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[music] >>Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day I'll be joined by guests from across TD, many of whom you will only see here. We we'll take you through it's moving the markets and answer your questions about investing. Coming about today show, TD Securities Chief Canada Strategist Andrew Kelvin will give us his view on the Bank of Canada hiking rates by another 25 basis points. What might be coming our way beyond this week. MoneyTalk's Anthony Okolie will discuss what swing on lumber prices and in today's WebBroker education segment, if you're interested in finding out what stocks actually make up the TSX or S&P 500, Bryan Rogers will show you how you can find out while using the platform. You can email us at moneytalklive@td.com to get in touch with us or Philip at viewer response box under the video player on WebBroker. Before we get to our guest today let's get you an update on the markets. Starting at home with the TSX Composite Index. Some energy names, down to 62 points on headline number, a little shy the third of a percent. We want to check on the energy names and see if they are still holding on some of the gains we've observed this morning and indeed they are. We have Cenovus right now 2 1/2% up, OPEC+ this weekend, the Saudis decided to take over the team. But it's been kind of a choppy ride. Right now American benchmark route a little north of 73 bucks, making some gains feeding in some of the energy names. Shopify, Tech stocks on both sides of the border, risk appetite today for them. Indeed Shopify giving up about 3 3/4 of a percent. South of the border, we want to check on the S&P 500, now a week away from the Fed giving us a rate decision on the yields of the Bank of Canada today. Down 12 points a little shy of 1/3 of a percent. The tech heavy NASDAQ,a little behind the broader market. One of those names in the semiconductor spaces, Advanced Micro Devices down to the tune of two and half percent. And that your market update. The Bank of Canada surprised the markets, raising its trendsetting rate by another quarter point. Saying concerns are growing that inflation is going to get stuck above target. Joining us now with Maurice Andrew Kelvin, Chief Canada Strategist at TD Securities. We were chatting yesterday afternoon ahead of the show and you were saying there is a hike coming. Kudos to you for calling this one. It was a bit of a coin toss. Why did this happen? >> Thank you there were some nerve-racking moments for me this morning. I think the best way to explain is to go back to January when the pause was first announced from the Bank of Canada. At the time the Bank of Canada was waiting for GDP growth of 1%, 2023, talking about a recession… Inflation was expected to get down to sort of the mid-choose by the fourth quarter of this year. As of the most recent data, we have seen on the TD Securities side, growth was 1.5 or 1.6% this year, quite a big deviation for the Bank originally saw the economy when they announced their pause. We don't think inflation will get below 3% this year. And that sort of the world, it became very difficult to justify that on hold, the Bank announced on the way back in January. If you go to April, the Bank was very open that they had discussed rates in April. The US banking issues, let's call them. We've had a surprising GDP, upset surprise and inflation, and upside surprises on employment. In a world where you were not going to hike because the economy was going to slow, and then the economy did not slow, it just follows that they had to hike. Here we are today. >> Very specific concerns today. Of course we didn't get a media availability except for the senior deputy governor explaining their move today. All they have is that piece of paper. They did outline some concerns. GDP, talking about inflation. One that struck out to me was growing concerned that they are hearing from the Bank that perhaps inflation isn't going to get back to target unless they take further moves. What you think this shift is? I think the last time we heard them speak, they said to something and suddenly there were concerns. >> One lump does not a trend make but it has been four, five, six months where the economy did not slow. Yet unemployment rate has been 5% for all of this year despite that very tight monetary policy. The Bank sort of framework for thinking about this is to bring inflation lower. There was a reasonable concern in January that, given there are impacts of rate hikes, given the very high degree of household leverage in Canada, that the rate hikes already in place in the second quarter of this year, the third quarter this year, they would start having really significant negative impacts on household spending. What we've seen over the first half of the year, we are getting pretty close to the midway point… Is really tremendous resilience from the household. They were lifting rates to the point where they were trying to make household spending slow down. They now see the benefit of hindsight that perhaps they did not raise rates enough to cobble cycle. >> Now, this takes us to what happens next. You are thinking you are thinking today they would go 25. Do they go 25 again the next week? >> I do think so. A single 25 basis point rate hike, when restarting the cycle would be historically pretty rare for them. I can find examples, in 2007, the Bank of Canada hike. But the world changed pretty dramatically. If the world changes dramatically again, the Bank of Canada can reverse course. With the momentum in the economy is such that a single 25 basis point move is not going to steer growth comfortably back to a below trend level. That's what they're trying to do. They are not trying to engineer a hard landing. They don't hate Canadians. They are trying to slow growth in a sort of like a gentler fashion. But 25 basis points will probably not do that. So unless they see something change in the world are they see an indication that in fact, they didn't need to make that move because growth grew so dramatically or inflation decelerated faster than expected, we can change tactic. But as it stands the strength of the economy is such that 25 basis points won't be enough to really change the course of the economy. >> Now of course, in the past when the housing market has been accelerating to the upside in terms of volume and price, different central-bank governments, we are thinking of the government of… We have to worry about the broader economy. We have one lever to pull. We can't worry about the housing market. They did make mention of the housing market saying they had seen spending on the interest of goods increase. This is not supposed to happen when you raise rates. Goods are supposed to be shunned in housing market activity is picking up. They definitely have to keep it on the radar. >> They do. As much as they don't want to be driven solely by what happens in the housing market, Canadians can be very reductive about how we think of the economy. We think house prices are an indicator if the economy is doing well or not. The Bank of Canada needs to think of a broader picture than that. At the same time, they can't ignore it. This goes back to this idea in January they were concerned that some of the rate hikes would have a slowing impact and a dramatic impact on the economy. As you know, the housing market is been doing just fine. This is a supply and demand issue. To some extent. It's not just housing. I think the same dynamic is present in the auto sector as well. On the housing side, we have this very strong population growth in Canada. Canada is really really good at bringing in people and populations. We are less good at building houses for that increased population. When demand increases arrive supply goes up. We have continue to see below trend automotive production. When people come to this country, they need three things, food and their belly, roof over their head, a way to get around. We have not built enough cars for the population in North America the last two years. I think it follows that we should see continued strong spending on things like motor vehicles as a way of, even if supply chains are healed, there is still an overwhelming demand for some of the items that were impacted by the supply chain disruption. So I think there are these supply and demand factors that are still impacting things inasmuch as the Bank of Canada can control these things, they have one job. That job is 2% inflation. They have one tool they have to use it. >> Some of things they can control, the statement they said they were taking this action today, to bring inflation back down and come off the sidelines, going forward they are going to evaluate things. Excess demand, inflation expectations, wage growth… Apparently corporate pricing behaviour. Are you worried about that there? This goes back to inflation. Prices being set by the private sector that work for food and goods. >> I think there's a little bit of messaging that they are trying to get her head around. I think a lot of the times, if I put my economist had on, I think of corporate pricing decisions. That is just part and parcel with inflation. When demand is up, corporate pricing power increases and inflation resolves. The Bank of Canada got some criticism a while ago for being focused on wages and not corporate profits. That was always a bit of a false dichotomy from the Bank of campus perspective. I don't think they recognized how that necessarily sounded to some segments of the population. So I think this is simply the Bank of Canada acknowledging – > You're making too much money. You are the problem here. (Laughing) >> We saw those articles in the media to that effect. I think the Bank of Canada was sensitive that criticism. This goes back to a broader effort that the Bank of Canada has to try and better explain what they do to Canadians. And then, when Canadians get the feedback, "we don't like that you are focused on wages, why are you talking about corporate profits?" The Bank of Canada is unpacking the assumptions already import Inc. and their models. > Interesting stuff in an interesting day. Great start to the show. We will get to your questions with the economy and interest rates with Andrew Kelvin in just a moment's time. A reminder of course you can get in touch with us any time by emailing moneytalklive@td.com or Philip the viewer response box on WebBroker. Now let's get you updated on the top stories in the world of business and take a look at how the markets are trading. The strain on household budgets from the high cost of living appears to be benefiting Dollarama. The retailer is reporting a more than 20% jump in sales compared to the same quarter last year. The increase came as Dollarama saw more customers visited stores which offer what he calls an affordable product mix. Transcontinental is announcing the changing of the guard at the top, the Montréal-based packing company packaging company rather has appointed Thomas Morin as Pres. and CEO, effective immediately replacing Peter Brues. Transcontinental also reported its quarterly earnings today, beating expectations. Shares of Tesla are in the spotlight today after the electric vehicle maker updated its website to see the new model Y and model three cars are eligible for a tax credit under the US inflation reduction back. The credit is valued at $7500. Now a check on the main benchmark index in Canada. South of the border, the S&P 500 now a week out of the next rate decision from the US Federal Reserve. Down a modest eight points. Down 1/5 of a percent as well. We are back now with Andrew Kelvin taking your questions about the economy and interest rates. Looking on the heels of the BOC rate hike today, GIC rates have been creeping higher recently. Do you expect them to rise further from here? What drives GE's GIC rates? >> In terms of what drives, interest rates more broadly, the underlying thing that impacts any sort of fixed income instrument has to be the Government of Canada bond curve. That is your sort of, fundamental underlying fixed income asset. Today we saw the government of Canada yields rise right sharply. After this rate hike. It's sort of an interesting dynamic when you were talking about Canadian interest rates. The Bank of Canada has sole control over what the overnight point of the curve does. We are also pretty materially impacted by what happens in the United States. So in the short term, the fact that you go you know, central banks the world over are tightening, we need to support these upward creeps in GIC rates. When we get towards the end of the year, we think the US economy will run into a bit of trouble. That tends to produce lower interest rates in the United States. Sort of across the yield curve. That tends to bleed into, sort of, every global bond market. So, we actually expect Canadian yields to finish below where they are because we expect to see US yields following. We think the Fed is pretty close to the end of its tightening cycle. Once we start talking about the US recession, that becomes the dominant narrative. We will see a pretty material lowering in US yields this year which will translate into much lower Canadian yields. >> This is a nice segue to the next question we have here. (Greg reads the question) >>… We think the Fed will lift rates. >> In the next meeting. They will not skip to July. >> We don't think they will skip. Never say never. Nothing is ever absolute with these types of questions but we do think it makes more sense for them to lift rates in June rather than to skip. The skipper strikes me as a bit of a messaging quagmire. I don't see an advantage to intentionally skip a single meeting. Core inflation remains fairly elevated in the United States. We think the best move for the Fed is to lift rates in June. We think this will be the last rate hike we see from the Fed. And I would just put it in a broader context. It's not just the Bank of Canada lifting rates. We have seen the Australian central-bank lift rates a few times in recent months. Expecting to see additional rate hike in Europe as well. It really is a case where globally there is a tightening mode. In that sort of environment, I just personally do not see the incentive for the Fed to skip one meeting. Holding June hike July, I don't see the benefit to that from the Fed. So we look for a June hike. >> From a Communications perspective, if they decide the quagmire… We will skip in and get back to July, the market could take that skip as "well they are done now". Maybe the direction is not comfortable. >> Exactly in the risk you run, markets are always really eager to price in a turnaround. As soon as the Bank of Canada said they were done tightening, the markets immediately started pricing near-term rate cuts which really did not work out well. I just think the Fed markets are volatile enough without having uncertainty around Fed policy. I just don't see the advantage in the skip. >> Okay. Interesting stuff and we will know in a week. (Greg reads the question) > So… The rate hikes will help slow price appreciation for sure. But I mean, really fundamentally for me, this is a supply and demand question. Population is growing faster than supply of housing. And that sort of environment it's very difficult for me to tell a story that is compelling in which house prices turn around and fall again from here. I think the rate hikes will help slow house price appreciation but because we are to have a lot of tightening for the curve in prices and we have these very yield curves. We see the mortgage curve. The variable rates are higher than fixed rates. I don't think that sort of tightening that we are talking about, the incremental tightening we are talking about, will be enough to completely change the direction of housing markets. So for that reason we remain fairly constructive on housing for the latter part of this year. >> Will that take housing out of the equation this year for the Bank of Canada? So many people have clearly seen this and you are talking about it. The cost of borrowing is not big enough to turn so dramatically in the year because you have so many people coming here. As you say, they need a roof over their head. These are basic conditions of life. >> This is why I always try to this sort of shy away from the housing question of the Bank of Canada discussion. It's how much disposable income will people have left over after they pay for their housing. Which is a pretty difficult conversation for the Bank of Canada to be having with people. Nobody wants to hear that there disposable income, rent or mortgage payments are shrinking. But functionally, that's going to be how the money policy tightening is going to work. The cost of borrowing goes up. People have less money to spend on other things. … Whether it be meals out or guitars right? People have less money to spend on discretionary consumption. That slows demand in the economy for service services and goods and that's what brings inflation lower ultimately. But it's also, it is a process which tends to put the adjustment of the fairly small group of people. There is a school of thought where the big hand needs a recession and the recession is somehow desirable. I would push back on that for two reasons: number one, we have a very strong population growth. Think of what it will get to get actual GDP negative in Canada. That's a pretty punitive per capita story. The other thing I would push back on his when we are in a recession, we tend to put the cost of that recession on the most vulnerable households. So I would say, if we do wind up, something close to a recession, we probably will have a conversation we look at government support as a positive thing even if it is inflationary in the margin. >> Notice there, Andrew skilfully weaved in a guitar. I have not bought any new guitars. I was just looking at a guitar last night. I feel like all of this is my fault. This economy really Greg? Looking for a guitar? We will get back to your questions with Andrew Kelvin in just a moment and as always make sure to do your own research before making any investment decisions. A reminder of course you can get in touch with anytime by emailing moneytalklive@td.com. Now let's get to our educational segment of the day. If you're interested in finding out what companies make up the TSX or S&P 500, WebBroker has tools which can help. Joining us now with more is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing. Good to see you as always. Let's go through WebBroker and see how you can look at an index and how to do it. >> Well Greg if you're not busy working on looking for a new guitar you might be able to get some new stocks. >> Could be! (Laughing) >> There's a way to look at the market overall there's the S&P 500, some broad-based indexes that have 500 stocks and you can think of the Dow Jones which has that smaller amount like, 30. You look at the TSX 60 and so on. You may not know what stocks are available in there. There is a way you connection quickly review that as well. I want to jump to a page that I think gets ignored sometimes. We will go to "research" in WebBroker and then "indices". You have a number of indices listed on the left-hand side. Before you can find what stocks are in these indexes, this page is really interesting because we get a lot of questions on people asking "where do I find the new 52-week high on stocks and things like that"? You can see the top you're the TSX compass it, if I click on this one… You can see down about midway, it says "new highs and lows" you can see the number of highs and lows on the index or, sometimes these are just an exchange. Will go down to the bottom a little bit further and you can use this drop down to find which stocks did have a new 52 week high or low. More important, but I like to show is on the left-hand side, you can see we have Dow Jones industrial average, you can see if I scroll down further you have the S&P 500 or the NASDAQ etc. If you click on any of these, I will click on the Dow first. If I left click on that it will give me a window that says down at the bottom option changes… I want to select "members". This will shall be one of the stocks in this index. If you're somebody really following the Dow closely, you feel the S&P 500 seems to be where a lot of people are buying stocks, I don't want to research this, you can go in here and you can see all the stocks listed in all of these indexes. There is also a drop down to to look forward to different indexes and indices as well. Even sectors. If you want to look, for example Greg if we were looking at something up the financial sector or energy sector, if I click on the Canadian energy sector, now I can sell the stocks typically oil and energy based stocks in that index. >> Alright. So you find the specific list you're looking for. Anyway to quickly filter through that information? >> Yeah. That's something I really love on this too. We do our screeners available in WebBroker. This is a really quick fast screen you can use. If we jump back in the same page, I'm on that screen right now with the drop down that we just pulled up for the Canadian energy sector, let's go back really quickly. I will go to something like the S&P 500. Again to show a little bit of a bigger list. Now you can filter these, Greg, it's really easy. Sometimes you may not be able to filter for some reason you can't filter my last price but you can filter by the last dollar change. If you want to see which ones have the largest dollar change out of the whole list. If you want to see a really popular thing, it's what is the largest market Of the S&P 500? That's going from lowest to highest rate there. 3.6 billion. But if I click it again, now it's showing me a big comparison and you can see 2.8 trillion for Apple or Microsoft or so on. I can filter by market, I can filter by dividend yield. As well. So I click this a couple of times. I will see which stocks have the highest dividend yield on the S&P 500. These are pretty higher level surface things. But you can also go by performance. This will also be something to get you started. You can go one year to year. I can click on one year for example, lowest to highest. Ascending, here is descending, I can hear first solar for example are Nvidia showing the highest the last year for returns. That gets you started. And then you can take a look at some criteria. Then all you have to do is click on the stock itself and that will take you into the additional research that we talked about before. >> Great stuff as always Bryan. Thanks for that. >> Thanks Greg. >> Our thanks to Bryan Rogers, Senior Client Education Instructor and 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! Before we get back to questions about the economy and rates with Andrew Kelvin, a reminder of how you can get in touch with us. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! All right. We are back with Andrew Kelvin taking your questions with the economy and interest rates. This is the day for them. Here's one, >> We do see it strengthening over a 3 to 6 month horizon. Particularly the sorts of times… Really it is a function of US dollars weakness more than anything. But we do think that with US economy expected to slow and on the latter part of this year as I mentioned earlier, the Canadian economy potentially avoiding recession, we do think the Canadian dollar will strengthen versus the US dollar. So we think we should be able to get something in the context of $0.77 by the end of this year. $0.87 by the end of 2024. I would just note that the Canadian dollar at these levels, it's a bit on the cheap side. From our perspective we are looking at moving back to more normal valuations of the Canadian dollar. >> We are talking maybe high 70s range? That spaces area? >> That's sort of where I think is a longer-term historical normal level. Our end of 2024 forecast is $0.80… 79 to 80… Will I quibble about that? I guess I just did. But that's probably what were talking about here. Nothing dramatic. >> Did you see that US dollar weakness based on the fact that, for economic reasons, will have some tongues wagging. About D dollarization? > I'm sure it will. Because, as you say, that's a topic that comes up every sort of two or three years. The US dollar won't be as prominent as it was 20 years ago. This is sort of a natural consequence of other parts of the world becoming economically more powerful. But, in a timeframe that is my lifetime, barring some sort of disastrous financial mistake being made in Washington DC, it's hard for me to sort of tell a story where the US dollar is not the primary global method of exchange. The primary reserve asset, just because there is not an obvious alternative. The euro is backed by a whole bunch of countries with fiscal policies. European government bonds are not a single credit. It makes a bond market not something that you can just replace the US dollar the US treasury market with. Japan has much more significant debt demographic issues in the United States does. And if you look at China, obviously, the world's growing power… It's not necessarily a capital market that is seen as as attractive a place to invest funds from things like liquidity perspectives. So in a sort of medium to long-term horizon, it's very difficult for me to see a scenario where the US dollar is not still the primary global means of exchange. the debt ceiling is off the table until 2025. >> Yeah, we don't have to worry about that. Get to another question. (Greg reads the question) by lower inflation… >> The short answer is they don't have another tool. They could use more aggressive quantity of tightening but that's interest rates by another name. That's just raising different interest rates. This actually brings up a very interesting conversation around the Bank of Canada. Interesting to me. If were talking about things that drive global inflation, their structural rather than cyclical, monetary policy is maybe not the best tool we can use to deal with it. So maybe we need to have a more concerted front with fiscal agents. With governments. So another way to bring inflation lower would be to raise taxes, for example. Another way to bring inflation lower would be to cut government spending. Another way to bring inflation lower would be things like price caps which have all sorts of negative externalities. Like governments are pretty hesitant to get involved. They will have price caps. Rent control is a price. So there are other tools that are out there that can be used to control inflation but they all have downsides. From a political perspective, I don't think a lot of people would be too appreciative if the federal government came in and said "inflation is 3 1/2%. So sales taxes will be 1% higher." Or income taxes will be 1% higher. That might bring inflation lower but note he wants to see that. >> Might worry about his chances at the next election. >> It would not be great politically. I feel pretty comfortable suggesting that. It's always a little bit awkward we talk about monetary policy in the housing market because I don't think the Bank of Canada wants cannot sing "right, we are out here to lower your house price." That's why it's always a bit of a song and dance around the impact of monetary policy on house prices we hear from the Bank of Canada. So there are these other tools but they all bring with them a lot of baggage. By moving interest rates, you at least let the market decide in the economy decide for itself how it wants to reallocate resources instead of having, you know, people in Ottawa decide where the price cuts are going to happen or the price, the measures to quell inflation are going to be implemented. So there are other tools. I'm not sure the other tools are any more desirable than interest rates. >> Interesting stuff. Here we have if you are saying…(Greg reads the question) > So they are on the rise but I think this is something were context is important. After the pandemic, sort of missed payments, delinquent is on credit cards, really fell to below normal levels. Because we were all so slammed with cash with all the excess savings and people lost their jobs and got transfers. People that had jobs were maybe spending a lot of money. So what happened with the pandemic was delinquency rates declined to less than normal and as the economy normalizes we start to see those dealing with the rates normalized. I don't want to sound too blasé about the risks here but as we see interest rates increase that puts pressure on the household margins. So it is a trend that we are going to be watching for. I'm sure the Bank of Canada will be watching as well. But for now, we don't see the absolute levels of dealing with the rates as something that is problematic for the Canadian household. >> Interesting context there. We will get back to your questions with Andrew Kelvin on the economy and interest rate than just moments time. As always, make sure you do your own research before making any investment decisions and reminder that you can get in touch with us at any time: Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! Lumber prices are mired in a slump since central banks took aim at stubbornly high inflation and the overheated housing market, raising the cost of borrowing and that has an effect on the housing market. Anthony Okolie joins us with TD Securities latest report on recent trends in their outlook on the paper and forest product sector. >> North American lumber prices commodity prices on markets are stuck in an extended price of trough. Would product demand has weakened this year by more than expected at the start of the year. North American soft lumber for example, fell, demand fell an estimated 4.4% in 2022. They are expected to drop another 5.8%, nearly 6% this year. Additionally, lumber weighted stocks have substantially underperformed US homebuilders since the fourth quarter of 2022. TD Securities says that this diversion and share price reflects the valuation capitulation for would weighted equities. Now, for example, measured by price-to-book, for example, lumber equities are nearing multiyear lows. While valuations for US homebuilders or near long-term averages. TD Securities believes that investors are discounting an overly pessimistic capital structure reversal for lumber weighted equities. While TD Securities is not forecasting a rapid earnings recovery in the labour sector, they are comfortable but commodity prices rather the lumber sector, they are comfortable (… Close parentheses North American lumber supply has declined about 6% year-over-year in the first quarter of 2023, by the US West and NBC. US offshore imports for example, in February and March fell for the first time since last May. TD Securities is expecting that current prices in North America will eventually lead imports lower. As a result, TD Securities says that more permanent lumber capacity closures are inevitable, led by BC and will drive eventual markets inflection point Greg? >> So obviously, when you build homes, use lumber. What is TD Securities thinking about for the state of homebuilding in the states for those housing at the start of this year? >> TD Securities expects a decline of 17% in 2032. That rate of decline would be less end than the consensus of expectations at the start of the year. They mention construction activity has proven resilient. Despite the fact that near 7% of a 30 year mortgage rates as well as credit availability constraints. But TD argues that the strong labour market could mitigate these affordability headwinds going forward. >> Interesting stuff. Thanks Anthony. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Now let's take a look at a platform designed for active traders available through TD Direct Investing. We will take a look at the heat map function here. This is giving you a view of what's moving. As we screamed through the TSX 63 one price but also on volume. So the bigger real estate is taking up space on the screen means fairly substantial volume. We have American benchmark crude and energy on this little shy of 73 bucks a barrel. Seeing names like Suncor and Cenovis. Even Enbridge. Now as we take a look over to the material space, we do have the price of gold down about 21, 22 bucks announced. You are seeing the likes of Kinross and Barrick under some pressure but Nutrien is also in that basket and TR, of course a crop nutrient company a potash company. Up to the tune of about 3.6%. Now, there seems to be a bit of risk today when it comes to the tech stocks on both sides of the border. Here at home, the TSX 60, we can show you Shopify right now. As you can see, by the colour of its, a writ of real estate. Down to the tune of a little more than 4%. You can find more information on TD advanced dashboard by visiting td.com/advanced dashboard. Back in with Andrew Kelvin from TD Securities talking rates and economy. A big day. Lots of questions for with the Bank of Canada can do an inflationary situation we are in. ( Greg reads the question) >> That's a great question with a lot of different sort of facets to it. The labour demand piece we are meeting largely by increasing the population through immigration. It really comes to two questions: if you think about things like onshoring, the green transition, as things that are making production more expensive, there is an element to this where it just implies that we have a higher rate of interest at which the economy sort of runs and its trend of 2% inflation. A normal growth. If that's the case, then back to 2% inflation is just a calibration. There is some level of interest rates. Which will bring inflation back to 2%. And the Bank of Canada is just going to solve for that interest rate. They will keep raising interest rates until they see the effect they would like to see. Now, we believe that the Bank will be able to get back to inflation, 2% by the end of 2024. The possibility though, and the truth is probably both of these things are, it was partly true. Because of the use sort of global structural factors, it may also be that monetary policies is not as effective as moving demand as it would have been 30 or 40 years ago. And that sort of the world, you would start talking about a much longer glide path back towards 2% inflation. And I think this sort of speaks to the fact that the Bank of Canada has been really focused on labour market factors and inflation expectations in their Communications in this most recent cycle. The Bank of Canada probably can't do much to control the global green transition or to impact to change the way manufacturers allocate manufacturing capacity in China versus in North America. That's probably be on the Bank of Canada scope to control. With a can-do is control the things that happen within Canada may be a little bit more ability to do that. So maybe we can't change the terms of trade between China and the West. But they can change the terms of trade within Canada and the service economy, those are traders. That's why the Bank of Canada talks with focusing on wages because it wages become entrenched at 3 1/2 or 4%, 3 1/2 is probably not too problematic but if wages are entrenched at four or 5%, productivity doesn't increase along with wages, that's just inherent inherently inflationary. So they can focus on the part of the economy and then they just need to really hoped that the structural pieces fall into place in a way that is consistent with 2% inflation. Because at the end of the day, they are just going to keep trying to get 2% inflation a matter what global structural things are impacted. >> We have technically run out of time for questions but I'm going to double barrel, this is to questions. We have someone saying a lot of people are calling for a recession and where is it? To me this is the other side of this question. Our rate cuts this year still a possibility? >> It depends on the economy. I think there's a more scope for convergence in the US and we have ever had. I think the big thing that is changed is the Canadian population grew by a million people over four quarters. That is a pretty spectacular piece of population growth that brings to manage the economy. If you think about the way we think about recession, we can think about of his negative GDP growth for a couple of quarters. But we are adding a lot more household, it becomes that much harder to get the overall economy into negative territory. So I don't think there will be a recession this year. I do not think rate cuts our conversation for candidate in 2023. I think rate cuts are a 2024 conversation. In the US we can start talking about cuts this year but the US does not have a population growth. > Always a fascinating conversation with you Andrew. See you next time. >> Thank you for having me. >> Our thanks to Andrew Kelvin, Chief Canada Strategist at TD Securities. Be sure to always do your own research before making any investment decisions. Stay tuned on Thursday, Hussein Allidina will be the guest, Head of Commodities a TD Asset Management taking your questions about commodities. And a reminder they can get a head start by emailing moneytalklive@td.com. That's all the time for our show today. See you tomorrow. [music]
[music] >>Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day I'll be joined by guests from across TD, many of whom you will only see here. We we'll take you through it's moving the markets and answer your questions about investing. Coming about today show, TD Securities Chief Canada Strategist Andrew Kelvin will give us his view on the Bank of Canada hiking rates by another 25 basis points. What might be coming our way beyond this week. MoneyTalk's Anthony Okolie will discuss what swing on lumber prices and in today's WebBroker education segment, if you're interested in finding out what stocks actually make up the TSX or S&P 500, Bryan Rogers will show you how you can find out while using the platform. You can email us at moneytalklive@td.com to get in touch with us or Philip at viewer response box under the video player on WebBroker. Before we get to our guest today let's get you an update on the markets. Starting at home with the TSX Composite Index. Some energy names, down to 62 points on headline number, a little shy the third of a percent. We want to check on the energy names and see if they are still holding on some of the gains we've observed this morning and indeed they are. We have Cenovus right now 2 1/2% up, OPEC+ this weekend, the Saudis decided to take over the team. But it's been kind of a choppy ride. Right now American benchmark route a little north of 73 bucks, making some gains feeding in some of the energy names. Shopify, Tech stocks on both sides of the border, risk appetite today for them. Indeed Shopify giving up about 3 3/4 of a percent. South of the border, we want to check on the S&P 500, now a week away from the Fed giving us a rate decision on the yields of the Bank of Canada today. Down 12 points a little shy of 1/3 of a percent. The tech heavy NASDAQ,a little behind the broader market. One of those names in the semiconductor spaces, Advanced Micro Devices down to the tune of two and half percent. And that your market update. The Bank of Canada surprised the markets, raising its trendsetting rate by another quarter point. Saying concerns are growing that inflation is going to get stuck above target. Joining us now with Maurice Andrew Kelvin, Chief Canada Strategist at TD Securities. We were chatting yesterday afternoon ahead of the show and you were saying there is a hike coming. Kudos to you for calling this one. It was a bit of a coin toss. Why did this happen? >> Thank you there were some nerve-racking moments for me this morning. I think the best way to explain is to go back to January when the pause was first announced from the Bank of Canada. At the time the Bank of Canada was waiting for GDP growth of 1%, 2023, talking about a recession… Inflation was expected to get down to sort of the mid-choose by the fourth quarter of this year. As of the most recent data, we have seen on the TD Securities side, growth was 1.5 or 1.6% this year, quite a big deviation for the Bank originally saw the economy when they announced their pause. We don't think inflation will get below 3% this year. And that sort of the world, it became very difficult to justify that on hold, the Bank announced on the way back in January. If you go to April, the Bank was very open that they had discussed rates in April. The US banking issues, let's call them. We've had a surprising GDP, upset surprise and inflation, and upside surprises on employment. In a world where you were not going to hike because the economy was going to slow, and then the economy did not slow, it just follows that they had to hike. Here we are today. >> Very specific concerns today. Of course we didn't get a media availability except for the senior deputy governor explaining their move today. All they have is that piece of paper. They did outline some concerns. GDP, talking about inflation. One that struck out to me was growing concerned that they are hearing from the Bank that perhaps inflation isn't going to get back to target unless they take further moves. What you think this shift is? I think the last time we heard them speak, they said to something and suddenly there were concerns. >> One lump does not a trend make but it has been four, five, six months where the economy did not slow. Yet unemployment rate has been 5% for all of this year despite that very tight monetary policy. The Bank sort of framework for thinking about this is to bring inflation lower. There was a reasonable concern in January that, given there are impacts of rate hikes, given the very high degree of household leverage in Canada, that the rate hikes already in place in the second quarter of this year, the third quarter this year, they would start having really significant negative impacts on household spending. What we've seen over the first half of the year, we are getting pretty close to the midway point… Is really tremendous resilience from the household. They were lifting rates to the point where they were trying to make household spending slow down. They now see the benefit of hindsight that perhaps they did not raise rates enough to cobble cycle. >> Now, this takes us to what happens next. You are thinking you are thinking today they would go 25. Do they go 25 again the next week? >> I do think so. A single 25 basis point rate hike, when restarting the cycle would be historically pretty rare for them. I can find examples, in 2007, the Bank of Canada hike. But the world changed pretty dramatically. If the world changes dramatically again, the Bank of Canada can reverse course. With the momentum in the economy is such that a single 25 basis point move is not going to steer growth comfortably back to a below trend level. That's what they're trying to do. They are not trying to engineer a hard landing. They don't hate Canadians. They are trying to slow growth in a sort of like a gentler fashion. But 25 basis points will probably not do that. So unless they see something change in the world are they see an indication that in fact, they didn't need to make that move because growth grew so dramatically or inflation decelerated faster than expected, we can change tactic. But as it stands the strength of the economy is such that 25 basis points won't be enough to really change the course of the economy. >> Now of course, in the past when the housing market has been accelerating to the upside in terms of volume and price, different central-bank governments, we are thinking of the government of… We have to worry about the broader economy. We have one lever to pull. We can't worry about the housing market. They did make mention of the housing market saying they had seen spending on the interest of goods increase. This is not supposed to happen when you raise rates. Goods are supposed to be shunned in housing market activity is picking up. They definitely have to keep it on the radar. >> They do. As much as they don't want to be driven solely by what happens in the housing market, Canadians can be very reductive about how we think of the economy. We think house prices are an indicator if the economy is doing well or not. The Bank of Canada needs to think of a broader picture than that. At the same time, they can't ignore it. This goes back to this idea in January they were concerned that some of the rate hikes would have a slowing impact and a dramatic impact on the economy. As you know, the housing market is been doing just fine. This is a supply and demand issue. To some extent. It's not just housing. I think the same dynamic is present in the auto sector as well. On the housing side, we have this very strong population growth in Canada. Canada is really really good at bringing in people and populations. We are less good at building houses for that increased population. When demand increases arrive supply goes up. We have continue to see below trend automotive production. When people come to this country, they need three things, food and their belly, roof over their head, a way to get around. We have not built enough cars for the population in North America the last two years. I think it follows that we should see continued strong spending on things like motor vehicles as a way of, even if supply chains are healed, there is still an overwhelming demand for some of the items that were impacted by the supply chain disruption. So I think there are these supply and demand factors that are still impacting things inasmuch as the Bank of Canada can control these things, they have one job. That job is 2% inflation. They have one tool they have to use it. >> Some of things they can control, the statement they said they were taking this action today, to bring inflation back down and come off the sidelines, going forward they are going to evaluate things. Excess demand, inflation expectations, wage growth… Apparently corporate pricing behaviour. Are you worried about that there? This goes back to inflation. Prices being set by the private sector that work for food and goods. >> I think there's a little bit of messaging that they are trying to get her head around. I think a lot of the times, if I put my economist had on, I think of corporate pricing decisions. That is just part and parcel with inflation. When demand is up, corporate pricing power increases and inflation resolves. The Bank of Canada got some criticism a while ago for being focused on wages and not corporate profits. That was always a bit of a false dichotomy from the Bank of campus perspective. I don't think they recognized how that necessarily sounded to some segments of the population. So I think this is simply the Bank of Canada acknowledging – > You're making too much money. You are the problem here. (Laughing) >> We saw those articles in the media to that effect. I think the Bank of Canada was sensitive that criticism. This goes back to a broader effort that the Bank of Canada has to try and better explain what they do to Canadians. And then, when Canadians get the feedback, "we don't like that you are focused on wages, why are you talking about corporate profits?" The Bank of Canada is unpacking the assumptions already import Inc. and their models. > Interesting stuff in an interesting day. Great start to the show. We will get to your questions with the economy and interest rates with Andrew Kelvin in just a moment's time. A reminder of course you can get in touch with us any time by emailing moneytalklive@td.com or Philip the viewer response box on WebBroker. Now let's get you updated on the top stories in the world of business and take a look at how the markets are trading. The strain on household budgets from the high cost of living appears to be benefiting Dollarama. The retailer is reporting a more than 20% jump in sales compared to the same quarter last year. The increase came as Dollarama saw more customers visited stores which offer what he calls an affordable product mix. Transcontinental is announcing the changing of the guard at the top, the Montréal-based packing company packaging company rather has appointed Thomas Morin as Pres. and CEO, effective immediately replacing Peter Brues. Transcontinental also reported its quarterly earnings today, beating expectations. Shares of Tesla are in the spotlight today after the electric vehicle maker updated its website to see the new model Y and model three cars are eligible for a tax credit under the US inflation reduction back. The credit is valued at $7500. Now a check on the main benchmark index in Canada. South of the border, the S&P 500 now a week out of the next rate decision from the US Federal Reserve. Down a modest eight points. Down 1/5 of a percent as well. We are back now with Andrew Kelvin taking your questions about the economy and interest rates. Looking on the heels of the BOC rate hike today, GIC rates have been creeping higher recently. Do you expect them to rise further from here? What drives GE's GIC rates? >> In terms of what drives, interest rates more broadly, the underlying thing that impacts any sort of fixed income instrument has to be the Government of Canada bond curve. That is your sort of, fundamental underlying fixed income asset. Today we saw the government of Canada yields rise right sharply. After this rate hike. It's sort of an interesting dynamic when you were talking about Canadian interest rates. The Bank of Canada has sole control over what the overnight point of the curve does. We are also pretty materially impacted by what happens in the United States. So in the short term, the fact that you go you know, central banks the world over are tightening, we need to support these upward creeps in GIC rates. When we get towards the end of the year, we think the US economy will run into a bit of trouble. That tends to produce lower interest rates in the United States. Sort of across the yield curve. That tends to bleed into, sort of, every global bond market. So, we actually expect Canadian yields to finish below where they are because we expect to see US yields following. We think the Fed is pretty close to the end of its tightening cycle. Once we start talking about the US recession, that becomes the dominant narrative. We will see a pretty material lowering in US yields this year which will translate into much lower Canadian yields. >> This is a nice segue to the next question we have here. (Greg reads the question) >>… We think the Fed will lift rates. >> In the next meeting. They will not skip to July. >> We don't think they will skip. Never say never. Nothing is ever absolute with these types of questions but we do think it makes more sense for them to lift rates in June rather than to skip. The skipper strikes me as a bit of a messaging quagmire. I don't see an advantage to intentionally skip a single meeting. Core inflation remains fairly elevated in the United States. We think the best move for the Fed is to lift rates in June. We think this will be the last rate hike we see from the Fed. And I would just put it in a broader context. It's not just the Bank of Canada lifting rates. We have seen the Australian central-bank lift rates a few times in recent months. Expecting to see additional rate hike in Europe as well. It really is a case where globally there is a tightening mode. In that sort of environment, I just personally do not see the incentive for the Fed to skip one meeting. Holding June hike July, I don't see the benefit to that from the Fed. So we look for a June hike. >> From a Communications perspective, if they decide the quagmire… We will skip in and get back to July, the market could take that skip as "well they are done now". Maybe the direction is not comfortable. >> Exactly in the risk you run, markets are always really eager to price in a turnaround. As soon as the Bank of Canada said they were done tightening, the markets immediately started pricing near-term rate cuts which really did not work out well. I just think the Fed markets are volatile enough without having uncertainty around Fed policy. I just don't see the advantage in the skip. >> Okay. Interesting stuff and we will know in a week. (Greg reads the question) > So… The rate hikes will help slow price appreciation for sure. But I mean, really fundamentally for me, this is a supply and demand question. Population is growing faster than supply of housing. And that sort of environment it's very difficult for me to tell a story that is compelling in which house prices turn around and fall again from here. I think the rate hikes will help slow house price appreciation but because we are to have a lot of tightening for the curve in prices and we have these very yield curves. We see the mortgage curve. The variable rates are higher than fixed rates. I don't think that sort of tightening that we are talking about, the incremental tightening we are talking about, will be enough to completely change the direction of housing markets. So for that reason we remain fairly constructive on housing for the latter part of this year. >> Will that take housing out of the equation this year for the Bank of Canada? So many people have clearly seen this and you are talking about it. The cost of borrowing is not big enough to turn so dramatically in the year because you have so many people coming here. As you say, they need a roof over their head. These are basic conditions of life. >> This is why I always try to this sort of shy away from the housing question of the Bank of Canada discussion. It's how much disposable income will people have left over after they pay for their housing. Which is a pretty difficult conversation for the Bank of Canada to be having with people. Nobody wants to hear that there disposable income, rent or mortgage payments are shrinking. But functionally, that's going to be how the money policy tightening is going to work. The cost of borrowing goes up. People have less money to spend on other things. … Whether it be meals out or guitars right? People have less money to spend on discretionary consumption. That slows demand in the economy for service services and goods and that's what brings inflation lower ultimately. But it's also, it is a process which tends to put the adjustment of the fairly small group of people. There is a school of thought where the big hand needs a recession and the recession is somehow desirable. I would push back on that for two reasons: number one, we have a very strong population growth. Think of what it will get to get actual GDP negative in Canada. That's a pretty punitive per capita story. The other thing I would push back on his when we are in a recession, we tend to put the cost of that recession on the most vulnerable households. So I would say, if we do wind up, something close to a recession, we probably will have a conversation we look at government support as a positive thing even if it is inflationary in the margin. >> Notice there, Andrew skilfully weaved in a guitar. I have not bought any new guitars. I was just looking at a guitar last night. I feel like all of this is my fault. This economy really Greg? Looking for a guitar? We will get back to your questions with Andrew Kelvin in just a moment and as always make sure to do your own research before making any investment decisions. A reminder of course you can get in touch with anytime by emailing moneytalklive@td.com. Now let's get to our educational segment of the day. If you're interested in finding out what companies make up the TSX or S&P 500, WebBroker has tools which can help. Joining us now with more is Bryan Rogers, Senior Client Education Instructor with TD Direct Investing. Good to see you as always. Let's go through WebBroker and see how you can look at an index and how to do it. >> Well Greg if you're not busy working on looking for a new guitar you might be able to get some new stocks. >> Could be! (Laughing) >> There's a way to look at the market overall there's the S&P 500, some broad-based indexes that have 500 stocks and you can think of the Dow Jones which has that smaller amount like, 30. You look at the TSX 60 and so on. You may not know what stocks are available in there. There is a way you connection quickly review that as well. I want to jump to a page that I think gets ignored sometimes. We will go to "research" in WebBroker and then "indices". You have a number of indices listed on the left-hand side. Before you can find what stocks are in these indexes, this page is really interesting because we get a lot of questions on people asking "where do I find the new 52-week high on stocks and things like that"? You can see the top you're the TSX compass it, if I click on this one… You can see down about midway, it says "new highs and lows" you can see the number of highs and lows on the index or, sometimes these are just an exchange. Will go down to the bottom a little bit further and you can use this drop down to find which stocks did have a new 52 week high or low. More important, but I like to show is on the left-hand side, you can see we have Dow Jones industrial average, you can see if I scroll down further you have the S&P 500 or the NASDAQ etc. If you click on any of these, I will click on the Dow first. If I left click on that it will give me a window that says down at the bottom option changes… I want to select "members". This will shall be one of the stocks in this index. If you're somebody really following the Dow closely, you feel the S&P 500 seems to be where a lot of people are buying stocks, I don't want to research this, you can go in here and you can see all the stocks listed in all of these indexes. There is also a drop down to to look forward to different indexes and indices as well. Even sectors. If you want to look, for example Greg if we were looking at something up the financial sector or energy sector, if I click on the Canadian energy sector, now I can sell the stocks typically oil and energy based stocks in that index. >> Alright. So you find the specific list you're looking for. Anyway to quickly filter through that information? >> Yeah. That's something I really love on this too. We do our screeners available in WebBroker. This is a really quick fast screen you can use. If we jump back in the same page, I'm on that screen right now with the drop down that we just pulled up for the Canadian energy sector, let's go back really quickly. I will go to something like the S&P 500. Again to show a little bit of a bigger list. Now you can filter these, Greg, it's really easy. Sometimes you may not be able to filter for some reason you can't filter my last price but you can filter by the last dollar change. If you want to see which ones have the largest dollar change out of the whole list. If you want to see a really popular thing, it's what is the largest market Of the S&P 500? That's going from lowest to highest rate there. 3.6 billion. But if I click it again, now it's showing me a big comparison and you can see 2.8 trillion for Apple or Microsoft or so on. I can filter by market, I can filter by dividend yield. As well. So I click this a couple of times. I will see which stocks have the highest dividend yield on the S&P 500. These are pretty higher level surface things. But you can also go by performance. This will also be something to get you started. You can go one year to year. I can click on one year for example, lowest to highest. Ascending, here is descending, I can hear first solar for example are Nvidia showing the highest the last year for returns. That gets you started. And then you can take a look at some criteria. Then all you have to do is click on the stock itself and that will take you into the additional research that we talked about before. >> Great stuff as always Bryan. Thanks for that. >> Thanks Greg. >> Our thanks to Bryan Rogers, Senior Client Education Instructor and 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! Before we get back to questions about the economy and rates with Andrew Kelvin, a reminder of how you can get in touch with us. Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! All right. We are back with Andrew Kelvin taking your questions with the economy and interest rates. This is the day for them. Here's one, >> We do see it strengthening over a 3 to 6 month horizon. Particularly the sorts of times… Really it is a function of US dollars weakness more than anything. But we do think that with US economy expected to slow and on the latter part of this year as I mentioned earlier, the Canadian economy potentially avoiding recession, we do think the Canadian dollar will strengthen versus the US dollar. So we think we should be able to get something in the context of $0.77 by the end of this year. $0.87 by the end of 2024. I would just note that the Canadian dollar at these levels, it's a bit on the cheap side. From our perspective we are looking at moving back to more normal valuations of the Canadian dollar. >> We are talking maybe high 70s range? That spaces area? >> That's sort of where I think is a longer-term historical normal level. Our end of 2024 forecast is $0.80… 79 to 80… Will I quibble about that? I guess I just did. But that's probably what were talking about here. Nothing dramatic. >> Did you see that US dollar weakness based on the fact that, for economic reasons, will have some tongues wagging. About D dollarization? > I'm sure it will. Because, as you say, that's a topic that comes up every sort of two or three years. The US dollar won't be as prominent as it was 20 years ago. This is sort of a natural consequence of other parts of the world becoming economically more powerful. But, in a timeframe that is my lifetime, barring some sort of disastrous financial mistake being made in Washington DC, it's hard for me to sort of tell a story where the US dollar is not the primary global method of exchange. The primary reserve asset, just because there is not an obvious alternative. The euro is backed by a whole bunch of countries with fiscal policies. European government bonds are not a single credit. It makes a bond market not something that you can just replace the US dollar the US treasury market with. Japan has much more significant debt demographic issues in the United States does. And if you look at China, obviously, the world's growing power… It's not necessarily a capital market that is seen as as attractive a place to invest funds from things like liquidity perspectives. So in a sort of medium to long-term horizon, it's very difficult for me to see a scenario where the US dollar is not still the primary global means of exchange. the debt ceiling is off the table until 2025. >> Yeah, we don't have to worry about that. Get to another question. (Greg reads the question) by lower inflation… >> The short answer is they don't have another tool. They could use more aggressive quantity of tightening but that's interest rates by another name. That's just raising different interest rates. This actually brings up a very interesting conversation around the Bank of Canada. Interesting to me. If were talking about things that drive global inflation, their structural rather than cyclical, monetary policy is maybe not the best tool we can use to deal with it. So maybe we need to have a more concerted front with fiscal agents. With governments. So another way to bring inflation lower would be to raise taxes, for example. Another way to bring inflation lower would be to cut government spending. Another way to bring inflation lower would be things like price caps which have all sorts of negative externalities. Like governments are pretty hesitant to get involved. They will have price caps. Rent control is a price. So there are other tools that are out there that can be used to control inflation but they all have downsides. From a political perspective, I don't think a lot of people would be too appreciative if the federal government came in and said "inflation is 3 1/2%. So sales taxes will be 1% higher." Or income taxes will be 1% higher. That might bring inflation lower but note he wants to see that. >> Might worry about his chances at the next election. >> It would not be great politically. I feel pretty comfortable suggesting that. It's always a little bit awkward we talk about monetary policy in the housing market because I don't think the Bank of Canada wants cannot sing "right, we are out here to lower your house price." That's why it's always a bit of a song and dance around the impact of monetary policy on house prices we hear from the Bank of Canada. So there are these other tools but they all bring with them a lot of baggage. By moving interest rates, you at least let the market decide in the economy decide for itself how it wants to reallocate resources instead of having, you know, people in Ottawa decide where the price cuts are going to happen or the price, the measures to quell inflation are going to be implemented. So there are other tools. I'm not sure the other tools are any more desirable than interest rates. >> Interesting stuff. Here we have if you are saying…(Greg reads the question) > So they are on the rise but I think this is something were context is important. After the pandemic, sort of missed payments, delinquent is on credit cards, really fell to below normal levels. Because we were all so slammed with cash with all the excess savings and people lost their jobs and got transfers. People that had jobs were maybe spending a lot of money. So what happened with the pandemic was delinquency rates declined to less than normal and as the economy normalizes we start to see those dealing with the rates normalized. I don't want to sound too blasé about the risks here but as we see interest rates increase that puts pressure on the household margins. So it is a trend that we are going to be watching for. I'm sure the Bank of Canada will be watching as well. But for now, we don't see the absolute levels of dealing with the rates as something that is problematic for the Canadian household. >> Interesting context there. We will get back to your questions with Andrew Kelvin on the economy and interest rate than just moments time. As always, make sure you do your own research before making any investment decisions and reminder that you can get in touch with us at any time: Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live! Lumber prices are mired in a slump since central banks took aim at stubbornly high inflation and the overheated housing market, raising the cost of borrowing and that has an effect on the housing market. Anthony Okolie joins us with TD Securities latest report on recent trends in their outlook on the paper and forest product sector. >> North American lumber prices commodity prices on markets are stuck in an extended price of trough. Would product demand has weakened this year by more than expected at the start of the year. North American soft lumber for example, fell, demand fell an estimated 4.4% in 2022. They are expected to drop another 5.8%, nearly 6% this year. Additionally, lumber weighted stocks have substantially underperformed US homebuilders since the fourth quarter of 2022. TD Securities says that this diversion and share price reflects the valuation capitulation for would weighted equities. Now, for example, measured by price-to-book, for example, lumber equities are nearing multiyear lows. While valuations for US homebuilders or near long-term averages. TD Securities believes that investors are discounting an overly pessimistic capital structure reversal for lumber weighted equities. While TD Securities is not forecasting a rapid earnings recovery in the labour sector, they are comfortable but commodity prices rather the lumber sector, they are comfortable (… Close parentheses North American lumber supply has declined about 6% year-over-year in the first quarter of 2023, by the US West and NBC. US offshore imports for example, in February and March fell for the first time since last May. TD Securities is expecting that current prices in North America will eventually lead imports lower. As a result, TD Securities says that more permanent lumber capacity closures are inevitable, led by BC and will drive eventual markets inflection point Greg? >> So obviously, when you build homes, use lumber. What is TD Securities thinking about for the state of homebuilding in the states for those housing at the start of this year? >> TD Securities expects a decline of 17% in 2032. That rate of decline would be less end than the consensus of expectations at the start of the year. They mention construction activity has proven resilient. Despite the fact that near 7% of a 30 year mortgage rates as well as credit availability constraints. But TD argues that the strong labour market could mitigate these affordability headwinds going forward. >> Interesting stuff. Thanks Anthony. >> My pleasure. >> MoneyTalk Live's Anthony Okolie. Now let's take a look at a platform designed for active traders available through TD Direct Investing. We will take a look at the heat map function here. This is giving you a view of what's moving. As we screamed through the TSX 63 one price but also on volume. So the bigger real estate is taking up space on the screen means fairly substantial volume. We have American benchmark crude and energy on this little shy of 73 bucks a barrel. Seeing names like Suncor and Cenovis. Even Enbridge. Now as we take a look over to the material space, we do have the price of gold down about 21, 22 bucks announced. You are seeing the likes of Kinross and Barrick under some pressure but Nutrien is also in that basket and TR, of course a crop nutrient company a potash company. Up to the tune of about 3.6%. Now, there seems to be a bit of risk today when it comes to the tech stocks on both sides of the border. Here at home, the TSX 60, we can show you Shopify right now. As you can see, by the colour of its, a writ of real estate. Down to the tune of a little more than 4%. You can find more information on TD advanced dashboard by visiting td.com/advanced dashboard. Back in with Andrew Kelvin from TD Securities talking rates and economy. A big day. Lots of questions for with the Bank of Canada can do an inflationary situation we are in. ( Greg reads the question) >> That's a great question with a lot of different sort of facets to it. The labour demand piece we are meeting largely by increasing the population through immigration. It really comes to two questions: if you think about things like onshoring, the green transition, as things that are making production more expensive, there is an element to this where it just implies that we have a higher rate of interest at which the economy sort of runs and its trend of 2% inflation. A normal growth. If that's the case, then back to 2% inflation is just a calibration. There is some level of interest rates. Which will bring inflation back to 2%. And the Bank of Canada is just going to solve for that interest rate. They will keep raising interest rates until they see the effect they would like to see. Now, we believe that the Bank will be able to get back to inflation, 2% by the end of 2024. The possibility though, and the truth is probably both of these things are, it was partly true. Because of the use sort of global structural factors, it may also be that monetary policies is not as effective as moving demand as it would have been 30 or 40 years ago. And that sort of the world, you would start talking about a much longer glide path back towards 2% inflation. And I think this sort of speaks to the fact that the Bank of Canada has been really focused on labour market factors and inflation expectations in their Communications in this most recent cycle. The Bank of Canada probably can't do much to control the global green transition or to impact to change the way manufacturers allocate manufacturing capacity in China versus in North America. That's probably be on the Bank of Canada scope to control. With a can-do is control the things that happen within Canada may be a little bit more ability to do that. So maybe we can't change the terms of trade between China and the West. But they can change the terms of trade within Canada and the service economy, those are traders. That's why the Bank of Canada talks with focusing on wages because it wages become entrenched at 3 1/2 or 4%, 3 1/2 is probably not too problematic but if wages are entrenched at four or 5%, productivity doesn't increase along with wages, that's just inherent inherently inflationary. So they can focus on the part of the economy and then they just need to really hoped that the structural pieces fall into place in a way that is consistent with 2% inflation. Because at the end of the day, they are just going to keep trying to get 2% inflation a matter what global structural things are impacted. >> We have technically run out of time for questions but I'm going to double barrel, this is to questions. We have someone saying a lot of people are calling for a recession and where is it? To me this is the other side of this question. Our rate cuts this year still a possibility? >> It depends on the economy. I think there's a more scope for convergence in the US and we have ever had. I think the big thing that is changed is the Canadian population grew by a million people over four quarters. That is a pretty spectacular piece of population growth that brings to manage the economy. If you think about the way we think about recession, we can think about of his negative GDP growth for a couple of quarters. But we are adding a lot more household, it becomes that much harder to get the overall economy into negative territory. So I don't think there will be a recession this year. I do not think rate cuts our conversation for candidate in 2023. I think rate cuts are a 2024 conversation. In the US we can start talking about cuts this year but the US does not have a population growth. > Always a fascinating conversation with you Andrew. See you next time. >> Thank you for having me. >> Our thanks to Andrew Kelvin, Chief Canada Strategist at TD Securities. Be sure to always do your own research before making any investment decisions. Stay tuned on Thursday, Hussein Allidina will be the guest, Head of Commodities a TD Asset Management taking your questions about commodities. And a reminder they can get a head start by emailing moneytalklive@td.com. That's all the time for our show today. See you tomorrow. [music]