back on the program.
>> Thanks for having me.
>> We do need to start with Toronto. It is the largest market. We are not seeing office properties rebound perhaps as much as people had hoped. What's going on in Toronto?
>> Centre of the universe, as described. Toronto is an interesting market because it has many portions to that market. We got the downtown financial Corp., we got Bloor Street which is to the north, further to the north you got St. Clair, Eglinton, at North York Centre.
Just five or six notes just along one street.
Before you go further east or west along King St., East working West, before you get to places like Scarborough or Mississauga centres, Vaughn, lots going on.
But you're right, vacancy is up.
But not uniformly.
And different places are experiencing different things.
One of the stronger places that we have seen has been around the Eglinton St. Clair notes. As an example, traditionally not the first place you would look at office but what you do see his rate strengths around that note.
You have really affluent communities, a lot of new things moving into that area, think restaurants and a lot of vitality. Blue Street has been a little bit more challenged. Clearly the concourse that runs from Bloor and Young over to Bai and Young, but it really has been a building by building story on that street.
Come further south into the financial core… >> Where we are sitting right now.
>> Precisely. There are two pieces to that story.
One piece has to be about quality.
And like every period of economic dislocation, and I put what we are living through still into the bucket, even though we had COVID which had a big impact, nevertheless there is a flight to quality.
So if you are a tenant and you work in a class B space, so a little bit older, a little bit less shiny and newer, a little bit less well transit connected, not as great from an environmental social governance perspective, energy efficiency, but you are paying this rent and I got an opportunity to move into a brand-new building with great amenities that's connected to a subway station or union station in Toronto, guess what?
You will do that.
So we are seeing that, which is called the flight to quality. But that being said, there are some buildings, even in the downtown core, that don't fit that new generation of shiny new building that's it really well transit connected and those buildings are struggling.
And we are seeing vacancy rise significantly more in those buildings. So there is a flight to quality dynamic, and we see that in every economic period.
We are, however, looking at vacancy versus physical occupancy, seeing teacups in physical occupancy. It is slow but we have been seeing this since late 2021 and it's a steady and gradual kind of ticket. Not so much on Tuesday, Wednesday, Thursdays and the core.
Because they are, we are not completely at home but we are sort of in the broad range of normal, it's more on the Monday they are seeing a little bit of to cut there. All to say we are solidly in the hybrid working environment.
I don't think we are moving from that. But the nature of that work in terms of the number of days in office on average is still slowly adjusting in the centre of the universe.
>> My field research, taking the train and every day, I always notice on Monday morning, there are a few more people on the platform. That's Toronto.
Talking about the hybrid sort of work arrangements taking hold, what about moving outward across the country. Is there still that reticence to return to office or are we seeing a pickup?
>> A lot of times we tend to focus on Toronto or on Montréal or even on Ottawa and, of course, they are in the national consciousness. We think very heavily on those cities. We forget to realize that there are other cities and cities like Winnipeg and Saskatoon, Regina, there are cities like Edmonton, Halifax and St. John's, so there, we are actually seeing a lot more pronounced return to the office. In places like Regina and Saskatoon, most people are in the office between 4 to 5 days a week.
In places like Winnipeg, is close to 4 to 5 days a week.
In places like Calgary and Edmonton, it's between 3 to 4 days a week on average. We measure these things on the basis of hours in the office per week and the max is about 37.5 because a lot of people are unpaid for lunch.
>> What's going on? Why do they want to be in the office?
>> I'm sure the coffee is amazing.
It's actually commute times. So the commute in a place like Saskatoon or Regina might be a 10 minute drive where is in Toronto, a 10 minute commute for many people would get you may be 5% of the way there.
>> 10 minutes would be a dream.
>> So that's a very big driver. The smaller centres have better commutes in general and so therefore the barriers to getting into the office are much lower in some of the smaller centres. What that means is more people in the office and what we see from a vacancy perspective, a leasing perspective and a general sentiment on the office is much more optimistic and some of the smaller centres that it is in the big, large centres like Toronto or Ottawa, Montréal. In Vancouver, we still have a bit of hybrid for sure but even there, for different reasons, we have a lot more people living amidst office hours.
So a lot more people don't have materially larger commutes. We actually do see a bit more return to office.
>> Fascinating dynamics. This is also, if this year plays out as opponents have said, as the markets are betting for the year, rate cuts. A lot of people are waiting for that from the central banks.
When and if they do, what kind of effect could that have on office?
>> That's another great question. Certainly, we expect that the rate cuts will generally be positive for office valuations.
The question is, why are the rate cuts coming?
The rate cuts are coming because we have severe economic dislocation. That's generally, historically, not great for the office.
If there are less jobs and less people working at different companies, that's generally not good. There is a school of thought that says, however, in severe economic dislocation, folks would be more incentivized to come physically into the office.
>> Show their face.
>> That we have never seen that dynamic in the past, so it's hard to quantify and measure that. There is a very large school of thought that that could be the case.
Let's say a hard landing is off the table and we have rate cuts because we are having a softer landing which means flat or negative job growth. Flat is this scenario. Then from a capital valuation perspective, certainly it's a positive for the office sector like it is for the other sectors like real estate.
Investors into real estate have many things to choose, not just real estate, they could choose public stocks and they look at dividend yield send they look at yields on bonds. If rates are coming down, that almost makes the bar of competition for real estate lower, which means that for well performing offices that are producing income and therefore cash flow, that becomes more attractive for investors looking for yield.
So certain offices will perform much better.
There will still be challenged offices regardless of whether rates come down by 100 basis points or 200 basis points. At the end of the day, if income is really low, then valuations will still be quite low because income is low. So you still need to look at what is the fundamentals of that office and what is the leasing in that office, what is the rental rate in that office and not to go into too much detail, but there is call it gross or topline rents and there is the actual rents the tenants are paying because they tend to get incentives.
And when you have economic dislocation, those incentives become larger which means that even though the topline rent is constant, the actual rent the landlord is receiving is going down.
See you have to look at that dynamic as well and for buildings that are challenge, that dynamic is a lot more present than for buildings that are less challenged.
Even in a declining rate environment, it helps the office sector generally, but you really do have to look at what is the quality of the offices that you are investing in. It still matters.
>> Always great insights with Colin Lynch. We are going to get your questions on real estate for Colin in just a moment's time. A reminder of course we started off the conversation with office but we are talking all things real estate today.
You can get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Macy's are in the spotlight today. The department store chain rejected a $5.8 billion takeover bid from two investment firms. BC says it has concerns about the deal financing and valuation. Arkhouse Management and Brigade Capital Management have offered $21 a share to take Macy's private. Right now, the stock at 1810, it's up about 2.7%. We got another fleet of Boeing planes coming under scrutiny. At the US Federal Aviation Administration is were commending a visual inspection of the door plugs on the Boeing 737-900ER aircraft. The plugs on that aircraft are similar to the ones on the Boeing 737 MAX 9 Plains, which have been grounded after a midair panel blood earlier this month. Also want to check in on shares of Gilead Sciences they are under pressure today. That's after lung cancer drug developed by the bio for a giant failed to pick key goals in a phase 3 study. The stock is and about 10%.
Gilead is saying is looking for other ways to put the drug to use. Let's check in on the markets. We will start from Bay Street with the TSX Composite Index. In negative territory, down 31 points, a little more than 1/10 of a percent. South of the border, the S&P 500 closed at a record high on Friday, building on those games today although we are fading a little bit off the highs of the session. We are still green so still at a new high but pretty modest 10 points, or just 1/5 of a percent.
We are back with Colin Lynch, taking your questions about real estate so let's get back to them.
Viewer wants to look your outlook for residential real estate right now.
>> It's generally more positive.
More positive in Europe and Asia and relatively positive in Australia.
So what do I mean by all those geographies? Let's start in Canada. In Canada, we still have exceptionally high demand.
There are government announcements out even today but with those announcements to the side, we are still at historic levels of immigration to the country. But even if we didn't have those immigration levels, we have dynamics that our people are still generally moving from smaller centres to bigger centres. The divorce rate is high and family sizes in terms of number of kids people have is actually going down and continues to go down. What does that mean? That means that the demand for units of household accommodation, that demand grows even if population is generally flat.
And we have seen that in other countries like Japan. In Japan, the population is declining, yet the demand for homes in Tokyo is increasing. So that's Japan. In Canada, we have a rapidly growing population, plus all those other factors, so that's demand.
Lots of growth. Supply, Limited. And actually new supplies going down. Why? Rates are very high. It's really expensive for folks to build right now, but also it's expensive for people to buy right now at the cost it takes to build. Plus, you have a long time that it takes still for projects to get approved by different municipal governments across the country. So, Limited supply, tons of demand, low vacancy, means growing rents. It's a question for the country. It's becoming a lot less affordable from the perspective of living in these spaces for sure but in terms of supply and demand in pure economics, quite attractive.
>> What's going on in the states? We have seen their economy perform more resiliently than Canada.
>> That economy has been quite strong.
There are a couple of dynamics. Let's go back to demand, supply. Demand is a bit more tepid. Why?
Because immigration is a bit more tepid as a portion of the population of the US. More importantly, as a proportion of units of homes in the US. And that's where you get to the supply.
There is a lot more new supply. It is easier in several states around the US and in particular think about the Sun Belt states, so the Carolinas and Georgia, Tennessee, etc., the Sun Belt states, Florida, easier to build new supply.
So back to demand and supply.
New supply, not as much demand and what we are seeing is negative rental growth in certain places in the US.
Now, where we are not seeing that dynamic layout as significantly are the places that were having issues three years ago, like the eastern seaboard.
Why is that the case? Because three years ago, people were moving out of places like New York City.
Now people have moved back into those places so we are still having this post-COVID sort of recalibration happening. Step back from that and look at more generally, yes, more supply, not as much demand.
In places like Europe, more difficult to build new homes so therefore supply has been more constrained.
Demand is a bit more constrained. But there, the differences you don't see as many participants in that market. That's rapidly changing, but if you sum it all up, you don't see as many generally across Europe.
Ditto for Australia. Australia has not really seen any institutional participation in what we call in United States and apartment buildings, like condos, built for sale individual units. That's rapidly changing due to some perspective changes in the tax code in Australia and we think that that will create, those changes get confirmed, a whole new residential space in Australia and that would be quite exciting because Australia is similar to Canada: tons of immigration, so demand is really high, and we have yet to see how supply response. In the interim, there will be interesting opportunities in Australia.
>> Interesting stuff there. You briefly mention affordability. We have of you were wondering how you are viewing the affordability issue here in Canada?
People are worried about homeownership.
>> It's a legitimate concern. When you look at why things cost as much as they do, when you've had a significant ramp and cost building so that's all the inputs, whether it's steel, concrete, etc., all have increased in price. But also labour has increased as well in terms of costs. Plus, you have longer time span intervals but for people that are developing land, and they generally have to pay for investing in that land and the amount of time it takes to build.
Rates have increased significantly and so in the period of time that they are working on all these approvals, they are paying for all those loans so that has to get recouped, as long as they are for-profit builders. So it creates a challenging dynamic that the cost to build requires a high sale price in the sale price for those looking to buy can be quite unaffordable because the mortgage cost for those looking to buy are quite high.
So therefore, lots of folks have moved to renting, which creates demand for units and unfortunately, we are not really building what we need to build in order to satisfy that demand. It takes a long time.
It takes two years to get approvals, another 3 to 4 years to build, so if you start today, you might be looking at a 2030 or 2029 completion.
As a result, you see very low vacancy and increasing rent. So yes, it is a problem for sure.
>> Are there is solutions being put out there that have caught your attention?
There probably won't be one thing though.
>> I was part of a group of individuals, some from the private sector, some from nonprofits, charities and others that have played roles in government to be gathered in Ottawa and we actually put out a report and that report was considered within the cabinet, the federal cabinet in the late summer, late August or September. The point is, that report had 15 recommendations. So far, as far as I can tell, we have partially implemented one and are moving on a couple of others.
One of those was the GST and really it should be the HST for new construction.
We need a strategy around labour. We need more people to help us build these buildings. We need a faster approval process, more streamlined approval process and we need a strategy to procure equipment and materials and construction materials on a national scale. We need more standardization. And that allows, if you think the post-World War II construction, that allows for things to happen. There are 15 of these and all 15 I think are important because one, that addresses some of the call at market rate rental and even some of the affordable rental but there is also social housing and there's also shelters and there is as much need for focus there, and that has to involve both governments, federally, provincially and municipally, and the private sector as well. You need funding and all the things I've mentioned in terms of procurement of labour and materials, collaboration and nonprofits vectors.
Building new shelters and low income housing is expensive.
You help to close that financial gap a bit faster.
So the collaboration between the spaces, profit, for-profit and nonprofit.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions for Colin Lynch on real estate in just a moment sign.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
If you're looking to test out your trading ideas before you actually buy, what progress tools which can help.
Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
All right. Clearly, we had a problem with that segment because that was not Bryan Rogers, it was just a blank screen.
I heard Bryan, I don't know if you heard him or not. We are just going to move on.
Of course, there is a learning centre in WebBroker.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we're back with Colin Lynch, take your questions about real estate.
We were going to give you a break there, but you're not getting one. You are back in the thick of it.
Let's take another audience question. What's the state of retail real estate?
>> Yeah, that has been really positive relative to what we saw from 2020 to 2022. Certainly, we saw the return of foot traffic to 2019 levels across most formats.
Think enclosed shopping centres, think downtown retail, we call it high street retail. That's been very positive.
Also positive for investors in retail has been the place where inflation has been captured.
When you go when you buy goods and they cost more.
There are a proportion of leases that are tied to the revenue of the tenants occupying the space.
So those leases, clearly for landlord, the rent has increased because the tenant is doing a lot more revenue and partially because of people and partially because goods cost a little bit more. That's in one dynamic that's been quite positive. It's not uniform in terms of retail.
In certain places close to the downtown have been more challenged because there's been less people in the downtown. But other places that have been sort of connected to trends but in other areas of Ottawa have done exceptionally well. So in general, retail has had one of its best years in the last five and even going to the last 10. The question is, how does that perform going forward? And that goes back to what is the economy like? If we are in soft landing territory where job growth is either flat, slightly negative or slightly positive and we have rates going down, I would say retail is going to do well.
If you have a hard landing, retail is going to be impacted like everything else in the economy.
Obviously, there is e-commerce.
>> I wanted to ask you about that. Is the good fortune of bricks and mortar retailers coming at the expense of online and all those warehouses that goods move through?
>> Yes. Certainly in the last year and a bit.
You see e-commerce penetration and that's flatlined in this part of the world.
You captured it exactly right. Going back to 2022, you wanted to get out, spend, get into physical places.
And that sort of excitement has continued and we've seen that flatlining in terms of all the warehouse side in terms of demand for space, if you go back to 2022, people were looking intensely at new developments and they still are but one of the measures of that is land pricing. There is such exceptional demand that in some markets the land prices are changing every week which is an exceptional thing.
We are far from that now. If anything, land prices are coming down.
So I would say if you look at that space, the industrial space and warehouses, we've seen more of a normalization so e-commerce, I believe, will continue to take up and so that means over the long term there will still be more and more demand for warehouses because e-commerce participants will continue to grow in new participants will come into the market.
So long term, that space is quite healthy but when you look at rental growth and how is income for an investor in real estate moving, we saw that have a dramatic increase in now we've seen that.
Now, zeros here. We are still above zero but we have come way down and I would look at that and say, that's actually healthy, that's a normalization in the market.
We have seen vacancy spike. Also expected because if people are not building… If people are not taking up as much warehouse space and people are still building space, that means that vacancy will increase but it has increased from unsustainably low levels to more normalized levels.
>> Interesting stuff there. Another audience question.
Viewers saying we hear a lot about the risks around residential mortgage renewals this year. What about for commercial real estate?
>> I think in the news there's been a lot around a few things, one of them as investors and offices. Some of them defaulting on their debt and I think that is a very legitimate concern. I think that is more concerning in the US than it is in Canada partially because there is a slightly different dynamic in the US. We have a lot more participants, particularly from the equity side, investing in offices, and the debt side, loaning money to folks that are investing in offices.
So when things get tough, people are more likely… And the problem with some of the investing with that is the person that is holding that debt really didn't plan to run the building.
So that usually is a tougher dynamic. In Canada, we have a smaller number of participants, a smaller number of lenders and people have, as a result, long memories.
If you hand back the keys to one landlord and say in five years he wants to borrow to buy another office building, everybody knows that you handed back the keys.
So if you get a loan, the rate you get is going to be different because everyone remembers. Now that's not to say there won't be defaults. There have been defaults.
But what we have seen is a low number of defaults in Canada so far and I believe that there will be a lower number relative to for instance the states. Am I concerned about defaults in other parts of real estate?
Not really. Caveat small being retail in the US. We saw a lot of defaults in retail, it has been healthier, and the economy in the US has been quite strong so not a big concern.
Really if there is a place to be concerned about defaults right now is the office space and certainly more the US and Canada.
>> A bit of a follow-up here. We had someone wondering about the CBA loans. That was a big story last week.
But those small businesses that took loans during the pandemic to get through are facing a deadline.
What will happen if some of those businesses can make a go of it?
>> If you are a small business and received a loan and you have a maturity coming due, that is a very significant thing and so we certainly understand some of the pain that some of those small businesses would be going through perhaps.
When you step back, however, let's look at real estate in general. We have a lot of space.
So residential and certainly warehousing tend to be less impacted. You're really talking about office and retail. Will call at half of the space, maybe a little bit less. Then, who occupies the majority of that space? It tends to be much larger enterprises. So think in office space, big banks, insurance companies, and think the governments. They tend to take hundreds of thousands of millions of square feet of space. In the retail space, you do have a lower number of department stores then 30 years ago. That space was really dominated by department stores. Now, there are department stores and specialty retail. Thanks places that you buy your shoes from, but also electronics retailers. We can think of a bunch of them that occupy a lot of space. All to say the spaces that are occupied by a lot of the recipients of those loans, they tend to be smaller businesses and tend to occupy less space.
Therefore, the impact of that volatility on the office and retail space writ large is a bit more minor, not to minimize the impact on those small businesses, it's undoubtedly quite significant, but in terms of the impact on the real estate space is quite minor.
>> Interesting stuff. You'll get back to questions for Colin Lynch on real estate in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right. Let's do a check in on the S&P 500. It closed an all time high on Friday so any been on the screen means new highs for that broad read of the American market.
Now, the S&P… Actually, we are looking at Advanced Dashboard. This would be the TSX 60, not the S&P 500.
Let's do it answer here and see what we are looking at.
It's a bit of a mixed day out there.
Shopify is rallying with some of the big US tech names.
It was up around two or 3% earlier, of about 1 1/3 of a percent right now. A real mixed bag and energy, real mixed bag and the financials.
Mixed bag for materials as well.
Kinross is and First Quantum is down.
On Wednesday, the Bank of Canada is going to have a rate decision. Odds of a rate cut took a hit last week.
We had stronger than expected data. How do we weigh it out and how is the BOC going to wait out? Anthony Okolie now joins us with TD Economics perspective.
>> This year is shaping up to be a difficult one for the BOC. Because of the strong inflation print we saw a recently and the strong turn and the Canadian realist a market as well. Last week we saw the bond market sold off, the Canadian two-year and tenure were up 30 basis points ahead of the BOC's decision this week and rate cut expectations, they moved from April to March for several reasons. Inflation is heading in the wrong direction. Expectations for headline CPI actually were headed expected to head higher on base year effects because the impact of low prices in December 2022.
While this happen as expected, what was a surprise was a shift higher in the core inflation rates, as the chart shows.
More worrisome is that the Bank of Canada score CPI measure, that's the three month annualized rate, it was up 3.6% versus 2.9% in the most recent data.
Now, a second concern, of course, was housing data which surprised higher. Home sales were up 9% month over month. The average house price was up for the first time since last spring.
That was when the Bank of Canada started its rate hikes. The improvement of housing may have been boosted by warmer in December weather. But this is adding to concerns by the BOC. 1/3 reason is Canadians continue to spend at shopping malls. Late last year, as the chart shows, retail sales for November highlighted consumers buying clothing, shoes, jewelry, doing the holiday shopping season. While sales were dragged lower by a drop in spending at food retailers, StatsCan/estimate for December showed that Canadians like the open up their wallets during the last month of the year.
Well housing and inflation data got a lot of attention, the BOC surveys of consumer sentiment continued to weaken. Where does this leave the BOC for its meeting this Wednesday?
Given the upturn in data, TD Economics says that it's unlikely that the Bank of Canada will start rate cuts this Wednesday.
What they believe is that the BOC might maintain its cautiousness, focusing on the fact that the job is not yet done. With markets believing that markets will soon show weakness in the data, the expectation is that the Bank of Canada will start cutting rates in the spring of this year and that's in line with TD Economics Outlook for a cut in rates by the second quarter of this year. Of course, we will have coverage of the Bank of Canada's rate announcement this Wednesday. I will be speaking with the lane of TD Asset Management with an immediate reaction to the BOC's announcement right after the meeting.
>> Great stuff. I look forward to that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, let's get you an update on the markets.
Let's get back into TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat map function. A few of the market movers. We showed you the TSX 60 before Anthony showed us a list take a look at the S&P 100.
The topline number is still in positive territory on my screen. It's modest, 14 points were 1/3 of a percent.
The S&P 500 is pushing higher into record territory.
What is actually happening today? If you look at the financials, down at the bottom, they're putting points on the table. These are heavyweights. You got Citigroup up almost 3%, Bank of America up more than a full percent along with Wells Fargo. In the tech space, it's interesting. It's not really the chipmakers which brought points to the table last week to bring the S&P 500 to an all-time high. AMD is taking points off the table.
But you got quiet strength, but a percent in Apple and Google and some other names as well.
A few interesting dynamics playing at South of the border to keep the S&P 500 in record territory. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Colin Lynch from TD Asset Management. We'll squeeze in one more of your questions. Here's an intriguing one. The rise of artificial intelligence.
Is it having any impact on real estate?
>> That's a great question. Certainly, so far, the impact has been minimal but that's not to say that the impact in the future won't be great. There are areas where AI could play a role. If you look at investing, we use a lot of data in order to determine where are rate sitting, where are market sitting. If you think about buildings and leasing and grants and all of the information that we use across all the buildings in every city, that's a lot of data and the synthesis of that data, the prediction potential of that data, the connectivity of that data to other data in the economy or in the financial markets, I think that in the totality of what can be done, we are probably at a 3/10 in terms of the industry so AI could play a huge role there.
But also if you think about, okay, let's put that to the side. He got a building.
How are people using, occupying, functioning within that building?
And all the elements of the building, not just for instance an office tower or apartment building, the units or where people are doing work by amenities and retailers in the concourse on the ground floor, think whether people are using the gym or the conference room and how they are using it and it what hours?
There's a lot of insight that can be generated there so that we can deliver a better experience and then think about the environmental goals.
Whether it's windows or materials in the windows and how those windows react for instance of the sun, temperatures, heating and cooling, we are not there yet perfectly in terms of if you work in offices sometimes you're probably thinking it's really hot and other times… >> It's cold in here today.
>> Precisely.
All of those areas in terms of prediction, you can connect that to how your building systems work relative to real-time information. So all to say, there is a ton of potential for AI. We are not really capturing it yet, partially because the spaces rapidly evolving but the potential impact, and I didn't even talk about risks like hurricanes and floods and earthquakes. But the potential impact on the real estate market is significant.
>> Always a great conversation and fascinating insights.
>> Thanks for having me.
>> Thanks to Colin Lynch, head of global real estate investments at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
join us for tomorrow show. Bryan Armour, Dir. passive strategies research for North America at Morningstar Research will be our guest. He wants to take your questions about exchange traded funds.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
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