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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 get a reaction to the Bank of Canada. There holding rates steady.
TD Securities Andrew Kelvin joins us for insight. MoneyTalk's Anthony Okolie will take us through a new report on the outlook for real estate investment trusts.
And in today's WebBroker education segment, Caitlin Cormier will show us where you can find information about money market funds on the platform. Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
Let's start with the TSX Composite Index.
It's up about 1/3 of a percent. Among most actively traded names as we head into the lunch hour is B2Gold.
This is the market reaction to the fourth quarter report. At the box $0.61 per share, I believe it's still the most actively traded issue at this hour, down a little more than 10%.
Capstone Copper coming out with its production numbers. The market is pleased.
They are also pleased with Saying They See Even Higher Production Levels in 2024.
Got Capstone at Six Bucks and $0.60 per Share, up Almost 5.8%. South of the Border, Let's Check in on the S&P 500 and See What We Have on Our Hands Today.
Back in the Green, 4899, of Three Quarters of a Percent.
Tech Heavy NASDAQ, Noticing Chipmakers on the Move Today Higher. 141 Point Gain on the NASDAQ, Good for Almost a Full Percent. Netflix, Big Story Today.
Earnings Are out. Subscriber Numbers up More Than Expected. It Netflix up 12% on the Session. I Wanted to Take a Look at Microsoft. They Had a 3 Trillion Market Cap Day.
That your market update.
The Bank of Canada is holding its key rates steady at 5% amid concerns that underlying inflation measures are not showing sustained declines.
Now joining us with more is Andrew Kelvin, head of Canadian and global rate strategy at TD Securities. Not a surprise that they held but the rationale, they seem concerned about core inflation. Are they right to be concerned, are you concerned?
>> I don't know I would say I am concerned but I think it's the appropriate stance and emphasis.
Gov. Macklem tried to communicate the message that the Bank of Canada believes they have tightened sufficiently to bring inflation back to the 2% target. But just because they hits the number they need to tame inflation, doesn't mean they can turn right around.
They held at the caveat that if inflation becomes stronger again, they could raise rates again.
That's always the case with the central bank. Also now there is the question of how quickly do they see that process of underlying inflation? The most recent CPI prints we've had show limited progress.
The economy has slowed enough that they do believe that we will see more slack in the economy, price pressure start to weigh in.
The timing for rate cuts will ultimately just depend on how quickly inflation goes down. I would share the Gov.'s focus on underlying inflation because given the data we have seen, it doesn't appear to us that we would be looking at our reasonable discussion of rate cuts for the next meeting or two.
>> Let's talk about that.
The market has certain expectations. Maybe around June, there might be a bit of a coin toss, when the Gov. was asked, he said it was premature at this point to talk about rate cuts.
The conversation is about how long we stay here. It is the market getting ahead of things or is the market sort of seeing something in the economy that gives it some sort of comfort that by the summer or late spring, there might be rate cuts?
>> The market is weighing probability.
Given that the Bank of Canada has really moved away from credibly threatening rate hikes, the market is right to be pricing in a incrementally higher probabilities of rate cuts. March, there is not a lot of time between the January and early March meetings. I think for March rate cut, we would need to see are really significant about-face from the POC. Things would need to go very poorly, very quickly to start talking about that. It's a fairly narrow path for April. By April, if you have a few downsides of prizes on CPI, we can be talking about that with a lot more urgency. There is still a lot of the game left to play between now and the April meeting.
In terms of what the market is looking for, the market will ultimately ahead of the meeting where they make cuts, they will have probably arrived at that possibility, but for a more realistic view, there have been a 100 basis points cut based in for 2024. I think that's reasonable.
It's just a question of when they start.
>> Let's talk about housing. The Bank of Canada acknowledged in today's decision that shelter costs, in their words, remain the biggest contributor to above target inflation. A question is put to the Gov.
after they gave their statement saying, if this is what remains to get us back to 2% inflation, why don't you start cutting rates and give Canadians a break?
His answer was it's a little bit more complicated than this.
>> There is a few ways of thinking about it.
They expect that shelter inflation will remain a headwind to achieving their target of 2% inflation for several years.
They are not expecting a quick normalization and shelter price inflation.
They also said in the press conference opening statement that they are resolute in trying to achieve their inflation target. If you're seeing that shelter price inflation is going to be above two for more than one monetary policy cycle, for more than one or two years, and you were saying you want to get to 2%, you're saying you need to see other parts of the economy see lower than 2% inflation to compensate for this very stubborn, sticky shelter inflation. It isn't just shelter.
The share of the CPI basket above 4%, both historical norms, you look so that being 25 to 30% of the basket over 4%. That figure now is in the mid-40s. It's not just a shelter thing.
The shelter component, some of the more inflationary components are running at about 3 1/2%.
Shelter is the biggest contributor. But it's not just a shelter story. Their mandate is to present inflation. Not 2% inflation excluding shelter.
If you think about the arithmetic, if they targeted it to percent that shelter inflation while acknowledging that shelter inflation is going to be above two, at that point, you're no longer targeting 2% inflation and that's not there call to make. They have an agreement with the federal government.
That's the democratic legitimacy of the Bank of Canada exerting such powerful control over the economy comes from.
Their agreement with the government's 2% inflation.
>> They make clear that the conversation around the table is about how long they are staying at these levels. It's not talking about a hiking environment anymore but not talking about cutting either. What would happen to make that will change for us this year?
>> You would need to see a lot more resilience from Canadian households that we have seen thus far. 2023 was an important growth year. The middle of the year, we saw zero growth. We saw something pretty close to zero in the fourth quarter as well.
So that's three quarters of essentially flat economic activity.
We are not looking for a big rebound in the first half of 2024.
All those things sort of point team to a soft landing or in the future.
If the economy were to rebound dramatically, we were to go into the spring housing market reigniting a broad consumption frenzy, as an example, something could happen that could cause the BOC to change tack, we would need to be talking about a much more robust Canadian growth outlook. I think a combination of stubborn inflation and slow growth is probably more consistent with the BOC staying at 5% for a prolonged period of time.
>> Let's talk about something that often gets overlooked. I know it's not often overlooked by you and your team but the first paragraph of the statement says, "Today we held our target for the overnight rate at 5%." The news everybody is looking for.
They also say, we are continuing our policy of quantitative tightening. Are we not paying enough attention to that part of the equation?
>> I think quantitative tightening has become more topical. When the pandemic started, the BOC started buying huge amounts of government bonds to lower interest rates to support the economy.
They stopped buying those bonds about a year and 1/2 ago. We are not buying bonds anymore. The thing is, in normal times, the BOC is actually constantly buying small loans of Government of Canada bond issues. They need to hold assets on the balance sheet against their liabilities.
The primary one used to be currency, bills in circulation.
They did this in the most unobtrusive way possible. That was their goal. They didn't want to influence the market. They just needed to hold these things.
As they matured or the amount of bills in circulation grew, they would buy a little bit more.
The issue now as we are trying to find the new normal for the size of the balance sheet.
They have sort of been on autopilot, letting bonds mature, they fall off the balance sheet, they will at some point reach the sort of normal level of their balance sheet which, based on the most recent speeches they've given on the topic, which were quite some time ago, last spring I believe, they think that point comes in the fourth quarter 2024 were the first half of 2025. That's the last estimate. Why this matters is because those in the government of Canada start to increase their bond issuance to fund deficits and other things, investments they want to make and the like.
We are probably going to see a pretty aggressive government of Canada borrowing program in fiscal 24 and 25.
Deficits on tap and other things that they would like to do that necessitate capturing deficits. When the Bank of Canada starts buying bonds to stabilize their balance sheet, that will take a little bit of the pressure off the Canadian bond market. It sort of an awkward one for the BOC because they won't restart because they are trying to influence yields.
>> The timing is just sort of winding up.
>> And they really don't want to be seen as bailing out the government.
They hate that framing. But at some point, they are going to end quantitative tightening because their balance sheet will be at the right level and when that happens, they will start buying government of Canada bonds again which is something that will, on the margin, impact yields.
>> Interesting stuff as always with Andrew Kelvin. We will get back to your questions on the economy and interest rates for Andrew Kelvin in just a moment's time.
And a reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Netflix on the rise today. That's after the streaming giant added far more subscribers unexpected in its most recent quarter.
A crackdown on password sharing and its ad-supported service on Netflix add some 13 million new subscribers for those three months.
The company is also providing an earnings forecast that is above the streets estimates. Right now, you're up almost 13% on the day. Let's take a look at Canadian National Railway. It's reporting a 2% drop in revenue for its most recent quarter.
That's despite growing shipping volumes.
The railways growth in shipping was offset by lower fuel surcharges and intermodal storage fees. While the extreme cold and the prairies mentioned a slow start to 2024 for CN Rail's freight volumes, TD Cowen and a note with client said CN could benefit from a stronger economy and months ahead.
But altogether, they're down 1.7%. Let's take a look at food court and restaurant operator MTY Food Group. Hiking its quarterly dividend payout to shareholders.
The Québec-based company says it's raising the dividend by 12% after what he called a year of record growth, it also cited the acquisitions of Sauce Pizza and Wetzel's Pretzel.
MTY Food Group is up almost 3%. Quick check in on the markets. Let's start on Bay Street with the TSX Composite Index.
Some green on the screen today. 70 points to the upside, but 1/3 of a percent.
South of the border, with Netflix rallying, some of the chipmakers rallying today, we got the S&P 500, that broader read of the American market, up about three quarters of a percent.
We are back now with Andrew Kelvin, taking your questions about interest rates in the economy so let's get to them. We will start with the housing market.
The viewer wants to know, with mortgage renewals this year, should we be worried about indebted Canadian households?
>> Canadian household indebtedness is to my mind primarily it appears in the economy through slow consumption activity.
We are growing the population in the country. Consumption growth in real terms has not kept up with that. We see a very weak environment for consumption growth in 2024.
And probably into 2025 due to those mortgage renewals and high levels of debt.
I think that's a real impact.
>> It's not so much about defaults, I have put the money to keep my house here's I'm not gonna put my money over there.
>> We need to see a much larger hit to employment than we currently see and where we see a much larger hit to employment, we are probably talking about much lower interest rates because that would be the sort of thing that would actually drive the BOC to more aggressive easing. Right now, we stayed our base case scenario for sluggish growth that is ground zero for the first half of 2024, picks up a bit in the latter half of the year, it's gonna be something where we see negative per capita consumption growth as households feel the pinch of mortgage rate resets, variable rate borrowers and inflation. That's the other piece of this puzzle. People are feeling the pinch from things like hide food prices and high rent prices.
Even when they don't have big mortgage as, you see Canadians feeling the pinch. On the other side, I would observe that we had seen to the back of 2023 with the most recent data we have, Canadians were still in aggregate sitting on big savings buffers. Those are going to be not uniformly distribute it. Some households don't have that excess savings and will have to really feel the pinch of higher mortgage prices, rates, sorry, when they reset. But there is a pile of savings in the Canadian economy which will buffers some households from those resets.
>> Look up to a question about currency. A viewer wants to get your view on the loonie.
And let's talk about the US dollar as well.
>> Think that sets up a nice training. We talk about currency but we talk about pairs of currencies. From my perspective, what happens to the loonie will depend on the relative rate of change in the BOC's policy rate and the Fed's policy rate.
At the BOC, we have a much weaker Canadian economy than the US economy.
Canadian economic growth has slowed more significant leap.
The Fed has a dual mandate. They have to manage growth and employment and inflation. The Bank of Canada purely has an inflation mandate. As much as the Canadian economy is going for, as long as underlying inflation is stubborn and sticky in Canada, that keeps the BOC from easing.
In the US, even if we have a better growth outlook, they can look at slowing but still better than Canadian growth coupled with a little bit of a lower inflation backdrop in the US and they can probably ease rates a little bit more aggressively, particularly if the US economy starts to slow, which we expect in the midyear.
If the central bank rates stay where they are all year, I think we are looking at the loonie not doing a heck of a lot. But if the Fed does react aggressively which we expect, I think we could be talking about a 77 or 78 sent loonie by the end of this year on its way to $0.80 by the end of next year.
>> No question that seems a little out of left field but was posed to me on Friday evening by some people who found out what I did for a living. They asked, is our currency ever going to get back to parity with the US buck?
They were talking about how US guitars are too expensive for them right now.
I said it was in the expert but that I would ask one.
>> Ever is a long time.
The conditions for the Canadian dollar to reach parity would probably you in the Canadian economy is robust and the US economy is weakened for a long time. You have this phenomenon where when the world economy slows, i.e. people by US dollar assets, we call it flight to safety. Last and there is parity, it was something where the Canadian dollar was, the Canadian economy was benefiting from high oil prices, the Canadian oil was relatively robust compared to the US economy and we had a sort of steady, long-lasting positive interest rate differential between the BOC and the Fed.
You probably need something to happen structurally in the US and Canada is somehow able not to be hit quite as hard by and those sorts of events, we can only speculate about a thing that could happen but those events are very difficult to predict. Having said all that, the fact that we had parity not that long ago, I'm sure it will happen again at some point, it just very hard to predict when in the next 50 years or so that would be.
>> How say be glad you bought your Rickenbacker P3 when there was parity. It will take some time until your next guitar or purchase.
Ask question. Will we get a recession this year? It's been hanging overhead for a while.
>> Recession is a funny term to because we tend to view recession as two consecutive negative quarters. That doesn't necessarily lineup with what we think of in terms of experiencing a recession. You think about a world where you drop by 4% and one quarter and then increase by half a percent exported. That's not a recession, there was only one bad quarter.
Where is if you fall by 1% you can second quarters, we are talking about a recession. It's a much better place to be the one where you fall really quickly really fast.
In terms of the Canadian data, Q3 was negative, Q4, BOC sees zero. A technical recession is a coin toss at this point.
In terms of, the other think important to think about is we think of recession in terms of per capita rather than aggregate terms. Canada has been adding population at a really rapid clip. Population growth tends to increase demand for goods and services. That's something that makes it a little bit harder to fall into a deep recession, even though it can feel for individuals as though we are in a deep recession. When you're growing a population by two or 3% per year, you can have slightly positive per capita GDP growth every quarter, sorry, slightly positive overall GDP growth per quarter but you might be materially it negative on per capita terms.
The take away here, I'm rambling, I recognize this, is that we are very close.
When you are at zero growth, is a coin toss.
It's going to feel like a recession already I would argue. And we may find out amid Q4 data that it's not out yet that we were actually in fact an recession in the second half of last year.
>> As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andrew Kelvin and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
High interest rates make cash instruments like money market funds attractive to some investors last year. Joining us now with more information on where you can find them on what broker is Caitlin Cormier, client education instructor with TD Direct Investing.
Always great to see you. Show us where we can find his money market instruments.
>> Absolutely. All the talk about interest rates, clients are always looking for different places to stash a little bit of cash for those short-term opportunities.
Let's hop into a broker and find these particular types of investment.
We are going to start under the research tab on the top left-hand side of the screen. Underneath tools, we are going to click on our screeners tool.
Once we get here, today let's focus on the mutual fund type of funds. I'm going to click on the mutual funds tab and create my own custom screen. There's lots of different criteria you can use in order to create these types of screens but for today, I'm going to go ahead and choose the fund type and we are going to go under, sorry, we are going to choose fund category, I was 50-50 there, fund category and we are going to choose the money market. There Canadian money market as well as United States. We will choose Canadian there and if we wanted to choose US as well, we are alphabetical so we can go ahead and scroll down to US money market as well.
We can choose to include ETFs or not. You would also include things like MER and other types of criteria if you like.
Otherwise, we can go ahead and click view matches which is 52 at this point in time.
It shows us all of those different funds that are available.
I would just have to on click here if we don't want to see the TD funds first if you would like to go alphabetical or something else like that. This is where you can get an idea of which different funds are available and we can see additional information like purchase information, the minimum we would have to buy which can be different for those premium funds and all that sort of information.
>> So we do have someone on my broker who is looking for money market funds, I'm going to make the assumption, I like to make assumptions seldom, but they might be interested in yield. If they want to know the current yield of these money market funds, how did they do that?
>> It's a little tricky with these funds because there have been changes over the last little while. We come into the summary for these types of funds. It will show us distribution yield but that's not necessarily the current yield. The current yield is what we are looking for.
There are two different ways to do it.
First, we can click on, kind of choose a particular fund. Let's go ahead and choose one right here. I'm going to click on the actual name of the fund. I can click by a and it will bring me into in order to get here and there it will show me what the current yield is. It's current, it's changing all the time, as interest rates change it will change as well. That's the current yield for this particular fund.
The other thing I can do is I can come into here and added to a watchlist.
I actually have a money market watchlist so I've gone ahead and added that.
In order to get my watchlist, I'm just going to come here right on the top right-hand side of my screen where the little star is to click on watchlist and that I can actually go ahead and choose money market and then scroll through here and see a few different money market funds that I already have here. You will notice that the distribution yield is over here on the right-hand side. Some extra ones in here. Some of them are money market and it will show me the distribution yield on the right-hand side.
Couple different ways to find it if there are so that you want to keep an eye on you can always create a watchlist so you can see them quick and easy and that's a little bit of information about this money market funds.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, 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 are back with Andrew Kelvin, take your questions about the economy and interest rates. Let's get to another one.
It just came in. Are the Bank of Canada and the Fed on a divergent path when it comes to interest rate?
>> That's a good question.
I would say thank you to the viewer for submitting that because I can clarify my last response about currency.
We think if you want to take a two year perspective here, the BOC and the Fed are going to wind up in more or less the same place. We think they will be both at 3% by the end of 2025. The timing doesn't necessarily have to line up. It's not uncommon to see the BOC and the Fed starting their easing cycles three or four months apart. As it stands now, we look for the Fed to ease in May and the BOC to start easing in July.
There's a little bit of a difference in timing. We also think in terms of the aggressiveness of that cycle, the more aggressive cuts, that will be in the US.
They will be a bit more frontloaded. The reason we believe that is in large part because in Canada, we have seen historically real material sensitivity on behalf of particularly the homebuyer and consumers more broadly to slight adjustments in interest rates.
I think with that backdrop and with that sort of stickier core inflation backdrop in Canada, the Bank of Canada is going to want to be a little bit more cautious than the Federal Reserve and easing.
>> The American economy has been so resilient where we had a very tepid economy.
>> This is part of the household indebtedness. The high levels of household indebtedness in Canada versus the US means that every rate hike here hurts the consumer more.
But it works the opposite on the way down.
Small amounts of rate cuts can actually have really big impact on consumer activity.
When you have a central bank that's missed his target for the past 2 1/2 or three years, once you start using, you probably don't want to overdo it. One thing we heard from Gov.
Macklem last year is one thing is that he doesn't want to leave the job half finished.
They want to be >> This leads nicely into the next question.
So let's look at the housing market. A lot of things in play, cost of borrowing, inflation, demand and supply.
>> All of those things are in flux.
There is no national housing market. There is Johnson's aura hundreds of regional markets. But nationally, we might see a little bit more weakness into this spring.
When looking for big drops, just given the fact that the BOC is clearly finished with its tightening cycle in our review and while we will see a bit slower population growth and 24, we have this big overhang of pent up demand for the housing market.
Obviously in the Canadian economy, that analysis can change.
But given the mismatch in population growth and new home construction, even with consumers feeling the pinch, we feel that supply demand imbalance will create conditions… When I think about 2024 for the housing market, certainly for the first half of the year into the summer, it sort of slot is to maybe lower than current prices but probably increases in sales activity affecting the larger population. As we get into the 2025 spring market, we believe will be looking at much less restrictive monetary policy and a little bit more constructive housing activity.
>> Is all of this frustration for the BOC?
Many will look to them and say, why don't you solve this problem of the cost of housing? In the end, we need to build some housing. The BOC, Tiff Macklem, doesn't swing the hammer or build houses.
>> We don't know what he does in his spare time.
It is a frustration but also the central bank, every economy has rigidities that need to be incorporated into analysis.
Your target is 2% inflation. It's your job to understand these rigidities in terms of the ability, the elasticity of housing supply, for example.
I'm sure it's frustrating because the explosion and population growth we have seen in Canada is something that in historical series that I seen that I would consider reliable in my lifetime, I've never seen this kind of population growth.
So I'm sure it's frustrating that something that they probably had no way to predict has created these problems regarding inflation. I'm sure it's frustrating for them but it's also part and parcel of being a central bank. If the economy had no rigidities and perfect information and a perfect view of where inflation was going, it would be a really easy job.
>> Take long weekends.
>> Exactly. It's just part and parcel of central banking.
>> Next audience question to John something you mention. Will this On student immigration they were talking about last week he hit our economy?
>> It will. It will have a bunch of interesting impacts on the economy.
I say interesting from my perspective as an economist.
It will slow growth on the margin. Adding more people increases demand for shelter, food, transportation, services. So we slow the pace of growth of immigration but it's actually gonna slow the pace of growth of consumption. It will also tighten the playbooks a little bit which interesting enough were countered when the slower demand growth will help the BOC particularly in so far as you're gonna take some pressure off of prices. The fact that you're not going to be growing the labour market is much as quickly as you did in recent years will reduce the bargaining power of employers and it will maybe stop wage acceleration from declining. The other piece that is really interesting for me is to do with funding for Canadian universities.
Foreign students have been an important source of funding for Canadian universities. In the provinces which see a large, disproportionately large numbers of foreign students, it could create some interesting challenges for governments who are already facing large numbers of difficult choices to make may now have one more set of choices that they need to address, one more need that they need to divert funds to on top of building and construction and all the other things they want to do because suddenly there will be a bit of a hole in postsecondary funding.
>> Fascinating seven some challenges ahead. We will get back to your questions for Alvin on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us 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.
It's no secret that aggressive central bank rate hikes have weighed on the rate sector. However, the rate hiking cycle appears to be at an end. People are talking about cuts and when they will come.
Is it time now to take another look at the rate market? Anthony Okolie joins us now with a TD Cowen report on the space.
>> Their outlook for 2024 is out on the rate sector which continues its rebound.
The index ended the year up nearly 3%, total return basis, narrowly avoiding a second consecutive downturn. It marked only the second time that REITs have underperformed the broader your market for two consecutive years.
Driving the 2023 read weakness was rising interest rates, fluctuation in interest expectations, soft versus hard landing debate as well as geopolitical risks.
TD Cowen notes that valuations have continued the recovery since mid-December with those sectors pricing up about 1%. A TD Cowen sees potential for these risks related to the macroenvironment like interest rate volatility and inflation expectations to continue to ease throughout the year and that should help funds from operations in the rate sector improved to poor search of their longer-term average. As a result, TD Cowen reiterated their call for the 2024 sector total returns to being likely in line in the 15 to 20% range. The forecast returns include some of the four factors. One, should rates continue to trend lower, TD Cowen expects a reversal of individual investor fund flows from deposits and GICs and money market funds that back into the REITs sector.
With the yield curve now relatively lower, TD Cowen expects those fund flows to continue moderating in some of the term deposits and money market funds that should benefit the rate sector as well as high yielding equities sectors in their view. TD Cowen also expect a continuation of favourable fundamentals enjoyed by most sectors in 2023. We will break it down for you.
We will start with a couple.
Residential, industrial and retail sectors, TD Cowen expects continuation of robust demand that we saw in 2023.
Within the office space, they expect the office sector pessimism to moderate and valuations to rebound from a heavily discounted levels after the senior housing sector, they anticipate a more pronounced occupancy recovery in 2024.
TD Cowen is reiterating their 2024 REIT real estate industry Outlook from last month in which they raise their target prices by 6% on average.
>> Constructive on the space. What are some of the key risks or challenges that could heat the sector?
>> We will start with retail and residential. I think some general risk that TD Cowen points to you includes a slower wrench growth or higher vacancies, general economic conditions. Within office, supply and demand for office space is always a risk. Cost pressures, credit risk are some of the other risks there. In the senior space, prolonged impact were further waves of COVID 19 and potential outbreak of illness, virus at residences and poses risks to that sector. With industrials, risks include general economic conditions as well as demand for space and loss of key management.
>> Interesting stuff.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
And now for an update on the markets.
We are looking at TD Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, giving us a view of the market movers. Let's start with the TSX 60 and screen by price and volume. What is going on that has our topline number in positive territory today? Let's start with the financials.
Some green on the screen. Not huge gains but some are pretty heavy weight when it comes to the topline numbers today. They are putting points on the table. The energy space, same thing.
No huge percentage jumps for some of these big energy names with they are contributing. You might've noticed that I was we edged the green side of the screen, that some of the miners, we've got gold to the downside a bit today. You got Barrick down about 2% and Kinross down about 2%.
Tax standing out of the group right now, of almost 4%.
South of the border, let's check in on the S&P 100. Chipmakers earlier today back on the move higher.
You got AMD making a 7% gain on the session, Nvidia up about 4%. The AI excitement is carried into 2024. But Netflix obviously standing out today.
Substantially more subscribers than the street expected in the latest quarter after cracking down on password sharing and their new ad-supported tier of service. Seems to be working out. The forecast for going forward is fairly strong as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with Andrew Kelvin from TD Securities. Someone wants to know if these Red Sea disruptions could reignite inflation.
>> That's actually one of the upside risks the Bank of Canada flagged in their policy report, geopolitical disruptions could create and specifically looking at the Red Sea, could create an environment where we see higher oil prices were where we see more material increases in shipping costs.
That's where the oil price side risks haven't materialized.
If the situation in the Middle East were to escalate to a point where it totally disrupted global oil output, that would have near-term inflationary implications.
We remember what happened with shipping costs during the pandemic.
>> That's how everything started, wasn't it?
>> Exactly.
>> That temporary bump.
>> I think we are all sensitive to fluctuation in shipping costs because of what happened during the pandemic but clearly if shippers are no longer able to use Red Sea, that will raise shipping costs and the price of goods on the margin so it clearly is a risk.
>> We will slip in one more question here.
This one, it's going to be a big year in the states. The US election. How might that impact the Canadian economy?
>> So it's interesting because we've seen what both presidential candidates would do to Canada.
The fact that the current trade agreement with the US was offered by the likely Republican presidential candidate, Trump, gives me a little bit of I guess I am a little bit less scary given that this is his deal. He is less likely to come in and tear up his own deal.
Where is we have had Pres. Biden were coming up on four years and we've seen what those policies do to Canada.
It's not as though Biden is a free trader with Canada's best interests at heart.
We've had experiences Pres. Biden and of Pres. Trump.
From a purely Canadian perspective, I think we go into this with a lot more certainty than we did the last time.
Obviously, if there are changes on the free-trade front, that would have implications. To the extent that the chain and uncertainty around what US foreign policy is impacts things like global energy prices, those will have impact for Canada as well.
By and large, when you think about the US as Canadian economist, we think about, what does this mean for our trade relationship?
We have experience with both these presidents and I think Canada weathered both presidencies well.
>> Hadn't thought about it from that angle. Always a pleasure to having you here.
>> Thanks for having me.
>> Our thanks 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. At Justin Flowerday, Managing Director and head of public equities at TD Asset Management will be our guest.
Even get a head start with your questions.
Just email moneytalklive@td.com. That's all the time we have for 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 get a reaction to the Bank of Canada. There holding rates steady.
TD Securities Andrew Kelvin joins us for insight. MoneyTalk's Anthony Okolie will take us through a new report on the outlook for real estate investment trusts.
And in today's WebBroker education segment, Caitlin Cormier will show us where you can find information about money market funds on the platform. Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
Let's start with the TSX Composite Index.
It's up about 1/3 of a percent. Among most actively traded names as we head into the lunch hour is B2Gold.
This is the market reaction to the fourth quarter report. At the box $0.61 per share, I believe it's still the most actively traded issue at this hour, down a little more than 10%.
Capstone Copper coming out with its production numbers. The market is pleased.
They are also pleased with Saying They See Even Higher Production Levels in 2024.
Got Capstone at Six Bucks and $0.60 per Share, up Almost 5.8%. South of the Border, Let's Check in on the S&P 500 and See What We Have on Our Hands Today.
Back in the Green, 4899, of Three Quarters of a Percent.
Tech Heavy NASDAQ, Noticing Chipmakers on the Move Today Higher. 141 Point Gain on the NASDAQ, Good for Almost a Full Percent. Netflix, Big Story Today.
Earnings Are out. Subscriber Numbers up More Than Expected. It Netflix up 12% on the Session. I Wanted to Take a Look at Microsoft. They Had a 3 Trillion Market Cap Day.
That your market update.
The Bank of Canada is holding its key rates steady at 5% amid concerns that underlying inflation measures are not showing sustained declines.
Now joining us with more is Andrew Kelvin, head of Canadian and global rate strategy at TD Securities. Not a surprise that they held but the rationale, they seem concerned about core inflation. Are they right to be concerned, are you concerned?
>> I don't know I would say I am concerned but I think it's the appropriate stance and emphasis.
Gov. Macklem tried to communicate the message that the Bank of Canada believes they have tightened sufficiently to bring inflation back to the 2% target. But just because they hits the number they need to tame inflation, doesn't mean they can turn right around.
They held at the caveat that if inflation becomes stronger again, they could raise rates again.
That's always the case with the central bank. Also now there is the question of how quickly do they see that process of underlying inflation? The most recent CPI prints we've had show limited progress.
The economy has slowed enough that they do believe that we will see more slack in the economy, price pressure start to weigh in.
The timing for rate cuts will ultimately just depend on how quickly inflation goes down. I would share the Gov.'s focus on underlying inflation because given the data we have seen, it doesn't appear to us that we would be looking at our reasonable discussion of rate cuts for the next meeting or two.
>> Let's talk about that.
The market has certain expectations. Maybe around June, there might be a bit of a coin toss, when the Gov. was asked, he said it was premature at this point to talk about rate cuts.
The conversation is about how long we stay here. It is the market getting ahead of things or is the market sort of seeing something in the economy that gives it some sort of comfort that by the summer or late spring, there might be rate cuts?
>> The market is weighing probability.
Given that the Bank of Canada has really moved away from credibly threatening rate hikes, the market is right to be pricing in a incrementally higher probabilities of rate cuts. March, there is not a lot of time between the January and early March meetings. I think for March rate cut, we would need to see are really significant about-face from the POC. Things would need to go very poorly, very quickly to start talking about that. It's a fairly narrow path for April. By April, if you have a few downsides of prizes on CPI, we can be talking about that with a lot more urgency. There is still a lot of the game left to play between now and the April meeting.
In terms of what the market is looking for, the market will ultimately ahead of the meeting where they make cuts, they will have probably arrived at that possibility, but for a more realistic view, there have been a 100 basis points cut based in for 2024. I think that's reasonable.
It's just a question of when they start.
>> Let's talk about housing. The Bank of Canada acknowledged in today's decision that shelter costs, in their words, remain the biggest contributor to above target inflation. A question is put to the Gov.
after they gave their statement saying, if this is what remains to get us back to 2% inflation, why don't you start cutting rates and give Canadians a break?
His answer was it's a little bit more complicated than this.
>> There is a few ways of thinking about it.
They expect that shelter inflation will remain a headwind to achieving their target of 2% inflation for several years.
They are not expecting a quick normalization and shelter price inflation.
They also said in the press conference opening statement that they are resolute in trying to achieve their inflation target. If you're seeing that shelter price inflation is going to be above two for more than one monetary policy cycle, for more than one or two years, and you were saying you want to get to 2%, you're saying you need to see other parts of the economy see lower than 2% inflation to compensate for this very stubborn, sticky shelter inflation. It isn't just shelter.
The share of the CPI basket above 4%, both historical norms, you look so that being 25 to 30% of the basket over 4%. That figure now is in the mid-40s. It's not just a shelter thing.
The shelter component, some of the more inflationary components are running at about 3 1/2%.
Shelter is the biggest contributor. But it's not just a shelter story. Their mandate is to present inflation. Not 2% inflation excluding shelter.
If you think about the arithmetic, if they targeted it to percent that shelter inflation while acknowledging that shelter inflation is going to be above two, at that point, you're no longer targeting 2% inflation and that's not there call to make. They have an agreement with the federal government.
That's the democratic legitimacy of the Bank of Canada exerting such powerful control over the economy comes from.
Their agreement with the government's 2% inflation.
>> They make clear that the conversation around the table is about how long they are staying at these levels. It's not talking about a hiking environment anymore but not talking about cutting either. What would happen to make that will change for us this year?
>> You would need to see a lot more resilience from Canadian households that we have seen thus far. 2023 was an important growth year. The middle of the year, we saw zero growth. We saw something pretty close to zero in the fourth quarter as well.
So that's three quarters of essentially flat economic activity.
We are not looking for a big rebound in the first half of 2024.
All those things sort of point team to a soft landing or in the future.
If the economy were to rebound dramatically, we were to go into the spring housing market reigniting a broad consumption frenzy, as an example, something could happen that could cause the BOC to change tack, we would need to be talking about a much more robust Canadian growth outlook. I think a combination of stubborn inflation and slow growth is probably more consistent with the BOC staying at 5% for a prolonged period of time.
>> Let's talk about something that often gets overlooked. I know it's not often overlooked by you and your team but the first paragraph of the statement says, "Today we held our target for the overnight rate at 5%." The news everybody is looking for.
They also say, we are continuing our policy of quantitative tightening. Are we not paying enough attention to that part of the equation?
>> I think quantitative tightening has become more topical. When the pandemic started, the BOC started buying huge amounts of government bonds to lower interest rates to support the economy.
They stopped buying those bonds about a year and 1/2 ago. We are not buying bonds anymore. The thing is, in normal times, the BOC is actually constantly buying small loans of Government of Canada bond issues. They need to hold assets on the balance sheet against their liabilities.
The primary one used to be currency, bills in circulation.
They did this in the most unobtrusive way possible. That was their goal. They didn't want to influence the market. They just needed to hold these things.
As they matured or the amount of bills in circulation grew, they would buy a little bit more.
The issue now as we are trying to find the new normal for the size of the balance sheet.
They have sort of been on autopilot, letting bonds mature, they fall off the balance sheet, they will at some point reach the sort of normal level of their balance sheet which, based on the most recent speeches they've given on the topic, which were quite some time ago, last spring I believe, they think that point comes in the fourth quarter 2024 were the first half of 2025. That's the last estimate. Why this matters is because those in the government of Canada start to increase their bond issuance to fund deficits and other things, investments they want to make and the like.
We are probably going to see a pretty aggressive government of Canada borrowing program in fiscal 24 and 25.
Deficits on tap and other things that they would like to do that necessitate capturing deficits. When the Bank of Canada starts buying bonds to stabilize their balance sheet, that will take a little bit of the pressure off the Canadian bond market. It sort of an awkward one for the BOC because they won't restart because they are trying to influence yields.
>> The timing is just sort of winding up.
>> And they really don't want to be seen as bailing out the government.
They hate that framing. But at some point, they are going to end quantitative tightening because their balance sheet will be at the right level and when that happens, they will start buying government of Canada bonds again which is something that will, on the margin, impact yields.
>> Interesting stuff as always with Andrew Kelvin. We will get back to your questions on the economy and interest rates for Andrew Kelvin in just a moment's time.
And a reminder that you get in touch with us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Netflix on the rise today. That's after the streaming giant added far more subscribers unexpected in its most recent quarter.
A crackdown on password sharing and its ad-supported service on Netflix add some 13 million new subscribers for those three months.
The company is also providing an earnings forecast that is above the streets estimates. Right now, you're up almost 13% on the day. Let's take a look at Canadian National Railway. It's reporting a 2% drop in revenue for its most recent quarter.
That's despite growing shipping volumes.
The railways growth in shipping was offset by lower fuel surcharges and intermodal storage fees. While the extreme cold and the prairies mentioned a slow start to 2024 for CN Rail's freight volumes, TD Cowen and a note with client said CN could benefit from a stronger economy and months ahead.
But altogether, they're down 1.7%. Let's take a look at food court and restaurant operator MTY Food Group. Hiking its quarterly dividend payout to shareholders.
The Québec-based company says it's raising the dividend by 12% after what he called a year of record growth, it also cited the acquisitions of Sauce Pizza and Wetzel's Pretzel.
MTY Food Group is up almost 3%. Quick check in on the markets. Let's start on Bay Street with the TSX Composite Index.
Some green on the screen today. 70 points to the upside, but 1/3 of a percent.
South of the border, with Netflix rallying, some of the chipmakers rallying today, we got the S&P 500, that broader read of the American market, up about three quarters of a percent.
We are back now with Andrew Kelvin, taking your questions about interest rates in the economy so let's get to them. We will start with the housing market.
The viewer wants to know, with mortgage renewals this year, should we be worried about indebted Canadian households?
>> Canadian household indebtedness is to my mind primarily it appears in the economy through slow consumption activity.
We are growing the population in the country. Consumption growth in real terms has not kept up with that. We see a very weak environment for consumption growth in 2024.
And probably into 2025 due to those mortgage renewals and high levels of debt.
I think that's a real impact.
>> It's not so much about defaults, I have put the money to keep my house here's I'm not gonna put my money over there.
>> We need to see a much larger hit to employment than we currently see and where we see a much larger hit to employment, we are probably talking about much lower interest rates because that would be the sort of thing that would actually drive the BOC to more aggressive easing. Right now, we stayed our base case scenario for sluggish growth that is ground zero for the first half of 2024, picks up a bit in the latter half of the year, it's gonna be something where we see negative per capita consumption growth as households feel the pinch of mortgage rate resets, variable rate borrowers and inflation. That's the other piece of this puzzle. People are feeling the pinch from things like hide food prices and high rent prices.
Even when they don't have big mortgage as, you see Canadians feeling the pinch. On the other side, I would observe that we had seen to the back of 2023 with the most recent data we have, Canadians were still in aggregate sitting on big savings buffers. Those are going to be not uniformly distribute it. Some households don't have that excess savings and will have to really feel the pinch of higher mortgage prices, rates, sorry, when they reset. But there is a pile of savings in the Canadian economy which will buffers some households from those resets.
>> Look up to a question about currency. A viewer wants to get your view on the loonie.
And let's talk about the US dollar as well.
>> Think that sets up a nice training. We talk about currency but we talk about pairs of currencies. From my perspective, what happens to the loonie will depend on the relative rate of change in the BOC's policy rate and the Fed's policy rate.
At the BOC, we have a much weaker Canadian economy than the US economy.
Canadian economic growth has slowed more significant leap.
The Fed has a dual mandate. They have to manage growth and employment and inflation. The Bank of Canada purely has an inflation mandate. As much as the Canadian economy is going for, as long as underlying inflation is stubborn and sticky in Canada, that keeps the BOC from easing.
In the US, even if we have a better growth outlook, they can look at slowing but still better than Canadian growth coupled with a little bit of a lower inflation backdrop in the US and they can probably ease rates a little bit more aggressively, particularly if the US economy starts to slow, which we expect in the midyear.
If the central bank rates stay where they are all year, I think we are looking at the loonie not doing a heck of a lot. But if the Fed does react aggressively which we expect, I think we could be talking about a 77 or 78 sent loonie by the end of this year on its way to $0.80 by the end of next year.
>> No question that seems a little out of left field but was posed to me on Friday evening by some people who found out what I did for a living. They asked, is our currency ever going to get back to parity with the US buck?
They were talking about how US guitars are too expensive for them right now.
I said it was in the expert but that I would ask one.
>> Ever is a long time.
The conditions for the Canadian dollar to reach parity would probably you in the Canadian economy is robust and the US economy is weakened for a long time. You have this phenomenon where when the world economy slows, i.e. people by US dollar assets, we call it flight to safety. Last and there is parity, it was something where the Canadian dollar was, the Canadian economy was benefiting from high oil prices, the Canadian oil was relatively robust compared to the US economy and we had a sort of steady, long-lasting positive interest rate differential between the BOC and the Fed.
You probably need something to happen structurally in the US and Canada is somehow able not to be hit quite as hard by and those sorts of events, we can only speculate about a thing that could happen but those events are very difficult to predict. Having said all that, the fact that we had parity not that long ago, I'm sure it will happen again at some point, it just very hard to predict when in the next 50 years or so that would be.
>> How say be glad you bought your Rickenbacker P3 when there was parity. It will take some time until your next guitar or purchase.
Ask question. Will we get a recession this year? It's been hanging overhead for a while.
>> Recession is a funny term to because we tend to view recession as two consecutive negative quarters. That doesn't necessarily lineup with what we think of in terms of experiencing a recession. You think about a world where you drop by 4% and one quarter and then increase by half a percent exported. That's not a recession, there was only one bad quarter.
Where is if you fall by 1% you can second quarters, we are talking about a recession. It's a much better place to be the one where you fall really quickly really fast.
In terms of the Canadian data, Q3 was negative, Q4, BOC sees zero. A technical recession is a coin toss at this point.
In terms of, the other think important to think about is we think of recession in terms of per capita rather than aggregate terms. Canada has been adding population at a really rapid clip. Population growth tends to increase demand for goods and services. That's something that makes it a little bit harder to fall into a deep recession, even though it can feel for individuals as though we are in a deep recession. When you're growing a population by two or 3% per year, you can have slightly positive per capita GDP growth every quarter, sorry, slightly positive overall GDP growth per quarter but you might be materially it negative on per capita terms.
The take away here, I'm rambling, I recognize this, is that we are very close.
When you are at zero growth, is a coin toss.
It's going to feel like a recession already I would argue. And we may find out amid Q4 data that it's not out yet that we were actually in fact an recession in the second half of last year.
>> As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andrew Kelvin and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
High interest rates make cash instruments like money market funds attractive to some investors last year. Joining us now with more information on where you can find them on what broker is Caitlin Cormier, client education instructor with TD Direct Investing.
Always great to see you. Show us where we can find his money market instruments.
>> Absolutely. All the talk about interest rates, clients are always looking for different places to stash a little bit of cash for those short-term opportunities.
Let's hop into a broker and find these particular types of investment.
We are going to start under the research tab on the top left-hand side of the screen. Underneath tools, we are going to click on our screeners tool.
Once we get here, today let's focus on the mutual fund type of funds. I'm going to click on the mutual funds tab and create my own custom screen. There's lots of different criteria you can use in order to create these types of screens but for today, I'm going to go ahead and choose the fund type and we are going to go under, sorry, we are going to choose fund category, I was 50-50 there, fund category and we are going to choose the money market. There Canadian money market as well as United States. We will choose Canadian there and if we wanted to choose US as well, we are alphabetical so we can go ahead and scroll down to US money market as well.
We can choose to include ETFs or not. You would also include things like MER and other types of criteria if you like.
Otherwise, we can go ahead and click view matches which is 52 at this point in time.
It shows us all of those different funds that are available.
I would just have to on click here if we don't want to see the TD funds first if you would like to go alphabetical or something else like that. This is where you can get an idea of which different funds are available and we can see additional information like purchase information, the minimum we would have to buy which can be different for those premium funds and all that sort of information.
>> So we do have someone on my broker who is looking for money market funds, I'm going to make the assumption, I like to make assumptions seldom, but they might be interested in yield. If they want to know the current yield of these money market funds, how did they do that?
>> It's a little tricky with these funds because there have been changes over the last little while. We come into the summary for these types of funds. It will show us distribution yield but that's not necessarily the current yield. The current yield is what we are looking for.
There are two different ways to do it.
First, we can click on, kind of choose a particular fund. Let's go ahead and choose one right here. I'm going to click on the actual name of the fund. I can click by a and it will bring me into in order to get here and there it will show me what the current yield is. It's current, it's changing all the time, as interest rates change it will change as well. That's the current yield for this particular fund.
The other thing I can do is I can come into here and added to a watchlist.
I actually have a money market watchlist so I've gone ahead and added that.
In order to get my watchlist, I'm just going to come here right on the top right-hand side of my screen where the little star is to click on watchlist and that I can actually go ahead and choose money market and then scroll through here and see a few different money market funds that I already have here. You will notice that the distribution yield is over here on the right-hand side. Some extra ones in here. Some of them are money market and it will show me the distribution yield on the right-hand side.
Couple different ways to find it if there are so that you want to keep an eye on you can always create a watchlist so you can see them quick and easy and that's a little bit of information about this money market funds.
>> Great stuff as always. Thanks for that.
>> Thanks, Greg.
>> Caitlin Cormier, 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 are back with Andrew Kelvin, take your questions about the economy and interest rates. Let's get to another one.
It just came in. Are the Bank of Canada and the Fed on a divergent path when it comes to interest rate?
>> That's a good question.
I would say thank you to the viewer for submitting that because I can clarify my last response about currency.
We think if you want to take a two year perspective here, the BOC and the Fed are going to wind up in more or less the same place. We think they will be both at 3% by the end of 2025. The timing doesn't necessarily have to line up. It's not uncommon to see the BOC and the Fed starting their easing cycles three or four months apart. As it stands now, we look for the Fed to ease in May and the BOC to start easing in July.
There's a little bit of a difference in timing. We also think in terms of the aggressiveness of that cycle, the more aggressive cuts, that will be in the US.
They will be a bit more frontloaded. The reason we believe that is in large part because in Canada, we have seen historically real material sensitivity on behalf of particularly the homebuyer and consumers more broadly to slight adjustments in interest rates.
I think with that backdrop and with that sort of stickier core inflation backdrop in Canada, the Bank of Canada is going to want to be a little bit more cautious than the Federal Reserve and easing.
>> The American economy has been so resilient where we had a very tepid economy.
>> This is part of the household indebtedness. The high levels of household indebtedness in Canada versus the US means that every rate hike here hurts the consumer more.
But it works the opposite on the way down.
Small amounts of rate cuts can actually have really big impact on consumer activity.
When you have a central bank that's missed his target for the past 2 1/2 or three years, once you start using, you probably don't want to overdo it. One thing we heard from Gov.
Macklem last year is one thing is that he doesn't want to leave the job half finished.
They want to be >> This leads nicely into the next question.
So let's look at the housing market. A lot of things in play, cost of borrowing, inflation, demand and supply.
>> All of those things are in flux.
There is no national housing market. There is Johnson's aura hundreds of regional markets. But nationally, we might see a little bit more weakness into this spring.
When looking for big drops, just given the fact that the BOC is clearly finished with its tightening cycle in our review and while we will see a bit slower population growth and 24, we have this big overhang of pent up demand for the housing market.
Obviously in the Canadian economy, that analysis can change.
But given the mismatch in population growth and new home construction, even with consumers feeling the pinch, we feel that supply demand imbalance will create conditions… When I think about 2024 for the housing market, certainly for the first half of the year into the summer, it sort of slot is to maybe lower than current prices but probably increases in sales activity affecting the larger population. As we get into the 2025 spring market, we believe will be looking at much less restrictive monetary policy and a little bit more constructive housing activity.
>> Is all of this frustration for the BOC?
Many will look to them and say, why don't you solve this problem of the cost of housing? In the end, we need to build some housing. The BOC, Tiff Macklem, doesn't swing the hammer or build houses.
>> We don't know what he does in his spare time.
It is a frustration but also the central bank, every economy has rigidities that need to be incorporated into analysis.
Your target is 2% inflation. It's your job to understand these rigidities in terms of the ability, the elasticity of housing supply, for example.
I'm sure it's frustrating because the explosion and population growth we have seen in Canada is something that in historical series that I seen that I would consider reliable in my lifetime, I've never seen this kind of population growth.
So I'm sure it's frustrating that something that they probably had no way to predict has created these problems regarding inflation. I'm sure it's frustrating for them but it's also part and parcel of being a central bank. If the economy had no rigidities and perfect information and a perfect view of where inflation was going, it would be a really easy job.
>> Take long weekends.
>> Exactly. It's just part and parcel of central banking.
>> Next audience question to John something you mention. Will this On student immigration they were talking about last week he hit our economy?
>> It will. It will have a bunch of interesting impacts on the economy.
I say interesting from my perspective as an economist.
It will slow growth on the margin. Adding more people increases demand for shelter, food, transportation, services. So we slow the pace of growth of immigration but it's actually gonna slow the pace of growth of consumption. It will also tighten the playbooks a little bit which interesting enough were countered when the slower demand growth will help the BOC particularly in so far as you're gonna take some pressure off of prices. The fact that you're not going to be growing the labour market is much as quickly as you did in recent years will reduce the bargaining power of employers and it will maybe stop wage acceleration from declining. The other piece that is really interesting for me is to do with funding for Canadian universities.
Foreign students have been an important source of funding for Canadian universities. In the provinces which see a large, disproportionately large numbers of foreign students, it could create some interesting challenges for governments who are already facing large numbers of difficult choices to make may now have one more set of choices that they need to address, one more need that they need to divert funds to on top of building and construction and all the other things they want to do because suddenly there will be a bit of a hole in postsecondary funding.
>> Fascinating seven some challenges ahead. We will get back to your questions for Alvin on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us 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.
It's no secret that aggressive central bank rate hikes have weighed on the rate sector. However, the rate hiking cycle appears to be at an end. People are talking about cuts and when they will come.
Is it time now to take another look at the rate market? Anthony Okolie joins us now with a TD Cowen report on the space.
>> Their outlook for 2024 is out on the rate sector which continues its rebound.
The index ended the year up nearly 3%, total return basis, narrowly avoiding a second consecutive downturn. It marked only the second time that REITs have underperformed the broader your market for two consecutive years.
Driving the 2023 read weakness was rising interest rates, fluctuation in interest expectations, soft versus hard landing debate as well as geopolitical risks.
TD Cowen notes that valuations have continued the recovery since mid-December with those sectors pricing up about 1%. A TD Cowen sees potential for these risks related to the macroenvironment like interest rate volatility and inflation expectations to continue to ease throughout the year and that should help funds from operations in the rate sector improved to poor search of their longer-term average. As a result, TD Cowen reiterated their call for the 2024 sector total returns to being likely in line in the 15 to 20% range. The forecast returns include some of the four factors. One, should rates continue to trend lower, TD Cowen expects a reversal of individual investor fund flows from deposits and GICs and money market funds that back into the REITs sector.
With the yield curve now relatively lower, TD Cowen expects those fund flows to continue moderating in some of the term deposits and money market funds that should benefit the rate sector as well as high yielding equities sectors in their view. TD Cowen also expect a continuation of favourable fundamentals enjoyed by most sectors in 2023. We will break it down for you.
We will start with a couple.
Residential, industrial and retail sectors, TD Cowen expects continuation of robust demand that we saw in 2023.
Within the office space, they expect the office sector pessimism to moderate and valuations to rebound from a heavily discounted levels after the senior housing sector, they anticipate a more pronounced occupancy recovery in 2024.
TD Cowen is reiterating their 2024 REIT real estate industry Outlook from last month in which they raise their target prices by 6% on average.
>> Constructive on the space. What are some of the key risks or challenges that could heat the sector?
>> We will start with retail and residential. I think some general risk that TD Cowen points to you includes a slower wrench growth or higher vacancies, general economic conditions. Within office, supply and demand for office space is always a risk. Cost pressures, credit risk are some of the other risks there. In the senior space, prolonged impact were further waves of COVID 19 and potential outbreak of illness, virus at residences and poses risks to that sector. With industrials, risks include general economic conditions as well as demand for space and loss of key management.
>> Interesting stuff.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
And now for an update on the markets.
We are looking at TD Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, giving us a view of the market movers. Let's start with the TSX 60 and screen by price and volume. What is going on that has our topline number in positive territory today? Let's start with the financials.
Some green on the screen. Not huge gains but some are pretty heavy weight when it comes to the topline numbers today. They are putting points on the table. The energy space, same thing.
No huge percentage jumps for some of these big energy names with they are contributing. You might've noticed that I was we edged the green side of the screen, that some of the miners, we've got gold to the downside a bit today. You got Barrick down about 2% and Kinross down about 2%.
Tax standing out of the group right now, of almost 4%.
South of the border, let's check in on the S&P 100. Chipmakers earlier today back on the move higher.
You got AMD making a 7% gain on the session, Nvidia up about 4%. The AI excitement is carried into 2024. But Netflix obviously standing out today.
Substantially more subscribers than the street expected in the latest quarter after cracking down on password sharing and their new ad-supported tier of service. Seems to be working out. The forecast for going forward is fairly strong as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with Andrew Kelvin from TD Securities. Someone wants to know if these Red Sea disruptions could reignite inflation.
>> That's actually one of the upside risks the Bank of Canada flagged in their policy report, geopolitical disruptions could create and specifically looking at the Red Sea, could create an environment where we see higher oil prices were where we see more material increases in shipping costs.
That's where the oil price side risks haven't materialized.
If the situation in the Middle East were to escalate to a point where it totally disrupted global oil output, that would have near-term inflationary implications.
We remember what happened with shipping costs during the pandemic.
>> That's how everything started, wasn't it?
>> Exactly.
>> That temporary bump.
>> I think we are all sensitive to fluctuation in shipping costs because of what happened during the pandemic but clearly if shippers are no longer able to use Red Sea, that will raise shipping costs and the price of goods on the margin so it clearly is a risk.
>> We will slip in one more question here.
This one, it's going to be a big year in the states. The US election. How might that impact the Canadian economy?
>> So it's interesting because we've seen what both presidential candidates would do to Canada.
The fact that the current trade agreement with the US was offered by the likely Republican presidential candidate, Trump, gives me a little bit of I guess I am a little bit less scary given that this is his deal. He is less likely to come in and tear up his own deal.
Where is we have had Pres. Biden were coming up on four years and we've seen what those policies do to Canada.
It's not as though Biden is a free trader with Canada's best interests at heart.
We've had experiences Pres. Biden and of Pres. Trump.
From a purely Canadian perspective, I think we go into this with a lot more certainty than we did the last time.
Obviously, if there are changes on the free-trade front, that would have implications. To the extent that the chain and uncertainty around what US foreign policy is impacts things like global energy prices, those will have impact for Canada as well.
By and large, when you think about the US as Canadian economist, we think about, what does this mean for our trade relationship?
We have experience with both these presidents and I think Canada weathered both presidencies well.
>> Hadn't thought about it from that angle. Always a pleasure to having you here.
>> Thanks for having me.
>> Our thanks 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. At Justin Flowerday, Managing Director and head of public equities at TD Asset Management will be our guest.
Even get a head start with your questions.
Just email moneytalklive@td.com. That's all the time we have for the show today.
Thanks for watching. We will see you tomorrow.
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