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[theme 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 show, we are going to take a look at the latest US inflation report and try to figure out what it might mean for the Fed.
TD Asset Management Alex Gorewicz joins us. MoneyTalk's Anthony Okolie will have a look at what credit and debit card spending data is saying about the health of the Canadian consumer. And in today's WebBroker education segment, Hiren Amin will show us how you can find money market funds on the platform. And here's how you can get touchless.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets.
We had a sense earlier in the week that the markets were trying to wait and find out what the US inflation report was going to look like. We will start you at home with the TSX Composite Index. Some modern screen on the screen, up about 34 points were a little more than 1/10 of a percent.
Among the most actively traded names include Baytex energy. We saw the price of oil come back, another indication that demand for crude might be softer than expected this year. It down about half a percent. The meme stock rally of Monday and Tuesday seems to be fizzling to a certain degree today. BlackBerry appeared to get swept up and it also is giving back some gains from recent sessions, it's down a little less than 8%. South of the border, that inflation print, the market seemed to be A-OK with it. Let's check in on the S&P 500. That and the NASDAQ making you all-time highs today. The S&P 500 of 5289, putting on 43 points were a little shy of a full percent.
The tech heavy NASDAQ making new highs as well. Up one full percent or 165 points.
But the meme stock rally, let's take a look at GameStop which was at the centre of not only the pandemic meme stock rally but that popping of the last couple of days. GameStop now giving up about $13 per share, down 27.5%. And that's your market update.
The latest US inflation report suggests price pressures may be easing after proving stubbornly high so far this year.
So does that change the markets view on when the US Federal Reserve may be in cutting interest rates?
Joining a centre discusses Alex Gorewicz, VP and Dir. for active fixed income portfolio management at TD Asset Management. Always good to have you on the program.
>> Thanks, great to be here.
>> This seems to be a report where it seems we are at least not moving in the wrong direction. What is your read?
>> I think you summarized it perfectly.
Quick recap, looking at headline month over month or quarter month over month, 0.
3%. A year on year numbers 3.3 and 3.4 respectively for headline and core. These numbers were in line with expectations. In fact, month over month headline was a slight miss, so obviously the market likes that, all markets like that, bond markets, equity markets.
And probably the reason why is a psychological development. This is the first time that you're probably sitting opposite someone in many months talking about US inflation meeting or missing expectations.
>> And using the word easing.
>> Right!
I think that's extremely important. The devil is in the details to some extent because when you look at let's say super core inflation, which is core services excluding any shelter related components, if we look at the last three months including the latest print, if we look at the last six months, if we add for age those numbers and then annualized them, we are still looking at figures that are over 6%. That doesn't actually give the Fed a lot of confidence. However, similar to some of the other numbers that I mentioned, the good part about it is not that it comes in line with expectations, the good part is that the rate of change is slowing.
We saw stickiness along all the sort of inflation measures in the last several months and now we are starting to see that momentum way in which is probably the positive outcome of today's print.
>> As you said, bond markets, equity markets liking this news. At the same time, I imagine it's the first of what the Fed is going to need to see through several reports to tell them that they are on the right track.
>> Correct. That's why I said we have to look at the details and realize that the numbers are still not compatible with the Fed returning to the 2% inflation target in the medium term.
We have to take this with a grain of salt.
It may be a step in the right direction but by no means giving the Fed the green light to let's say lower its policy rate at its next meeting.
>> Somewhat overshadowing, being overshadowed by the CPI headline print, US retail sales today. I will go too deep into it other than to say they were flat.
This seems to be another indication that perhaps the US consumer is starting to say wow, life is expensive, the cost of money is expensive, maybe I need to slow down.
>> That's an excellent point because I think when we look at today's fall in interest rates across the yield curve, it seems to have been more of a reaction to those soft retail sales.
Again, psychologically, the fact that inflation was not upbeat, it did not come in firmer than expected actually helped to pave the way for that but today's retail sales similar to some of the mixed data we saw yesterday and PPI, similar to let's say a couple of weeks ago when we had nonfarm for March, you are starting to see now a string of data in the US that is missing expectations and, as we know, when we think about market reactions, it really is about what has been priced in, what's expected by investors versus what's delivered and the last several weeks have delivered weaker than expected data in the US, from a total macro point of view.
I think it sat, more than anything else, is what is going to enable the bond market to say, well, it may be, now we have priced out to many of Fed rate cuts for this year and it's time we start praising some back in.
>> Alright, so this could create a situation where we have the markets expectations pushing back against what the Fed is telling us. It's been a push and pull for a while. At some point, it feels like the market is saying, no, we think you will do this. Jerome Powell is like, take it easy, be patient. He's been talking a patient for a while now.
Do you think there is a disconnect, with him saying be patient, let the interest rates do their work and the market saying we think you will go sooner rather than later?
>> The narrative seems to be we think you are going to go as and cut sooner rather than later but just a couple weeks ago, there was a growing chorus of investors suggesting that the Fed needs to hike again. In hindsight, I think Powell and the Fed did the right thing by saying let's stay the course. Let's cut off that tail risk, we will say, for more rate hikes and just prolong our current policy stance. We will delay would restart rate cuts but the next move is more likely a cut and, again, the string of data we have seen in the last couple of weeks in a number of different indicators suggests that the Fed is right to sort of try to transition more towards easing.
>> When we finally do get the easing and rate cuts, how robust will they be, how aggressive will they be? Or is this a case of if we stay higher for longer, when we start cutting, we will take it slow?
>> The key here, and it's hard to say at this time, the key would be labour market data.
What the Fed did by saying effectively, we just need to hold the current stance longer, and then all of the data that came after that effectively suggested rates did not need to move higher, what that all data is to say, actually, the Fed's position and the Fed's current policy stance could be restrictive enough but the key will be labour data, whether it was initial claims last week which surprised to the upside, whether was the nonfarm data from a couple of weeks ago that suggested that perhaps, yes, the Fed's policy stance is restrictive enough, see you have actually seen a response in markets be skewed toward sort of an asymmetric outcome which is, maybe rates don't move higher, you have them move meaningfully lower and then all asset classes really like that.
>> Let's talk about the weight. We have been waiting longer as investors then we perhaps thought we would be for the Fed to deliver a rate cut. What is the sentiment like among fixed income investors as they wait this out?
>> They don't like waiting.
The hard part here is that everything that I've just mentioned has actually whipsawed the market around a bit. You are really super data dependent which in some ways is boring but in other ways is also very volatile from economic data released to economic data released.
And I think for a long time, bond investors were conditioned to just expect capital returns, whether it was positive or negative, because yields are generally were so low for the last 10, 15 years up until a couple of years ago.
And because of that, they did not have the experience of having to wait for their income return or their yield return to compound over time, and so I feel like bond investors are still very much caught in that psyche where it's like, okay, I want my returns now. Okay, the Fed needs to cut interest rates or the Bank of Canada will cut interest rates and we will go positive returns. That has not happened. We are data dependent and that data has been volatile.
But when you take a step back, when you realize this, your yields are actually helping to offset a lot of that volatility but it takes time to compound those yields, it takes time to realize those yields and I think that waiting and being patient part is something that needs to return to bond investors.
>> Always great insights with Alex Gorewicz. We are going to get your questions about fixed income for Alex in just a moment's time.
And a reminder that you can get in touch with us 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.
We have shares of Boeing in the spotlight today. The US Department of Justice as the playmaker violated a settlement that had shielded it from criminal prosecution in those fatal crashes of to a 737 Max Jets.
Now, that opens Boeing to a potential prosecution. Federal officials say Boeing has until June 13 to respond. The shares are down a little less than 2%. Two stocks at the centre of the latest meme stock frenzy are under pressure today. We are talking about GameStop and AMC Entertainment giving back some of this week's gains, that is following a rally that was apparently set off by social media posts by a figure at the centre of the pandemic era meme stock craze, goes by the title of Roaring Kitty. Today we see AMC pull back about 20%. We showed you I think GameStop down to the tune of almost 30.
The International Energy Agency is cutting its demand for oil growth demand forecast.
The groupdemand out 1.1 million barrels per day this year. That is down some 140,000 barrels from what previously thought demand look like.
Quick check on the markets. We will start on Bay Street with the TSX Composite Index. Even though without weakness in the price of crude, we are managing some modest green on the screen. At 31 points were little more than 1/10 of a percent.
South of the border, that favourable US inflation print and retail data, put it all together, the S&P 500 and NASDAQ are up to new highs today.
The S&P 500 is up right now three quarters of a percent.
We are back with Alex Gorewicz taking your questions about fixed income. First one for you here. Someone wants to know there's a chance that yields can get back about 5%?
Memories of last fall.
>> There is always a chance.
The momentum was strong in terms of driving interest rates higher and I think that's important because there are a lot of different investors that trade-in interest rates or in government bonds for a variety of different reasons and we have to appreciate their styles. While there was a chance maybe a couple of weeks ago with strong interest rates moving higher that we can get back to 5%, fundamentally assessing the policy reaction from the Fed, cutting off that tail risk of rate hikes that I mentioned earlier, I thought that there would be very limited probability that we can get back to 5%. If that was true couple of weeks ago, fast-forward more, we will call it soft data or not even soft data, just misses relative to expectations.
>> Didn't scare us.
>> Didn't scare us and I think that probability is even lower now.
>> If memory serves from last fall, when we saw the 10 year yield pushback about 5%, some people talked about it being about buyer sentiment.
>> I don't think that's as relevant here at least in terms of what drove interest rates higher let's say a month ago or through most of April. When we look at the supply side of the equation, really, what is the treasury doing, and then what is the appetite and the broader market, there hasn't been a clear message that one, the treasury will increase its supply in a way that is not anticipated, that has not happened, and two, there has not been clear evidence that there is a buyer strike because whether it's been looking at auctions or whether it's been the fed QT taper announcement at its last meeting, it suggests that demand, at least, is not waning across the board.
>> Alright, another question from the audience. This one taking it a bit back towards his country. How much divergence will we see between the BOC and the Fed? A lot of talk about divergence and the fact that inflation was running way too hot in the states up until today.
>> Up until today, that's right.
This parts a little bit trickier because the Bank of Canada has some room to play with here.
Similar to what I mentioned about looking at let's say core services excluding housing, Bank of Canada absolutely looks at that measure and that measure is actually quite weak in Canada so inflation stickiness and strength that we have seen in the US, we just have not seen here using comparable measures.
This means that if the bank of Canada starts to cut because of domestic factors and it starts to cut its policy rate a lot more than the Fed and the Canadian dollar weakens, yes, there's a possibility that we will import some of the strong US inflation but we would need to import so much of that or the currency would need to depreciate so much, 10+ percent from here, to the point where you then allow inflation to really run away from you, really go beyond your target band. So the bank of Canada has a lot of wiggle room to play with. And they have alluded as such.
Of course, they note that there are limitations.
So let's say they cut two or three times more in the next 12 months than the Fed.
You will see some weakness, maybe you will even see a little bit of inflation firming but nothing that is unmanageable for the Bank of Canada. I think once you get beyond those three additional rate cuts, that's where perhaps there will be a little bit of worry about how weekly currency can get and how much we can import of US inflation. But at the same time, the US side also matters, the US side of the equation also matters. As long as disinflation can resume and today's print gives us encouragement that we might be headed back in the right direction for US inflation, then perhaps it won't, that divergence won't be as necessary.
>> A question I've had in my mind recently, I thought Alex is probably the person to answer the question, even the Bank of Canada start cutting before the Fed, cuts two or three more times than the Fed, what actually starts happening in the Canadian bond market? Do we still import some of those rates from the states or will there be more sensitivity?
>> For sure, when we look at rates, two-year or even five year, as an investor, what I want to see happen is if the BOC lowers rates, those rates, two and five year, or moving lower. If not, it suggests the Bank of Canada has lost control over the transmission of monetary policy. That is a bad outcome.
Historically, it suggests shorter rates move lower. Longer rates, when you look at 10 and 30 year, will really depend on how much investors think that inflation starts to re-accelerate or perhaps with this importing of inflation from the US if US inflation just no longer normalizes or distant plates, how much of that will be actually bring here? And that's a bit of an unknown and we will see what the broader investor base is thinking about when those rate cuts start to materialize from the Bank of Canada.
From my seat, I would say it would take a lot of rate cuts to actually see 10 year, 30 year interest rates move higher because investors on average become worried about inflation so my expectation is that they at least days stable or fall marginally.
>> One of the benefits of being in this chair, I get to ask my questions to people I know can answer them.
Now another audience question. What is your outlook for the corporate bond market?
>> So again, today's we will call it in line with expectations, the inflation print in the US, actually paves the way for a good outcome for corporate bonds.
Fundamentals were already suggesting that the strong rally that we have seen in corporate bonds in the last six months, maybe even a little bit longer, let's say 12 months, has been fundamentally justified but there was always going to be a limiting factor in terms of how much more they could outperform based on policy rates. And if it was at all possible that the Fed would start raising rates again, you had to start questioning how much those corporate fundamentals could persist into the future because we know that although a lot of companies have cash on their balance sheets, they have delivered, they have reduce their debt and paid it back, there's still a lot of debt out there to be paid and if that gets rolled over at increasingly higher interest rates in the future, you have to readjust what kind of premium you are charging corporate borrowers. But in this case, with let's call it the disinflation path seeming likely again in the coming months, and especially the string of economic Mrs.
that we have seen gives us comfort that today's softer than last month inflation print can continue into the future. It suggests that if the Fed is going to be on track to ease, corporate's or corporate borrowers will very likely face lower borrowing costs in the future and that means that there is better likelihood that they can manage their overall balance sheets as well as they have done up until now.
>> Great breakdown of the corporate space there. As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Alex Gorewicz on fixed income in just a moment's time. 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. It's higher yields we've been talking about that have made money market fund popular among some investors recently. If you wanted to research the space, what progress tools which can help.
Joining us now to discuss is Hiren Amin, senior client education instructor with TD Direct Investing. Always great to see you.
Let start with a little discussion about these money market funds for some viewers who aren't aware, how do they work?
>> Great to be back again, Greg, and great to see. Let's talk about money market. A very timely conversation we are having.
Let's take a step back. Only think of the term cash, what does that usually trigger in our minds? You think maybe cold hard cash in your wallet, maybe less of it these days with the plastic crowding the space but it distantly refers to money that might be in a checking or savings account as you think of it. When it comes to investing, cash describes an entire asset class but what exactly is it? In the investing world, cash is typically held in a money market fund. Some of the attributes are that it's highly liquid, short-term debt securities that pay interest, so you can almost think of them as very short-term duration bonds. Because of these attributes, this is why they are seen as cash instruments and they can be easily interchangeable into money at short notice. When we talk about the two spaces, Canadian money market funds, these are short-term, high quality short-term debt issuance by high-quality entities that could be federal or provincial or could be obligations by Canadian banks or highly rated commercial paper. If we go across to the stateside, they have ultrashort bonds and those are typically going to be issued by the Fed in the form of treasury bills, 60 to 90 day duration.
So investors are using these money markets as a stopgap vehicle.
One going in and out of investments like stocks and bonds, they need some cash and wants to collect interest, this is what they usually look to or if they want to remain on the sidelines when they are looking for opportunities. Now we told her talk with the risks quickly. They are a debt instrument so like any other debt instruments, one risk is that they will be impacted by changing interest rates in the market.
They are not CDIC insured and they do underperform other broad asset classes.
They may not even keep pace with inflation. That's a quick lowdown on money market fund. That now that we understand what they are and what some risks are, if someone wants to do more research, where they go on what broker?
>> I thought you would never ask. Let's go.
And what broker, were going to start, we typically go through the screeners tool.
I'm going to take another avenue to get to some of the same results. We are going to click on our research have appeared.
Now I am going to go to the ETF category.
Money market funds can be structured as ETFs or mutual funds and will look at the ETF space. Then click on categories. What you have is a breakdown between Canadian and US. Let's start with the Canadian side. The easiest way to go down as these are going to be tagged as money market.
The easiest way in which you do this is where want to trickle down over here and do a control find and find where the money market is.
Here's US money markets for those folks who have US dollars and wants to look into money market funds. This is going to give you a list of the US money market funds in US dollars but issued by Canadian issuers.
If we go back to our categories, you are going to see all of these which are classified as high interest savings vehicles. These are ETFs and the Canadian space.
Now if you wanted to go in the US, we are going to go back to our categories and just select the US flag appear.
Switch over. Now, these are going to be US issuers.
Under the issuers, we want folks to remember that these are tagged as ultrashort bonds.
Let's click on this. They are usually going to be comprised of T-bills.
There is a pretty big list available.
Let's say you're interested in one, BIL.
Click on the price placard.
That's how you can access some of this money market ETFs.
>> Great stuff as always. Thanks that.
>> My pleasure.
>> Hiren Amin, senior client education instructor with TD Direct Investing.
For more educational resources, you can check out the learning centre on a broker, or you can use this to our code that will navigate to TD Direct Investing's YouTube page and once you are there, you are going to find more informative videos.
Before you back your questions about fixed income for Alex Gorewicz, a reminder of how you can get in touch with us. 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 Alex Gorewicz, taking your questions about fixed income.
Another one here for you, Alex. Someone wants to know how the emerging-market debt is looking?
>> Ooh.
So it's a bit of a mixed picture I guess near-term, especially with the let's call it's still early US rate rally that we are seeing which is actually putting a bit of pressure on the US dollar across the board. The US dollar is going to be a big driver in terms of its performance of how investors may or may not prefer emerging-market décolleté overdeveloped markets. Medium-term, and I can say this because we had last month wealth asset allocation committee, we put forward a recommendation from our fixed income asset class members to downgrade emerging-market debt, and part of the reason is because when we look over the medium term, the recalibration of one and how quickly the Fed can really cut interest rates has changed how we view the potential for US dollar to weaken in the medium term. In other words, probably not as quickly as some might have forecasted. The other aspect is that the stickiness that we have seen in US inflation, and again, today was a move in the right direction but it was by no means suggesting that we are out of the woods, has actually translated into some higher-than-expected inflation prints in various emerging economies where you've actually seen central banks already begin, for many months now, cutting the policy rate, but some of these data surprises have actually forced them to pause.
So between not really knowing when the Fed will start cutting rates and how quickly they will go, as well as some of the surprises that they have seen on their end, you have actually seen the pretty decent rally that we have had for a while now, for many months now in emerging markets, we've seen a bit of a pause there. Not to mention the fact that you couple all of that with expectations that those central banks will continue to lower policy rates aggressively, if that doesn't come to pass, there is room for emerging markets underperform developed markets are only just starting to lower policy rates.
>> Longer-term, what could go right for emerging markets?
>> Longer-term, if the Fed really nails this and we do get a soft landing or at least not a crash landing in the US economy, longer-term, we are starting to see markets and economies that were we will call it in the doldrums, whether looking at Europe, the UK or China, we are starting to see the tide turned a little bit there which is a positive for global growth but particularly emerging market growth in general. So I think longer-term what could go right for them is that their economies can continue to expand but inflation continues to normalize, even if it's taking a bit of a pause recently. In which case, policy rates can be lowered from very high levels and that should give comfort to investors to reengage that asset class.
>> Nice breakdown of emerging markets there. Let's take a closer to the shore south of the border. The viewer wants to know how we should be viewing the US election?
[laughing] >> Are we paying attention to the US election right now? Actually, I did see the announcement that June 27 will be the first debate between Biden and Trump.
>> There will be an actual debate now?
>> There will be an actual debate now.
>> I've just seen the trash talk back and forth.
>> That's right.
>> We can watch it on live broadcast one evening.
>> I think to me and that's relevant because we do need to get better understanding of what the focus will be.
So far, a lot of the things that we are hearing either about the election or from either side, you get the Republicans or the Democrats, there is a lot of ideas but once the debates really start to kick off the campaign season, kick it into high gear, that's when you start to see what the policy priorities will be, what will take precedent, and then we will have a better idea on really what the potential for the US economy will be in 2025 and beyond.
And how that could or could not impact inflation, and therefore how the Fed should or should not respond to it.
So there are a lot of I think unknowns at this time but as we get into the summer and as those debates and campaigning pickup, we will better understand how to price that in capital markets across all asset classes.
>> Interesting stuff and definitely a question we will be putting to a number of times before all that comes to pass.
Another question now about the Americans.
Is the amount of treasury issuance our risk?
>> I think I mentioned this in the earlier question so I will reiterate, not at the moment.
What we have seen in the last several quarters is that the United States treasury is very well aware of the impact that we will call it supply increased the prices had last summer and last fall and they are doing everything they can to avoid repeating that. So they are communicating well, if they do you have, for whatever reason, because let's a tax collection meant that the treasury misstates a revenue target for a particular quarter, we have seen that they are relying more on issuing bills that increasing the auction sizes of let's say 10 year and 30 year bonds.
We have seen them be more, I hate to put it this way, but market friendly in their communication and activity, not wanting to surprise markets. On top of that, you have had, at the last meeting, the Fed announced it will start to taper QT. That does not mean it's starting to buy bonds, it just means it's not allowing them to run off the balance sheet nearly as quickly and what that means is then there's not additional supply to the same extent as we have now in the future, we will not have that additional supply coming from the Fed either. So there are a lot of positives right now that are starting to emerge around treasury supply.
However, from a deficit perspective, and this is where the US election will matter but again, you don't really have a lot of clear information to assess how big the deficits can get beyond this year, the fact that the US deficit is still around 6% of GDP is extremely high and it means supply of treasury bonds remains high for the foreseeable future.
Possibly growing, depending on the election.
>> Allowed to keep your eyes on.
We are going to get back to questions for Alex Gorewicz on fixed income 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 at 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.
TD's latest credit and debit card data indicating that Canadians opened their wallets in March but we put them away again in April. Anthony Okolie has been digging into a new TD Economics report on just that, the trends and what could all mean.
>> The latest data shows that transactions were kind of up and down in both March and April, kind of like what we saw in early spring.
The weather in early spring, rather. As the first chart shows, total spending was fuelled by goods and services. You forecast that was Stats Can which pointed to flat spending in March. Meanwhile, April saw consumers pull back that spending to about 4.6%, really driven by weaker goods spending.
Now, when we take a closer look at the monthly goods data, chose that increased spending a general merchandise and grocery stores in March as this next chart shows was possibly due to software prices. We have heard from CS Canada that grocery prices cooled to 3% in March. Also spending at gas stations stayed strong in March and even accelerated in April, according to TD Economics, reflecting a sharp demand for automobiles.
When we take a look at services, the services side, monthly TD card spending data remained pretty robust but lacked any meaningful contribution from post-pandemic winners such as travel and entertainment, where spending was flat to slightly positive. Meanwhile, Marge's growth was lifted by activities linked to tax filing season, including tax preparation, money transfers and broker services.
By comparison, in April, the biggest contributor was the other services category which is namely collection of fees and payments.
TD Economics saw that debit and credit card transactions were the major a driver for category outlays possibly driven by payments to the CRA. Given that the latest data points to an expansion in both goods and services spending in March, TD Economics says that this keeps the real consumption tracking at roughly 3% annualized for the first quarter in 2024, as this next chart shows. By contrast, TD Economics says that the first month of the second quarter suggests a softer start with spending likely to come in below the 1.5% target for the second quarter.
>> There is the forecast.
Are there any risks to that forecast?
>> I think the biggest risk that TD Economics sees is the recent rebound in employment here in Canada which poses some risks to the estimates. We sell the Canadian job market exploded in April, we gained 90,000 jobs, more than four times consensus estimates. That was the largest gain in 15 months.
With the labour market showing renewed strength, there is the potential we could see a pickup in consumer spending in coming months and that will pose an upside risk to their spending forecast.
>> You have probably heard me complain, a strong word, but have had to lock up my wallet.
>> There will be a pullback in May now.
>> Thanks, Anthony.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the market movers, scanning the TSX 60 by Price and volume.
We have some green on the screen. First Quantum standing out, down 3.5%. Algonquin up about 3% in the utility space. Barrick Gold up about 1.5% and some rebound in the technology space including Shopify which has been under pressure in recent sessions after his latest earnings report but today it's up about 1%.
South of the border, the inflation numbers Alex and I were talking about being well received by both the bond and equity markets. On the equity side, looking at the S&P 100, the Nvidia is that more than 3%, competitor AMD is showing some strengths. Seems that some of the tech stocks like Amazon for instance or Disney when talking about streaming and theme parks down about 3%.
There's technology in those rights, right?
We are back now with Alex Gorewicz from TD Asset Management, talking fixed income.
This has a bit of a tech bent to it. Some pundits are saying the return of the meme stocks means financial conditions aren't tight enough. Your thoughts?
>> Ooh.
Interesting question.
How do I address this?
We have to be careful what we mean when we say financial conditions.
So let's say I'm taking a policy angle, I'm looking at what the Fed would look at when they think about financial conditions, what they are thinking about is what is the cost of money? Interest rates. And how does that impact the real economy? Whether it's individual consumers or households or businesses that are looking to let's a borrow money and hire people or invest or conduct general economic activity.
Interest rates are high, they are higher than they have been in many years and that has had the effect of slowing economic activity, even if economic activity remains robust.
And that is because anybody who needs to borrow or needs access to additional money in order to be able to conduct economic activity, they are going to be faced with those higher interest rates.
That includes investors that are looking to invest money in the market but that are borrowing that money.
Think about investing on the margin or levering up your strategy. The question that I would have as it pertains to meme stocks, is that with the investors that are attracted to the space, is that how they are investing? Are they investing on margin? Are they investing by borrowing money and putting it into the market? If the answer is no, then it doesn't really have anything to do with financial conditions in the way that the Fed might think about them.
And I think that's an important distinction because if it is a bunch of retail investors that happen to have cash left over from their earnings this past week or month, that's going to be a very different consideration in terms of its impact or readthrough in financial conditions the way that let's say the Fed might think about them.
I would say, to answer and a more decisive way, I do not think that this is related to financial conditions not being tight enough. We have seen economic activity broadly slow because interest rates are high and until we have we will call it the clear signal from the inflation picture that interest rate should move materially or because the Fed can start easing, financial conditions for the real economy will remain high.
>> Brilliant answer.
>> Thank you. Great.
>> You get in a at the end of the show.
Always a pleasure having you here. Look forward to the next time.
>> Thank you.
>> Stay tuned for tomorrow show. We have Hussein Allidina, managing Dir. and head of commodities at TD Asset Management.
He is going to be our guest and he wants to talk about commodities. You can get a head start with your questions for Hussein, just email moneytalklive@td.com.
That's all the time however the show today. Thanks for joining us and we will see you tomorrow.
[theme 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 show, we are going to take a look at the latest US inflation report and try to figure out what it might mean for the Fed.
TD Asset Management Alex Gorewicz joins us. MoneyTalk's Anthony Okolie will have a look at what credit and debit card spending data is saying about the health of the Canadian consumer. And in today's WebBroker education segment, Hiren Amin will show us how you can find money market funds on the platform. And here's how you can get touchless.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets.
We had a sense earlier in the week that the markets were trying to wait and find out what the US inflation report was going to look like. We will start you at home with the TSX Composite Index. Some modern screen on the screen, up about 34 points were a little more than 1/10 of a percent.
Among the most actively traded names include Baytex energy. We saw the price of oil come back, another indication that demand for crude might be softer than expected this year. It down about half a percent. The meme stock rally of Monday and Tuesday seems to be fizzling to a certain degree today. BlackBerry appeared to get swept up and it also is giving back some gains from recent sessions, it's down a little less than 8%. South of the border, that inflation print, the market seemed to be A-OK with it. Let's check in on the S&P 500. That and the NASDAQ making you all-time highs today. The S&P 500 of 5289, putting on 43 points were a little shy of a full percent.
The tech heavy NASDAQ making new highs as well. Up one full percent or 165 points.
But the meme stock rally, let's take a look at GameStop which was at the centre of not only the pandemic meme stock rally but that popping of the last couple of days. GameStop now giving up about $13 per share, down 27.5%. And that's your market update.
The latest US inflation report suggests price pressures may be easing after proving stubbornly high so far this year.
So does that change the markets view on when the US Federal Reserve may be in cutting interest rates?
Joining a centre discusses Alex Gorewicz, VP and Dir. for active fixed income portfolio management at TD Asset Management. Always good to have you on the program.
>> Thanks, great to be here.
>> This seems to be a report where it seems we are at least not moving in the wrong direction. What is your read?
>> I think you summarized it perfectly.
Quick recap, looking at headline month over month or quarter month over month, 0.
3%. A year on year numbers 3.3 and 3.4 respectively for headline and core. These numbers were in line with expectations. In fact, month over month headline was a slight miss, so obviously the market likes that, all markets like that, bond markets, equity markets.
And probably the reason why is a psychological development. This is the first time that you're probably sitting opposite someone in many months talking about US inflation meeting or missing expectations.
>> And using the word easing.
>> Right!
I think that's extremely important. The devil is in the details to some extent because when you look at let's say super core inflation, which is core services excluding any shelter related components, if we look at the last three months including the latest print, if we look at the last six months, if we add for age those numbers and then annualized them, we are still looking at figures that are over 6%. That doesn't actually give the Fed a lot of confidence. However, similar to some of the other numbers that I mentioned, the good part about it is not that it comes in line with expectations, the good part is that the rate of change is slowing.
We saw stickiness along all the sort of inflation measures in the last several months and now we are starting to see that momentum way in which is probably the positive outcome of today's print.
>> As you said, bond markets, equity markets liking this news. At the same time, I imagine it's the first of what the Fed is going to need to see through several reports to tell them that they are on the right track.
>> Correct. That's why I said we have to look at the details and realize that the numbers are still not compatible with the Fed returning to the 2% inflation target in the medium term.
We have to take this with a grain of salt.
It may be a step in the right direction but by no means giving the Fed the green light to let's say lower its policy rate at its next meeting.
>> Somewhat overshadowing, being overshadowed by the CPI headline print, US retail sales today. I will go too deep into it other than to say they were flat.
This seems to be another indication that perhaps the US consumer is starting to say wow, life is expensive, the cost of money is expensive, maybe I need to slow down.
>> That's an excellent point because I think when we look at today's fall in interest rates across the yield curve, it seems to have been more of a reaction to those soft retail sales.
Again, psychologically, the fact that inflation was not upbeat, it did not come in firmer than expected actually helped to pave the way for that but today's retail sales similar to some of the mixed data we saw yesterday and PPI, similar to let's say a couple of weeks ago when we had nonfarm for March, you are starting to see now a string of data in the US that is missing expectations and, as we know, when we think about market reactions, it really is about what has been priced in, what's expected by investors versus what's delivered and the last several weeks have delivered weaker than expected data in the US, from a total macro point of view.
I think it sat, more than anything else, is what is going to enable the bond market to say, well, it may be, now we have priced out to many of Fed rate cuts for this year and it's time we start praising some back in.
>> Alright, so this could create a situation where we have the markets expectations pushing back against what the Fed is telling us. It's been a push and pull for a while. At some point, it feels like the market is saying, no, we think you will do this. Jerome Powell is like, take it easy, be patient. He's been talking a patient for a while now.
Do you think there is a disconnect, with him saying be patient, let the interest rates do their work and the market saying we think you will go sooner rather than later?
>> The narrative seems to be we think you are going to go as and cut sooner rather than later but just a couple weeks ago, there was a growing chorus of investors suggesting that the Fed needs to hike again. In hindsight, I think Powell and the Fed did the right thing by saying let's stay the course. Let's cut off that tail risk, we will say, for more rate hikes and just prolong our current policy stance. We will delay would restart rate cuts but the next move is more likely a cut and, again, the string of data we have seen in the last couple of weeks in a number of different indicators suggests that the Fed is right to sort of try to transition more towards easing.
>> When we finally do get the easing and rate cuts, how robust will they be, how aggressive will they be? Or is this a case of if we stay higher for longer, when we start cutting, we will take it slow?
>> The key here, and it's hard to say at this time, the key would be labour market data.
What the Fed did by saying effectively, we just need to hold the current stance longer, and then all of the data that came after that effectively suggested rates did not need to move higher, what that all data is to say, actually, the Fed's position and the Fed's current policy stance could be restrictive enough but the key will be labour data, whether it was initial claims last week which surprised to the upside, whether was the nonfarm data from a couple of weeks ago that suggested that perhaps, yes, the Fed's policy stance is restrictive enough, see you have actually seen a response in markets be skewed toward sort of an asymmetric outcome which is, maybe rates don't move higher, you have them move meaningfully lower and then all asset classes really like that.
>> Let's talk about the weight. We have been waiting longer as investors then we perhaps thought we would be for the Fed to deliver a rate cut. What is the sentiment like among fixed income investors as they wait this out?
>> They don't like waiting.
The hard part here is that everything that I've just mentioned has actually whipsawed the market around a bit. You are really super data dependent which in some ways is boring but in other ways is also very volatile from economic data released to economic data released.
And I think for a long time, bond investors were conditioned to just expect capital returns, whether it was positive or negative, because yields are generally were so low for the last 10, 15 years up until a couple of years ago.
And because of that, they did not have the experience of having to wait for their income return or their yield return to compound over time, and so I feel like bond investors are still very much caught in that psyche where it's like, okay, I want my returns now. Okay, the Fed needs to cut interest rates or the Bank of Canada will cut interest rates and we will go positive returns. That has not happened. We are data dependent and that data has been volatile.
But when you take a step back, when you realize this, your yields are actually helping to offset a lot of that volatility but it takes time to compound those yields, it takes time to realize those yields and I think that waiting and being patient part is something that needs to return to bond investors.
>> Always great insights with Alex Gorewicz. We are going to get your questions about fixed income for Alex in just a moment's time.
And a reminder that you can get in touch with us 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.
We have shares of Boeing in the spotlight today. The US Department of Justice as the playmaker violated a settlement that had shielded it from criminal prosecution in those fatal crashes of to a 737 Max Jets.
Now, that opens Boeing to a potential prosecution. Federal officials say Boeing has until June 13 to respond. The shares are down a little less than 2%. Two stocks at the centre of the latest meme stock frenzy are under pressure today. We are talking about GameStop and AMC Entertainment giving back some of this week's gains, that is following a rally that was apparently set off by social media posts by a figure at the centre of the pandemic era meme stock craze, goes by the title of Roaring Kitty. Today we see AMC pull back about 20%. We showed you I think GameStop down to the tune of almost 30.
The International Energy Agency is cutting its demand for oil growth demand forecast.
The groupdemand out 1.1 million barrels per day this year. That is down some 140,000 barrels from what previously thought demand look like.
Quick check on the markets. We will start on Bay Street with the TSX Composite Index. Even though without weakness in the price of crude, we are managing some modest green on the screen. At 31 points were little more than 1/10 of a percent.
South of the border, that favourable US inflation print and retail data, put it all together, the S&P 500 and NASDAQ are up to new highs today.
The S&P 500 is up right now three quarters of a percent.
We are back with Alex Gorewicz taking your questions about fixed income. First one for you here. Someone wants to know there's a chance that yields can get back about 5%?
Memories of last fall.
>> There is always a chance.
The momentum was strong in terms of driving interest rates higher and I think that's important because there are a lot of different investors that trade-in interest rates or in government bonds for a variety of different reasons and we have to appreciate their styles. While there was a chance maybe a couple of weeks ago with strong interest rates moving higher that we can get back to 5%, fundamentally assessing the policy reaction from the Fed, cutting off that tail risk of rate hikes that I mentioned earlier, I thought that there would be very limited probability that we can get back to 5%. If that was true couple of weeks ago, fast-forward more, we will call it soft data or not even soft data, just misses relative to expectations.
>> Didn't scare us.
>> Didn't scare us and I think that probability is even lower now.
>> If memory serves from last fall, when we saw the 10 year yield pushback about 5%, some people talked about it being about buyer sentiment.
>> I don't think that's as relevant here at least in terms of what drove interest rates higher let's say a month ago or through most of April. When we look at the supply side of the equation, really, what is the treasury doing, and then what is the appetite and the broader market, there hasn't been a clear message that one, the treasury will increase its supply in a way that is not anticipated, that has not happened, and two, there has not been clear evidence that there is a buyer strike because whether it's been looking at auctions or whether it's been the fed QT taper announcement at its last meeting, it suggests that demand, at least, is not waning across the board.
>> Alright, another question from the audience. This one taking it a bit back towards his country. How much divergence will we see between the BOC and the Fed? A lot of talk about divergence and the fact that inflation was running way too hot in the states up until today.
>> Up until today, that's right.
This parts a little bit trickier because the Bank of Canada has some room to play with here.
Similar to what I mentioned about looking at let's say core services excluding housing, Bank of Canada absolutely looks at that measure and that measure is actually quite weak in Canada so inflation stickiness and strength that we have seen in the US, we just have not seen here using comparable measures.
This means that if the bank of Canada starts to cut because of domestic factors and it starts to cut its policy rate a lot more than the Fed and the Canadian dollar weakens, yes, there's a possibility that we will import some of the strong US inflation but we would need to import so much of that or the currency would need to depreciate so much, 10+ percent from here, to the point where you then allow inflation to really run away from you, really go beyond your target band. So the bank of Canada has a lot of wiggle room to play with. And they have alluded as such.
Of course, they note that there are limitations.
So let's say they cut two or three times more in the next 12 months than the Fed.
You will see some weakness, maybe you will even see a little bit of inflation firming but nothing that is unmanageable for the Bank of Canada. I think once you get beyond those three additional rate cuts, that's where perhaps there will be a little bit of worry about how weekly currency can get and how much we can import of US inflation. But at the same time, the US side also matters, the US side of the equation also matters. As long as disinflation can resume and today's print gives us encouragement that we might be headed back in the right direction for US inflation, then perhaps it won't, that divergence won't be as necessary.
>> A question I've had in my mind recently, I thought Alex is probably the person to answer the question, even the Bank of Canada start cutting before the Fed, cuts two or three more times than the Fed, what actually starts happening in the Canadian bond market? Do we still import some of those rates from the states or will there be more sensitivity?
>> For sure, when we look at rates, two-year or even five year, as an investor, what I want to see happen is if the BOC lowers rates, those rates, two and five year, or moving lower. If not, it suggests the Bank of Canada has lost control over the transmission of monetary policy. That is a bad outcome.
Historically, it suggests shorter rates move lower. Longer rates, when you look at 10 and 30 year, will really depend on how much investors think that inflation starts to re-accelerate or perhaps with this importing of inflation from the US if US inflation just no longer normalizes or distant plates, how much of that will be actually bring here? And that's a bit of an unknown and we will see what the broader investor base is thinking about when those rate cuts start to materialize from the Bank of Canada.
From my seat, I would say it would take a lot of rate cuts to actually see 10 year, 30 year interest rates move higher because investors on average become worried about inflation so my expectation is that they at least days stable or fall marginally.
>> One of the benefits of being in this chair, I get to ask my questions to people I know can answer them.
Now another audience question. What is your outlook for the corporate bond market?
>> So again, today's we will call it in line with expectations, the inflation print in the US, actually paves the way for a good outcome for corporate bonds.
Fundamentals were already suggesting that the strong rally that we have seen in corporate bonds in the last six months, maybe even a little bit longer, let's say 12 months, has been fundamentally justified but there was always going to be a limiting factor in terms of how much more they could outperform based on policy rates. And if it was at all possible that the Fed would start raising rates again, you had to start questioning how much those corporate fundamentals could persist into the future because we know that although a lot of companies have cash on their balance sheets, they have delivered, they have reduce their debt and paid it back, there's still a lot of debt out there to be paid and if that gets rolled over at increasingly higher interest rates in the future, you have to readjust what kind of premium you are charging corporate borrowers. But in this case, with let's call it the disinflation path seeming likely again in the coming months, and especially the string of economic Mrs.
that we have seen gives us comfort that today's softer than last month inflation print can continue into the future. It suggests that if the Fed is going to be on track to ease, corporate's or corporate borrowers will very likely face lower borrowing costs in the future and that means that there is better likelihood that they can manage their overall balance sheets as well as they have done up until now.
>> Great breakdown of the corporate space there. As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Alex Gorewicz on fixed income in just a moment's time. 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. It's higher yields we've been talking about that have made money market fund popular among some investors recently. If you wanted to research the space, what progress tools which can help.
Joining us now to discuss is Hiren Amin, senior client education instructor with TD Direct Investing. Always great to see you.
Let start with a little discussion about these money market funds for some viewers who aren't aware, how do they work?
>> Great to be back again, Greg, and great to see. Let's talk about money market. A very timely conversation we are having.
Let's take a step back. Only think of the term cash, what does that usually trigger in our minds? You think maybe cold hard cash in your wallet, maybe less of it these days with the plastic crowding the space but it distantly refers to money that might be in a checking or savings account as you think of it. When it comes to investing, cash describes an entire asset class but what exactly is it? In the investing world, cash is typically held in a money market fund. Some of the attributes are that it's highly liquid, short-term debt securities that pay interest, so you can almost think of them as very short-term duration bonds. Because of these attributes, this is why they are seen as cash instruments and they can be easily interchangeable into money at short notice. When we talk about the two spaces, Canadian money market funds, these are short-term, high quality short-term debt issuance by high-quality entities that could be federal or provincial or could be obligations by Canadian banks or highly rated commercial paper. If we go across to the stateside, they have ultrashort bonds and those are typically going to be issued by the Fed in the form of treasury bills, 60 to 90 day duration.
So investors are using these money markets as a stopgap vehicle.
One going in and out of investments like stocks and bonds, they need some cash and wants to collect interest, this is what they usually look to or if they want to remain on the sidelines when they are looking for opportunities. Now we told her talk with the risks quickly. They are a debt instrument so like any other debt instruments, one risk is that they will be impacted by changing interest rates in the market.
They are not CDIC insured and they do underperform other broad asset classes.
They may not even keep pace with inflation. That's a quick lowdown on money market fund. That now that we understand what they are and what some risks are, if someone wants to do more research, where they go on what broker?
>> I thought you would never ask. Let's go.
And what broker, were going to start, we typically go through the screeners tool.
I'm going to take another avenue to get to some of the same results. We are going to click on our research have appeared.
Now I am going to go to the ETF category.
Money market funds can be structured as ETFs or mutual funds and will look at the ETF space. Then click on categories. What you have is a breakdown between Canadian and US. Let's start with the Canadian side. The easiest way to go down as these are going to be tagged as money market.
The easiest way in which you do this is where want to trickle down over here and do a control find and find where the money market is.
Here's US money markets for those folks who have US dollars and wants to look into money market funds. This is going to give you a list of the US money market funds in US dollars but issued by Canadian issuers.
If we go back to our categories, you are going to see all of these which are classified as high interest savings vehicles. These are ETFs and the Canadian space.
Now if you wanted to go in the US, we are going to go back to our categories and just select the US flag appear.
Switch over. Now, these are going to be US issuers.
Under the issuers, we want folks to remember that these are tagged as ultrashort bonds.
Let's click on this. They are usually going to be comprised of T-bills.
There is a pretty big list available.
Let's say you're interested in one, BIL.
Click on the price placard.
That's how you can access some of this money market ETFs.
>> Great stuff as always. Thanks that.
>> My pleasure.
>> Hiren Amin, senior client education instructor with TD Direct Investing.
For more educational resources, you can check out the learning centre on a broker, or you can use this to our code that will navigate to TD Direct Investing's YouTube page and once you are there, you are going to find more informative videos.
Before you back your questions about fixed income for Alex Gorewicz, a reminder of how you can get in touch with us. 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 Alex Gorewicz, taking your questions about fixed income.
Another one here for you, Alex. Someone wants to know how the emerging-market debt is looking?
>> Ooh.
So it's a bit of a mixed picture I guess near-term, especially with the let's call it's still early US rate rally that we are seeing which is actually putting a bit of pressure on the US dollar across the board. The US dollar is going to be a big driver in terms of its performance of how investors may or may not prefer emerging-market décolleté overdeveloped markets. Medium-term, and I can say this because we had last month wealth asset allocation committee, we put forward a recommendation from our fixed income asset class members to downgrade emerging-market debt, and part of the reason is because when we look over the medium term, the recalibration of one and how quickly the Fed can really cut interest rates has changed how we view the potential for US dollar to weaken in the medium term. In other words, probably not as quickly as some might have forecasted. The other aspect is that the stickiness that we have seen in US inflation, and again, today was a move in the right direction but it was by no means suggesting that we are out of the woods, has actually translated into some higher-than-expected inflation prints in various emerging economies where you've actually seen central banks already begin, for many months now, cutting the policy rate, but some of these data surprises have actually forced them to pause.
So between not really knowing when the Fed will start cutting rates and how quickly they will go, as well as some of the surprises that they have seen on their end, you have actually seen the pretty decent rally that we have had for a while now, for many months now in emerging markets, we've seen a bit of a pause there. Not to mention the fact that you couple all of that with expectations that those central banks will continue to lower policy rates aggressively, if that doesn't come to pass, there is room for emerging markets underperform developed markets are only just starting to lower policy rates.
>> Longer-term, what could go right for emerging markets?
>> Longer-term, if the Fed really nails this and we do get a soft landing or at least not a crash landing in the US economy, longer-term, we are starting to see markets and economies that were we will call it in the doldrums, whether looking at Europe, the UK or China, we are starting to see the tide turned a little bit there which is a positive for global growth but particularly emerging market growth in general. So I think longer-term what could go right for them is that their economies can continue to expand but inflation continues to normalize, even if it's taking a bit of a pause recently. In which case, policy rates can be lowered from very high levels and that should give comfort to investors to reengage that asset class.
>> Nice breakdown of emerging markets there. Let's take a closer to the shore south of the border. The viewer wants to know how we should be viewing the US election?
[laughing] >> Are we paying attention to the US election right now? Actually, I did see the announcement that June 27 will be the first debate between Biden and Trump.
>> There will be an actual debate now?
>> There will be an actual debate now.
>> I've just seen the trash talk back and forth.
>> That's right.
>> We can watch it on live broadcast one evening.
>> I think to me and that's relevant because we do need to get better understanding of what the focus will be.
So far, a lot of the things that we are hearing either about the election or from either side, you get the Republicans or the Democrats, there is a lot of ideas but once the debates really start to kick off the campaign season, kick it into high gear, that's when you start to see what the policy priorities will be, what will take precedent, and then we will have a better idea on really what the potential for the US economy will be in 2025 and beyond.
And how that could or could not impact inflation, and therefore how the Fed should or should not respond to it.
So there are a lot of I think unknowns at this time but as we get into the summer and as those debates and campaigning pickup, we will better understand how to price that in capital markets across all asset classes.
>> Interesting stuff and definitely a question we will be putting to a number of times before all that comes to pass.
Another question now about the Americans.
Is the amount of treasury issuance our risk?
>> I think I mentioned this in the earlier question so I will reiterate, not at the moment.
What we have seen in the last several quarters is that the United States treasury is very well aware of the impact that we will call it supply increased the prices had last summer and last fall and they are doing everything they can to avoid repeating that. So they are communicating well, if they do you have, for whatever reason, because let's a tax collection meant that the treasury misstates a revenue target for a particular quarter, we have seen that they are relying more on issuing bills that increasing the auction sizes of let's say 10 year and 30 year bonds.
We have seen them be more, I hate to put it this way, but market friendly in their communication and activity, not wanting to surprise markets. On top of that, you have had, at the last meeting, the Fed announced it will start to taper QT. That does not mean it's starting to buy bonds, it just means it's not allowing them to run off the balance sheet nearly as quickly and what that means is then there's not additional supply to the same extent as we have now in the future, we will not have that additional supply coming from the Fed either. So there are a lot of positives right now that are starting to emerge around treasury supply.
However, from a deficit perspective, and this is where the US election will matter but again, you don't really have a lot of clear information to assess how big the deficits can get beyond this year, the fact that the US deficit is still around 6% of GDP is extremely high and it means supply of treasury bonds remains high for the foreseeable future.
Possibly growing, depending on the election.
>> Allowed to keep your eyes on.
We are going to get back to questions for Alex Gorewicz on fixed income 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 at 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.
TD's latest credit and debit card data indicating that Canadians opened their wallets in March but we put them away again in April. Anthony Okolie has been digging into a new TD Economics report on just that, the trends and what could all mean.
>> The latest data shows that transactions were kind of up and down in both March and April, kind of like what we saw in early spring.
The weather in early spring, rather. As the first chart shows, total spending was fuelled by goods and services. You forecast that was Stats Can which pointed to flat spending in March. Meanwhile, April saw consumers pull back that spending to about 4.6%, really driven by weaker goods spending.
Now, when we take a closer look at the monthly goods data, chose that increased spending a general merchandise and grocery stores in March as this next chart shows was possibly due to software prices. We have heard from CS Canada that grocery prices cooled to 3% in March. Also spending at gas stations stayed strong in March and even accelerated in April, according to TD Economics, reflecting a sharp demand for automobiles.
When we take a look at services, the services side, monthly TD card spending data remained pretty robust but lacked any meaningful contribution from post-pandemic winners such as travel and entertainment, where spending was flat to slightly positive. Meanwhile, Marge's growth was lifted by activities linked to tax filing season, including tax preparation, money transfers and broker services.
By comparison, in April, the biggest contributor was the other services category which is namely collection of fees and payments.
TD Economics saw that debit and credit card transactions were the major a driver for category outlays possibly driven by payments to the CRA. Given that the latest data points to an expansion in both goods and services spending in March, TD Economics says that this keeps the real consumption tracking at roughly 3% annualized for the first quarter in 2024, as this next chart shows. By contrast, TD Economics says that the first month of the second quarter suggests a softer start with spending likely to come in below the 1.5% target for the second quarter.
>> There is the forecast.
Are there any risks to that forecast?
>> I think the biggest risk that TD Economics sees is the recent rebound in employment here in Canada which poses some risks to the estimates. We sell the Canadian job market exploded in April, we gained 90,000 jobs, more than four times consensus estimates. That was the largest gain in 15 months.
With the labour market showing renewed strength, there is the potential we could see a pickup in consumer spending in coming months and that will pose an upside risk to their spending forecast.
>> You have probably heard me complain, a strong word, but have had to lock up my wallet.
>> There will be a pullback in May now.
>> Thanks, Anthony.
MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the market movers, scanning the TSX 60 by Price and volume.
We have some green on the screen. First Quantum standing out, down 3.5%. Algonquin up about 3% in the utility space. Barrick Gold up about 1.5% and some rebound in the technology space including Shopify which has been under pressure in recent sessions after his latest earnings report but today it's up about 1%.
South of the border, the inflation numbers Alex and I were talking about being well received by both the bond and equity markets. On the equity side, looking at the S&P 100, the Nvidia is that more than 3%, competitor AMD is showing some strengths. Seems that some of the tech stocks like Amazon for instance or Disney when talking about streaming and theme parks down about 3%.
There's technology in those rights, right?
We are back now with Alex Gorewicz from TD Asset Management, talking fixed income.
This has a bit of a tech bent to it. Some pundits are saying the return of the meme stocks means financial conditions aren't tight enough. Your thoughts?
>> Ooh.
Interesting question.
How do I address this?
We have to be careful what we mean when we say financial conditions.
So let's say I'm taking a policy angle, I'm looking at what the Fed would look at when they think about financial conditions, what they are thinking about is what is the cost of money? Interest rates. And how does that impact the real economy? Whether it's individual consumers or households or businesses that are looking to let's a borrow money and hire people or invest or conduct general economic activity.
Interest rates are high, they are higher than they have been in many years and that has had the effect of slowing economic activity, even if economic activity remains robust.
And that is because anybody who needs to borrow or needs access to additional money in order to be able to conduct economic activity, they are going to be faced with those higher interest rates.
That includes investors that are looking to invest money in the market but that are borrowing that money.
Think about investing on the margin or levering up your strategy. The question that I would have as it pertains to meme stocks, is that with the investors that are attracted to the space, is that how they are investing? Are they investing on margin? Are they investing by borrowing money and putting it into the market? If the answer is no, then it doesn't really have anything to do with financial conditions in the way that the Fed might think about them.
And I think that's an important distinction because if it is a bunch of retail investors that happen to have cash left over from their earnings this past week or month, that's going to be a very different consideration in terms of its impact or readthrough in financial conditions the way that let's say the Fed might think about them.
I would say, to answer and a more decisive way, I do not think that this is related to financial conditions not being tight enough. We have seen economic activity broadly slow because interest rates are high and until we have we will call it the clear signal from the inflation picture that interest rate should move materially or because the Fed can start easing, financial conditions for the real economy will remain high.
>> Brilliant answer.
>> Thank you. Great.
>> You get in a at the end of the show.
Always a pleasure having you here. Look forward to the next time.
>> Thank you.
>> Stay tuned for tomorrow show. We have Hussein Allidina, managing Dir. and head of commodities at TD Asset Management.
He is going to be our guest and he wants to talk about commodities. You can get a head start with your questions for Hussein, just email moneytalklive@td.com.
That's all the time however the show today. Thanks for joining us and we will see you tomorrow.
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