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[music] Welcome to MoneyTalk, brought to you by TD direct investing.
I want to take you through the market and answer your questions about investing.
Coming up today, the whole is steady.
Andrew Kelvin, Head of Canadian Global Rates Strategy is our guest.
Anthony Okolie it will have a look at how auto sales will save half of the economy.
Caitlin is going to show us how you can find more information about GIC on the platform.
To get in touch with us, email us@td.com or fill in the response box on WebBroker.
Today, updates on the markets.
It is not a good day.
Topline number, that's a pullback of almost a full percent.
Crude pretty much holding steady.
After the last few sessions. One of the most actively traded names on the TSX, Enbridge is standing today.
Enbridge announced after the close yesterday that it's buying three natural gas utilities in the United States. When you roll depth into the price tag, this is a deal of $14 billion.
Here's the market reaction. 45, down to a 5 1/2%. We do have crude holding steady.
Looking at the energy names, we've got a pretty modest, just 1/3 of a percent.
South of the border, we have more economic data points.
Service is a manufacturing data.
The market is nervous about whether the Fed may or may not be done in this rate hiking cycle.
Bond yields are moving higher as well.
The S&P 500 is down with 35 points, a little shy of a full percent.
Tech names are getting hit a bit harder today.
Hundred 50 points deficit, down to a full percent there.
Some of the most high flying names doing back, including Nvidia.
And videos GPU, fulfilling the role and all that.
Today, they are down 3 1/2%. That's your market update.
, The Bank of Canada has held its key rate steady at 5%, but they are also warning that there are still line inflation and that they need to, they would hike further to tame inflation rates.
Have you back in the program.
We got a whole day on our hand, but were going to warn you. If things aren't going the way we want, we will raise that rates again.
>> I'll say up front, we do think the Bank of Canada is done.
We think we will stay there for several quarters now.
I think that the Bank of Canada want to avoid is send the signal to markets that they are going to quickly turn around and cut rates.
That is not the thought process currently.
The hawkish hole is designed to achieve a few goals. They want to temper expectations to low anchor. The will to bring inflation back to 2%. Inflation of course is not currently at 2%. It's running above three.
They can't be happy with the state of the world as it is.
They talk about how the still lack impact of monetary policy and we are seeing signs of excessive demands, growing slowly.
There are signs of monetary policy working.
Expect to work further to keep growth on the slow side to bring inflation lower.
That's why they believe they can stay on the whole.
I it turns out that if it's not enough to bring it back to 2%, they are required to do more.
That is the message they are trying to send here.
I don't think they should be surprised.
Would always be premature to declare victory with inflation running above 3%.
But I think in terms of acknowledging that the growth has been weaker in the second quarter, that does show that they are not gung ho on listing rates.
>> , I don't think it would be a straight line, it would always be a bumpy ride.
They did sort of warned today that with the pep price of gasoline at the price of bench partner Mark crude, we might see inflation a little higher before it goes down.
We seem to be acknowledging that. I don't imagine that would knock them off there's course.
>> Inflation is getting higher because of oil prices, that's right. That's not to say we're out of the woods because if inflation is higher, we do have a forecast in Canada as well.
We are looking at wage growth, is sort of thing upsets demand.
Not necessarily gas prices, but core inflation is broadly defined, and you combine that with auto market GDP, or wage growth increasing, a combination of those things could bring Canada hike back in the future.
That is not a base case, but I think the Bank of Canada wants to make sure every one is sure they are not of the duck, but they have done everything to try to be at the top.
>> With wage growth remaining around four or 5%.
. . >> We are seeing itwage incorporating growth in that area.
Canada is not high enough to support a 5% wage growth to support inflation beyond the 5% target. Ultimately, the bet has to be that as growth slows, the unemployment's rises, when we do is we enjoy strong labour force growth.
We do not necessarily draw losses, but slowly increase jobs, you can increase unemployment rate without sending the economy into recession.
We have a little bit less of a shortage in some industries.
The hope would be that wage growth slows.
That's will the Bank of Canada is looking to achieve here. The slow growth as we are seeing is needed to bring the economy back in the balance.
>> normally, that reverberates. What about the bond markets themselves are trying to tell us?
They are pushing higher.
The things about the state today, what does the bond market say question mark they are not singing the same tune. They fall out of step with each other.
>> first, and Canada, you tend not to hear a lot of Bank of Canada communication in August.
It has done a pretty good job updating about data surprises.
We are kind of left in the dark as to how Canada would interpret it.
With the GDP numbers we have that are quite weak, that is a thing that is a little bit tricky about the month of September. You have less guidance for central bank officials.
Additionally, some markets are notoriously volatile.
You have larger moves in data points that you would expect in the spring or fall.
Sometimes, markets do strange things for a reason that market participants have a hard time explaining.
If you look at some of the big increases we have seen over the last months and weeks, they have exacerbated by trading conditions.
I think the market is looking at the situation in the US and the are a little bit less certain than they have been in the past that the Fed is done.
At the same time, we talk about the Bank of Canada pushing for persistence on pressures. I think there is a persistence that rates will be a higher level over the median term then perhaps people are anticipating. Earlier in the cycle, we did have a pop higher, but it could be reversed.
We have a change of bets in terms of how quickly… Before pandemic, those were strangely low rates. But how quickly we will come back to normal rates, people revise those expectations.
>> always great insights integrates start the program.
You can get in touch with us at any time.
Just ride to moneytalklivetd.com Right now, let's take a look at how the markets are trading.
The uncertainty over the economy and interest rates appears to be weighing on cut Toronto.
We show that benchmark prices are virtually flat in comparison to months earlier.
The board says buyers and sellers appear to be waiting for a little more certainty regarding the overall state of the economy. Enbridge on the spotlight today.
They buy three utilities south of the border from Dominion Energy, for $9.4 billion US. This is the natural gas business. Enbridge natural gas utilities are a must-have piece of infrastructure.
If you include depth into that price tag, the overall is valued at $14 billion.
The market reaction is putting the shares lower.
Southwest Airlines say that bookings came into the low Ann's of their expectations.
As a result, the airline is saying revenue per average is going to be the lower end of its previous forecast. On top of that, Southwest is saying it is facing higher fuel costs. There are a few US airlines think the same thing. A quick look at the benchmark indices.
Triple digit losses, almost a full percent.
South of the border, those questions that Andrew were laying, was the future path of inflation question mark we've got that 38 point loss, almost a full percent.
We are back with Andrew Kelvin. Interest rates, how long can inflation stay elevated?
>> the Bank of Canada's goal is to get back to 2% inflation.
If their mandate.
I do believe they will achieve it.
To the extent that inflation does not move as quickly back to 2% as we would expect our whole, that's going to create another response from the bank of Canada. They will double their efforts in order to move back to 2% inflation. From that perspective, I do see us back to 2%. There is always a level of interest rates.
I believe that Central Bank of Canada use this specifically in environments where inflation is well anchored, which is how I would characterize Canada.
Having said that, we don't expect to get back to 2% inflation until late next year.
Early 2025, perhaps.
That's conditioned under fairly soft growth path.
We do not expect a recession Canada, but we do expect soft growth.
We expect it will take some time still, which is why the Bank of Canada has that underlying level of concerned around the persistence of inflation.
In the Bank of Canada, for whatever reason, the size it can be a afford to be very patient, we could push the timeframe further down the road.
If we see significant positive external growth drivers, if the oil economy is doing better-than-expected, if UEC gets back to federal level, we could delay that level to 2%. I can I think we can see above 2% inflation for quite some time because it's not just mortgage interest costs.
There is a fairly broad basket of goods and services that are seeing inflation well above 2%.
>> the big news of the dayis they did talk about the quantitative timing. In terms of that part of the equation what, what can that do to bring it down question mark >> quantitative is just operating in the background here,.
in my view, the pandemic called for central banks using all tools at their disposal.
That was one of their tools.
At this point, there are letting bonds and balance sheets rolloff and not replacing them.
You will take the back of Canada's own estimates at least two 2024 to get back to a steady-state level on their balance sheet.
I would look to quantitative technique just operating in the background, but that does, all things being equal… The yield level of yields out there in the market would be higher today if it weren't for quantitative easing from the bank of Canada.
If you look at the financial crisis, the Bank of Canada did quantitative easing, but that it didn't have to because Canadian interest rates and Canadian bond yields… I would be surprised to see the Bank of Canada speeding things up.
>> another question, given the rate environment, a viewer wants to know if they have peaked.
>> I will speak at the general outlook we have for the bond market for yields rest respect.
As I said just a moment ago, Canadian bond yields tend to follow US rates, particularly at the longer terms.
We do believe that we will see the economy is slow in the latter part of 2023.
That should put more pressure on US bond yields.
We will see bond yields quite a lower for for a few quarters. Canadian yields will be expected to follow and data environment.
If we are not at the peak, we believe we are close to it.
That's the environment.
I would expect the broad fixed income universe with interest rates to start seeing rates decline over the back half of 2023 and into 2024, contingent on the US economy slowing.
>> another question on the slate of things.
We were surprised by seeing a modest contraction.
Are we in the beginning of a recession right now?
How are things looking?
>> I would push back a little bit on the corridor to numbers.
It was negative due to inventories and exports.
I don't expect that we are currently in recession.
We expect GDP will be low but positive in the third quarter.
Even if we have a slightly negative quarter, I don't, I would be reluctant to characterizes as a recession.
We don't expect that in Canada if, for only the reason that we have this very strong population growth.
I think it's very difficult for me to tell a story where we have an aggregate negative GDP growth for more than 1/4 or two, or really any quarter.
We don't expect negative GDP at any point in our forecast.
Just because we are growing the ovulation so strongly.
Per capita, I would expect that.
>> them they know the math on airlines, more people in the economy, more people working.
Are they worried about that?
>> ultimately, what they care about is inflation.
in so far as it impacts of inflation numbers. The supply and demand impact from inflation balances the perspective, because they are trying to achieve balance.
As it takes time for the infrastructure can Army and the skills economy to adapt to the Canadian market, it can have an impact on demand and supply.
We see it in this housing market.
Giving enough time, we expect the market to supply enough housing for the growth of population, but the acceleration of population growth, that clearly hasn't been the case and we see that in house prices.
. . when you have more people demanding shelter, that creates more demand.
>> make sure because for you make your own research before you make any investment decision.
In touch with us at any time.
Just email moneytalklivetd.com We just had a question about GIC.
GIC interest rates have been more attractive to some investors.
If you do some research on the space, WebBroker can help.
Here is our instructor.
Caitlin, nice to see you.
With the we have in WebBroker here?
>> very timely, as you said.
We are talking about is it going to be the highest rates question mark probably a lot of clients are looking and seeing what the rates are, doing research and seeing if this is something they want to add to their portfolio.
TD direct investing offers GICs from a whole bunch of different issuers.
We can actually just go ahead and up into the platform and click on research.
When you click on research, I will go down to other investments and see on this page, I'm going to see either all GICs or either of the four categories.
Under 3065 days.
Of course, we see it in US dollars and Canadian dollars.
We can divide them up into one, two, three, four and five categories.
We see it monthly, annual, semiannual compound.
It can be confounded into the investment and you can see all the different institutions that you can purchase GICs from.
There are a lot of options here for other institutions as well, if you're concerned about that.
Those are the ones where you can take a bigger hit as far as the interest rate goes.
You have to be asked able to access to cash during the term.
Each GIC offers some flexibility, but that brings the heat to the interest rate.
These ones are either three or five year term.
The rate that you get or the returned did you get on these GIC is based on the underlying index.
We also have a banks and usually duties GIC here.
Basically, there is a minimum guarantee interest and then, a potential maximum interest return depending on how the market performs.
The one thing I will point out with market growth is when you see these returns, they are not annual returns.
For example, only for five years, it would be 5% overall return.
Lusting I want to point out is that GICs can be ordered except on holidays.
On the day that they are posted, they are updated every day, except on holidays.
>> grade primed to get people started with GIC on the platform.
When they have done their homework, how do they do that on WebBroker?
>> absolutely.
Let's hop back in and see how we can purchase a longer-term GIC.
In the longer term category, let's go ahead and choose a three-year term.
In this case, I can randomly pick.
I will choose the highest interest rates and I will choose compounded annually.
That simply by clicking on interest rates.
I will get to the screen where I put in the GIC order.
It will confirm my issuer, my minimum an act maximum amount that I need to invest.
I need to have at least $1000 to be able to purchase the GIC.
I enter additional information about my annual compounded interest.
Also, renewal instructions are not available through the platform.
you can choose between different options.
Maybe a little more direct before because you can choose compounded annual, and you can see all the different rates here.
Whatever GICs you choose, click preview order.
We get one preview screen and click submit and that order will go through.
Caitlin Cormier, instructor at TD investing.
Before we get back to your questions about the economy and interest rates, from Andrew Kelvin, another reminder about how to get in touch with us or do you have a question about what's dragging the markets?
Send us your questions.
There are two ways you can get in touch with us.
Either send us an email at any time or you can use the question box right below the screen on WebBroker.
Just write in your questions and hit send.
Let's see if our guest and get you your answer right here on MoneyTalk Live.
Andrew, let's get back to them.
The Bank of Canada may start cutting rates.
>> for the Bank of Canada starting to bringing rates down, we have to see a more slack economy.
We have to go to excessive supply.
It needs an economy alert with a little bit more unemployment than we want to see.
That's probably not a story for 2023.
Additionally, this is the big one.
We need to be looking at inflation that is really firmly on its way back to percent.
An environment where growth is really poor, you don't need to wait to get back to 2% inflation, but there needs to be a very clear path that we are on.
Want to see core inflation, trend of core inflation to be at around 2%, and we would one inflation itself to be probably below 3%.
We don't think we can meet all of these conditions until the middle part of next year.
We have now parts cut for the second quarter, but that depends on slowing down in the United States and inflation falling down soon.
I think we are pretty comfortable with the idea that we lift rates, and we will see rates grow slow.
There is a pretty causal connection there.
Where there is a bit more uncertain the is as much as in living memory, it was a fairly low inflation before the pandemic.
Central banks had a really hard time generating inflation.
I think it is an open question if inflation rates will be as responsive to the slowdown in growth as perhaps we expect they will in this post pandemic environment.
Either a case of inflation being a little bit less responsive than it was in the early 2000's.
>> I guess the question becomes how aggressive my DB and if they have a different idea of what neutral may be.
>> I don't know if it's moved higher, but there's a general sense that it is going to be a bit higher in the coming decadesdue to demographic changes, due to changes in the global economy.
Going from globalization's to think like on shoring.
Green transition should require more investments.
I do think in the post pandemic environment, it will be higher than in the pre-pandemic environment.
Things tend to grow slowly.
I have a hard time thinking that people have a two or 3% swing, but there is a sense that we will be gradually moving higher over the next one or two decades.
In terms of how quickly interest rates are cut, that depends on factors.
perhaps the waythat the pandemic mortgage REIT set will have non-disproportionate effects in 2024 and 2025.
Finally, we are talking about hard landing.
It depends on what how quickly inflation has brought down.
>> be careful what youare wishing for.
>> It will be a great problem when I will write that.
I will be writinghike probably well into the cycle.
>> let's look at currency.
How is it going for the loonie?
>> the US economy is still so important to the global economy.
We think the Federal Reserve will cut rates more quickly than the Bank of Canada will cut rates before because we have a low outlook for next year.
Before the US dollar, it will be supported by the Canadian dollar.
We do think that by the end of the year, we could be looking at the Canadian dollar that is stronger than today.
We do think that we could be thinking about Canadian dollar being $0.80 by the end of next year.
It is based on the idea that a slow economy will cause the feds to cut more quickly than the Bank of Canada.
>> it sounds like the Fed will be cutting first.
it sounds like we are may be in a better position economically.
>>Is the population growth.
We have to go back quite a bit of time when to get back to a time when population growth was so large.
That is a big difference for me.
There are certain other things.
I think it would be more likely to see fiscal stimulus and the event of a harder landing.
As an insurance policy in Canada, given the current policy packdrop.
I know it's hard to believe and people don't feel this way, but if you look at the data, there is more room for access and Canada and we have in the states.
Interest rates would have to raise a little bit more gracefully in Canada.
It could be that that impact is felt more acutely in the US.
>> This is an interesting one.
I want to get our guests thoughts on premiers David Eby and Doug Ford regarding the Bank of Canada to stop the hiking.
>> it allows premiers to send a sort of costless message to their constituents that they understand that times are tough for them.
High interest rates, these things all came out at a point in time where markets and comments were probably expecting a hold.
No one is going to be going to a Premiere to be… There is no chain of command between the Premiere of Ontario, the Premiere of Newfoundland, to the Bank of Canada.
They don't have to be concerned about what they might be doing to perceptions of political inference.
I don't think that anybody looked at the statements and thought with they should be looking from the Bank of Canada.
That does raises questions about central banking independence.
Even if the statements are coming out in good faith and there is no behind the fate discussion, it creates these perceptions that there could be pressures on central-bank independence.
Actually, after the interest rates meeting today, the Prime Minister of Ontario welcome the percentages to remain at a 5% rate.
It's great that that came out after instead of before, when you have the finance Minister talking about the Bank of Canada.
It creates perceptions about the fixed specific rate decision.
It creates perceptions about political meddlingin central bank policy point.
Those can start to become unhealthy to the Bank of Canada, in terms of the can make difficult for them to control their message down the road.
>> We will go back to your questions to Andrew Kelvin in the moments time.
a reminder, you can get in touch with us at any time.
You have a question about what's driving the markets quest Mark send us your questions.
There are two ways you can get in touch with us.
You can send us an email at any time at moneytalklive@td.com.
Or you can see use the question box right below.
Just read your question and hit send.
The recovery of the US auto sector is ongoing.
Anthony Okolie has a TD Economics report saying that the auto industry is recovering what are they saying?
>> it is coming slightly below consensus forecast for most modest decline.
Sales were at a volume at were at 1.3 million in August.
With dealership inventories continuing to bounce back from that last summer's lows, we are seeing signs of a growth over 27 days.
That's an increase over August of last year.
Looking at some of the breakdown, passenger sales raised, light trucks edged by 18%, light trucks accounted from the bulk of maize sales.
That's roughly equal to a share of sales of August of last year.
However, overall, light vehicle sales cooled in August.
Due to elevated prices, curb sales activity.
While auto levels are back at pre-pandemic levels, it will take a few months to get those levels back in terms of the production line or dealer loss.
It is again of 30% below pre-pandemic average.
Although the supply of affordable vehicles is growing, this is due to customers being hit by a high financial costs.
It is not surprising that we are seeing a drop in the first half of the year were the bulk of the decline in the higher end luxury vehicle segment.
>> in terms of risk, I get us feeling that they might be seeing one from the headlines.
>> of course, inflation is remaining high.
if there is an additionalstrike in the banking sector, that can cause a tightening more quickly.
There is another risk potential for a union of autoworkers.
And a union strike action.
That could cause instability for the auto sector.
thanks for that, Anthony.
Now, an update on the markets.
We are team thinking a look at the TD dashboard for active traders, available through TD direct investing.
This is the TSX 60.
You can see particularly a lot of real estate being taken up by one name.
It would be Enbridge, down more than 5%.
They are buying three natural gas utilities in the United States.
You will debt into the purchase price, you get $13 billion value on the deal.
Member they raised 3 billion through shared sales.
Take a look at the S&P 100.
It's a pretty tough day on both sides of the border.
The 500 being dominated by the tech names, whether Apple or Nividia.
Nation, visit TD.
com.
We are talking rates and taking your questions.
Was the raise on the housing market?
>> housing, we are seeing home sales being impacted by the housing market.
, I keep hammering on this point because it's important.
When people come to Canada, they need a roof over their head first and foremost.
When we have a population that outstrips the construction of new home.
That puts a floor underneath house prices.
Even with interest rates being quite high and something that's put in the pocketbook of prospective homebuyers, I do expect a decline because you don't you see that in balance.
From a prospective homebuyers, there are a lot of people who would love to see prices quite a lot lower today.
I don't see that happening.
>> it seems that some participants in the housing market.
. . May be a little more caution with this because.
>> we use the word positive.
That came from the most usually active time for the housing market.
We are looking at a higher level of interest rates.
I don't think we will see the same kind of tale for the housing market.
I just don't think that is going message that prospective homebuyers will take from this.
>. Thank you very much, Andrew Kelvin.
make sure to make your own researchers before making investment decisions.
To get a head start with your questions, just email MoneyTalk live@td.com.
Thank you very much for watching.
We will see you tomorrow.
[music]
I want to take you through the market and answer your questions about investing.
Coming up today, the whole is steady.
Andrew Kelvin, Head of Canadian Global Rates Strategy is our guest.
Anthony Okolie it will have a look at how auto sales will save half of the economy.
Caitlin is going to show us how you can find more information about GIC on the platform.
To get in touch with us, email us@td.com or fill in the response box on WebBroker.
Today, updates on the markets.
It is not a good day.
Topline number, that's a pullback of almost a full percent.
Crude pretty much holding steady.
After the last few sessions. One of the most actively traded names on the TSX, Enbridge is standing today.
Enbridge announced after the close yesterday that it's buying three natural gas utilities in the United States. When you roll depth into the price tag, this is a deal of $14 billion.
Here's the market reaction. 45, down to a 5 1/2%. We do have crude holding steady.
Looking at the energy names, we've got a pretty modest, just 1/3 of a percent.
South of the border, we have more economic data points.
Service is a manufacturing data.
The market is nervous about whether the Fed may or may not be done in this rate hiking cycle.
Bond yields are moving higher as well.
The S&P 500 is down with 35 points, a little shy of a full percent.
Tech names are getting hit a bit harder today.
Hundred 50 points deficit, down to a full percent there.
Some of the most high flying names doing back, including Nvidia.
And videos GPU, fulfilling the role and all that.
Today, they are down 3 1/2%. That's your market update.
, The Bank of Canada has held its key rate steady at 5%, but they are also warning that there are still line inflation and that they need to, they would hike further to tame inflation rates.
Have you back in the program.
We got a whole day on our hand, but were going to warn you. If things aren't going the way we want, we will raise that rates again.
>> I'll say up front, we do think the Bank of Canada is done.
We think we will stay there for several quarters now.
I think that the Bank of Canada want to avoid is send the signal to markets that they are going to quickly turn around and cut rates.
That is not the thought process currently.
The hawkish hole is designed to achieve a few goals. They want to temper expectations to low anchor. The will to bring inflation back to 2%. Inflation of course is not currently at 2%. It's running above three.
They can't be happy with the state of the world as it is.
They talk about how the still lack impact of monetary policy and we are seeing signs of excessive demands, growing slowly.
There are signs of monetary policy working.
Expect to work further to keep growth on the slow side to bring inflation lower.
That's why they believe they can stay on the whole.
I it turns out that if it's not enough to bring it back to 2%, they are required to do more.
That is the message they are trying to send here.
I don't think they should be surprised.
Would always be premature to declare victory with inflation running above 3%.
But I think in terms of acknowledging that the growth has been weaker in the second quarter, that does show that they are not gung ho on listing rates.
>> , I don't think it would be a straight line, it would always be a bumpy ride.
They did sort of warned today that with the pep price of gasoline at the price of bench partner Mark crude, we might see inflation a little higher before it goes down.
We seem to be acknowledging that. I don't imagine that would knock them off there's course.
>> Inflation is getting higher because of oil prices, that's right. That's not to say we're out of the woods because if inflation is higher, we do have a forecast in Canada as well.
We are looking at wage growth, is sort of thing upsets demand.
Not necessarily gas prices, but core inflation is broadly defined, and you combine that with auto market GDP, or wage growth increasing, a combination of those things could bring Canada hike back in the future.
That is not a base case, but I think the Bank of Canada wants to make sure every one is sure they are not of the duck, but they have done everything to try to be at the top.
>> With wage growth remaining around four or 5%.
. . >> We are seeing itwage incorporating growth in that area.
Canada is not high enough to support a 5% wage growth to support inflation beyond the 5% target. Ultimately, the bet has to be that as growth slows, the unemployment's rises, when we do is we enjoy strong labour force growth.
We do not necessarily draw losses, but slowly increase jobs, you can increase unemployment rate without sending the economy into recession.
We have a little bit less of a shortage in some industries.
The hope would be that wage growth slows.
That's will the Bank of Canada is looking to achieve here. The slow growth as we are seeing is needed to bring the economy back in the balance.
>> normally, that reverberates. What about the bond markets themselves are trying to tell us?
They are pushing higher.
The things about the state today, what does the bond market say question mark they are not singing the same tune. They fall out of step with each other.
>> first, and Canada, you tend not to hear a lot of Bank of Canada communication in August.
It has done a pretty good job updating about data surprises.
We are kind of left in the dark as to how Canada would interpret it.
With the GDP numbers we have that are quite weak, that is a thing that is a little bit tricky about the month of September. You have less guidance for central bank officials.
Additionally, some markets are notoriously volatile.
You have larger moves in data points that you would expect in the spring or fall.
Sometimes, markets do strange things for a reason that market participants have a hard time explaining.
If you look at some of the big increases we have seen over the last months and weeks, they have exacerbated by trading conditions.
I think the market is looking at the situation in the US and the are a little bit less certain than they have been in the past that the Fed is done.
At the same time, we talk about the Bank of Canada pushing for persistence on pressures. I think there is a persistence that rates will be a higher level over the median term then perhaps people are anticipating. Earlier in the cycle, we did have a pop higher, but it could be reversed.
We have a change of bets in terms of how quickly… Before pandemic, those were strangely low rates. But how quickly we will come back to normal rates, people revise those expectations.
>> always great insights integrates start the program.
You can get in touch with us at any time.
Just ride to moneytalklivetd.com Right now, let's take a look at how the markets are trading.
The uncertainty over the economy and interest rates appears to be weighing on cut Toronto.
We show that benchmark prices are virtually flat in comparison to months earlier.
The board says buyers and sellers appear to be waiting for a little more certainty regarding the overall state of the economy. Enbridge on the spotlight today.
They buy three utilities south of the border from Dominion Energy, for $9.4 billion US. This is the natural gas business. Enbridge natural gas utilities are a must-have piece of infrastructure.
If you include depth into that price tag, the overall is valued at $14 billion.
The market reaction is putting the shares lower.
Southwest Airlines say that bookings came into the low Ann's of their expectations.
As a result, the airline is saying revenue per average is going to be the lower end of its previous forecast. On top of that, Southwest is saying it is facing higher fuel costs. There are a few US airlines think the same thing. A quick look at the benchmark indices.
Triple digit losses, almost a full percent.
South of the border, those questions that Andrew were laying, was the future path of inflation question mark we've got that 38 point loss, almost a full percent.
We are back with Andrew Kelvin. Interest rates, how long can inflation stay elevated?
>> the Bank of Canada's goal is to get back to 2% inflation.
If their mandate.
I do believe they will achieve it.
To the extent that inflation does not move as quickly back to 2% as we would expect our whole, that's going to create another response from the bank of Canada. They will double their efforts in order to move back to 2% inflation. From that perspective, I do see us back to 2%. There is always a level of interest rates.
I believe that Central Bank of Canada use this specifically in environments where inflation is well anchored, which is how I would characterize Canada.
Having said that, we don't expect to get back to 2% inflation until late next year.
Early 2025, perhaps.
That's conditioned under fairly soft growth path.
We do not expect a recession Canada, but we do expect soft growth.
We expect it will take some time still, which is why the Bank of Canada has that underlying level of concerned around the persistence of inflation.
In the Bank of Canada, for whatever reason, the size it can be a afford to be very patient, we could push the timeframe further down the road.
If we see significant positive external growth drivers, if the oil economy is doing better-than-expected, if UEC gets back to federal level, we could delay that level to 2%. I can I think we can see above 2% inflation for quite some time because it's not just mortgage interest costs.
There is a fairly broad basket of goods and services that are seeing inflation well above 2%.
>> the big news of the dayis they did talk about the quantitative timing. In terms of that part of the equation what, what can that do to bring it down question mark >> quantitative is just operating in the background here,.
in my view, the pandemic called for central banks using all tools at their disposal.
That was one of their tools.
At this point, there are letting bonds and balance sheets rolloff and not replacing them.
You will take the back of Canada's own estimates at least two 2024 to get back to a steady-state level on their balance sheet.
I would look to quantitative technique just operating in the background, but that does, all things being equal… The yield level of yields out there in the market would be higher today if it weren't for quantitative easing from the bank of Canada.
If you look at the financial crisis, the Bank of Canada did quantitative easing, but that it didn't have to because Canadian interest rates and Canadian bond yields… I would be surprised to see the Bank of Canada speeding things up.
>> another question, given the rate environment, a viewer wants to know if they have peaked.
>> I will speak at the general outlook we have for the bond market for yields rest respect.
As I said just a moment ago, Canadian bond yields tend to follow US rates, particularly at the longer terms.
We do believe that we will see the economy is slow in the latter part of 2023.
That should put more pressure on US bond yields.
We will see bond yields quite a lower for for a few quarters. Canadian yields will be expected to follow and data environment.
If we are not at the peak, we believe we are close to it.
That's the environment.
I would expect the broad fixed income universe with interest rates to start seeing rates decline over the back half of 2023 and into 2024, contingent on the US economy slowing.
>> another question on the slate of things.
We were surprised by seeing a modest contraction.
Are we in the beginning of a recession right now?
How are things looking?
>> I would push back a little bit on the corridor to numbers.
It was negative due to inventories and exports.
I don't expect that we are currently in recession.
We expect GDP will be low but positive in the third quarter.
Even if we have a slightly negative quarter, I don't, I would be reluctant to characterizes as a recession.
We don't expect that in Canada if, for only the reason that we have this very strong population growth.
I think it's very difficult for me to tell a story where we have an aggregate negative GDP growth for more than 1/4 or two, or really any quarter.
We don't expect negative GDP at any point in our forecast.
Just because we are growing the ovulation so strongly.
Per capita, I would expect that.
>> them they know the math on airlines, more people in the economy, more people working.
Are they worried about that?
>> ultimately, what they care about is inflation.
in so far as it impacts of inflation numbers. The supply and demand impact from inflation balances the perspective, because they are trying to achieve balance.
As it takes time for the infrastructure can Army and the skills economy to adapt to the Canadian market, it can have an impact on demand and supply.
We see it in this housing market.
Giving enough time, we expect the market to supply enough housing for the growth of population, but the acceleration of population growth, that clearly hasn't been the case and we see that in house prices.
. . when you have more people demanding shelter, that creates more demand.
>> make sure because for you make your own research before you make any investment decision.
In touch with us at any time.
Just email moneytalklivetd.com We just had a question about GIC.
GIC interest rates have been more attractive to some investors.
If you do some research on the space, WebBroker can help.
Here is our instructor.
Caitlin, nice to see you.
With the we have in WebBroker here?
>> very timely, as you said.
We are talking about is it going to be the highest rates question mark probably a lot of clients are looking and seeing what the rates are, doing research and seeing if this is something they want to add to their portfolio.
TD direct investing offers GICs from a whole bunch of different issuers.
We can actually just go ahead and up into the platform and click on research.
When you click on research, I will go down to other investments and see on this page, I'm going to see either all GICs or either of the four categories.
Under 3065 days.
Of course, we see it in US dollars and Canadian dollars.
We can divide them up into one, two, three, four and five categories.
We see it monthly, annual, semiannual compound.
It can be confounded into the investment and you can see all the different institutions that you can purchase GICs from.
There are a lot of options here for other institutions as well, if you're concerned about that.
Those are the ones where you can take a bigger hit as far as the interest rate goes.
You have to be asked able to access to cash during the term.
Each GIC offers some flexibility, but that brings the heat to the interest rate.
These ones are either three or five year term.
The rate that you get or the returned did you get on these GIC is based on the underlying index.
We also have a banks and usually duties GIC here.
Basically, there is a minimum guarantee interest and then, a potential maximum interest return depending on how the market performs.
The one thing I will point out with market growth is when you see these returns, they are not annual returns.
For example, only for five years, it would be 5% overall return.
Lusting I want to point out is that GICs can be ordered except on holidays.
On the day that they are posted, they are updated every day, except on holidays.
>> grade primed to get people started with GIC on the platform.
When they have done their homework, how do they do that on WebBroker?
>> absolutely.
Let's hop back in and see how we can purchase a longer-term GIC.
In the longer term category, let's go ahead and choose a three-year term.
In this case, I can randomly pick.
I will choose the highest interest rates and I will choose compounded annually.
That simply by clicking on interest rates.
I will get to the screen where I put in the GIC order.
It will confirm my issuer, my minimum an act maximum amount that I need to invest.
I need to have at least $1000 to be able to purchase the GIC.
I enter additional information about my annual compounded interest.
Also, renewal instructions are not available through the platform.
you can choose between different options.
Maybe a little more direct before because you can choose compounded annual, and you can see all the different rates here.
Whatever GICs you choose, click preview order.
We get one preview screen and click submit and that order will go through.
Caitlin Cormier, instructor at TD investing.
Before we get back to your questions about the economy and interest rates, from Andrew Kelvin, another reminder about how to get in touch with us or do you have a question about what's dragging the markets?
Send us your questions.
There are two ways you can get in touch with us.
Either send us an email at any time or you can use the question box right below the screen on WebBroker.
Just write in your questions and hit send.
Let's see if our guest and get you your answer right here on MoneyTalk Live.
Andrew, let's get back to them.
The Bank of Canada may start cutting rates.
>> for the Bank of Canada starting to bringing rates down, we have to see a more slack economy.
We have to go to excessive supply.
It needs an economy alert with a little bit more unemployment than we want to see.
That's probably not a story for 2023.
Additionally, this is the big one.
We need to be looking at inflation that is really firmly on its way back to percent.
An environment where growth is really poor, you don't need to wait to get back to 2% inflation, but there needs to be a very clear path that we are on.
Want to see core inflation, trend of core inflation to be at around 2%, and we would one inflation itself to be probably below 3%.
We don't think we can meet all of these conditions until the middle part of next year.
We have now parts cut for the second quarter, but that depends on slowing down in the United States and inflation falling down soon.
I think we are pretty comfortable with the idea that we lift rates, and we will see rates grow slow.
There is a pretty causal connection there.
Where there is a bit more uncertain the is as much as in living memory, it was a fairly low inflation before the pandemic.
Central banks had a really hard time generating inflation.
I think it is an open question if inflation rates will be as responsive to the slowdown in growth as perhaps we expect they will in this post pandemic environment.
Either a case of inflation being a little bit less responsive than it was in the early 2000's.
>> I guess the question becomes how aggressive my DB and if they have a different idea of what neutral may be.
>> I don't know if it's moved higher, but there's a general sense that it is going to be a bit higher in the coming decadesdue to demographic changes, due to changes in the global economy.
Going from globalization's to think like on shoring.
Green transition should require more investments.
I do think in the post pandemic environment, it will be higher than in the pre-pandemic environment.
Things tend to grow slowly.
I have a hard time thinking that people have a two or 3% swing, but there is a sense that we will be gradually moving higher over the next one or two decades.
In terms of how quickly interest rates are cut, that depends on factors.
perhaps the waythat the pandemic mortgage REIT set will have non-disproportionate effects in 2024 and 2025.
Finally, we are talking about hard landing.
It depends on what how quickly inflation has brought down.
>> be careful what youare wishing for.
>> It will be a great problem when I will write that.
I will be writinghike probably well into the cycle.
>> let's look at currency.
How is it going for the loonie?
>> the US economy is still so important to the global economy.
We think the Federal Reserve will cut rates more quickly than the Bank of Canada will cut rates before because we have a low outlook for next year.
Before the US dollar, it will be supported by the Canadian dollar.
We do think that by the end of the year, we could be looking at the Canadian dollar that is stronger than today.
We do think that we could be thinking about Canadian dollar being $0.80 by the end of next year.
It is based on the idea that a slow economy will cause the feds to cut more quickly than the Bank of Canada.
>> it sounds like the Fed will be cutting first.
it sounds like we are may be in a better position economically.
>>Is the population growth.
We have to go back quite a bit of time when to get back to a time when population growth was so large.
That is a big difference for me.
There are certain other things.
I think it would be more likely to see fiscal stimulus and the event of a harder landing.
As an insurance policy in Canada, given the current policy packdrop.
I know it's hard to believe and people don't feel this way, but if you look at the data, there is more room for access and Canada and we have in the states.
Interest rates would have to raise a little bit more gracefully in Canada.
It could be that that impact is felt more acutely in the US.
>> This is an interesting one.
I want to get our guests thoughts on premiers David Eby and Doug Ford regarding the Bank of Canada to stop the hiking.
>> it allows premiers to send a sort of costless message to their constituents that they understand that times are tough for them.
High interest rates, these things all came out at a point in time where markets and comments were probably expecting a hold.
No one is going to be going to a Premiere to be… There is no chain of command between the Premiere of Ontario, the Premiere of Newfoundland, to the Bank of Canada.
They don't have to be concerned about what they might be doing to perceptions of political inference.
I don't think that anybody looked at the statements and thought with they should be looking from the Bank of Canada.
That does raises questions about central banking independence.
Even if the statements are coming out in good faith and there is no behind the fate discussion, it creates these perceptions that there could be pressures on central-bank independence.
Actually, after the interest rates meeting today, the Prime Minister of Ontario welcome the percentages to remain at a 5% rate.
It's great that that came out after instead of before, when you have the finance Minister talking about the Bank of Canada.
It creates perceptions about the fixed specific rate decision.
It creates perceptions about political meddlingin central bank policy point.
Those can start to become unhealthy to the Bank of Canada, in terms of the can make difficult for them to control their message down the road.
>> We will go back to your questions to Andrew Kelvin in the moments time.
a reminder, you can get in touch with us at any time.
You have a question about what's driving the markets quest Mark send us your questions.
There are two ways you can get in touch with us.
You can send us an email at any time at moneytalklive@td.com.
Or you can see use the question box right below.
Just read your question and hit send.
The recovery of the US auto sector is ongoing.
Anthony Okolie has a TD Economics report saying that the auto industry is recovering what are they saying?
>> it is coming slightly below consensus forecast for most modest decline.
Sales were at a volume at were at 1.3 million in August.
With dealership inventories continuing to bounce back from that last summer's lows, we are seeing signs of a growth over 27 days.
That's an increase over August of last year.
Looking at some of the breakdown, passenger sales raised, light trucks edged by 18%, light trucks accounted from the bulk of maize sales.
That's roughly equal to a share of sales of August of last year.
However, overall, light vehicle sales cooled in August.
Due to elevated prices, curb sales activity.
While auto levels are back at pre-pandemic levels, it will take a few months to get those levels back in terms of the production line or dealer loss.
It is again of 30% below pre-pandemic average.
Although the supply of affordable vehicles is growing, this is due to customers being hit by a high financial costs.
It is not surprising that we are seeing a drop in the first half of the year were the bulk of the decline in the higher end luxury vehicle segment.
>> in terms of risk, I get us feeling that they might be seeing one from the headlines.
>> of course, inflation is remaining high.
if there is an additionalstrike in the banking sector, that can cause a tightening more quickly.
There is another risk potential for a union of autoworkers.
And a union strike action.
That could cause instability for the auto sector.
thanks for that, Anthony.
Now, an update on the markets.
We are team thinking a look at the TD dashboard for active traders, available through TD direct investing.
This is the TSX 60.
You can see particularly a lot of real estate being taken up by one name.
It would be Enbridge, down more than 5%.
They are buying three natural gas utilities in the United States.
You will debt into the purchase price, you get $13 billion value on the deal.
Member they raised 3 billion through shared sales.
Take a look at the S&P 100.
It's a pretty tough day on both sides of the border.
The 500 being dominated by the tech names, whether Apple or Nividia.
Nation, visit TD.
com.
We are talking rates and taking your questions.
Was the raise on the housing market?
>> housing, we are seeing home sales being impacted by the housing market.
, I keep hammering on this point because it's important.
When people come to Canada, they need a roof over their head first and foremost.
When we have a population that outstrips the construction of new home.
That puts a floor underneath house prices.
Even with interest rates being quite high and something that's put in the pocketbook of prospective homebuyers, I do expect a decline because you don't you see that in balance.
From a prospective homebuyers, there are a lot of people who would love to see prices quite a lot lower today.
I don't see that happening.
>> it seems that some participants in the housing market.
. . May be a little more caution with this because.
>> we use the word positive.
That came from the most usually active time for the housing market.
We are looking at a higher level of interest rates.
I don't think we will see the same kind of tale for the housing market.
I just don't think that is going message that prospective homebuyers will take from this.
>. Thank you very much, Andrew Kelvin.
make sure to make your own researchers before making investment decisions.
To get a head start with your questions, just email MoneyTalk live@td.com.
Thank you very much for watching.
We will see you tomorrow.
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