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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to talk about what's next for the Bank of Canada after they held rates study. Andrew Kelvin from TD Securities will join us.
MoneyTalk's Anthony Okolie is going to take us to the latest US auto sales and what it's telling us about the state of the consumer. And in today's a broker education segment, Jason Hnatyk will take us through how conditional orders work how to use them on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
I want to start with the TSX Composite Index. We are modestly in negative territory to the tune of about 11 points.
We are seeing a sizable pullback in the price of American benchmark crew today.
We've got West Texas intermediate below 70 bucks a barrel, down more than 3 1/2%.
A lot of concerns about demand and also those voluntary OPEC cuts.
Voluntary causing some questions.
The market wants to know if they're going to see those additional because they were talking about at that meeting. It's all conspiring against a lot of the big energy names. Let's check in on Suncor now and see how it's faring. Along with a lot of the other oil and gas plays, they are pretty much down the same amount. 4189 for Suncor, down almost 4% on the name.
Noticing earlier in the day that Air Canada was higher. Airlines to benefit from lower fuel costs but we have Delta Airlines of the border today standing by, its revenue forecast saying demand is holding up for travel even after he saw that big rush after the pandemic, there were concerns that could ease off.
Seems to be benefiting a lot of the airline aims today, including Air Canada.
South of the border, I want to check in on the S&P 500. Continuing to get signs of the US labour market is cooling, bond yield to pull back substantially in the last several weeks.
Right now pretty much just let on the S&P 500, up to and have points or five takes.
The tech heavy NASDAQ, but check it out and see I was doing against the broader market. A little bit of negative territory. Nothing too dramatic.
11 points in deficit, just eight takes.
Noticing some of the Wall Street banks doing well today. They've been talking in recent days about reducing staff.
Citigroup it 4867 is up a little more than 4%. And that is your market update.
The Bank of Canada says higher borrowing costs are restraining spending and helping reduce inflation. But the BOC is not willing to declare mission accomplished just yet. It's holding its key rate of 5%.
For more on the state of the economy and where rates could be headed from here, we are joined by Andrew Kelvin, head of Canadian and global rate strategy with TD Security three great to have you back.
>> Thanks for having me.
>> We got the statement today, we got the decision, I think we can say as expected.
As you go through the details, what stands out he was interesting? They are still maintaining that posture, we will raise if we have to raise again.
>> If there is one take away from me from the statement, it was very short, first of all, they didn't have a lot to say, and it was largely as expected tone, they do seem more comfortable with the idea that perhaps they have done enough to bring inflation back to target. The language suggested that I think they are another step or two towards the path towards 2% inflation. In October they were talking about inflation risks the worsening. The minutes from the October meeting suggested that some members of the governing council were not convinced that rates were high enough to achieve their inflation target.
I think that was really evident in that October statement.
December was I think much more muted. They talked about the Canadian economy is seeing growth stall over the last few quarters.
There was stall growth globally. They several times talked about how high rates were effectively quelling household spending. It just seems that they are much more comfortable with the fact that they are not hiking rates. You mentioned that they said, well, we will hike rates again if we need to. Inflation is not low enough. It is true that inflation is not low enough. Their target is to.
I would be concerned if they were saying… >> Mission accomplished, victory lap, enjoy the holidays.
>> Exactly. It might make a nice holiday but it would be irresponsible of the central bank.
The thing about being willing to hike rates again is as long as you have that threat out there, however theoretically, it constrains market pricing of cuts. If they had taken away the line about being willing to hike again if needed, markets would take and that is an indication that Ray cuts were imminent and that you would've seen bond yields move lower across sort of the front end of the yield curve, loosening financial conditions. In order to get the most out of the hikes that are already in the system and therefore in order for them to be able to avoid hiking more, they need to maintain this sort of threat, credible as it may be, that they will hike rates again if needed to prevent markets and households from becoming too complacent. Ultimately what they want is these rates produce more savings, less spending and by threatening to raise rates if we don't get back to 2% inflation, it allows them to have the maximum impact from those hikes.
>> As you said, we got a statement today.
Not a long one. We didn't get the press conference. There was no monetary policy report. No chance to ask questions of Gov.
Tiff Macklem.
If there had been, I imagine someone in that room, I used to be in that room in my former job, would have asked, what are these cuts coming? He's been consistent about saying it's too early to talk about that. TD Securities has a view on when the cuts are coming.
>> Certainly.
And every meeting that we go, we get a little bit closer to the day of Ray cuts.
We still see this as a budget 2024 scenario.
We still look for the first rate cut to occur in July with about 100 basis points of cuts next year. Whether that starts in July or June or April, that will really depend on the path of inflation. For the Bank of Canada to cut rates, they need to have achieved both, be well on the way to achieving their inflation target, so they don't need to be at 2% year-over-year headline inflation and they have said that but they need to be extremely comfortable that they are going to get to 2%.
And they need to be in a still sluggish growth environment with excess supply in the economy, slack in the economy. Now, growth is certainly sluggish.
I would argue that with the unemployment rate where it is, we are back to balancing the economy.
If growth remains slow as we expected well in Q4 in early 2024, we will go into excess supply which will create slack in the economy.
From a growth standpoint, the economy is probably weak enough for them to justify taking away some of this tightening. From inflation, you look at underlying trend inflation, it's sort of consistent with 3% inflation and that still too high, which is why the Bank of Canada has a little bit more work to do holding rates at these levels until we can keep inflation moving along that path to two. The risk they run as if they were to cut to early, and we settle on level of inflation that is above 2%, they run the risk of having to potentially reverse course down the road.
And they absolutely do not want to see in the context of an economy with significant mortgage resets coming in 2025 is a central bank hiking into 2025.
That would be a pretty negative scenario for the economy in terms of the locking entire financing conditions for a lot of household for a long period of time, it would also limit the Bank of Canada's ability to influence the economy between 2025 and 2030 as you will get locked into these higher mortgage rates. Lastly, if they start cutting too quickly after having missed their target, because many years… >> We are going to lose faith in their ability to control, to control the mission.
>> Ultimately that cats are collected in wage negotiations, and contracts with suppliers or firms and it builds that inflation into DC system and make the ultimate job that much harder.
They would probably rather start cutting one or two meetings to late then cut one or two meetings too soon. They would rather make well and ensure that they are on track to 2% inflation rather than sort of you no risking it and moving a little bit early to let pressure off the economy a little bit.
>> We have the last rate decision of the year of the BOC in our hands. We've been able to go through and dissected as we have. We still have the Fed coming up next week. Is it going to be pretty much the same story for them or are there different factors in the state?
>> The US economy in the third quarter was quite robust.
You actually have fairly similar market contexts where people are looking for around the same amount of Fed cuts as we are looking for from the BOC. It is a sort of same story that central banks are telling in developed markets, we broadly believe that they are done here. Now it's a question of just trying to push back on very near term rate cut expectations because no central bank wants to cut to early and the Fed is focused on financial conditions. As it yields have moved lower financial condition solutions and they would not want to encourage further loosening of financial conditions. I think the message will be the same. We made progress on the inflation front. The economy has been stronger in the US. Which makes it easier to push back on your term rate cut discussions.
>> We will be back with your questions for Andrew Kelvin in just a moment's time.
And a reminder that you can help us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Hope you're hungry. McDonald's is laying out plans to open almost 9000 the restaurant by 2027. Fast food giants growth emissions will also mean higher capital spinning as it targets a total of 15,000 McDonald's locations globally. The news came at the company's investor day.
Delta Airlines is standing by its profit forecast for the year, seeing travel demand is holding steady. The air carrier expects revenue to rise some 20% in its reaffirming its operating margins forecast.
The travel demand surged coming out of the pandemic and there have been questions and concerns including from guest on the show recent days about how resilient that demand will be in the face of a slowing economy. But Delta Airlines at 3930, the stock is up 4 1/2%. British American tobacco is writing down the value of its US cigarette brands by some $31 billion.
This is the maker of Lucky Strike and Dunhill. It says society has moved away from smoking along with the economic conditions and competition from dating has had severely impacted the value of its traditional cigarette business.
At 2878, you can see British American tobacco on the New York listing down almost 9%. A quick check in on the markets.
We will start with the TSX Composite Index. Sizable pullback in the price of crude oil today. We are down 19 points, about 1/10 of a percent.
And the S&P 500, south of the border, the broader read of the American market. Right now we will call it flat, green on the screen though. Two points to the upside or five ticks.
Okay, we are back with Andrew Kelvin, taking your questions about the economy and interest rate. The first one is one with a political slaver. Do we need to prepare/adjust/plan for the US election next year?
>> We do need to prepare and plan for the next election. The problem is there are so many permutations that could come out of that election and that it's difficult to know what to prepare for.
The US election is increasingly going to be the topic that dominates discussions in many areas of life as we get closer and closer to that date. Whether it be finance and economics, whether it be politics, whether it be sports, we are going to be talking about this and pretty much every aspect of our lives and many of us are going to get sick of it, I suspect.
So I think what's interesting, they're sort of two things at work. I think first off, the experience of the last 25, 30 years in the United States is whoever wins this next election, I would expect necessarily a big change in the stance on fiscal policy.
The way fiscal policy is directed my change. It might be a little bit less in the way of direct spending, a little bit more in the way of tax relief, but I wouldn't necessarily speck to see a much tighter fiscal stance in the US, regardless of how things go. I don't think we change parties and we are suddenly going to give it to a balanced budget in the United States.
So from that perspective, I don't know that it necessarily matters that much for Canada. There will be obviously geopolitical implications which are at the second, third, fourth order of things.
I don't want to get down that causality chain. I think for Canada the much more tangible thing is every time you come around the US election, protectionism rears its head.
What I would say is that if we do see a change of government, the fact that the current trade deal with the US, the USMCA deal, was signed by a Republican administration gives me a little bit of comfort that it's not going to undergo especially significant amendments.
Ending on the last Republican a ministration, there were a lot of protections rhetoric.
>> It was a rough ride to get the deal but they got the deal.
>> They got the deal. There were certain ad hock protection measures, like the aluminum tax. Nothing really derailed the trajectory of the Canadian economy.
I don't know that I am especially worried for Canada's well-being.
I want to stay very narrowly in my Canada economist Lane. Something I will have to think about but I'm not as worried about how more protections lean as I was and let's say 2016.
>> Interesting stuff. Let's get to another question. This one about currencies.
What are your projections for the Canadian US dollar next year?
>> This is really going to depend on the relative speed of rate cuts in Canada and the US. Which in turn is dependent on the relative health of the Canadian and US economies.
In Canada, the story for Canada has been really has been population growth. I see no reason to believe that population growth is going to slow to a halt next year.
That's going to remain an important driver for Canadian growth.
We will have the high debt levels that weigh on households abilities to spend on a certain per capita basis.
So we will be in the sort of slowing growth trajectory that's locked in by the high debt loads, really starting to weigh on households wallets.
In Canada, I'm quite comfortable with introductory were the Canadian economy remains sluggish.
You see rate cuts a gradual pace in the BOC has be careful with this. There might be cuts in this summer. The US is more of a wildcard.
First off, the US economy, to use the BOC's words, stalled.
>> Everyone keeps saying it's going to slow. Then you get the numbers and you're like, whoa.
>> We do think the US recession is on the cards for next year.
So if the US recession is on the cards, the Fed has a dual mandate, or rather a single inflation target, the Fed should cut more quickly and that sort of scenario.
Long term, the Bank of Canada has a… If the US goes into a recession, the Fed will cut quickly which should strengthen the Canadian dollar.
74 today, $0.77 by the end of next year.
That's our base case but as you say, you talk about how the US economy is going to slow where is the Canadian economy has slowed.
I feel is a bit more variability around potential outcomes for the Fed and if we want to talk about a scenario where betting against the US consumer is not the right move, that would be one where you wouldn't have that sort of driver of strength for the Canadian dollar on a cross market basis. You probably wouldn't see that initiation. It probably just depends on thing that US dollar slow down.
>> Like us another question now.
Another one currency. It wears to pound, the British pound, compared to the Canadian dollar?
I have a feeling this viewer is born in Britain.
>> We think all the developed markets central banks are done with hikes. We think the bank of England will be the second-fastest cutter next year. It won't quite keep up with the Fed but we will see more easing in the UK than in Canada.
We will probably see the Canadian dollar appreciate a little bit versus the British pound as well.
I don't get to be a dramatic move. It might just be for five pence but we do feel that you can see a little bit of appreciation in the Canadian dollar versus the British pound as well.
>> Make sure that you do your own research.
As one we will get back your questions Andrew Kelvin in just a moment's time. You can contact us at any time.
Disney moneytalklive@td.com.
Now, let's get to the educational segment.
The different order types available in by broker and today we are having look at conditional orders. Jason Hnatyk, Senior client education security TD Direct Investing joins us now.
Why would an investor consider using a conditional order?
>> That's a great question and there are number of reasons why conditional orders can be useful.
To that I like to highlight is that they can help semi-automate the orders you are placing on your account.
You can go ahead and put profit loss taking orders to execute trades on positions you have even while you are away from your computer.
They can be a great tool to help you implement your trading plans. If you are looking to do risk mitigation or remove some emotion from your investing, conditional orders can be a great help.
My colleague knew what brought you through doing profit loss orders on Advanced Dashboard earlier in the week. So let's jump into a broker now to see how we can accomplish these trays on this platform.
On the screen now, I've got the different assortment of conditional orders on the screen now. You will notice there are four different conditional orders.
We walk through the others at future dates for today we will be focusing on the one cancels other.
More commonly notice in OCO, this little diagram that is next to the OCO, simple as it may be, really does explain what this order is used for. It's most common uses when a traitor has a position in their account and they are going to be looking to bracket the order to take profit if the stock goes up or to limit their losses or lock in their gains if the stock happens to go down. Let's take a look at what we've got here.
Were we drop an example on a chart, I'm going to highlight for the audience that there is a link to some of our educational videos to learn more about this if you are looking to.your eyes and cross your teas on your understandings of these orders.
So I happen to have a chart of the SPY here on WebBroker drama. We can assume that this greenline you are noticing on the chart, this is going to be the entry of the position we have taken.
So we are thinking about OCO, there are two orders, one above the market and one below the market in its most common use.
Let's talk couple of lines on the chart so we can visualize this.
We're going to do that by clicking the add button on the left.
I will draw some at random numbers. I want to get out if the stock goes down to 440.
That will give me an opportunity to limit my losses below that point through using a stop order. I will lock in gains if it goes up. Let's put it somewhere north of 460. We are hoping this goes up and I'm catching the limit order on the top side.
We've got two orders bracketing the current price of the existing security.
Whichever order triggers and execute first, the second order will cancel and will be left with the resulting position in your account.
Pretty useful to help manage what can be a complicated trade.
>> You've laid out nicely what can be a complicated trade. trade. then says, how to actually enter this order into a broker? How are we going to do that?
>> Yeah, let's do that.
I'm happy to say that the complicated part would be getting into the trade and analysing where your entry and exits would be. Entering the order will be the easiest part. Both walk through that process now.
In WebBroker, we went to click on the buy sell button at the top of the page.
Alternatively, if you go through trading, you will see that there is a strategies button down here and we can get in order to get up.
Let's go ahead and choose our one cancels other.
We will keep the symbols consistent with what we were using earlier. Let's put SPY back up on the screen.
You can use this in many cases but if we want to use this from our bracket scenario, we are going to choose our cell order and I like to, you know, for the sake of consistency to keep me straight, I like to always do my profit-taking order first to make sure I enter everything in the same order and I don't leave anything hanging. I've got my number of shares, limit price, that from the sell side, that's on top of the market. Let's say we go ahead and put 465 here.
Now we got half the work done.
It might look like there's more going on, just as simple as filling in a secondary ticket by clicking on the bottom box of the OCO. Let's put our symbol into the mix and go ahead and get our, move this to a cell, then back to the number of shares we are looking to do. One way to keep the straightforward inputs at the market. We are going to put it up for 40 like we had in our example.
One thing is the last reminder to clients, you'll need to make sure that your time and forces identical on both sides of the trade. Now you know what you need to do to execute an OCO order on WebBroker.
>> Great stuff as always, Jason. Thanks.
>> It's my pleasure.
>> Jason Hnatyk, senior client education instructor with 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.
Okay, we're back with Andrew Kelvin, we are taking your questions about the economy and interest rates.
This is a timely one. What happened to the price of oil?
>> So when we get through sort of the near term demand concerns, these issues that you raise around, are these voluntary supply cuts, how voluntary are they? Are they likely to fall through? If you think about once we get into 2024, it will become apparent that as much as growth may be slow and globally, there is still one to be positive demand for oil. In an environment of broadly restricted energy supply.
So we do think that we can see by the early part of next year, oil will be back in the context of the high 80s and 90s. We think it stays at that $85-$90 range for much of 2024, reflecting the fact that we do see the energy market back in an environment where it is undersupplied. To our expectation is that we will see, it is always difficult to put a precise time on this. We do expect to see higher energy prices in the first quarter of next year.
>> How does that flow through to the Canadian economy in terms of we are looking at a slowing or stagnant economy to the summer months, it'll stay that way to get inflation under control, if oil starts getting a bit of ground, how does that fit into the equation?
>> It's helpful.
We export a lot of oil. It will be helpful for government coffers in the energy producing provinces. It will be helpful for people with incomes connected to the energy industry. It's all positive but it's not as positive as it used to be.
If you go back to 10 years, if you are to see oil prices pop, you would see new projects break ground, you would see acquisitions, you would suck and all this capital and labour in the energy sector.
It was a real incremental growth driver.
Even though it was still a relatively small part of the economy, it was a really important driver of growth.
Since 2014 2015, we have seen steady move slower with only a few little blips in investment in the energy sector in Canada.
I think that that tells you that the sensitivity of economic activity two energy prices is not going to be as high going forward as it was in the past. We saw this very recently when we had that most recent move to $100 oil. We didn't see a big… >> I didn't see a flurry of announcements.
>> Didn't see a big increase in energy-related GDP. So now we have proof of concept that the Canadian economy from an activity standpoint should be less sensitive to the price of oil.
And I think it should follow from that that the currency will be less sensitive to the price of oil as well.
>> Okay.
We were talking about rates earlier and perhaps when cuts will come. Now we have of you are asking, how many rate cuts will come in 2024?
>> It's funny you say this time next year because we really started our 2024 Outlook about a month ago and I had just this horrible case of déjà vu because Alonzo points I was making for my 2024 Outlook were very similar to points I had made about 2023 Outlook.
We enter 2024, markets broadly expectorate because, as we did in 2023. For a moment there, moment in early 2023, when we had issues with the US banking sector, people did things the bottom was going to be falling out of the US economy. It didn't happen, very thankfully.
But there is a sort of funny sense of déjà vu. Having said all that, I think it's a lot more tangible that we are seeing that slowdown in the Canadian economy. We have seen the unemployment rate moved steadily higher.
We are looking at interest rates that have been restrictive for quite some time and every month that we have interest rates at these levels, another segment of the economy sees their mortgage rate roll over into a higher mortgage rate. So there is a cumulative impact of the higher rates.
It makes you more confident that we will see a slowdown in growth in 2024 then so what we perhaps expected in 2023.
We are pretty comfortable at rate cuts are coming.
Trying to figure out how many will see next year depends on a couple of things.
It depends on, one, what the target rate should be in the long term?
>> What's the neutral?
>> That's going to be a big factor.
July earlier, I think we should see 100 basis points cuts. If the economy slows more than we expect, we see a sort of muddled through outcome. We don't have a recession in Canada forecasted for next year.
If the growth outlook is a little bit weaker if it hits and starts earlier, maybe we could see a little more than 100.
I do think we need to be cautious in removing tightening just because the last thing they can afford to do as I mentioned earlier is pull the tightening up too quickly, re-energize the housing market, bring inflation back and have to do this whole thing all over again when you're hiking into 2025 which they cannot afford to do.
>> As you pointed out before.
>> Exactly. I do think it will be much more orderly process of easing. Someone said to me that central banks take the escalator up in the elevator down. I don't know that's going to be the case for the season cycle.
>> Okay, let's take another question now around inflation. It is the inflation in the Canadian economy going to significantly affect interest rates if you are investing with GICs?
>> So the way the inflation rates would matter for fixed income investors is that the sort of underlying instrument that most fixed income assets will draw their pricing from is going to be the government of Canada bond curve.
The inflation is really important because the inflation determines when the BOC can cut rates.
While inflation remains adding around 3 to 3 1/2%, it means we have priced into many rate cuts and it means that to your yields are unjustifiably low.
If we have a world where inflation remained where it was. That isn't our expectation. Our expectation is that inflation will move lower through 2024 so we do think that you could see declines into your bond yields and by your bond yields. We could see them fall by as much as 40 basis points next year.
And in a world where you see the government of Canada yields moving lower, that tends to impact a whole host of other borrowing or lending rates. So we do you think it will be broadly speaking in the fixed income space a falling yield environment driven just based on our government bond forecast. There will be individual assets that don't follow that path.
But broadly speaking we see lowering of government yields which tends to lower the yield environment across fixed income insurance.
>> We are going to back your questions for Andrew Kelvin on the economy in just a moment's time. As always, make sure you do your own research before making any investment decisions.
You can get in touch with us at any time.
Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Let's talk auto sales south of the border.
We saw them slow in November but demand for autos remains pretty smooth throughout the year. Our Anthony Okolie is running a standard take a look at a new report.
>> New car sales pulled back modestly in November, just under a percent month over month.
It comes out to roughly 15 million annualized units. It did come in slightly below estimates. On an adjusted sales volume basis just over 1 million units or roughly about 7% above year ago levels.
Now, the average daily selling rate was roughly 49,000 cars sold over 25 days.
That's up from the daily average from one year ago of 45,000. Breaking it down by type of vehicle, passenger sales fell a little over 2% year-over-year, light trucks were up about 10% year-over-year.
Now, light trucks accounted for roughly 81% of November sales, that is a touch higher than what it did in November of last year.
The week start to the fourth quarter came as the industry dealt with the striking workers. That impacted production volumes.
As a result, light vehicles miss out on a typical post thanks giving bump last month. The strike impacted deliveries at GM, Ford and Stellantis. Among the three Detroit automakers, GM and Ford incurred the have your production losses with each company having three facilities off-line by the end of the strike according to TD Economics.
However, with the peak impact of the strike in the rearview mirror, TD Economics believes that production is approaching its pre-pandemic level and inventories are expected to continue to normalize going forward. The three Detroit automakers are expected to gradually boost the production at those affected facilities over the coming months to recoup some of the lost production.
Overall, in demand for automobiles has remained pretty solid throughout the year as pent up demand, excess savings from Americans and a tight labour market has pushed sales volumes low Diblee above last year's supply constraint levels.
>> That was 2023.
A couple weeks, it's all going to be over.
We will be into 2024. With the forecast for next year?
>> Looking ahead, TD Economics expects that the convergence toward the pre-pandemic pace of sales is expected to become increasingly difficult as some of those tailwinds begin to receive. However, recovery and incentive spending which is still historically low as a share of transaction prices and or moderating prices could give sales a boost in 2024.
>> Great stuff as always. Thanks a lot.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, it gives us a view of the market movers. Let's start with the TSX 60, we are going to go by price and volume. I will preface this by saying that we have the price of American benchmark crew below $70 a barrel. A sizable step back so it's not hard to extrapolate and take a look at the energy space. About some of the biggest energy names in this country on a fairly significant pressure today. We've got Suncor down more than 4%. CNQ also in that camp, down 4 1/2%. Not a lot of green on the screen in that area.
Now, we've been talking about yields and falling yields and it's been pretty dramatic considering you're talking about a 10 year yield of 5% several weeks ago and where we are today.
A lot of yield sentiment has been on the move. Starting with telecoms, Rogers to the upside. Utility space were gaining as well.
Got Hydro or Fordist. Seeing some strength they are keeping us from a poor showing on the TSX Composite Index.
Getting further signs that the US labour market is cooling. Noticing some money moving towards the financials.
On the S&P 100, you're up on Citigroup and the Bank of America.
In taking a look at the automakers, Tesla, Ford and GM are putting green on the screen as well. No more information on TV Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Andrew Kelvin from TD Securities, talking about rates in the economy and we are taking your questions.
Let's get to another one. Are we already in a recession and if not will we be soon?
>> So the answer is no. We are not in a recession.
In the third quarter, growth was positive.
If we want to use that sort of classical definition of a recession as two consecutive quarters of negative growth.
You are not in a recession Q4 because Q3 was positive.
Going forward, we don't believe that we will be in a recession next year because we think that strong population growth will be enough to offset a broad-based fall in individual living standards which is what you would normally associate with the recession.
I think what really speaks to on some level is this idea of a recession.
>> Because they revised the second quarter higher. It seems to be a moving target.
>> Sorry, the second quarter. And this is the same. We don't think you for is negative.
We are not in a recession.
But it does speak to the arbitrariness because let's use a hypothetical example.
A world where the economy grows at a 3% pace and falls in a six for one quarter to the next, that's not a recession, as we define it.
If you fall at a 1/2% quays for two consecutive quarters, you're in a recession and a pretty notable one.
They are both the exact same outcome but is just how we talk about the changes.
In an environment where we are going to be looking at Canadian per capita growth next year that is quite firmly negative. Even if the overall number is positive, in that sort of our world, our session as we define it sort of loses its meaning a bit.
So the short answer is no, we don't think we are in a recession we don't think we will be in a recession.
But broadly speaking, it's going to feel like it. That's when try to get you.
>> Is going to be part of Bank of Canada's work once we get past all of this inflationary shot? I remember when the previous governor was in the chair, he talked about that.
That sort of dog his work a little bit, productivity in this country, business investment. At some point, does the BOC have to start focusing on that again?
>> So that's not really the Bank of Canada's mandate.
>> They can worry about it but they can't… >> And it's important for what the BOC does because productivity growth allows new revenue so it matters for the BOC but it's not up to them to boost productivity.
I think we've seen that if lowering interest rates could produce productivity, we be a very productive country.
This is really more something for industrial policy and fiscal policy.
It's about putting tax incentives in place that will promote capital investment, it's about ensuring that you can channel your labour force into the most productive area. Making sure you have infrastructure in place.
If we want to talk about hypothetical productivity enhancing investment, if you tried to do a big interceptor project in Canada today, one thing you would run into would be a lack of skilled trades people able to put that investment in place.
It really is more a question of how we structure the economy, what kind of incentives we provide, what kind of opportunities to provide as opposed to what interest rates are. So the Bank of Canada, it matters for them.
Gov. Paul came with an export and manufacturing lens. That's probably why he was so focused on productivity but it's not something that's in the Bank of Canada is ability to promote or dissuade people from.
>> Let's get to another question here.
Squeeze it in before the end the show.
Here's the big one. What is your take on the housing market?
>> So I kind of come back to supply versus demand on some level.
High interest rates obviously have put downward pressure on house prices. I would look for interest rates at these levels to continue to put pressure on house prices into the spring market. That would be my instinct, at least.
But in a world where we are bringing in 1 million people per year and building approximately 1/4 of a million houses per year, you're just creating building and balances on some level. So until we can figure out a way to boost housing supply, it's very hard for me to tell a story where housing falls into an uncontrolled spiral absent a significant employment shock. That's a wildcard. You can always tell a story where if a recession gets to be bad enough, house prices fall no matter what's going on. Right now, with the soft landing outlook for Canada, we can see downward pressure on prices but I think it would be more moderate and severe given that still material imbalance between demand for shelter and supply for shelter.
>> Andrew, always a fascinating conversation. Always enjoy. Look forward to the next one.
>> Thank you very much. Pleasure to be here.
>> Our thanks to Andrew Kelvin, head of Canadian and global rate strategy at TD Securities. As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show. Vitali Mossounov, VP, Dir.
and coleader fundamental equity research at TD Asset Management will be our guest, to hear questions about technology stocks.
A reminder that you get a head start with this question. Just email moneytalklive@td.com. That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to talk about what's next for the Bank of Canada after they held rates study. Andrew Kelvin from TD Securities will join us.
MoneyTalk's Anthony Okolie is going to take us to the latest US auto sales and what it's telling us about the state of the consumer. And in today's a broker education segment, Jason Hnatyk will take us through how conditional orders work how to use them on the platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
I want to start with the TSX Composite Index. We are modestly in negative territory to the tune of about 11 points.
We are seeing a sizable pullback in the price of American benchmark crew today.
We've got West Texas intermediate below 70 bucks a barrel, down more than 3 1/2%.
A lot of concerns about demand and also those voluntary OPEC cuts.
Voluntary causing some questions.
The market wants to know if they're going to see those additional because they were talking about at that meeting. It's all conspiring against a lot of the big energy names. Let's check in on Suncor now and see how it's faring. Along with a lot of the other oil and gas plays, they are pretty much down the same amount. 4189 for Suncor, down almost 4% on the name.
Noticing earlier in the day that Air Canada was higher. Airlines to benefit from lower fuel costs but we have Delta Airlines of the border today standing by, its revenue forecast saying demand is holding up for travel even after he saw that big rush after the pandemic, there were concerns that could ease off.
Seems to be benefiting a lot of the airline aims today, including Air Canada.
South of the border, I want to check in on the S&P 500. Continuing to get signs of the US labour market is cooling, bond yield to pull back substantially in the last several weeks.
Right now pretty much just let on the S&P 500, up to and have points or five takes.
The tech heavy NASDAQ, but check it out and see I was doing against the broader market. A little bit of negative territory. Nothing too dramatic.
11 points in deficit, just eight takes.
Noticing some of the Wall Street banks doing well today. They've been talking in recent days about reducing staff.
Citigroup it 4867 is up a little more than 4%. And that is your market update.
The Bank of Canada says higher borrowing costs are restraining spending and helping reduce inflation. But the BOC is not willing to declare mission accomplished just yet. It's holding its key rate of 5%.
For more on the state of the economy and where rates could be headed from here, we are joined by Andrew Kelvin, head of Canadian and global rate strategy with TD Security three great to have you back.
>> Thanks for having me.
>> We got the statement today, we got the decision, I think we can say as expected.
As you go through the details, what stands out he was interesting? They are still maintaining that posture, we will raise if we have to raise again.
>> If there is one take away from me from the statement, it was very short, first of all, they didn't have a lot to say, and it was largely as expected tone, they do seem more comfortable with the idea that perhaps they have done enough to bring inflation back to target. The language suggested that I think they are another step or two towards the path towards 2% inflation. In October they were talking about inflation risks the worsening. The minutes from the October meeting suggested that some members of the governing council were not convinced that rates were high enough to achieve their inflation target.
I think that was really evident in that October statement.
December was I think much more muted. They talked about the Canadian economy is seeing growth stall over the last few quarters.
There was stall growth globally. They several times talked about how high rates were effectively quelling household spending. It just seems that they are much more comfortable with the fact that they are not hiking rates. You mentioned that they said, well, we will hike rates again if we need to. Inflation is not low enough. It is true that inflation is not low enough. Their target is to.
I would be concerned if they were saying… >> Mission accomplished, victory lap, enjoy the holidays.
>> Exactly. It might make a nice holiday but it would be irresponsible of the central bank.
The thing about being willing to hike rates again is as long as you have that threat out there, however theoretically, it constrains market pricing of cuts. If they had taken away the line about being willing to hike again if needed, markets would take and that is an indication that Ray cuts were imminent and that you would've seen bond yields move lower across sort of the front end of the yield curve, loosening financial conditions. In order to get the most out of the hikes that are already in the system and therefore in order for them to be able to avoid hiking more, they need to maintain this sort of threat, credible as it may be, that they will hike rates again if needed to prevent markets and households from becoming too complacent. Ultimately what they want is these rates produce more savings, less spending and by threatening to raise rates if we don't get back to 2% inflation, it allows them to have the maximum impact from those hikes.
>> As you said, we got a statement today.
Not a long one. We didn't get the press conference. There was no monetary policy report. No chance to ask questions of Gov.
Tiff Macklem.
If there had been, I imagine someone in that room, I used to be in that room in my former job, would have asked, what are these cuts coming? He's been consistent about saying it's too early to talk about that. TD Securities has a view on when the cuts are coming.
>> Certainly.
And every meeting that we go, we get a little bit closer to the day of Ray cuts.
We still see this as a budget 2024 scenario.
We still look for the first rate cut to occur in July with about 100 basis points of cuts next year. Whether that starts in July or June or April, that will really depend on the path of inflation. For the Bank of Canada to cut rates, they need to have achieved both, be well on the way to achieving their inflation target, so they don't need to be at 2% year-over-year headline inflation and they have said that but they need to be extremely comfortable that they are going to get to 2%.
And they need to be in a still sluggish growth environment with excess supply in the economy, slack in the economy. Now, growth is certainly sluggish.
I would argue that with the unemployment rate where it is, we are back to balancing the economy.
If growth remains slow as we expected well in Q4 in early 2024, we will go into excess supply which will create slack in the economy.
From a growth standpoint, the economy is probably weak enough for them to justify taking away some of this tightening. From inflation, you look at underlying trend inflation, it's sort of consistent with 3% inflation and that still too high, which is why the Bank of Canada has a little bit more work to do holding rates at these levels until we can keep inflation moving along that path to two. The risk they run as if they were to cut to early, and we settle on level of inflation that is above 2%, they run the risk of having to potentially reverse course down the road.
And they absolutely do not want to see in the context of an economy with significant mortgage resets coming in 2025 is a central bank hiking into 2025.
That would be a pretty negative scenario for the economy in terms of the locking entire financing conditions for a lot of household for a long period of time, it would also limit the Bank of Canada's ability to influence the economy between 2025 and 2030 as you will get locked into these higher mortgage rates. Lastly, if they start cutting too quickly after having missed their target, because many years… >> We are going to lose faith in their ability to control, to control the mission.
>> Ultimately that cats are collected in wage negotiations, and contracts with suppliers or firms and it builds that inflation into DC system and make the ultimate job that much harder.
They would probably rather start cutting one or two meetings to late then cut one or two meetings too soon. They would rather make well and ensure that they are on track to 2% inflation rather than sort of you no risking it and moving a little bit early to let pressure off the economy a little bit.
>> We have the last rate decision of the year of the BOC in our hands. We've been able to go through and dissected as we have. We still have the Fed coming up next week. Is it going to be pretty much the same story for them or are there different factors in the state?
>> The US economy in the third quarter was quite robust.
You actually have fairly similar market contexts where people are looking for around the same amount of Fed cuts as we are looking for from the BOC. It is a sort of same story that central banks are telling in developed markets, we broadly believe that they are done here. Now it's a question of just trying to push back on very near term rate cut expectations because no central bank wants to cut to early and the Fed is focused on financial conditions. As it yields have moved lower financial condition solutions and they would not want to encourage further loosening of financial conditions. I think the message will be the same. We made progress on the inflation front. The economy has been stronger in the US. Which makes it easier to push back on your term rate cut discussions.
>> We will be back with your questions for Andrew Kelvin in just a moment's time.
And a reminder that you can help us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Hope you're hungry. McDonald's is laying out plans to open almost 9000 the restaurant by 2027. Fast food giants growth emissions will also mean higher capital spinning as it targets a total of 15,000 McDonald's locations globally. The news came at the company's investor day.
Delta Airlines is standing by its profit forecast for the year, seeing travel demand is holding steady. The air carrier expects revenue to rise some 20% in its reaffirming its operating margins forecast.
The travel demand surged coming out of the pandemic and there have been questions and concerns including from guest on the show recent days about how resilient that demand will be in the face of a slowing economy. But Delta Airlines at 3930, the stock is up 4 1/2%. British American tobacco is writing down the value of its US cigarette brands by some $31 billion.
This is the maker of Lucky Strike and Dunhill. It says society has moved away from smoking along with the economic conditions and competition from dating has had severely impacted the value of its traditional cigarette business.
At 2878, you can see British American tobacco on the New York listing down almost 9%. A quick check in on the markets.
We will start with the TSX Composite Index. Sizable pullback in the price of crude oil today. We are down 19 points, about 1/10 of a percent.
And the S&P 500, south of the border, the broader read of the American market. Right now we will call it flat, green on the screen though. Two points to the upside or five ticks.
Okay, we are back with Andrew Kelvin, taking your questions about the economy and interest rate. The first one is one with a political slaver. Do we need to prepare/adjust/plan for the US election next year?
>> We do need to prepare and plan for the next election. The problem is there are so many permutations that could come out of that election and that it's difficult to know what to prepare for.
The US election is increasingly going to be the topic that dominates discussions in many areas of life as we get closer and closer to that date. Whether it be finance and economics, whether it be politics, whether it be sports, we are going to be talking about this and pretty much every aspect of our lives and many of us are going to get sick of it, I suspect.
So I think what's interesting, they're sort of two things at work. I think first off, the experience of the last 25, 30 years in the United States is whoever wins this next election, I would expect necessarily a big change in the stance on fiscal policy.
The way fiscal policy is directed my change. It might be a little bit less in the way of direct spending, a little bit more in the way of tax relief, but I wouldn't necessarily speck to see a much tighter fiscal stance in the US, regardless of how things go. I don't think we change parties and we are suddenly going to give it to a balanced budget in the United States.
So from that perspective, I don't know that it necessarily matters that much for Canada. There will be obviously geopolitical implications which are at the second, third, fourth order of things.
I don't want to get down that causality chain. I think for Canada the much more tangible thing is every time you come around the US election, protectionism rears its head.
What I would say is that if we do see a change of government, the fact that the current trade deal with the US, the USMCA deal, was signed by a Republican administration gives me a little bit of comfort that it's not going to undergo especially significant amendments.
Ending on the last Republican a ministration, there were a lot of protections rhetoric.
>> It was a rough ride to get the deal but they got the deal.
>> They got the deal. There were certain ad hock protection measures, like the aluminum tax. Nothing really derailed the trajectory of the Canadian economy.
I don't know that I am especially worried for Canada's well-being.
I want to stay very narrowly in my Canada economist Lane. Something I will have to think about but I'm not as worried about how more protections lean as I was and let's say 2016.
>> Interesting stuff. Let's get to another question. This one about currencies.
What are your projections for the Canadian US dollar next year?
>> This is really going to depend on the relative speed of rate cuts in Canada and the US. Which in turn is dependent on the relative health of the Canadian and US economies.
In Canada, the story for Canada has been really has been population growth. I see no reason to believe that population growth is going to slow to a halt next year.
That's going to remain an important driver for Canadian growth.
We will have the high debt levels that weigh on households abilities to spend on a certain per capita basis.
So we will be in the sort of slowing growth trajectory that's locked in by the high debt loads, really starting to weigh on households wallets.
In Canada, I'm quite comfortable with introductory were the Canadian economy remains sluggish.
You see rate cuts a gradual pace in the BOC has be careful with this. There might be cuts in this summer. The US is more of a wildcard.
First off, the US economy, to use the BOC's words, stalled.
>> Everyone keeps saying it's going to slow. Then you get the numbers and you're like, whoa.
>> We do think the US recession is on the cards for next year.
So if the US recession is on the cards, the Fed has a dual mandate, or rather a single inflation target, the Fed should cut more quickly and that sort of scenario.
Long term, the Bank of Canada has a… If the US goes into a recession, the Fed will cut quickly which should strengthen the Canadian dollar.
74 today, $0.77 by the end of next year.
That's our base case but as you say, you talk about how the US economy is going to slow where is the Canadian economy has slowed.
I feel is a bit more variability around potential outcomes for the Fed and if we want to talk about a scenario where betting against the US consumer is not the right move, that would be one where you wouldn't have that sort of driver of strength for the Canadian dollar on a cross market basis. You probably wouldn't see that initiation. It probably just depends on thing that US dollar slow down.
>> Like us another question now.
Another one currency. It wears to pound, the British pound, compared to the Canadian dollar?
I have a feeling this viewer is born in Britain.
>> We think all the developed markets central banks are done with hikes. We think the bank of England will be the second-fastest cutter next year. It won't quite keep up with the Fed but we will see more easing in the UK than in Canada.
We will probably see the Canadian dollar appreciate a little bit versus the British pound as well.
I don't get to be a dramatic move. It might just be for five pence but we do feel that you can see a little bit of appreciation in the Canadian dollar versus the British pound as well.
>> Make sure that you do your own research.
As one we will get back your questions Andrew Kelvin in just a moment's time. You can contact us at any time.
Disney moneytalklive@td.com.
Now, let's get to the educational segment.
The different order types available in by broker and today we are having look at conditional orders. Jason Hnatyk, Senior client education security TD Direct Investing joins us now.
Why would an investor consider using a conditional order?
>> That's a great question and there are number of reasons why conditional orders can be useful.
To that I like to highlight is that they can help semi-automate the orders you are placing on your account.
You can go ahead and put profit loss taking orders to execute trades on positions you have even while you are away from your computer.
They can be a great tool to help you implement your trading plans. If you are looking to do risk mitigation or remove some emotion from your investing, conditional orders can be a great help.
My colleague knew what brought you through doing profit loss orders on Advanced Dashboard earlier in the week. So let's jump into a broker now to see how we can accomplish these trays on this platform.
On the screen now, I've got the different assortment of conditional orders on the screen now. You will notice there are four different conditional orders.
We walk through the others at future dates for today we will be focusing on the one cancels other.
More commonly notice in OCO, this little diagram that is next to the OCO, simple as it may be, really does explain what this order is used for. It's most common uses when a traitor has a position in their account and they are going to be looking to bracket the order to take profit if the stock goes up or to limit their losses or lock in their gains if the stock happens to go down. Let's take a look at what we've got here.
Were we drop an example on a chart, I'm going to highlight for the audience that there is a link to some of our educational videos to learn more about this if you are looking to.your eyes and cross your teas on your understandings of these orders.
So I happen to have a chart of the SPY here on WebBroker drama. We can assume that this greenline you are noticing on the chart, this is going to be the entry of the position we have taken.
So we are thinking about OCO, there are two orders, one above the market and one below the market in its most common use.
Let's talk couple of lines on the chart so we can visualize this.
We're going to do that by clicking the add button on the left.
I will draw some at random numbers. I want to get out if the stock goes down to 440.
That will give me an opportunity to limit my losses below that point through using a stop order. I will lock in gains if it goes up. Let's put it somewhere north of 460. We are hoping this goes up and I'm catching the limit order on the top side.
We've got two orders bracketing the current price of the existing security.
Whichever order triggers and execute first, the second order will cancel and will be left with the resulting position in your account.
Pretty useful to help manage what can be a complicated trade.
>> You've laid out nicely what can be a complicated trade. trade. then says, how to actually enter this order into a broker? How are we going to do that?
>> Yeah, let's do that.
I'm happy to say that the complicated part would be getting into the trade and analysing where your entry and exits would be. Entering the order will be the easiest part. Both walk through that process now.
In WebBroker, we went to click on the buy sell button at the top of the page.
Alternatively, if you go through trading, you will see that there is a strategies button down here and we can get in order to get up.
Let's go ahead and choose our one cancels other.
We will keep the symbols consistent with what we were using earlier. Let's put SPY back up on the screen.
You can use this in many cases but if we want to use this from our bracket scenario, we are going to choose our cell order and I like to, you know, for the sake of consistency to keep me straight, I like to always do my profit-taking order first to make sure I enter everything in the same order and I don't leave anything hanging. I've got my number of shares, limit price, that from the sell side, that's on top of the market. Let's say we go ahead and put 465 here.
Now we got half the work done.
It might look like there's more going on, just as simple as filling in a secondary ticket by clicking on the bottom box of the OCO. Let's put our symbol into the mix and go ahead and get our, move this to a cell, then back to the number of shares we are looking to do. One way to keep the straightforward inputs at the market. We are going to put it up for 40 like we had in our example.
One thing is the last reminder to clients, you'll need to make sure that your time and forces identical on both sides of the trade. Now you know what you need to do to execute an OCO order on WebBroker.
>> Great stuff as always, Jason. Thanks.
>> It's my pleasure.
>> Jason Hnatyk, senior client education instructor with 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.
Okay, we're back with Andrew Kelvin, we are taking your questions about the economy and interest rates.
This is a timely one. What happened to the price of oil?
>> So when we get through sort of the near term demand concerns, these issues that you raise around, are these voluntary supply cuts, how voluntary are they? Are they likely to fall through? If you think about once we get into 2024, it will become apparent that as much as growth may be slow and globally, there is still one to be positive demand for oil. In an environment of broadly restricted energy supply.
So we do think that we can see by the early part of next year, oil will be back in the context of the high 80s and 90s. We think it stays at that $85-$90 range for much of 2024, reflecting the fact that we do see the energy market back in an environment where it is undersupplied. To our expectation is that we will see, it is always difficult to put a precise time on this. We do expect to see higher energy prices in the first quarter of next year.
>> How does that flow through to the Canadian economy in terms of we are looking at a slowing or stagnant economy to the summer months, it'll stay that way to get inflation under control, if oil starts getting a bit of ground, how does that fit into the equation?
>> It's helpful.
We export a lot of oil. It will be helpful for government coffers in the energy producing provinces. It will be helpful for people with incomes connected to the energy industry. It's all positive but it's not as positive as it used to be.
If you go back to 10 years, if you are to see oil prices pop, you would see new projects break ground, you would see acquisitions, you would suck and all this capital and labour in the energy sector.
It was a real incremental growth driver.
Even though it was still a relatively small part of the economy, it was a really important driver of growth.
Since 2014 2015, we have seen steady move slower with only a few little blips in investment in the energy sector in Canada.
I think that that tells you that the sensitivity of economic activity two energy prices is not going to be as high going forward as it was in the past. We saw this very recently when we had that most recent move to $100 oil. We didn't see a big… >> I didn't see a flurry of announcements.
>> Didn't see a big increase in energy-related GDP. So now we have proof of concept that the Canadian economy from an activity standpoint should be less sensitive to the price of oil.
And I think it should follow from that that the currency will be less sensitive to the price of oil as well.
>> Okay.
We were talking about rates earlier and perhaps when cuts will come. Now we have of you are asking, how many rate cuts will come in 2024?
>> It's funny you say this time next year because we really started our 2024 Outlook about a month ago and I had just this horrible case of déjà vu because Alonzo points I was making for my 2024 Outlook were very similar to points I had made about 2023 Outlook.
We enter 2024, markets broadly expectorate because, as we did in 2023. For a moment there, moment in early 2023, when we had issues with the US banking sector, people did things the bottom was going to be falling out of the US economy. It didn't happen, very thankfully.
But there is a sort of funny sense of déjà vu. Having said all that, I think it's a lot more tangible that we are seeing that slowdown in the Canadian economy. We have seen the unemployment rate moved steadily higher.
We are looking at interest rates that have been restrictive for quite some time and every month that we have interest rates at these levels, another segment of the economy sees their mortgage rate roll over into a higher mortgage rate. So there is a cumulative impact of the higher rates.
It makes you more confident that we will see a slowdown in growth in 2024 then so what we perhaps expected in 2023.
We are pretty comfortable at rate cuts are coming.
Trying to figure out how many will see next year depends on a couple of things.
It depends on, one, what the target rate should be in the long term?
>> What's the neutral?
>> That's going to be a big factor.
July earlier, I think we should see 100 basis points cuts. If the economy slows more than we expect, we see a sort of muddled through outcome. We don't have a recession in Canada forecasted for next year.
If the growth outlook is a little bit weaker if it hits and starts earlier, maybe we could see a little more than 100.
I do think we need to be cautious in removing tightening just because the last thing they can afford to do as I mentioned earlier is pull the tightening up too quickly, re-energize the housing market, bring inflation back and have to do this whole thing all over again when you're hiking into 2025 which they cannot afford to do.
>> As you pointed out before.
>> Exactly. I do think it will be much more orderly process of easing. Someone said to me that central banks take the escalator up in the elevator down. I don't know that's going to be the case for the season cycle.
>> Okay, let's take another question now around inflation. It is the inflation in the Canadian economy going to significantly affect interest rates if you are investing with GICs?
>> So the way the inflation rates would matter for fixed income investors is that the sort of underlying instrument that most fixed income assets will draw their pricing from is going to be the government of Canada bond curve.
The inflation is really important because the inflation determines when the BOC can cut rates.
While inflation remains adding around 3 to 3 1/2%, it means we have priced into many rate cuts and it means that to your yields are unjustifiably low.
If we have a world where inflation remained where it was. That isn't our expectation. Our expectation is that inflation will move lower through 2024 so we do think that you could see declines into your bond yields and by your bond yields. We could see them fall by as much as 40 basis points next year.
And in a world where you see the government of Canada yields moving lower, that tends to impact a whole host of other borrowing or lending rates. So we do you think it will be broadly speaking in the fixed income space a falling yield environment driven just based on our government bond forecast. There will be individual assets that don't follow that path.
But broadly speaking we see lowering of government yields which tends to lower the yield environment across fixed income insurance.
>> We are going to back your questions for Andrew Kelvin on the economy in just a moment's time. As always, make sure you do your own research before making any investment decisions.
You can get in touch with us at any time.
Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Let's talk auto sales south of the border.
We saw them slow in November but demand for autos remains pretty smooth throughout the year. Our Anthony Okolie is running a standard take a look at a new report.
>> New car sales pulled back modestly in November, just under a percent month over month.
It comes out to roughly 15 million annualized units. It did come in slightly below estimates. On an adjusted sales volume basis just over 1 million units or roughly about 7% above year ago levels.
Now, the average daily selling rate was roughly 49,000 cars sold over 25 days.
That's up from the daily average from one year ago of 45,000. Breaking it down by type of vehicle, passenger sales fell a little over 2% year-over-year, light trucks were up about 10% year-over-year.
Now, light trucks accounted for roughly 81% of November sales, that is a touch higher than what it did in November of last year.
The week start to the fourth quarter came as the industry dealt with the striking workers. That impacted production volumes.
As a result, light vehicles miss out on a typical post thanks giving bump last month. The strike impacted deliveries at GM, Ford and Stellantis. Among the three Detroit automakers, GM and Ford incurred the have your production losses with each company having three facilities off-line by the end of the strike according to TD Economics.
However, with the peak impact of the strike in the rearview mirror, TD Economics believes that production is approaching its pre-pandemic level and inventories are expected to continue to normalize going forward. The three Detroit automakers are expected to gradually boost the production at those affected facilities over the coming months to recoup some of the lost production.
Overall, in demand for automobiles has remained pretty solid throughout the year as pent up demand, excess savings from Americans and a tight labour market has pushed sales volumes low Diblee above last year's supply constraint levels.
>> That was 2023.
A couple weeks, it's all going to be over.
We will be into 2024. With the forecast for next year?
>> Looking ahead, TD Economics expects that the convergence toward the pre-pandemic pace of sales is expected to become increasingly difficult as some of those tailwinds begin to receive. However, recovery and incentive spending which is still historically low as a share of transaction prices and or moderating prices could give sales a boost in 2024.
>> Great stuff as always. Thanks a lot.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, it gives us a view of the market movers. Let's start with the TSX 60, we are going to go by price and volume. I will preface this by saying that we have the price of American benchmark crew below $70 a barrel. A sizable step back so it's not hard to extrapolate and take a look at the energy space. About some of the biggest energy names in this country on a fairly significant pressure today. We've got Suncor down more than 4%. CNQ also in that camp, down 4 1/2%. Not a lot of green on the screen in that area.
Now, we've been talking about yields and falling yields and it's been pretty dramatic considering you're talking about a 10 year yield of 5% several weeks ago and where we are today.
A lot of yield sentiment has been on the move. Starting with telecoms, Rogers to the upside. Utility space were gaining as well.
Got Hydro or Fordist. Seeing some strength they are keeping us from a poor showing on the TSX Composite Index.
Getting further signs that the US labour market is cooling. Noticing some money moving towards the financials.
On the S&P 100, you're up on Citigroup and the Bank of America.
In taking a look at the automakers, Tesla, Ford and GM are putting green on the screen as well. No more information on TV Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back now with Andrew Kelvin from TD Securities, talking about rates in the economy and we are taking your questions.
Let's get to another one. Are we already in a recession and if not will we be soon?
>> So the answer is no. We are not in a recession.
In the third quarter, growth was positive.
If we want to use that sort of classical definition of a recession as two consecutive quarters of negative growth.
You are not in a recession Q4 because Q3 was positive.
Going forward, we don't believe that we will be in a recession next year because we think that strong population growth will be enough to offset a broad-based fall in individual living standards which is what you would normally associate with the recession.
I think what really speaks to on some level is this idea of a recession.
>> Because they revised the second quarter higher. It seems to be a moving target.
>> Sorry, the second quarter. And this is the same. We don't think you for is negative.
We are not in a recession.
But it does speak to the arbitrariness because let's use a hypothetical example.
A world where the economy grows at a 3% pace and falls in a six for one quarter to the next, that's not a recession, as we define it.
If you fall at a 1/2% quays for two consecutive quarters, you're in a recession and a pretty notable one.
They are both the exact same outcome but is just how we talk about the changes.
In an environment where we are going to be looking at Canadian per capita growth next year that is quite firmly negative. Even if the overall number is positive, in that sort of our world, our session as we define it sort of loses its meaning a bit.
So the short answer is no, we don't think we are in a recession we don't think we will be in a recession.
But broadly speaking, it's going to feel like it. That's when try to get you.
>> Is going to be part of Bank of Canada's work once we get past all of this inflationary shot? I remember when the previous governor was in the chair, he talked about that.
That sort of dog his work a little bit, productivity in this country, business investment. At some point, does the BOC have to start focusing on that again?
>> So that's not really the Bank of Canada's mandate.
>> They can worry about it but they can't… >> And it's important for what the BOC does because productivity growth allows new revenue so it matters for the BOC but it's not up to them to boost productivity.
I think we've seen that if lowering interest rates could produce productivity, we be a very productive country.
This is really more something for industrial policy and fiscal policy.
It's about putting tax incentives in place that will promote capital investment, it's about ensuring that you can channel your labour force into the most productive area. Making sure you have infrastructure in place.
If we want to talk about hypothetical productivity enhancing investment, if you tried to do a big interceptor project in Canada today, one thing you would run into would be a lack of skilled trades people able to put that investment in place.
It really is more a question of how we structure the economy, what kind of incentives we provide, what kind of opportunities to provide as opposed to what interest rates are. So the Bank of Canada, it matters for them.
Gov. Paul came with an export and manufacturing lens. That's probably why he was so focused on productivity but it's not something that's in the Bank of Canada is ability to promote or dissuade people from.
>> Let's get to another question here.
Squeeze it in before the end the show.
Here's the big one. What is your take on the housing market?
>> So I kind of come back to supply versus demand on some level.
High interest rates obviously have put downward pressure on house prices. I would look for interest rates at these levels to continue to put pressure on house prices into the spring market. That would be my instinct, at least.
But in a world where we are bringing in 1 million people per year and building approximately 1/4 of a million houses per year, you're just creating building and balances on some level. So until we can figure out a way to boost housing supply, it's very hard for me to tell a story where housing falls into an uncontrolled spiral absent a significant employment shock. That's a wildcard. You can always tell a story where if a recession gets to be bad enough, house prices fall no matter what's going on. Right now, with the soft landing outlook for Canada, we can see downward pressure on prices but I think it would be more moderate and severe given that still material imbalance between demand for shelter and supply for shelter.
>> Andrew, always a fascinating conversation. Always enjoy. Look forward to the next one.
>> Thank you very much. Pleasure to be here.
>> Our thanks to Andrew Kelvin, head of Canadian and global rate strategy at TD Securities. As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show. Vitali Mossounov, VP, Dir.
and coleader fundamental equity research at TD Asset Management will be our guest, to hear questions about technology stocks.
A reminder that you get a head start with this question. Just email moneytalklive@td.com. That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
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