Alexandra Gorewicz

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day I'm joined by guests from across TD, many of whom you'll only see here. We we'll take you through with moving the markets and answer your questions about investing. Coming up on today show. I'm joined by Alex Gorewicz Portfolio Manager at TD Asset Management about a soft landing looking less and less likely and what that meansand will also take your questions about fixed income. And in today's education segment, Caitlin Cormier Client Education Instructor at TD Direct Investing on market growth GICs. A reminder that you can email us anytime at moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker. Now it's get you an update on the markets. Not a bad site for those who are longing for equity markets to start the trading week. Starting at home with the TSX Composite Index, we are seeing green on the screen with Bay and Wall Street. Up almost a full percent at least on my screen right now. We'll see how it shows up on yours. 19,956, pretty decent gain of 183 points. West Texas up a little more than 2%, let's take a look at some of the energy names. Crescent Point Energy right now up to .7% to 9 1/2 bucks a share. Some weak points in the market, Corus Entertainment continues to lose ground. Last week management came up with the warning about a soft ad environment and how will be a challenge going forward. Two bucks and $0.93, down a little bit more than 7%. Let's head south of the border for the S&P 500, a broader read of the American market, a little shy of a full percent. And the tech heavy NASDAQ, let's see what's happening there. Up almost a full percent. Occidental Petroleum, we have energy working in our favour if you're on the markets onboard sides of the border. About 6692 a share. We will call that around up to 2% of again. And that to market update. Rising rates VS slowing growth. That tug-of-war is one of the key themes driving the markets. My next guest says for clues, the key data to watch as the US jobs market. And based on its performance recently in the reaction by the bond market, it's looking more likely the US economy may be in a hard landing. Alex Gorewicz is a Portfolio Manager, active fixed income, at TD Asset Management. Great to have you here. >> Great to be here. >> We are all watching inflation, why is it so important? > It's really good to be a guide of what the Fed does as we were just talking about the market. Any central bank is going to be paying close attention to the jobs market. So we know that, for the central banks and the Fed in particular, to stop raising interest rates they are looking inflation. They want to see inflation fall a number of months. We don't know what that number is. Let's say 3 to 4 months. The level will probably also matter. But as long as we start to see that decelerating trend, we make it a positive point later this year or early next year. But in terms of what the bond market is currently expecting, just given the tightness of the labour market, and by tightness I mean there is not very much slack. Unemployment rate is very low. Wage growth is really starting to gain momentum higher. If we look at the last three or four months average north of 5% wage growth. And so, you are starting to see these kinds of dynamics in labour that are making bond markets nervous about how much more there could be in terms of positive news there. So when we think about why the bond market has 2 to 3 rate percent starting in the half of next year for the Bank of Canada and the Fed, it has to do with jobs that they expect the best is behind us and going forward there will likely be an increase in unemployment and a softening overall. >> Interesting because that's the intersection of what they're trying to achieve in terms of bringing inflation down by sort of tamping down our demand. A little worried about wages. They keep saying it's going to be painful and we have to endure some pain. The fact of the bond markets are saying at some point that pain will lead them to cut. Not that they will flinch but they will realize that not only the jobs that we are hurting out there. >> We don't know what that will be. If we look for some guidance from what the Fed has said back at their June meeting when they gave us their economic projections, back in June they said "we think unemployment will rise to 4.1%…" So we think a marginal increase in unemployment that will help us bring inflation down. Actually we have had a number of economists are former policymakers, people like former chief economist OLIVIER Blanchard and former US Sec. Larry Summers, to bring inflation down you have to increase in employment by a lot more than what you are currently communicating. The prospects of the soft landing, in other words, economic slowdown without material rise in unemployment probably really low. In fact, since Jackson Hole, since that beach by Jerome Powell, every consecutive Fed speech mentions a soft landing so I think they are trying to signal that a recession is likely. >> So if we can't get a soft landing, obviously is your thing, it doesn't mean that we can't the policy and that they have. What is a hot hard landing? Was at me for fixed income investors? >> That's the big question. We don't have insights as to what kind of a recession there will be. So there are two ways of looking at this. The pro and the con. For the normal recension case. On the one hand, inflation, based on where it is today, let's say 8 to 9%, would suggest that if you really want to fight inflation you would raise the interest rates up to that level. Central banks and the Fed, Bank of Canada, they are not signalling they will do that. In fact they have told us they think their neutral ranges somewhere between 2 to 3% so they raise interest rates this somewhere between 3 to 4%, they think that is restrictive enough for the economy. But the reality is, from a realized deal perspective, it would still be negative for the economy. Which means it's not actually that painful. It should be relatively straightforward for the economy to manage. Our slowdown, there will be for sure. But not very material. On the other hand, those prominent people that are saying that unemployment has to rise substantially are correct, and the Fed actually has to raise rates more than 4% let's say, it is very possible that, you know, the economic slowdown will be much more material and it will be a lot more prolonged than a normal recension. >> The amazing thing about the dynamics and power inflation right now how there have been some concerns in TD economics, shared recently to the fact that it's one thing of having food prices. Races can bear vary depending on geopolitical conditions. Energy prices can vary as well and geopolitical conditions. We've seen them come down. But when that bleeds over to the service of society and wages, once you get the raise, I guess it's pretty hard to come back saying "inflation is a problem we will take that money back. ". >> That's right. That's probably what makes this so tricky here with central banks having been behind the curve up until this point. Sure they have a better grasp on, I guess, the policy rates today. Mostly because bond markets have dragged them in that direction for the better part of the last six months. But the going forward bit is where the tug-of-war happens because central banks are saying "well, we want to raise interest rates to this level and then maintain them there and bond markets are saying "no because look at how costs of built up for companies." Whether it's wages are higher commodity costs for corporations, it saying that economic demand will fall a lot more and there is now a bit of that tug-of-war between the policy makers versus markets. So in terms of what applications you asked earlier for fixed income or for investments, unfortunately it just means more volatility. But it also means that although there has been an increase in interest rates, there has been a widening of corporate bond spreads here to date, it doesn't necessarily mean that it's done. In fact, if we have a recession for corporate bonds in particular, we know that the start of a recession or perhaps even before the recession begins, companies especially with good management teams are able to manage those increased costs. Whether wages or otherwise. But if the recession proves to be deeper, longer than expected, there's only so much that you can do and eventually corporate spreads widen as corporate fundamentals deteriorate. That exacerbates the economic slowdown. So there are so many unknowns at this time in terms of what the impact will be. And a big part of that will hinge on how labour dynamics will impact the type of recession were going to get. >> You mentioned the tug-of-war between what policymakers are trying to achieve and what the bond markets are telling us up about tug-of-war… A little bit of given push. A tantrum, we have seen times when the market decides they don't like what we're doing. So far they seem to be well behaved. They don't seem to have any tantrums. >> I guess to some extent it's easy to see because we look at the yields. Yields can be decomposed into real yields and then the inflation expectations of the markets have. So if we look at those collectively, we still see nominal rates move up quite substantially this year but actually the bigger story, the more important one is the change in the real yields. So I had mentioned to you, for example, on a realized basis, if we take the policy rate is and subtract inflation, we are actually still negative. But if that inflation, and the market expects that inflation to go lower for the next 12 months relatively quickly. If that rate goes down the policy rate is higher, you are actually in the positive real yields and I can be really painful for the economy because you are actually after the cost-of-living, you have to pay ready substantially to borrow money and our economy operates on credit. >> Fascinating stuff as always. A great start to the program. We will get your questions about fixed income with Alex Gorewicz and a reminder they can get in touch with us any time. Just email MoneyTalkLive@td. com. Now it's get you updated on the top stories in the world of business take a look how markets are trading. Tamarack Valley energy says it has a deal to buy Delta stream energy for some $1.4 billion Canadian. The transaction would make the combined company the largest energy producer Alberta's Clearwater region. Tamarack is forecasting up to 72,000 barrels of oil equivalent per day by next year from transaction and the company says its plans to raise its annual dividend after the deals anticipating closing this fall. It appears influential activist investor Dan Loeb viewing sports network ESPN in a different light. Loeb had been pushing for a Disney to spin off ESPN after he recently took a stake in the entertainment giant. A call the Disney executives rejected. Now Loeb is changing his tune. In a tweet over the weekend the head of the third point says he now has a better understanding of the sports network and is looking forward to hearing from ESPN executives about their growth plans. The price of crude oil continues to feel the effects of geopolitics and the currency trade. American benchmark oil is recovered some of the ground lost last week as crew sold off on demand. Concerns of a potential embargo on Russian oil and hurdles to an Iran nuclear deal appeared to be supporting prices. Pullback straight the start of the week. We are still in positive territory with the S&P 500. A little more up than half a percent right now.what does the Fed have to see before it stops hiking rates? >> We talked about this earlier. It's really inflation. Do we get a number of consecutive inflation prints that suggest inflation is starting to come down? You mentioned the softness in commodities and energy prices in particular last week. That's a multiweek, almost multi-month trend and so, that's going to take some of the pressure off the headline inflation print but on the flipside we also talked about wage growth, momentum there as wages and will be higher. … This could remain sticky high perhaps even climb and that would be something that the Fed would be mindful of and would not necessarily react just a headline inflation falling over. So inflation is going to determine when the Fed stops hiking interest rates. >> All right. So stopping is one thing. We talked about this at the top of the show. I think a lot of people who are carrying debt want to know the next step after stop. Cut. What did they need to see to start cutting rates? >> That's the labour market. If we take, call it the more academic approach, that the Fed used to take when they used to talk about the labour part of their mandate… A dual mandate of inflation and labour… Where they used to talk about the labour part, they would refer to something called "natural rate of unemployment " that everyone expects in an economy. >> Not everyone is employed all the time… >> Correct. They used to say that that level was somewhere in the mid-four. Number 4 1/2% for argument sake. August the with the tightness we've seen with the labour market of the last year or so, they revise that number lower but I think it's still a pretty good guide of where we should look to in terms of guidance. So anything above for the unemployment rate, anything above 4 1/2%, I would suggest, is when markets would really expect the Fed to start changing its tune. Because right now, they are saying "we are not going to be cutting interest rates anytime soon, we think were going to raise rates and stay on hold probably somewhere close to 4% but just shy of it." >>the consensus rate for US inflation is down 8 1/2 to give the consensus from the equity markets are we disappointed in Arthur cited that are to have difficult reactions? > If that inflation rates and prices to the upside that might change those dynamics and markets left to move. Expecting interest rates to move higher especially led by the shorter or front end of the yield curve. But, you know, on the flipside, if, for example, inflation surprises to the downside, perhaps you can see a bit of a fall in interest rates. That could suggest to investors that globally, aggregate demand is falling a lot faster and it's bringing inflation down with it. > I remember years ago I used to get to wondering why were doing stories on inflation. So boring. The day came. Not anymore. Next question, if a recession hits, what does that mean for high-yield corporate bonds? >> Yes so with high-yield, I would probably lumpen to begin with just corporate bonds in general. The reason I say this is if you go back to recessions to the 1960s, 1973 the 1980s, the high-yield bond market was not as well-developed. But in general, corporate bond spreads looking back at recessions over the last 40 or 50 years, just that they widen in the middle or end of a recession. And so, we have seen widening or, let's just say incorporate and high-yield spreads in particular, meaning they have underperformed government bonds of similar maturities, we have seen that widening this year. And perhaps that's a reflection of a mild recession expectation. But if the recession proves to be a lot deeper, longer then we are expecting, as we discussed earlier, I think there will… We should expect more underperformance and high-yield. However, all in yields 7 to 8%, perhaps even a little higher, they do look attractive but caution risks have to be managed. >> Of course because the whole point and why is that there is that risk premium for the actual issuer of that debt. >> That's right. But at the moment, that compensation is for what I would call more of a "mild recession" scenario so to the extent that it turns out a deeper recession is needed to bring inflation down, it will very likely put pressure on high-yield bonds. You are going to feel the risk associated with that space. >> All right it seems like there is no shortage of risk out there. That brings us to our next question, there is a lot of uncertainty out there… What you find attractive in a world like this? >> Uncertainty usually you want to run for the hills and liquidate everything and go to cash. But if you think of inflation as printing even in an optimistic scenario, 8%, you are not being compensated from a real yield perspective. You actually have negative yield to be in cash or even in very short government bonds like in a money market type of fund or a T-bill. Now when we think about what is attractive in terms of compensating for some of those risks, looming risks, around what kind of recession we might end up having, shorter investment-grade corporate bonds and when I say "shorter" let's say 0 to 5 years. Now yield, something closer to 5% if not exceed 5%. That's very attractive relative to where inflation is expected to be. The market generally think that by this time next year inflation will be closer to 2 1/2 to 3%. And so that yield that you would be locking in today for a shorter investment grade corporate bond is actually very attractive if that scenario plays out. Another space that we see increasing opportunities, although there are some potential drawbacks, is emerging markets. Monetary policy has and always will be a key driver of fixed income investments. And it just so happens that seeing those inflation dynamics building a lot sooner, most emerging markets central banks started raising rates very early on in 2021 and are much further ahead of the curve. In fact, when adjusted for inflation that they are seeing in the local markets, which on average, is higher than inflation we are seeing here at home, they actually have positive real yields and so, you know, to the extent they are further ahead in their hiking cycle and some have even signalled that influence inflation does rollover, if commodity prices continueTo stay where they are, it's possible we will see cuts from the central banks. So those dynamics would suggest that there are some good investments in emerging markets. But a headwind there could be a strong US dollar which, a year to date, collectively has risen over 10%. If that momentum continues, that can be a headwind for emerging-market investments. >> Great stuff as always. Make sure you do your own research before making investment decisions. We will get back to your questions with Alex Gorewicz in just a moment's time. You can also email us anytime. Email MoneyTalkLive@td.com. Right now I want to get to our educational segment of the day. One of the more popular investment tools this year available or GICs. What did you know they are actually different types? Caitlin Cormier, Client Education Instructor at TD Direct Investing is here to tell us about market growth GICs and how they are different than the standard ones. Caitlin, great to have you with us. We're getting a lot of questions this year with GIC rates moving higher. Walk us through it all. >> Absolutely they become more interesting as an investing product. I can understand for sure. The market for GICs are kind of an interesting sort of a product. There a bit of a mix between a standard GIC as well is they have a bit of exposure to the market as well. So McKenna break that down a low bid. Standard GICs will pay a fixed regular interest rate over a period of time. So you're getting that annual interest, either compound or keynote each year. With the market growth GIC, you may have a minimum amount that is geared to be guaranteed. However there is a maximum you get paid depending on how an underlining index actually performs. They come in both three and five year terms and they are still covered as standard GICs are. Let me help you by hopping into WebBroker to see we can find this information. We are in a click right here under "research" and then click on "GIC rates" this goes to all of our rates. All of our different GICs available through WebBroker. What I meant to click on now is the market blink and that's can it take us to get more detail on those GICs. So as you can see here, I'm just in a focus on the far right hand side. There's a guaranteed minimum and maximum return. So as you see, the one thing to keep in mind is these are maximum total returns. So interest is not actually annually necessarily of these GICs. Because there is a minimum, there is a small amount to be paid annually, but the rest of the returns, up to the maximum is actually paid at maturity. So it's based on the performance of the underlying index which you can see right here, in the middle, so the S&P TSX banks, the S&P 500, there's lots of different options there. That's it is actually based on the performance of that underlying index. So, it's from the purchase date to the maturity date of that GIC. And it's based on the actual percentage change in that particular index over that period of time. >> Now Caitlin, Christina GICs, say for argument sake, so many byes one year, they see what the rate is north of 4% right now, a lot of them, and there's not much more to think about right? They just wait for a year, you get your money and you your interest payment. With these ones though, the market element, is there a way to actually track how they're doing? >> Yeah. So as he set the standard GICs, it's easy find that contract, it you know exactly what that investment look looks like which is rare. That you know exactly what rate you're getting for the period of time. There are no surprises. With these particular GICs, because they are based on an underlying index, it's hard to get a feel for what that didn't underlying index is doing. But the one thing to keep in mind is that regardless of what happens in the middle of the term of this type of GIC, if it's for a five-year term, regardless of what happens in the middle, that doesn't mean that that will be the outcome that particular GIC coming to. So the two important dates of the purchase dates and what the level of that index is on the purchase date and then with the level of index is on the maturity date. But what we can do, is we can help into WebBroker and we can go under the "research" tab and this time we will click on here. We saw there was one based on the S&P 500. Let's leave let's use that as an example. I will click on the S&P 500. Scroll down. You can see it's a little bit small. But we can click on the charts button that will actually show us a chart of how the S&P 500 is currently performing. So, we can select the time frequencies. So if we have a GIC for a few years, typically, we want a little bit longer than a month time frame. Just give me a second here. My chart is taking just a moment to load here. … Let's even get… Let's try one more time here… What it will do is it can actually show us the level of that particular index over that period of time. So we can choose, for example, a three year period and we can see what the level there is. It's working for me now. We can choose a three year period. Let's just say we purchase this GIC on, for example, let's choose this date. July 15, 2020. We can see the actual level of the index for that day. Versus what it is today. The level that it is today, right now, you can see right in this bar. So if we take those two numbers, we can find out what the percentage increase is of the index. And if it's matching or more that are maximum return. That's how much is increased. If it's less than that are equal to or less than, then if the GIC were to come today, it would come out for that minimum guarantee and we wouldn't lose any of our principal which is the idea behind this GICs. A little different from the regular GICs. This can give us an idea of how the index for performing but we have no idea what is to happen. Market uncertainty doesn't let us know what will happen on the maturity date because the return is actually based on purchase date, maturity date, that's it. It doesn't matter what happens in between. >> Great stuff as always Caitlin. Thanks for that. >> No problem. Thanks. >> I thanks to Caitlin Cormier, Client Education Instructor at TD Direct Investing. Always make sure to check out the learning centre on WebBroker for learning videos, master classes and webinars. Now before we get back to your questions with Alex Gorewicz about fixed income, a reminder that you get in touch with us by emailing MoneyTalkLive@td.com or Philip the viewer response box right here on WebBroker. We'll see if one of our guests can get you the answer you need here on MoneyTalk Live. Alright let's get back to your questions for Alex Gorewicz on fixed income. People's minds are on GICs. Fresh off the platform, when you think GICs right now? >> I get this question a lot. It's on everyone's mind. I would say when I think about the dynamics of the market and of the economy, it's safe to say we are in the later stages of the economic cycle. At this point, something called the "liquidity premium " becomes important to consider when looking at perspective returns over the next six or 12 months or whatever your investment horizon is. It's a tough investment factor to manage as an individual. So when you he diligence "well here is the deal guaranteed over the next few years versus what I can get in a traditional fixed income fund." It's hidden in some ways because your money is locked in, the premium. You cannot convert that readily to cash. So I mentioned earlier, short-term investment grade corporate bonds are yielding closer to 5%, for 1/2 to 5%. Or even higher in some cases. So you are getting a more compensation that you are able to take that money out should you do. But I'm not even sure that shorter-term investment grade bonds are the real comparison because when we think about the liquidity premium, we probably need to think more about private type of investments. There you would be compensated even higher than that for 1/2 to 5% that I mentioned. >> Interesting stuff. GICs are definitely a hot topic in the last couple of months. Let's get to another question. What is your outlook for the US dollar and other risks from a strong greenback? On the currency trade. > I mentioned earlier that the US dollar has been on fire versus it's peers this year. I think that is due to the uncertainty in the markets. The US dollar is a big flight to safety component to it. Uncertainty which is usually synonymous with fear in markets, it generally means the US dollar will perform well. We are already starting to see companies talk about the headwinds that they experienced because of a strong US dollar. There are a lot of foreign entities, be they governments or corporations outside of the United States use the US as a funding source. They raise money through US markets. So I high or strong US dollar is a headwind there. You know, the way that I say that nothing good ever came from a strong US dollar, because it has liquidity implications globally for our financial markets behave. And so the outlook for now, is that a lot of central banks, especially developed markets special central banks are playing catch-up with their policy rates relative to how far the Fed is gone. In some cases like the Bank of Canada, we've Artie raised rates more than the Fed has done. But, the question here is will that persist? It will things break down globally? If they do you it's possible we will see an even stronger US dollar but for now the outlook should be relatively stable if not slightly lower. >> The fact that you said obviously in times of great uncertainty, the dollar gets a bit… Is it hard to forecast? To get into the psychology of the global citizen, the global investor? If I can figure that out I would have an easier life that I have not figured in it. >> I don't think anyone has, even just bringing back to earlier this year, even the crisis in the Ukraine, it was looming at the time. We will not sure if that would happen or not. It was a little bit binary right? Nobody had the direct line to the Russian government. So we had expectations that wrists would materialize or that uncertainty loomed. But we didn't actually know what happened. Same thing going forward. We never know who will be blindsided by some event that will scare people. >> All right. Let's get to another question, this in closer to home. Canada has a lot of household and mortgage debt. When does that become material for the BOC? Bank of Canada? > In a way it always has been released as long as the problem has been evident. If you look at any financial stability report from the Bank of Canada that it is put out, household debt was named as a potential source of vulnerability for our financial systems. So the way going forward, it will play out, it will likely mean that Canadian households, which are more indebted than their US counterparts, will put a limit in terms of how far the Bank of Canada needs to raise rates in order to aggregate demand down. At least relative to the Fed. So it's possible that if Canada raises interest rates to 3 1/2, 3 3/4, the Fed could easily go beyond that. I'm not saying it's the case but it is very conceivable that at some point, the Bank of Canada stops before the Fed does. And if we think at the moment, of why it has not slowed Canada down or rather the Bank of Canada down as much, it has to do with the response in the housing market. Yes, housing prices have come off their highs but if we compare to other markets, where there is sort of a similar level of household indebtedness, particularly thinking of Australia and Sweden, their housing markets and corrected a lot more from their highs then say Toronto or Vancouver or some of the major housing markets in Canada. If we follow those trajectories, we will very likely see the Bank of Canada start to pause if not change its language. > It almost feels like, we are seeing in real time, you talk to the housing market and that's an interesting perspective that we have not been hit as hard as other markets. We see the slow down. Usually we talk about monetary policy we think it could change today and in 12 to 18 months from now we will see what effect it had. We did not have to wait 12 to 18 months to see what rate hikes interest rates were doing in this country. >> That's true. When we compare to some of these other markets that I mentioned, here's an example: in terms of mortgage debt issued in 2020, let's say about 1/4, maybe 1/5 to 1/4 in Canada was based off of variable interest rates. In Australia, I think it was something closer to 50% if not higher. So it then makes sense why there markets. >> It has been an immediate thing… >> Exactly. The interest rates we've seen here in Canada have probably a faster effect than they have had in prior hiking cycles. It has not been as pronounced as some of the other comparable developed markets but to the extent that Bank of Canada sounds very similar to the Fed, that is at once to raise rates and keep them there for a considerable period of time, even those who are not fearful of interest rates and have fixed-rate mortgages were burial will very likely have to redo in the next month or two years and will face higher interest costs and then we will see again, renew slow down in housing… >> Great perspective. We will get back to questions with Alex Gorewicz in just a moment's time. Talking about fixed income and reminding you to always do your own research before making investment decisions. A reminder that you can get in touch with us any time with your questions. Our guests are eager to hear what's on your mind. Just email MoneyTalkLive@td. com or use the web box here on WebBroker. A new report from TD economic shows Canadian households and how much they lost in the second quarter. The fact of value of homes and stock market. The steepest quarterly drop since 30 years. Anthony Okolie joins us with more. Anthony. >> TD economic says release of the household wealth, households are facing rising financial headwinds into the second quarter. I brought along report which compiles key points in the report. Up first: Canadian households fell by more than 6% in the second quarter. That marks the first drop since the first 1:45 thousand 20. The biggest quarterly drop since the data have began tracking back to 1990. Earlier this year with the combination of declining housing markets pointed to the biggest drop in the household wealth on record. Some of the financial markets, financial assets falling for the second consecutive quarter. And not surprising the value of household real estate also fell by 5 1/4 as home prices continue to fall. While asset values fell, the liability side of the balance sheet continue to increase, specifically household debt by 2.1%, seasonally adjusted on the quarter. That's roughly on par with the pace we saw the first quarter. Now, mortgage debt growth remained strong with a 2.4% gain in the debt edged out but it still below, considerably below, the pre-pandemic peak of 50%. Now, looking ahead, TD economics says that financial headwinds are only going to continue to intensify as job gains and slow while interest rates continue higher. Greg? >> When I saw the stats Canada report this morning, it's a hard reminder. I know the state of my portfolio. I know the state and value out there. So understandable. Is the bank of Canada signalling they need to continue raising heights during inflation? What actually happens to debt service? It's been so low for so long. What is TD sing about that? > TD economics says the cost will continue to increase because of the financial headwinds that they are faced. It will continue to increase for this year and into 2023. According to TD economics, the debt service ratio is attempted or rather expected to surpass its peak by 2023. … Projected to jump 30% versus the first 1:45 thousand 22. That means the average Canadian will pay an additional $2500 per year on debt. > All right. Some tough medicine there. Thanks Anthony. >> My pleasure. >> Money talks Anthony Okolie. Let's start with the TSX composition now in positive territory and we are holding on firmly with 19,064. … We will call this a percent to the upside. Seeing some stability in the price of crude, West Texas intermediate recovering some of the ground that was lost last week. Selling off at 88, 25. About 1.7%, playing into the energy trade. Crescent Point Energy, Suncor,… South of the border, let's check in the S&P 500. Little bit of fluctuation but it is in positive territory. Building on some of the gains it was making earlier. 4099, a little shy of a full percent. The tech heavy NASDAQ, not quite keeping pace but it is green on the screen. 80 points. Almost 2/3 of a percent. 66 basis points. I remember of my high school math. Bank of America, it's in positive territory. More modest than earlier in the session. We are back now with Alex Gorewicz taking your questions about fixed income. Let's get back to them. We talked with the US dollar earlier but someone he wants to talk with the Canadian dollar. When you think of the Canadian dollar? Is it a good or bad thing? I guess it depends on what your outlook is. >> Just to clarify, do you mean if it's a stronger Canadian dollar? Of the new assume that so the question was framed. >> Exports at the same time… Fort Knox. >> I think, let me take you quickly to a tangent to a recent speech by the deputy governor of the Bank of Canada unaware she said show stronger Canadian dollar would actually be a desirable thing. I assume she met from inflation perspective. Part of the concern here is, by all accounts that I've seen in the analysis that we've done on our team in the active fixed income team, it would suggest that at least 50% of the inflation that we see today, at least core inflation is actually domestically driven. In other words, demand truly exceeding supply capacity of the economy. And so, I'm not really sure how a stronger dollar would necessarily help to cool that inflation. But, I will say that the Canadian dollar in general, is a cyclical currency. So, if global economic demand and aggregate is slowing down, reacting at various speeds to this tighter monetary policy we've seen some from some of the largest central banks, and actually some of the smaller central banks as well, then we would expect there to be a more persistent softening, top level in the commodity complex more broadly, in which case that would be a headwind to the Canadian dollar. But in general, it's held in okay versus the US dollar. It's been one of the few currencies that, although although it's fluctuated, it's been fluctuating in a relatively tight range versus the US dollar. That's because the year to date, we've seen some tailwinds from higher energy costs or rather high energy commodity prices. So to the extent that you know, there is this sort of "tug-of-war" as we talked about between inflation and growth earlier. There is that same tug-of-war between the supply versus demand side with respect to oil in particular. It should keep the Canadian dollar at least versus the greenback. Brack you handled whipsaw better than I did in this newscast. I have a lot of questions. I will squeeze one more in. China has been cutting rates. How does that impact the global inflation? >> It just goes to show that even as they struggle with this zero COVID tolerance, persistent lockdowns with COVID outbreaks, as they've tried to manage and get past that, that economic growth just hasn't resumed or come back as quickly as anyone was expecting. Ebony policymakers in China were expecting. Unfortunately, we think about key input of the Chinese economy into the global economy, it will likely mean that other emerging markets, with the sphere of influence, shall we say, of China, will probably also see softer economic output. So could this mean the beginning of divergence in monetary policy? Could this be the beginning of the general global economic slowdown that remains to be seen. It certainly would suggest that the policy easing the we've seen from the China in the last couple of months, although relatively small and targeted, could be the beginning of a trend. Should it be successful, and regenerating economic demand, there is a risk that perhaps commodity prices and moving higher and then that puts more burden on central banks that are fighting inflation because of higher commodity prices, in particular Europe in the UK and puts more pressure on them to hike a lot more than they think they need to today. > Fascinating stuff and it's all interconnected. Always a pleasure to have you Alex. Until next time. >> Thank you. >> Alex Gorewicz,, Portfolio Manager, active fixed income, TD Asset Management. Stay tuned this week we will have Ben Gossack. That's all the time we have today. Thanks for watching and we will see you tomorrow. [music]