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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, we're 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 speak with Alexander Gorewicz of TD Asset Management, investors reacting to increased geopolitical risks but also some dovish comments from hawks at the Fed. A lot going on.
also today, Anthony Okolie is going to tell us why American small businesses are feeling less confident in September. And in our WebBroker education segment, killing Cormier's going to tell us how you can find money market funds here on the platform.
Here's how you can get in touch with us.
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.
Coming off a long weekend here in Canada, bit of ketchup being played. With the heightened geopolitical risk out of the Middle East situation, we saw oil pricesmove higher on the holiday Monday and gold prices move higher.
Among the most actively traded names on the TSX, could've chosen any of the big energy companies, Crescent Point Energy at this hour right now is up a little more than 4%, 10 bucks and $0.92 per share. Got B2Gold as well moving up.
of 3.6% to four bucks and $0.15. The price of gold continues to nudge higher today.
Crude has pulled back about 1% after the poppet had in yesterday's session. South of the border, you take the heightened geopolitical risk but also some dovish comments from fed speakers.
You have a rally on your hands. Got the S&P 500 up a full percent right now, almost 50 points. The tech heavy NASDAQ, how is it varying?
About in line, it's up 1.2%.
Bank of America, noticing the financial south of the border getting a bid. I 2719, got BAC up 3.4% to the upside. And that is your market update.
Well, the conflict involving Israel and Hamas has some assessing how to manage risks in the current market.
We also have bond yields sitting at around 16 year highs. There's a lot going on.
Joining us now is Alexander Gorewicz, VP and Dir., active fixed income portfolio management, TD Asset Management.
>> Great to be here.
>> Heading into this weekend, you and I had a conversation about bond yields that 16 year highs. We had a big risk event over the weekend with the situation in the Middle East.
You start putting all that together, what do we need to be mindful of?
>> That there is a lot of uncertainty and how we price that uncertainty is a big unknown. If we think about what happened in September with a huge rise in bond yields and then we hadjobs numbers come out both in Canada and the US in early October and it showing a lot of resilience, this tightening no financial conditions and monetary policy does not seem to be having an impact on the real economy and so investors are saying, look, the future is really uncertain and the things I thought would happen by this point are not happening, the economy is not really coming through, so maybe we need to charge more risk premia for the uncertainty and that is manifesting in a higher bond yields, particularly on the long end of the yield curve, 10 year and 30 year government bond.
>> When you see a geopolitical risk event of this magnitude, you see the movements of gold and bonds play out. At the same time, we got some dovish comments from the Fed speakers.
>> There are these multiple narratives are now making it difficult to say with any conviction what is actually driving these moves and markets. Obviously, the conflict in the Middle Eastis still very early to too soon to tell whether it becomes more of a regional conflict, if it does, I think it has the potential to generate a risk off sentiment globally across financial markets, across asset classes.
But in the US specifically, those dovish comments that you were referring to, when I said that bond yields have risen, that investors are demanding higher risk premia or more yield to hold a government bond for longer durations, what Fed members are interpreting that to be is what we call the turn premia. In other words, demanding more compensation for holding longer duration risk. And for them, that does translate ultimately into a tightening of financial conditions or a tightening of credit conditions for the real economy, whether it's corporations that have been delaying issuing new debt or refinancing because they kept expecting interest rates to come down or whether it's households that have delayed those home purchases with the expectation that mortgage rates would come down. Well, now the longer bond yields are higher, the probability of both of those segments of the economy seeing an alleviation from higher yields is a lot lower.
So from the Fed's perspective, that means that really the bond market is doing its work for them.
>> So after a year and 1/2 of aggressive central bank rate hikes and a bond selloff that pushed yields in the bond market 216 year highs, are we at a point in our we can say perhaps we have over tighten? This has gone too far?
>> even before this move in the last several weeks, one could have made the argument that there was already over tightening.
again, like I mentioned, you would never know there was over tightening if you just look at the labour market, although the details even within the labour space are not strong, per se, headline numbers are strong but not necessarily the details underneath them. That said, when you think about the Fed and having to conduct monetary policy or any central bank having to conduct monetary policy to address future conditions, one of the things that they latch onto his this concept of, what is the appropriate policy rate in the long run for our economy to be in equilibrium?
There are so many things that impact how our economy can grow.
It can be population and demographic character of six, it can be government policymaking, it can be geopolitical conflict, it can be indebtedness, innovation, there are way too many factors to determine what that appropriate policy rate is but while some people say, well, that rate is probably higher today than it was before the pandemic, I think there would be very few who would say that rates should be higher than where it was let's say 40 years ago.
And the reason I latch onto that period of time is that if you compared with the Fed policy rate is today relative to that abstract concept of a neutral rate, the policy rate today is higher relative to that neutral rate then where we would've been 40 years ago. That's really relevant because it can actually suggest that although the Fed is sitting at just under 6%, the policy settings may be a lot more restrictive today than they were when the Fed policy rate was double digits back in the 1980s.
So again, it depends on how you think through policy, monetary policy settings, but one could make the argument that financial conditions or rather that the Fed policy tightening is a lot more today than it would've been back in the 80s.
>> How we talked about inflation you?
There would've been a time where we would have led this discussion with inflation.
Headline has been coming down.
It hasn't been a straight path.
Do we get a sense now that with everything happening in the economy, the market reaction, the inflation is perhaps returning, at some point, probably not tomorrow, but at some point?
>> If you ask bond investors, and we have various instruments in bond land that we could proxy what bond investors think about inflation, they haven't been worried that inflation will be somehow persistently above the Fed's 2% target.
What we've seen actually over the last couple of weeks with rising bond yields, this wasn't driven by an increase in inflation expectations.
So that narrative of somehow the strong labour market is going to feed into more persistent inflation and that's going to lead investors to demand higher bond yields, that's not what's driven interest rates higher. So it's funny that you said you would have led with inflation, this has not been in inflation driven move.
In fact, when we look at what the Fed did, they gave us their updated economic projections, everybody latch onto the fact that their growth forecast is higher, the soft landing narrative. But what about the fact that they've actually reduced their inflation forecast for this year and then more or less left it unchanged for the coming years where they are showing a gradual return to 2%?
I mean, the Fed it clearly doesn't see the risks to inflationto be skewed to the upside anymore.
Now it's either balanced and if anything, if I mention, you know, that the policy settings might actually be a lot more restrictive than what they were four decades ago, it's possible there could be some downside surprises to inflation in the coming months and quarters.
>> Always great insights with Alex Gorewicz. We are going to get your questions about fixed income, central banks and interest rates for Alex in just a moment's time. A reminder that 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 storiesin the world of business and take a look at how the markets are trading.
more than 4000 Canadian autoworkers on strike today after contract talks with General Motors failed to produce a new deal.
Unifor says the automaker is refusing to meet the pattern agreement that the union reached with Ford of Canada several weeks ago. The Canadian GM workers NOW join the more than 9000 United Auto Workers who are on strike against GM south of the border.
Global soft drink giant PepsiCo raising its sales and profit forecast for the year. That's after it beat expectations in its most recent quarter. It's been raising prices on its drinks and snacks all throughout this year. While those higher prices are lifting the bottom line, Pepsi did report an overall decline in sales volumes.
The stock up right now 1.7%.
Also want to take a look at shares of Palantir technologies in the spotlight today. The data analytics firm says that it has signed a $250 million contract with the U.S. Army to test and develop artificial intelligence and machine learning. That stock up 2 3/4 of a percent.
Alright, quick check in on Bay Street and Wall Street. We will start with the TSX Composite Index.
We were closed yesterday, some names including the energy and gold stocks playing a bit of catch-up. All the TSX up 1.6%. The S&P 500 right now, there's a lot going on, including some dovish talk from Fed officials.
Europe more than a full percent for the S&P 500 or 47 points.
Alright, we are back with Alexandra Gorewicz of TD Asset Management, taking your questions about all things related to fixed income. Lots coming into let's get to them. Here's one with a political slaver. As the ouster of the US House Speaker, feels like a million years ago now but it was last week, potentially impact the US debt rating?
>> The short answer is yes.
It's interesting.
Moody's is the last holdout of the three big rating agencies, S&P, Finch and Moody's, to maintain a AAA rating on US government debt.
And one of the reasons why they haven't been downgraded but have said they are watching closely has been on the governance front.
although they are not concerned necessarily about the physical deterioration in the US the way that Finch and S&P were and are, for Moody's, it's much more important on how politicians all get along together, go figure.and they are not getting along so well.
So long story short, I think there are some risks that could take action,even before we have some kind of government shutdown, show down, if you will, in November.
And we have to anticipate now that the probability of a shutdown is greater and I'm sure Moody's is doing is calculus and if they feel strongly about it, they will likely take action.
> It's a very complicated world based on the conversation we had off the top of the show. Generally, if you downgrade someone's credit rating, it makes it difficult to raise funds through debt issuance.
At the same time, we have all the concerns about the Fed being done. How does a player for the US treasuries?
>> Here's the reality and I'm not trying to trivialize ratings when it pertains to a government entity, but for a government like the US that does predominantly, it's debt issuance in its own currency with a central bank that has control over effectively monetary policy for that currency, not trying to suggest that the fiscal position doesn't matter, but the risk of default of a government in that position, regardless of its rating profile, is substantially lower if not nonexistent.
If the US government runs out of money, it can theoretically print more and pay back its debt.
So it matters, but more right now because of all this uncertainty that is manifesting itself in the bond world.
world. world. world. investors demand more yield just because the rating is coming down.
>> Interesting. Let's get another question from the audience. This one, if you are says, TD strategy has been to invest in bonds and benefit with high interest rates and then benefit from the rising value bonds as rates start to decline. Are you sticking with this overall strategy? I guess the idea, heading into the beginning of this year, the market itself was pricing and cuts but we haven't seen that.
So you're getting the yield but not the headline bond evaluation.
>> There are two main sources of returns in bond land.
There is the price channel and the income or yield return.
So coming into this year, yields were lower than when they are today, but they were still sufficiently high that we believed, and we continue to believe now that yields are even higher, that you're getting that positive income return, yield return, and that helps to insulate for any kind of negative price return impact.
So when interest rates move up, bond prices come down and obviously your price return is negative.
But the income return, if yields are sufficiently high, helps to offset a lot if not all of that and if we look at bond land returns year to date, I guess depending on which market, Canada or the US, you are either flat to slightly negative. And our argument was and continues to be that with all of this uncertainty and to know one particular reason for why interest rates are rising, the likelihood that you could have the opposite impact where interest rates are coming down and you have positive price return is very high, so we don't really know which way interest rates will move.
And so we are basing our assessment on the fact that yields are very attractive and they are helping to reduce volatility in bond land. It doesn't feel that way, but think about it this way.
Last year, if bond yields rose 1/4 of a percent, we would have 100% lost money in bond line. This year took a rise of over 100 basis points or 1% to generateslot type of returns. So, again, it just reinforces our argument that yields are sufficiently attractive and as yields continue to rise, they become even more attractive, that the hurdle for negative returns in the asset class get higher and higher and higher which is again a positive outcome for investors.
It doesn't feel that way, I'm not trying to trivialize the move that has happened year today, particularly over the last couple of weeks, but to your point about the dovishness from the fed angle as well, we have seen that historically when central banks stop raising rates, that's usually when interest rates and calm down, within six months, historically, of the policy rate, interest rates have come down anywhere betweenhalf a percent to 1 1/2% which generates very attractive positive returns for bonds.
not guaranteeing that, but historically, that is what is happening.
>> Is it harder at this point to figure out when that happens, if they are done, when they actually start cutting? The market always prices in different probabilities, but is that really it tough to think about right now?
>> Yes,from a timing perspective, which is why we think aboutour allocation to asset classes, bonds, let's say specifically in this case, we think about them as strategic investments. If you are looking to trade in and out, that's a different consideration.
If you take a long view, then again, the high yields in an asset class right now make it really attractive and make it really difficult for the price return to dominate total returns in bond land the way they did let's say in 2022.
>> Interesting stuff.
Another question now from the audience, maybe listening to our opening discussion.
Is the Fed's current inflation expectation realistic?
You talked about the fact that a lot of people overlooked what the Fed is expecting on the inflation front.
>> If you look at bond markets, there is a certain bias in my answer and thatI'm using the information that the bond market is giving us. There are no concerns that 2% inflation target that the Fed has of the Bank of Canada has that it's the wrong target and inflation expectations continue to remain anchored around the level.
Now is it possible that perhaps if some investors are worried about inflation and they are choosing alternative, non-fixed income solutions to express those inflation concerns, yes, but from the bond markets perspective, 2% appears to be both a reasonable and achievable target.
>> Of course, that's a big concern for central banks as they try to work inflation down, the fact that all of us at here in the real world might start to have different expectations of inflation and that's when things can get into a cycle you don't want to be in.
>> Correct. This is why, when you think back to like four decades ago, when the Fed and all central banks last experienced this kind of inflation, one of the things that they learned, they should've been paying attention to and they did it was this notion of expectations.
If people or businesses or governments believe that inflation will remain high in the long run, they will continue spending now, so that notion of what you're expecting might actually become a self-fulfilling prophecy and so central banks now have all kinds of surveys and tools to assess what investors, what households, what businesses are thinking about inflation and all of those are showing that inflation expectations versus where they were last year have normalized and are not showing any kind of on anchoring, meaning that 2% inflation target should be achievable based on expectations today.
>> As always at home, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Alex Gorewicz from TD Asset Management about the fixed income space, central banks and inflation-adjusted moments time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
Now, let's get to today's education segment.
In today's segment, we are going to look at money market funds, Caitlin Cormier, client education instructor at TD Direct Investing will walk us through. Let's talk about your on the platform, investors are interested in money market funds, where did they find them?
>>right, yeah, talking about interest rates and how they impact investments, because they are high now, people are looking into money market funds, to park money for a little bit, maybe looking for different opportunities and maybe take advantage of some of those higher interest rates for short-term goals so let's pop in and see where we can find these money market funds.
We are going to use our tools greener.
We are going to come up to the top left-hand side of the screen under research.
We are going to go under tools, we are going to choose screeners here towards the bottom of the list.
Once we get here, what we are talking about, money market funds are typically under the mutual funds so I'm going to go ahead and click mutual funds there and I'm going to create my own custom screen. I'm going to put in on the right-hand side specific things that I am looking forward to get the results I would like. So I'm going to go ahead and choose fund category, and once I get here, I'm just going to scroll down a bit and I'm going to go to Canadian money market is what I'm looking for and I'm going to go ahead and do both Canadian and US together in my search results.
Someone to scroll all the way to the bottom here alphabetically and hit US money market as well. I'm going to deselect ETFs for the search and click to view the matches. It's only 52 matches, so a relatively slow number to get there. I'm also going to deselect to show TD mutual funds first because I would like to see all of them.
This is a listing of the different money market mutual funds that are available on the platform.
One thing I would just kind of caution with this is also be careful if you are looking at some of them, for example, some might say premium at the end, so they could have a higher threshold as far as the minimum amount to purchase so maybe one would only require $1000 to purchase where is a premium fund might require more like 100,000 so just make sure that you are aware of kind of those parameters under the purchase information before you kind of select one of these funds to necessarily invest in.
>> Okay, so we know where to find them now. Had to do some homework. If someone is looking at a money market fund, they are probably looking for yield. How do you find reoccurring yield for a particular fund?
>> Yeah, absolutely. Typically, with these funds, when we click under to see a summary of the performance of the fund we can click, there's a whole bunch of information we can see. You will see a distribution yield.
These are like a trailing distribution yield over a period of time. They are not the current yield. So in order to find what the current yield for these funds are, where it is going to go ahead and choose, let's scroll through and choose this one here. I want to click on it.
I'm going to click the buy button and once it pops up, I'm going to see on the bottom right hand side here, there is a yield.
So that is going to be with the current yield for this particular fund is. You do kind of have to come into this area.
There is another option where I could choose to add this to a watchlist so let's just go ahead and do that.
We are going to simply click this top little star here. Let's go ahead and choose couple more here. Let's look and choose, we will choose this one was CIBC.
We will click add to watchlist and we will choose the watchlist we want.
And let's just do one more so we've got a couple there.
All right.
And add to watchlist. And there we go.
So in order to see these funds now, I simply go to this little star on the top right-hand side of my screen where it says watch lists, and then I'm going to go ahead and select the watchlist that I added the securities to which is number 10.
I see them here and the far right hand side is actually showing the distribution yield. So this is kind of a quick, easy way to keep track of these yields if you want to add a few that you are interested in together on a watchlist and then you can kind of see what the distribution yield is.
That is 1 They Way that you can do absolutely do that. Also forever that in your watchlist, you can come up to the little pencil beside your watchlist and put money market here.
so then when you come in here you can now quicken easily which one is as fun. That's an easy way to put them all together and be able to keep track of those yields.
>> Great stuff as always, Caitlin. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing. 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 are back with Alex Gorewicz of TD Asset Management, we are talking fixed income. Lots of questions coming in, let's get to this one. This is interesting.
After the big movie we saw in the bond market in the last couple weeks, what are bond vigilantes and why do they matter?
That term is popping up in the press.
>> Okay, so vigilante, take the bond part out of the equation, a vigilante is unofficial police, someone who takes it upon themselves to police and bring things into order, so a bond vigilante is effectively a bond investor who decidesyou are taking on too much debt and I am going to ensure that you bring about some sort of physical discipline by charging you really prohibitive yields. We have seen in the past this was the thing way before a lot of QE or central bank intervention in markets post financial crisis, so think like 80s, 90s, we saw bond investors, if a particular government or company it was being irresponsible and taking on too much debt, you saw them start to come in and either sell bonds or charge really high yields and effectively bring about some sort of fiscal discipline. That is effectively what the term is. So far, I would say, I'm going to assume the person is asking the question with a sense of are we seeing that today? So far we are not seeing that today.
>> There is also the US fiscal situation.
The whole reason for… We are used to Democrats and Republicans not getting along with each other.
But Republicans fighting with Republicans over fiscalplans… Is it getting into the bond market?
>> I think it is through the confidence channel. The help of the political situation in the US matters to instill confidence in American policy making that has or that reverberates well beyond America's borders. America is the most important bond market and financial market in the world.
I think it has implications through the confidence channel but not so much the channel of is America able to repay its debts? Does it have the tools and capabilities to manage some kind of financial crisis? It absolutely does and anyone who thinks otherwise might be sorely disappointed if it ever comes to testing the hypothesis.
And I would say this as well, it's taking the bond market lens, we have the ability to see what investors are charging a government in terms of default risk and while there have been periods where that default risk has risen for the US this year around these political headwinds, and start of this year, it was very difficult for McCarthy to become speaker of the house.
there were a lot of rounds of voting around that or whether it was the debt ceiling passed back in June or the government shutdown, we have seen the spikes but nothing that suggests investors are worried about what's happening politically in the US to charge the US more.
>> Okay.
Let's get to another question. This one came in in the past couple of moments.
A viewer wants to know, how will the bond market impact mortgage rates over the next few months?
>> Is a question about Canada?
>> I guess for Canada we look to the five-year yield to the five year fixed mortgage.
South of the border, what is a, 30 year mortgages Mark >> Point is, it probably doesn't matter because mortgage rates are very high in both of those markets relative to house prices. And that's really important because, yes, interest rates have come up a lot in short order which means at least in Canada where we have renewals with greater frequency than in the US where they can lock in for 30 years, in Canada, we have to anticipate that if interest rates are not coming down very quickly, all those people that are, that have outstanding mortgages and that are going to renew their mortgages will face higher interest rates or mortgage rates because of what has happened in bond land. But the problem is house prices have not corrected it as much so there's a bit of a demand supply imbalance where supply might increase, supply of homes might increase in coming months because of these higher mortgage rates but a lot of people can't qualify for mortgages at this level of rates relative to house prices.
>> Okay, let's get to another question.
This one coming in in the past couple of moments. If bond yields are higher, viewer wants to know, which means investors are selling bonds, where does that money go?
? I'm going to say something actually need to address probably the promise of that question.
Bond yields being higher, that does not mean people are selling.
I know that sounds like a crazy concept.
Bonds are quite different from equities and that they are not traded on an exchange that you can't actually see the volume. That's behind-the-scenes.
And if we specifically look at the US which is, again, the biggest bond market in the world, the most systemically important market, there are so many different investor types that use treasuries for all kinds of purposes that it's next to impossible to ever predict the demand.
But with the benefit of leg and data from various points of collection, we can see what people are doing in hindsight. In hindsight, at least up to August, there were a lot of investors globally and domestically, whether it was 401(k) accounts or Japanese investors that were supposedly selling treasury bonds, they were actually buying.
So what happened in September might not necessarily have been the people started selling but let's call it a buyer strike.
The problem in bond land is that issuers like in the US are constantly coming to market with new debt so investors probably did was say, I'm not buying anything. So I just want to address the premise of that question. The reality is when you make asset allocation decisions, so let's say now we areaddressing the question now, let's say you are not buying bonds and bond yields are going higher, you don't have the confidence to go in, what are you doing with your money? It could be that a lot of investors are choosing to stay in cashto maintain flex ability. If you don't know what's going on, it might be better to do nothing at all.
From a bond perspective, it's not so much that there has beenselling.
It could have… This move could have just been precipitated by the fact that there was no buying of additional bonds.
>> Great question. Bonds are a lot more complicated than stocks. I've got Alex here. We are going to get back to your questions for Alex Gorewicz of TD Asset Management 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.
US small business optimism lost momentum in September, owners continue to boost their compensation to attract workers while raising selling prices.
Joining us with more details and TD Economics's take on this is Anthony Okolie.
>> Thanks very much, Greg. We saw a bit of momentum lost last month. US small business optimism index dipped about half a point to just under 91 Points in September. He came in line with expectations but it does mark the 21st consecutive month below the average of 98.
Some of the key takeaways, small business owners still say that inflation and labour quality are top of mind. That is unchanged from the previous month. When we break it down by subcomponents, so really big declines around two key indicators, specifically want to rent the expectations about improvement in the economy, that was down six points to about 43% to and not surprising we are seeing a slowing sales growth environment, so the bottom line of many of the small businesses is being squeezed which is forcing them to increase prices.
The other key indicator is expected to credit conditions, down four points to -10%. Some businesses reported last month increasing difficulties in getting a loan, as well they are paying a higher rate on more recent loans as well. Those might be some reasons why we are seeing a drop in expected credit conditions. Meanwhile, the job market it was relatively more upbeat.
The number of businesses planning it to boost employment rose while the share of firms with unfilled job openings rose to 43%. That reversed last month's decline and this lines up with the resilience that we are seeing and saw in the latest US payroll data last week. Amid job openings, quality of labour concerns were identified as a top business problem by owners along with inflation. Looking at the inflation front, the share of firms increasing compensation held steady around 23%, sorry 22% of firms indicated plans to boost compensation last month. And the shares of firms currently raising average selling prices was flat but still remained elevated wall firms the plan to raise average prices also rose last month for the second month in a row to 29%.
>> Small businesses concerned about labour, is there a readthrough here for the US job market or what the Fed might do?
>> I think with the job openings in the plan to increase employment both higher in September, the sentiment small business echoes what we saw in last week's US payrolls report which came in a stronger-than-expected.
We are seeing signs that small businesses continue to boost compensation to attract workers, share of firms increasing who plan to increase worker compensation.
These elements highlight the upside right to inflation and TD Economics believes that the resilience of the labour market does tilt the odds in favour of potentially another rate hike in November.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk markets editor, Anthony Okolie.
[music] Time for an update on the markets. We are taking a look at TD advanced software, platform sign for active traders available through TD Direct Investing. This is the heat map function, it gives us a view of the market movers. We will take a look at the TSX by price and volume.
We were closed yesterday will the price of oil was moving higher on the geopolitical risk event in the Middle East. We also had gold moving higher, so we have some catch-up today, most notably in the energy space. Got names like CNQ of 5 1/2%, Cenovus Energy, CVE, a bold 5%. You could pretty much pick any of these names out of a hat right now, up almost the same across the screen whether it's a financial space, materials, gold miners up and take rallying as well.
I was the TSX 60. We can look at other screens.
Now let's look at the S&P 100 to give us a sense of what's happening on Wall Street right now. You can see a lot of green on the screen here to you on the financials are up fairly strongly. Got Bank of America 3 1/2%.
But the tax base was lagging a bit earlier.
Now it's flipping some names into positive territory, Tesla's up 2 1/2%. He can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with Alex Gorewicz from TD Asset Management, talking fixed income.
Let's see if we can squeeze a few more questions and before the end of the show.
A viewer wants to know if there is still opportunity in the bond market?
>> It goes back to the question that a previous viewer asked about the outlook for bonds and the promise of owning bonds and it is that higher yield and what that means for potential returns in the future and I fully appreciate that the here and now feels really painful, but the reality is, at least in bond land, we still have some very decent discounts priced into the market.
What that means is in terms of what you are paying for bonds versus when they mature, you are paying a lot less versus when they mature in the future so you still have some decent discounts but now yields are also higher. As much as it doesn't feel this way, if you buy bonds with the intent of maturing them, you are going to make money.
In the here and now it feels painful.
So for us when we think about our expectations of returns in bond land, we put a lot more emphasis on the income return because it is a more stable, predictable source of information and the yield looks attractive.
>> Let's squeeze one more question in.
This one about what central banks really don't want to happen. Risk of stagflation?
>> Yeah. So here it really depends on a market by market basis.
I think if we think about some of the sources of inflation in the last college two years, the commodity picture has been very firm and very volatile.
That's been a big source of concern, both around inflation as well as inflation expectations.
And if you had to sort of segment advanced economies by the haves versus Have-Nots, those that have commodities, those that produce commodities, North America for example, you're very likely in a position that even if inflation remains higher, growth would be alright or at least would bundle along.
So stagflation where growth is flat or negative and inflation is high or rising, that's probably unlikely to happen in North America.
Europe, on the other hand, is a different situation.
Especially from an energy's perspective, energy and security, Europe and UK. Growth is already stalling. That area is also much more reliant on manufacturing is a big driver of economic growth and globally, manufacturing is in a recession right now.
So those economies have already stagnated if not in some cases actually contracting, the likes of Germany and a few other industrial economies in Europe, but inflation still remains high and potentially will rise further, so I think stagflation, you can't just be worried that is going to be a global phenomenon.
I think it will depend region to region.
> Always a fascinating conversation.
Appreciate you being here and look forward to the next time.
>> Thank you very much.
>> Our thanks to Alexander Gorewicz, VP and Dir.
of active fixed income portfolio management and TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
join us for tomorrow's show, Hussein Allidina will be on, head of commodities at TD Asset Management.
You will talk all things commodities. Get your questions in ahead of time, email moneytalklive@td.com.
That's all the time we have the show today.
Thanks for watching and we will see you tomorrow.
[music]
Every day, we're 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 speak with Alexander Gorewicz of TD Asset Management, investors reacting to increased geopolitical risks but also some dovish comments from hawks at the Fed. A lot going on.
also today, Anthony Okolie is going to tell us why American small businesses are feeling less confident in September. And in our WebBroker education segment, killing Cormier's going to tell us how you can find money market funds here on the platform.
Here's how you can get in touch with us.
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.
Coming off a long weekend here in Canada, bit of ketchup being played. With the heightened geopolitical risk out of the Middle East situation, we saw oil pricesmove higher on the holiday Monday and gold prices move higher.
Among the most actively traded names on the TSX, could've chosen any of the big energy companies, Crescent Point Energy at this hour right now is up a little more than 4%, 10 bucks and $0.92 per share. Got B2Gold as well moving up.
of 3.6% to four bucks and $0.15. The price of gold continues to nudge higher today.
Crude has pulled back about 1% after the poppet had in yesterday's session. South of the border, you take the heightened geopolitical risk but also some dovish comments from fed speakers.
You have a rally on your hands. Got the S&P 500 up a full percent right now, almost 50 points. The tech heavy NASDAQ, how is it varying?
About in line, it's up 1.2%.
Bank of America, noticing the financial south of the border getting a bid. I 2719, got BAC up 3.4% to the upside. And that is your market update.
Well, the conflict involving Israel and Hamas has some assessing how to manage risks in the current market.
We also have bond yields sitting at around 16 year highs. There's a lot going on.
Joining us now is Alexander Gorewicz, VP and Dir., active fixed income portfolio management, TD Asset Management.
>> Great to be here.
>> Heading into this weekend, you and I had a conversation about bond yields that 16 year highs. We had a big risk event over the weekend with the situation in the Middle East.
You start putting all that together, what do we need to be mindful of?
>> That there is a lot of uncertainty and how we price that uncertainty is a big unknown. If we think about what happened in September with a huge rise in bond yields and then we hadjobs numbers come out both in Canada and the US in early October and it showing a lot of resilience, this tightening no financial conditions and monetary policy does not seem to be having an impact on the real economy and so investors are saying, look, the future is really uncertain and the things I thought would happen by this point are not happening, the economy is not really coming through, so maybe we need to charge more risk premia for the uncertainty and that is manifesting in a higher bond yields, particularly on the long end of the yield curve, 10 year and 30 year government bond.
>> When you see a geopolitical risk event of this magnitude, you see the movements of gold and bonds play out. At the same time, we got some dovish comments from the Fed speakers.
>> There are these multiple narratives are now making it difficult to say with any conviction what is actually driving these moves and markets. Obviously, the conflict in the Middle Eastis still very early to too soon to tell whether it becomes more of a regional conflict, if it does, I think it has the potential to generate a risk off sentiment globally across financial markets, across asset classes.
But in the US specifically, those dovish comments that you were referring to, when I said that bond yields have risen, that investors are demanding higher risk premia or more yield to hold a government bond for longer durations, what Fed members are interpreting that to be is what we call the turn premia. In other words, demanding more compensation for holding longer duration risk. And for them, that does translate ultimately into a tightening of financial conditions or a tightening of credit conditions for the real economy, whether it's corporations that have been delaying issuing new debt or refinancing because they kept expecting interest rates to come down or whether it's households that have delayed those home purchases with the expectation that mortgage rates would come down. Well, now the longer bond yields are higher, the probability of both of those segments of the economy seeing an alleviation from higher yields is a lot lower.
So from the Fed's perspective, that means that really the bond market is doing its work for them.
>> So after a year and 1/2 of aggressive central bank rate hikes and a bond selloff that pushed yields in the bond market 216 year highs, are we at a point in our we can say perhaps we have over tighten? This has gone too far?
>> even before this move in the last several weeks, one could have made the argument that there was already over tightening.
again, like I mentioned, you would never know there was over tightening if you just look at the labour market, although the details even within the labour space are not strong, per se, headline numbers are strong but not necessarily the details underneath them. That said, when you think about the Fed and having to conduct monetary policy or any central bank having to conduct monetary policy to address future conditions, one of the things that they latch onto his this concept of, what is the appropriate policy rate in the long run for our economy to be in equilibrium?
There are so many things that impact how our economy can grow.
It can be population and demographic character of six, it can be government policymaking, it can be geopolitical conflict, it can be indebtedness, innovation, there are way too many factors to determine what that appropriate policy rate is but while some people say, well, that rate is probably higher today than it was before the pandemic, I think there would be very few who would say that rates should be higher than where it was let's say 40 years ago.
And the reason I latch onto that period of time is that if you compared with the Fed policy rate is today relative to that abstract concept of a neutral rate, the policy rate today is higher relative to that neutral rate then where we would've been 40 years ago. That's really relevant because it can actually suggest that although the Fed is sitting at just under 6%, the policy settings may be a lot more restrictive today than they were when the Fed policy rate was double digits back in the 1980s.
So again, it depends on how you think through policy, monetary policy settings, but one could make the argument that financial conditions or rather that the Fed policy tightening is a lot more today than it would've been back in the 80s.
>> How we talked about inflation you?
There would've been a time where we would have led this discussion with inflation.
Headline has been coming down.
It hasn't been a straight path.
Do we get a sense now that with everything happening in the economy, the market reaction, the inflation is perhaps returning, at some point, probably not tomorrow, but at some point?
>> If you ask bond investors, and we have various instruments in bond land that we could proxy what bond investors think about inflation, they haven't been worried that inflation will be somehow persistently above the Fed's 2% target.
What we've seen actually over the last couple of weeks with rising bond yields, this wasn't driven by an increase in inflation expectations.
So that narrative of somehow the strong labour market is going to feed into more persistent inflation and that's going to lead investors to demand higher bond yields, that's not what's driven interest rates higher. So it's funny that you said you would have led with inflation, this has not been in inflation driven move.
In fact, when we look at what the Fed did, they gave us their updated economic projections, everybody latch onto the fact that their growth forecast is higher, the soft landing narrative. But what about the fact that they've actually reduced their inflation forecast for this year and then more or less left it unchanged for the coming years where they are showing a gradual return to 2%?
I mean, the Fed it clearly doesn't see the risks to inflationto be skewed to the upside anymore.
Now it's either balanced and if anything, if I mention, you know, that the policy settings might actually be a lot more restrictive than what they were four decades ago, it's possible there could be some downside surprises to inflation in the coming months and quarters.
>> Always great insights with Alex Gorewicz. We are going to get your questions about fixed income, central banks and interest rates for Alex in just a moment's time. A reminder that 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 storiesin the world of business and take a look at how the markets are trading.
more than 4000 Canadian autoworkers on strike today after contract talks with General Motors failed to produce a new deal.
Unifor says the automaker is refusing to meet the pattern agreement that the union reached with Ford of Canada several weeks ago. The Canadian GM workers NOW join the more than 9000 United Auto Workers who are on strike against GM south of the border.
Global soft drink giant PepsiCo raising its sales and profit forecast for the year. That's after it beat expectations in its most recent quarter. It's been raising prices on its drinks and snacks all throughout this year. While those higher prices are lifting the bottom line, Pepsi did report an overall decline in sales volumes.
The stock up right now 1.7%.
Also want to take a look at shares of Palantir technologies in the spotlight today. The data analytics firm says that it has signed a $250 million contract with the U.S. Army to test and develop artificial intelligence and machine learning. That stock up 2 3/4 of a percent.
Alright, quick check in on Bay Street and Wall Street. We will start with the TSX Composite Index.
We were closed yesterday, some names including the energy and gold stocks playing a bit of catch-up. All the TSX up 1.6%. The S&P 500 right now, there's a lot going on, including some dovish talk from Fed officials.
Europe more than a full percent for the S&P 500 or 47 points.
Alright, we are back with Alexandra Gorewicz of TD Asset Management, taking your questions about all things related to fixed income. Lots coming into let's get to them. Here's one with a political slaver. As the ouster of the US House Speaker, feels like a million years ago now but it was last week, potentially impact the US debt rating?
>> The short answer is yes.
It's interesting.
Moody's is the last holdout of the three big rating agencies, S&P, Finch and Moody's, to maintain a AAA rating on US government debt.
And one of the reasons why they haven't been downgraded but have said they are watching closely has been on the governance front.
although they are not concerned necessarily about the physical deterioration in the US the way that Finch and S&P were and are, for Moody's, it's much more important on how politicians all get along together, go figure.and they are not getting along so well.
So long story short, I think there are some risks that could take action,even before we have some kind of government shutdown, show down, if you will, in November.
And we have to anticipate now that the probability of a shutdown is greater and I'm sure Moody's is doing is calculus and if they feel strongly about it, they will likely take action.
> It's a very complicated world based on the conversation we had off the top of the show. Generally, if you downgrade someone's credit rating, it makes it difficult to raise funds through debt issuance.
At the same time, we have all the concerns about the Fed being done. How does a player for the US treasuries?
>> Here's the reality and I'm not trying to trivialize ratings when it pertains to a government entity, but for a government like the US that does predominantly, it's debt issuance in its own currency with a central bank that has control over effectively monetary policy for that currency, not trying to suggest that the fiscal position doesn't matter, but the risk of default of a government in that position, regardless of its rating profile, is substantially lower if not nonexistent.
If the US government runs out of money, it can theoretically print more and pay back its debt.
So it matters, but more right now because of all this uncertainty that is manifesting itself in the bond world.
world. world. world. investors demand more yield just because the rating is coming down.
>> Interesting. Let's get another question from the audience. This one, if you are says, TD strategy has been to invest in bonds and benefit with high interest rates and then benefit from the rising value bonds as rates start to decline. Are you sticking with this overall strategy? I guess the idea, heading into the beginning of this year, the market itself was pricing and cuts but we haven't seen that.
So you're getting the yield but not the headline bond evaluation.
>> There are two main sources of returns in bond land.
There is the price channel and the income or yield return.
So coming into this year, yields were lower than when they are today, but they were still sufficiently high that we believed, and we continue to believe now that yields are even higher, that you're getting that positive income return, yield return, and that helps to insulate for any kind of negative price return impact.
So when interest rates move up, bond prices come down and obviously your price return is negative.
But the income return, if yields are sufficiently high, helps to offset a lot if not all of that and if we look at bond land returns year to date, I guess depending on which market, Canada or the US, you are either flat to slightly negative. And our argument was and continues to be that with all of this uncertainty and to know one particular reason for why interest rates are rising, the likelihood that you could have the opposite impact where interest rates are coming down and you have positive price return is very high, so we don't really know which way interest rates will move.
And so we are basing our assessment on the fact that yields are very attractive and they are helping to reduce volatility in bond land. It doesn't feel that way, but think about it this way.
Last year, if bond yields rose 1/4 of a percent, we would have 100% lost money in bond line. This year took a rise of over 100 basis points or 1% to generateslot type of returns. So, again, it just reinforces our argument that yields are sufficiently attractive and as yields continue to rise, they become even more attractive, that the hurdle for negative returns in the asset class get higher and higher and higher which is again a positive outcome for investors.
It doesn't feel that way, I'm not trying to trivialize the move that has happened year today, particularly over the last couple of weeks, but to your point about the dovishness from the fed angle as well, we have seen that historically when central banks stop raising rates, that's usually when interest rates and calm down, within six months, historically, of the policy rate, interest rates have come down anywhere betweenhalf a percent to 1 1/2% which generates very attractive positive returns for bonds.
not guaranteeing that, but historically, that is what is happening.
>> Is it harder at this point to figure out when that happens, if they are done, when they actually start cutting? The market always prices in different probabilities, but is that really it tough to think about right now?
>> Yes,from a timing perspective, which is why we think aboutour allocation to asset classes, bonds, let's say specifically in this case, we think about them as strategic investments. If you are looking to trade in and out, that's a different consideration.
If you take a long view, then again, the high yields in an asset class right now make it really attractive and make it really difficult for the price return to dominate total returns in bond land the way they did let's say in 2022.
>> Interesting stuff.
Another question now from the audience, maybe listening to our opening discussion.
Is the Fed's current inflation expectation realistic?
You talked about the fact that a lot of people overlooked what the Fed is expecting on the inflation front.
>> If you look at bond markets, there is a certain bias in my answer and thatI'm using the information that the bond market is giving us. There are no concerns that 2% inflation target that the Fed has of the Bank of Canada has that it's the wrong target and inflation expectations continue to remain anchored around the level.
Now is it possible that perhaps if some investors are worried about inflation and they are choosing alternative, non-fixed income solutions to express those inflation concerns, yes, but from the bond markets perspective, 2% appears to be both a reasonable and achievable target.
>> Of course, that's a big concern for central banks as they try to work inflation down, the fact that all of us at here in the real world might start to have different expectations of inflation and that's when things can get into a cycle you don't want to be in.
>> Correct. This is why, when you think back to like four decades ago, when the Fed and all central banks last experienced this kind of inflation, one of the things that they learned, they should've been paying attention to and they did it was this notion of expectations.
If people or businesses or governments believe that inflation will remain high in the long run, they will continue spending now, so that notion of what you're expecting might actually become a self-fulfilling prophecy and so central banks now have all kinds of surveys and tools to assess what investors, what households, what businesses are thinking about inflation and all of those are showing that inflation expectations versus where they were last year have normalized and are not showing any kind of on anchoring, meaning that 2% inflation target should be achievable based on expectations today.
>> As always at home, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Alex Gorewicz from TD Asset Management about the fixed income space, central banks and inflation-adjusted moments time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com.
Now, let's get to today's education segment.
In today's segment, we are going to look at money market funds, Caitlin Cormier, client education instructor at TD Direct Investing will walk us through. Let's talk about your on the platform, investors are interested in money market funds, where did they find them?
>>right, yeah, talking about interest rates and how they impact investments, because they are high now, people are looking into money market funds, to park money for a little bit, maybe looking for different opportunities and maybe take advantage of some of those higher interest rates for short-term goals so let's pop in and see where we can find these money market funds.
We are going to use our tools greener.
We are going to come up to the top left-hand side of the screen under research.
We are going to go under tools, we are going to choose screeners here towards the bottom of the list.
Once we get here, what we are talking about, money market funds are typically under the mutual funds so I'm going to go ahead and click mutual funds there and I'm going to create my own custom screen. I'm going to put in on the right-hand side specific things that I am looking forward to get the results I would like. So I'm going to go ahead and choose fund category, and once I get here, I'm just going to scroll down a bit and I'm going to go to Canadian money market is what I'm looking for and I'm going to go ahead and do both Canadian and US together in my search results.
Someone to scroll all the way to the bottom here alphabetically and hit US money market as well. I'm going to deselect ETFs for the search and click to view the matches. It's only 52 matches, so a relatively slow number to get there. I'm also going to deselect to show TD mutual funds first because I would like to see all of them.
This is a listing of the different money market mutual funds that are available on the platform.
One thing I would just kind of caution with this is also be careful if you are looking at some of them, for example, some might say premium at the end, so they could have a higher threshold as far as the minimum amount to purchase so maybe one would only require $1000 to purchase where is a premium fund might require more like 100,000 so just make sure that you are aware of kind of those parameters under the purchase information before you kind of select one of these funds to necessarily invest in.
>> Okay, so we know where to find them now. Had to do some homework. If someone is looking at a money market fund, they are probably looking for yield. How do you find reoccurring yield for a particular fund?
>> Yeah, absolutely. Typically, with these funds, when we click under to see a summary of the performance of the fund we can click, there's a whole bunch of information we can see. You will see a distribution yield.
These are like a trailing distribution yield over a period of time. They are not the current yield. So in order to find what the current yield for these funds are, where it is going to go ahead and choose, let's scroll through and choose this one here. I want to click on it.
I'm going to click the buy button and once it pops up, I'm going to see on the bottom right hand side here, there is a yield.
So that is going to be with the current yield for this particular fund is. You do kind of have to come into this area.
There is another option where I could choose to add this to a watchlist so let's just go ahead and do that.
We are going to simply click this top little star here. Let's go ahead and choose couple more here. Let's look and choose, we will choose this one was CIBC.
We will click add to watchlist and we will choose the watchlist we want.
And let's just do one more so we've got a couple there.
All right.
And add to watchlist. And there we go.
So in order to see these funds now, I simply go to this little star on the top right-hand side of my screen where it says watch lists, and then I'm going to go ahead and select the watchlist that I added the securities to which is number 10.
I see them here and the far right hand side is actually showing the distribution yield. So this is kind of a quick, easy way to keep track of these yields if you want to add a few that you are interested in together on a watchlist and then you can kind of see what the distribution yield is.
That is 1 They Way that you can do absolutely do that. Also forever that in your watchlist, you can come up to the little pencil beside your watchlist and put money market here.
so then when you come in here you can now quicken easily which one is as fun. That's an easy way to put them all together and be able to keep track of those yields.
>> Great stuff as always, Caitlin. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, client education instructor at TD Direct Investing. 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 are back with Alex Gorewicz of TD Asset Management, we are talking fixed income. Lots of questions coming in, let's get to this one. This is interesting.
After the big movie we saw in the bond market in the last couple weeks, what are bond vigilantes and why do they matter?
That term is popping up in the press.
>> Okay, so vigilante, take the bond part out of the equation, a vigilante is unofficial police, someone who takes it upon themselves to police and bring things into order, so a bond vigilante is effectively a bond investor who decidesyou are taking on too much debt and I am going to ensure that you bring about some sort of physical discipline by charging you really prohibitive yields. We have seen in the past this was the thing way before a lot of QE or central bank intervention in markets post financial crisis, so think like 80s, 90s, we saw bond investors, if a particular government or company it was being irresponsible and taking on too much debt, you saw them start to come in and either sell bonds or charge really high yields and effectively bring about some sort of fiscal discipline. That is effectively what the term is. So far, I would say, I'm going to assume the person is asking the question with a sense of are we seeing that today? So far we are not seeing that today.
>> There is also the US fiscal situation.
The whole reason for… We are used to Democrats and Republicans not getting along with each other.
But Republicans fighting with Republicans over fiscalplans… Is it getting into the bond market?
>> I think it is through the confidence channel. The help of the political situation in the US matters to instill confidence in American policy making that has or that reverberates well beyond America's borders. America is the most important bond market and financial market in the world.
I think it has implications through the confidence channel but not so much the channel of is America able to repay its debts? Does it have the tools and capabilities to manage some kind of financial crisis? It absolutely does and anyone who thinks otherwise might be sorely disappointed if it ever comes to testing the hypothesis.
And I would say this as well, it's taking the bond market lens, we have the ability to see what investors are charging a government in terms of default risk and while there have been periods where that default risk has risen for the US this year around these political headwinds, and start of this year, it was very difficult for McCarthy to become speaker of the house.
there were a lot of rounds of voting around that or whether it was the debt ceiling passed back in June or the government shutdown, we have seen the spikes but nothing that suggests investors are worried about what's happening politically in the US to charge the US more.
>> Okay.
Let's get to another question. This one came in in the past couple of moments.
A viewer wants to know, how will the bond market impact mortgage rates over the next few months?
>> Is a question about Canada?
>> I guess for Canada we look to the five-year yield to the five year fixed mortgage.
South of the border, what is a, 30 year mortgages Mark >> Point is, it probably doesn't matter because mortgage rates are very high in both of those markets relative to house prices. And that's really important because, yes, interest rates have come up a lot in short order which means at least in Canada where we have renewals with greater frequency than in the US where they can lock in for 30 years, in Canada, we have to anticipate that if interest rates are not coming down very quickly, all those people that are, that have outstanding mortgages and that are going to renew their mortgages will face higher interest rates or mortgage rates because of what has happened in bond land. But the problem is house prices have not corrected it as much so there's a bit of a demand supply imbalance where supply might increase, supply of homes might increase in coming months because of these higher mortgage rates but a lot of people can't qualify for mortgages at this level of rates relative to house prices.
>> Okay, let's get to another question.
This one coming in in the past couple of moments. If bond yields are higher, viewer wants to know, which means investors are selling bonds, where does that money go?
? I'm going to say something actually need to address probably the promise of that question.
Bond yields being higher, that does not mean people are selling.
I know that sounds like a crazy concept.
Bonds are quite different from equities and that they are not traded on an exchange that you can't actually see the volume. That's behind-the-scenes.
And if we specifically look at the US which is, again, the biggest bond market in the world, the most systemically important market, there are so many different investor types that use treasuries for all kinds of purposes that it's next to impossible to ever predict the demand.
But with the benefit of leg and data from various points of collection, we can see what people are doing in hindsight. In hindsight, at least up to August, there were a lot of investors globally and domestically, whether it was 401(k) accounts or Japanese investors that were supposedly selling treasury bonds, they were actually buying.
So what happened in September might not necessarily have been the people started selling but let's call it a buyer strike.
The problem in bond land is that issuers like in the US are constantly coming to market with new debt so investors probably did was say, I'm not buying anything. So I just want to address the premise of that question. The reality is when you make asset allocation decisions, so let's say now we areaddressing the question now, let's say you are not buying bonds and bond yields are going higher, you don't have the confidence to go in, what are you doing with your money? It could be that a lot of investors are choosing to stay in cashto maintain flex ability. If you don't know what's going on, it might be better to do nothing at all.
From a bond perspective, it's not so much that there has beenselling.
It could have… This move could have just been precipitated by the fact that there was no buying of additional bonds.
>> Great question. Bonds are a lot more complicated than stocks. I've got Alex here. We are going to get back to your questions for Alex Gorewicz of TD Asset Management 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.
US small business optimism lost momentum in September, owners continue to boost their compensation to attract workers while raising selling prices.
Joining us with more details and TD Economics's take on this is Anthony Okolie.
>> Thanks very much, Greg. We saw a bit of momentum lost last month. US small business optimism index dipped about half a point to just under 91 Points in September. He came in line with expectations but it does mark the 21st consecutive month below the average of 98.
Some of the key takeaways, small business owners still say that inflation and labour quality are top of mind. That is unchanged from the previous month. When we break it down by subcomponents, so really big declines around two key indicators, specifically want to rent the expectations about improvement in the economy, that was down six points to about 43% to and not surprising we are seeing a slowing sales growth environment, so the bottom line of many of the small businesses is being squeezed which is forcing them to increase prices.
The other key indicator is expected to credit conditions, down four points to -10%. Some businesses reported last month increasing difficulties in getting a loan, as well they are paying a higher rate on more recent loans as well. Those might be some reasons why we are seeing a drop in expected credit conditions. Meanwhile, the job market it was relatively more upbeat.
The number of businesses planning it to boost employment rose while the share of firms with unfilled job openings rose to 43%. That reversed last month's decline and this lines up with the resilience that we are seeing and saw in the latest US payroll data last week. Amid job openings, quality of labour concerns were identified as a top business problem by owners along with inflation. Looking at the inflation front, the share of firms increasing compensation held steady around 23%, sorry 22% of firms indicated plans to boost compensation last month. And the shares of firms currently raising average selling prices was flat but still remained elevated wall firms the plan to raise average prices also rose last month for the second month in a row to 29%.
>> Small businesses concerned about labour, is there a readthrough here for the US job market or what the Fed might do?
>> I think with the job openings in the plan to increase employment both higher in September, the sentiment small business echoes what we saw in last week's US payrolls report which came in a stronger-than-expected.
We are seeing signs that small businesses continue to boost compensation to attract workers, share of firms increasing who plan to increase worker compensation.
These elements highlight the upside right to inflation and TD Economics believes that the resilience of the labour market does tilt the odds in favour of potentially another rate hike in November.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk markets editor, Anthony Okolie.
[music] Time for an update on the markets. We are taking a look at TD advanced software, platform sign for active traders available through TD Direct Investing. This is the heat map function, it gives us a view of the market movers. We will take a look at the TSX by price and volume.
We were closed yesterday will the price of oil was moving higher on the geopolitical risk event in the Middle East. We also had gold moving higher, so we have some catch-up today, most notably in the energy space. Got names like CNQ of 5 1/2%, Cenovus Energy, CVE, a bold 5%. You could pretty much pick any of these names out of a hat right now, up almost the same across the screen whether it's a financial space, materials, gold miners up and take rallying as well.
I was the TSX 60. We can look at other screens.
Now let's look at the S&P 100 to give us a sense of what's happening on Wall Street right now. You can see a lot of green on the screen here to you on the financials are up fairly strongly. Got Bank of America 3 1/2%.
But the tax base was lagging a bit earlier.
Now it's flipping some names into positive territory, Tesla's up 2 1/2%. He can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with Alex Gorewicz from TD Asset Management, talking fixed income.
Let's see if we can squeeze a few more questions and before the end of the show.
A viewer wants to know if there is still opportunity in the bond market?
>> It goes back to the question that a previous viewer asked about the outlook for bonds and the promise of owning bonds and it is that higher yield and what that means for potential returns in the future and I fully appreciate that the here and now feels really painful, but the reality is, at least in bond land, we still have some very decent discounts priced into the market.
What that means is in terms of what you are paying for bonds versus when they mature, you are paying a lot less versus when they mature in the future so you still have some decent discounts but now yields are also higher. As much as it doesn't feel this way, if you buy bonds with the intent of maturing them, you are going to make money.
In the here and now it feels painful.
So for us when we think about our expectations of returns in bond land, we put a lot more emphasis on the income return because it is a more stable, predictable source of information and the yield looks attractive.
>> Let's squeeze one more question in.
This one about what central banks really don't want to happen. Risk of stagflation?
>> Yeah. So here it really depends on a market by market basis.
I think if we think about some of the sources of inflation in the last college two years, the commodity picture has been very firm and very volatile.
That's been a big source of concern, both around inflation as well as inflation expectations.
And if you had to sort of segment advanced economies by the haves versus Have-Nots, those that have commodities, those that produce commodities, North America for example, you're very likely in a position that even if inflation remains higher, growth would be alright or at least would bundle along.
So stagflation where growth is flat or negative and inflation is high or rising, that's probably unlikely to happen in North America.
Europe, on the other hand, is a different situation.
Especially from an energy's perspective, energy and security, Europe and UK. Growth is already stalling. That area is also much more reliant on manufacturing is a big driver of economic growth and globally, manufacturing is in a recession right now.
So those economies have already stagnated if not in some cases actually contracting, the likes of Germany and a few other industrial economies in Europe, but inflation still remains high and potentially will rise further, so I think stagflation, you can't just be worried that is going to be a global phenomenon.
I think it will depend region to region.
> Always a fascinating conversation.
Appreciate you being here and look forward to the next time.
>> Thank you very much.
>> Our thanks to Alexander Gorewicz, VP and Dir.
of active fixed income portfolio management and TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
join us for tomorrow's show, Hussein Allidina will be on, head of commodities at TD Asset Management.
You will talk all things commodities. Get your questions in ahead of time, email moneytalklive@td.com.
That's all the time we have the show today.
Thanks for watching and we will see you tomorrow.
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