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[music] >> Hello I'm Greg Bonnell and welcome to MoneyTalk Live brought to you by TD Direct Investing. Every day I'll be joined by guests from across TD many of whom you will only see here.
We we'll take you through it's moving the markets and answer your questions about investing.
Coming up on today show TD Securities Andrew Kelvin gives us his reaction to the decision of Bank of Canada. And what could be in the cards ahead.
MoneyTalk's Anthony Okolie will look at what's weighing on the commodity space in a recent session. And in today's WebBroker education segment, Jason Hnatyk will show us how you can keep track of interest rates decisions on the WebBroker platform.
Here's how you can get in touch with us. Just email MoneyTalkLive@td.com or Philip that viewer response box on the video player and WebBroker.
Before we get to all that let's get you an update on the market.
Starting in over the TSX Composite Index, we have some green on the screen as we talk about some of the volatilities and commodities lately.
Some down sessions for the TSX Composite Index right now hundred 20 points down half a percent, among the most actively traded names include Fortuna silver mines.
Raising $172 million by issuing convertible senior notes. In proceeds from that operation, the market doesn't like the sound of it. If we can show you that which I believe is… I'll upload it on my screen to tell you what it's doing. Now it's on the big screen. Down about 13% on the name. Under pressure. It's got a New York listing as well.
Copper, this is probably a rebound story along with the other mining names got hit pretty hard in recent sessions, nine bucks and $0.14 a share above 2.7%. Now south of the border, the US economy is perhaps cooling, which will allow the Fed at some point to cut interest rates like our Central Bank to today.
So we have about 37 points on the screen. Three quarters of a percent for the S&P 500 and apparently Nvidia is on the move again higher hitting new highs, lifting the NASDAQ with along with it 1.4% to the upside. And enterprises… Hewlett-Packard, pleasing the street with 94 bucks and $0.74 a share and that's her market update.
The Bank of Canada has cut its key interest rate by 25 basis points, becoming the first G-7 nation to begin easing borrowing costs after an aggressive hiking cycle.
Our Central Bank also signalling that more cuts may be ahead.
Joining us now to break it all down as Andrew Kelvin, head of Canada and global rates a strategy with TD Securities. Great to have you on the program.
>> Thanks for having me. Great to be here.
>> You made this call ahead of the announcement and indeed they did cut. Give us your reaction to what you saw today and the rationale behind the cut.
>> Not a lot of surprises with the decision. We did expect to cut as you know. But also in the way they describe the cut. They talked about, they really did indicate that it would probably be more gradual easing cycle compared to what we saw with the hiking cycle.
The rationale for the cut is pretty straightforward.
The data was just there.
Inflation momentum has really been flagging throughout 2020 rather 2020 for the start of the year.
With US core inflation.
Underline momentum and inflation.
Running in the sort of mid to low threes. Last two months it is been below 2%.
So inflation is been moving steadily lower, still pretty high but not as high as it'd been within the banks percentage Bank… Inflation returning on a more sustainable way and that's really the key. We've seen enough sort of soft CPI prints that they can feel comfortable about this trend being sustained. And the growth data in the first quarter was not as strong as they had expected. The Bank of Canada had been looking for a 2.8% Q1 GDP print and it came in at 1.7. While the details may suggest it was a strong 1.7, the fact is DSC was looking for 2.8. Inflation softening, growth as expected, that is the data they need to go to a less restrictive but still restrictive stance and there was an argument to be made for waiting to make extra, extra sure.
>> You said in your note persistence and wage growth could have been the thing to hang their hats on that.
>> They did address that actually at the press conference in a statement. Essentially noting that they are starting to see some signs of moderation and wage growth as well.
So I think it's a reasonable argument. The unemployment rate in Canada is increasing quite sharply over the last year.
So they are slacking in the labour market. It's not as sharp as it once was. Wage growth is much more likely turned to margin compression from businesses.
In passing inflation and that type of environment when you have unemployment rate, 6% or above, it does follow that you shouldn't see the same wage pressures going forward so I think it all makes sense. The data was there for them.
There was a route to be perhaps extra-cautious which would have had minimal cost to the economy but at the end of the day, I think they just looked at the economy and supported interest rate cuts so they cut. I think it's pretty straightforward.
>> They were confident, you can expect more cuts at future meetings but there's always risks right?
You mention the wage growth, they listed geopolitics but also home pricing. Having a lot of people having their eye on that.
>> I was a little bit surprised to see that so explicitly mentioned. That's usually something you dig into an NPR to find.
It shows that they are sensitive to what we are seeing with shelter price inflation, I think the reality of this is with there being a big housing demand, which is something that Gov.
Rogers did mention in the press conference, given that there is a sort of overhang of demand, we are looking at shelter price inflation that will be above headline inflation probably for quite a long time.
If they can get inflation to be sufficiently below two, then you can run with your 2% inflation target with shelter inflation being a bit more persistent. But it's such a big part of the basket.
And it can move rapidly in this country.
It's about 1/4 of CPI. If you have 1/4 of CPI that can move in leaps and bounds, it clearly represents a threat to achieving a 2% inflation target one way or another.
Like in the current contents we are talking about with rising house prices, but the same could be true if they were over tightened and could put them through disinflation pretty quickly as well.
It's obviously not what happened.
But those risks over a long enough horizon to become symmetric.
>> I will ask you a question that Gov. Macklin was asked and I don't know if he was able to deliver a zinger. Someone said we have this decision today what about July?
Are there more cuts?
Let's see where the moment… That's how we answer the question. What you think is the next?
>> He answered that on the second time he was asked about July. I guess he thought about it the first time he answered. I think they will cut in July.
Historically it's very rare to go from certain dormant monetary policies to a new phase of monetary policy cycle and not move back to back meetings.
It's happened before. It's not totally unprecedented.
The two most recent times, I would point to, would be in private financial crisis, the Bank of Canada hiked rates in July 2007 and the world changed between July and September in 2007. So clearly they did not follow through.
If you look at government policies insurance cuts when he went from 1% to 75 basis points on the back of the oil crash in the middle of the last decade, he framed those as insurance cuts.
I think it's hard to use insurance framing today. And in fact as he did not frame them as insurance cuts so we now know that they don't see them that way which would have been an odd position for the Bank to take regardless. So on a releasee that is a Pres. either.
I do look forward for them to cut rates in July. I would say from the banks perspective, cutting in June and July and then waiting to see where you are and taking a pause in September is entirely consistent with the message that the pace of easing will be gradual.
I will also add that they did emphasize that this will be data dependent.
We have two more CPI prints ahead of the July meeting.
If those both come out quite a bit stronger-than-expected, the Bank of Canada will start having second thoughts with this path they have started on. But I would just say, I think it would be unusual for the Bank to not cut rates in July and I think we create a communication challenge for them to not cut rates in July because if they don't cut in July and they're not willing to provide explicit guidance, >> What are you worried about?
>> Exactly.
Why would we believe you when you say you expect for the rate cuts at that point.
Do you mean once every six months? I just think if they were to take a pause, immediately after this cut, it would create more challenges that it would produce benefits.
>> So we got the June 1, we get a July 1 on pause in September, and inflation continues to move the way they want, how do you see that key benchmark rate by the end of this year?
>> We think we can get two more cuts in the fourth quarter. We do think that by that point, we will have several fairly weak growth quarters behind us.
Not negative. We are not talking recession here.
Again, population growth is too strong for us to talk about a recession, mild activity slowdowns.
But we can of growth, combined with inflation that has been proven to be sustainable at 2%, that we can get a few more rate cuts from the BOC in the fourth quarter.
We think it will end the year at 4%.
>> I want to ask you about, obviously they will be watching the data this Friday.
We will get a jobs report. How do you guys see this?
Is this one of those reports were the Bank says what we do?
> The job reports are just… I think there is always enough moving parts in a jobs report that you can pick and choose the things that suit a given narrative. The thing I would say is that, well, the job growth has been, at face, quite strong through the first four months of 2024. The population growth has been even stronger.
So given that we are looking at an unemployed unemployment rate that is above 6% now, we have sort of fallen short to break even number of jobs by 15 to 20,000 per month through 2024.
I think it would be very difficult for the Bank of Canada to see a sufficiently large surprise that they had second thoughts about the first round of rate cuts.
I think that a jobs number that was quite strong was followed by several more jobs that could filter through and how they think about the latter part of the year.
But at the end of the day there's a lot of slack in the Gov. address this in a press conference. He did note that given this slack in the economy, there is room for a period of above trend growth that is consistent with inflation still coming in lower and nowhere is that more evident to my mind then in the labour market.
>> Great insights as always with Andrew Kelvin on a fairly significant day.
We will get your questions about interest rates in the economy with Andrew in just a moment's time.
You can get in touch with us any time by emailing moneytalklive@td.com or Phil at that viewer response box under the video player and WebBroker.
Now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Shares of Hewlett-Packard Enterprises are on the move today, the company is forecasting sales above Wall Street estimates for its third-quarter, pointing to strong demand for servers designed for artificial intelligence.
They say I servers sales more than doubled in its most recent quarter.
Cybersecurity firm crowd strike holdings is also getting a boost today. The company beat estimates for us most recent quarter and it's forecasting strong results for its most recent quarter.
Crowd striking holdings up to the tune of about 9%.
Deere & Co says it will cut jobs at as it deals with the slowdown in demand for farm equipment. The planned cuts are in the wake of lowering its annual profit forecast in recent weeks. The demand for farm equipment is come down under pressure amid lower crop prices.
Day three, here we go, hundred 29 points about how to percent for the TSX Thompson index and south of the border, our tech stocks on the move again, Nvidia hitting new all-time highs definitely lifting the tech heavy NASDAQ and S&P 500 up as well.
36 points, about two thirds of a percent.
Back now with Andrew Kelvin taking your questions about interest rates and the economy. First one, still connected to what we were talking about at the top of the show.
How much divergence might we see between the Fed and BOC?
>> So this is a matter of significant interest amongst markets. A thick it's a matter of significant disagreement to be honest with you.
The governor was asked about this.
And I'm going to mention the governor's words first because I think it sort of nicely echoes my feeling on the subject.
He said that while there are limits to divergence, they don't believe that they are close to them yet.
Which is interesting because we are now fully 75 basis points below the feds upper bound. If you want to look at private financial crisis, the BOC is about 100 basis points below the Fed for a long period of time.
We've been looking at that as sort of the starting point for the conversation around how much the BOC and Fed can diverge 100 basis points.
It would give the BOC another cut before the Fed does anything.
But I would also make the argument that when you move 25 basis point increments, 75 is close to 100. So what the governor seems to be indicating is that from the Bank of Canada's percent perspective, hundred basis points isn't a firm line. It is in a firm maximum that they can divert from the Fed.
Ultimately these things are all state-dependent.
Depending on what the underlying condition of what the Canadian and US economies are.
If we are in a world where the US economy is humming right along quite strongly, while the Canadian economy has been decelerated for a long period of time or inflation remains divergent, we can have larger gaps between where the Bank of Canada and where the Fed is.
In that instance where you have tipping into disinflation, currencies that are weaker your friend not your enemy.
Having said all that if you look at history, the Bank of Canada tends to not be concerned about specific levels in but you do typically find that when you get the Canadian dollar having a six in front of it instead of a seven. Sometimes it factors a little more into conversations.
It's the speed of adjustment and a reason for adjustment the really tends to focus the Bank of Canada's attention. So in the past, when we've had the sort of sharp moves below 60 basis points, below $0.
70 I apologize, into the 60s, that seem a bit disorderly, it tends to be that sort of move that focuses the Bank of Canada's attention.
So the currency probably will serve as a binding constraint but it's that it's at levels that are a long ways away from where we are now.
So we think the Bank of Canada probably will get more than 100 basis points below the Fed. We do believe the Federal Reserve will cut prices here.
>> When you think they're gonna start?
>> September.
You get up political question where >> Do they want to do it before the November election?
> What you want to keep policy tight before the election?
>> One side… >> Exactly. As soon as you start considering pop concerning politics it becomes a political decision. So we think they will be guided by the data.
We have a Fed cut in September.
But assuming this economy proves to be stronger, the Fed is unable to move at that September meeting assuming, I don't know that I would see that is something that ties the Bank of Canada's hands in the fourth quarter assuming that inflation has sort of stabilized around 2% at that time.
>> You talked about the currency impact of divergence and obviously along the line, so he wants to get your outlook for the loonie, if things transpire the way you're thinking between the Bank of Canada and the Fed in our economies, which is the loonie look like in six months, two years…?
>> Divergence doesn't… I believe translates into about a 71 CAD CAD to US dollar. Exchange rate so it should be a bit weaker from here. But I would just emphasize that you know, for all the sort of US exceptionalism that we've seen relative to Canada, relative to Europe, the Canadian dollars are quite stable.
I don't think we need to see incredibly large depreciation from here but it should absolutely depreciate.
> We are at the stage now where it feels like, the old saying about the Canadian currency that relationship breaks down. It's all been about central banks for so long now.
His energy just not really a big part of the conversation when it comes to our dollar?
> It's not.
This reflects structural shifts in our economy.
After this Saudi oil in 2015 which really lowered energy prices, we have some investments in the Canadian sector declining and declining.
We have all been worn with issues run difficulty building export capacity whether it be Keystone or the delays in the TMX pipeline.
The fact the Canadian oil, these are really big capital-intensive projects. And in an environment where there is global uncertainty around hydrocarbon demand on a 10 year horizon, these are perhaps not the most appealing places for energy companies to put their incremental investment dollars. We have seen fairly steady decline in energy investing in Canada, going back to the middle of the last decade. As a real test to my mind to that is 2022.
When we had oil that was $100 or hire a barrel and you didn't see >> We saw the announcements… > Exactly. No new projects.
The big wave of M&A, you didn't see a big wave of hiring in the energy sector.
You didn't see 10 years prior to that. So to my mind, the energy sector is still very important in our economy largest export category but I think it's the more mature part of our economy then something will be significantly incremental.
>> Interesting stuff.
Let's take a question on the housing market, also tied into today's announcement as well.
Once the health of the housing market?
>> $64,000 question.
This is what everyone wants to talk to.
Obviously I think it's going to be helpful for house prices, we do think it will see a little bit of a rebound in house prices and part of the year, some of the recent housing data coming out of Vancouver and Toronto, has seen big drops in sales.
Lower interest rates will be helpful for producing housing activity but the thing I would stresses in so far as markets have before today, been pricing and sort of 60 basis points, using from the BOC this year variable rate borrowers are gonna see the benefit of a rate cut right away perhaps. But that's not necessarily to be true for fixed term borrowers.
So people looking to borrow at a fixed term just because a good portion of the rate cuts that we expect at that the market that we expect this year, were already reflected in existing, >> Bond yields.
> Bond yields which passed into mortgage rates.
It will be helpful and I think it will restore confidence because I would expect households to feed that see the first cut and see more coming so I think it will be positive for housing activity but it's not clear to me that this is going to, this certainly isn't going to solve the affordability issue. Up at it that way.
>> 25 basis points isn't going to get the $2 million house.
As always at home make sure you do your own research before making any investment decisions.
Back with your questions with Andrew Kelvin in just a moment's time.
You can join us with your questions any time by emailing MoneyTalkLive@td.
com.
Let's get to our educational segment of the day.
>> Of course the big news of the data we've been covering on the show is the interest rate decision from the Bank of Canada.
If you're looking to keep track of other rate moves, WebBroker has tools which can help. Jason Hnatyk, Senior Client Instructor with TD Direct Investing joins us now with more.
We might be the first G-7 to move but there are expectations there.
How do we stay up-to-date with all this?
>> Yeah Greg great to be here as always Greg.
This is certainly a story on the tip of everybody's tongue as you said, there will be others and other banks that are gonna want to keep track of the WebBroker with tools that will be really useful to help you stay informed. So let's jump to the platform and let's go through some of those right now.
So I'm gonna start us out on the homepage here.
This is kind of where you get an overall dashboard view of what's going on and I don't want to sleep on what we have on this page.
First of all our future reports down here on the bottom side. Right hand side. Light reading one have in the morning when you have your coffee but there's the morning news calls here and this is going to really get you primed up and set for what's gonna happen before the opening bell.
As you expect, the topic of the day, the list is the rate cuts out of the Bank of Canada.
And then going back to the homepage, this time moving towards the top of the page, we've got our market updates. Bank of Canada happens to be, the first country in the G-7 to start eating easing monetary policy.
Will guess what this updates throughout the day so it's a great opportunity to see as the market moves, how this is going to be change and affecting your own account.
Next, if you want to do a little more research, finding some other new stories, that's gonna be under the aptly named research tab at the top of the page.
I like come right into the news and commentary section for one key feature.
This area is searchable within the platform. So if we just type in "interest rates for today's date, we can go ahead and search that and we can all the stories that are being published out there from all of the companies that we've got in our news feed. So great opportunity there.
Next I want to show you a great chance to get some commentary from our friends over at TD Economics.
Going up to the research tab again at the top of the page and choosing "our reports " section. Lots of great information from third-party providers such as Argus and MorningStar, we can die then and get sector and industry research but TD Economics can be found about half the way down on the left-hand side of the page. We can jump into their page, I will show you to really good pieces of information they provide. One we can see they got Canadian US as well as global information but clicking on the financial, information about the history of divergence where the Bank of Canada and the Fed have kind of gone separate directions, some nice reading there.
But even further if we click on the "economy" section and go to "commentaries". This is were people of jumped in and provided their insights which you've done a great job covering but here's a way to absorb it. Three great resources right on the platform to keep you informed.
>> Okay you're on the platform and maybe have a mind to trading. How do investors use all this information to help them with their trading?
>> Great point there.
That's what it's all about. Trying to take advantage of the news that we've seen here.
So let's jump back on the platform and I'll show you a couple of quick things that we can really take advantage of.
First I want to show really some timely learning opportunities that can help with trading. If we go up to the top of the page, and this time choose "learn" our team with our video content is doing a great job.
They posted a new video this morning about three investing opportunities free to take advantage of. Not only is it posted here in WebBroker but it's also posted on our TD Direct Investing YouTube page, a little shameless plug to get everybody out there and subscribe to this channel. We are regularly putting out new content including what will include and what we've talked about here about our investing ideas. But jumping back into the platform, one of the ways I think can really be helpful is using the screeners tool in WebBroker.
Done under "research" again.
We've got "screeners".
A mentor on a screen for just some sectors in the industry which might be more apt to respond in a positive way to a rate cut.
If we just choose our screen and clear all of the predefined screens, when you're doing your own screens, I'll do a very broad screen.
If we focus on sectors and industries, we will set the exchanges, you know the Canadian market, until it's really focused in on the Canadian rate, but if we just think about, what sectors, and you mention a few of them already, we will think about real estate, baby financial services companies, maybe we want to broaden that out technology companies.
I know in broad searches we have 891 matches but it's just some food for thought so you can start to drill down to find companies that might be in a spot to kind of really move in a bold direction with some of these decisions coming out of the Bank of Canada.
>> Those rate sensitive parts the market. Jason great work thanks for that.
>> My pleasure.
>> Jason Hnatyk, Senior Client Education Instructor with TD Direct Investing. For more educational resources you can always check out the learning centre on WebBroker or use the QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Now before we get back to questions about interest rates, and the economy, let's get back to them.
Do you see in outperformance of Canadian treasuries versus US treasuries given the divergence between the BOC and the feds key policy rates?
I want to factor in that currency and what it will have on inflows of capital versus US. I know you want to Tackle the first part of the question in terms of what's in your wheelhouse.
>> Yeah. It's a really multifaceted question.
So, if we start working our way up the curve, at the to your point, to your government of Canada bonds, US treasuries at two years… I think there's more room for, to see divergence in terms of the performance of short and government of Canada versus the US. Like, we can see that spread move more negative. We can see a bigger gap between front and yields of Canada and the US. I think it's really interesting when we start to go up to 10 year bonds, a lot more factors not just the Bank of Canada come into play.
Specifically US deficits have been, and will continue to be, extremely large.
Even in a world where the Bank of Canada and the Fed are at a steady state and at the exact same rates, you would still expect to see Canadian yields below US yields. Now having said all that, I think the 10 year government of Canada yields were about 93 basis points below the US when I walked over here today.
That's probably too much in the long term perspective.
We tend to think about rates being approximately the same level.
We think 3%, lots of people disagreed with those levels are, but in terms of the spread between the long-term, you know, average values, fair values for Canadian, we think that they should be very, very close to each other.
That's not reflected on longer-term bond yields to the extent that it should be.
If I look at the pricing there, I actually think the market has the long-term trajectory for the Bank of Canada.
About us well thought out as it could. Obviously, the average path of our expectations will be the path that they can actually take.
No one has a crystal ball. But it's a pretty reasonable base case.
Markets have a much more shallow easing path several years out for the Fed I think Fed has been under… Over a sort of 3 to 4 year horizon.
That's reflected in the already very stretched valuations between Canadian 10 year and third year bonds in US 10 year and third year bonds so while there is room for a bit more divergence, I don't know if I would share that same sentiment for a longer duration bonds and I would say in terms of looking for catalysts, the one we probably need is the Fed actually starting to cut rates and driving it in long-term pricing of Fed expectations which is although, I think valuations for me don't line up about how I feel about bond markets but they can continue not lining up how I feel about bond markets for several months.
>> Interesting stuff great analysis there.
Let's get back to oil now.
(Greg reads the question) >> It does hurt the Canadian economy. The petro currency, the harm done by low oil prices is perhaps is not as great as it once was but it is negatively impacting Canadian economy revenues… Corporate profits, because when, the thing you sell as a corporation becomes less valuable, you make less money. That's, you know, arithmetic.
We used to talk with her being a 0.
2 to 0.3% passage to Canadian GB GDP for Canadian oil prices.
Now that's probably a little bit lower given that the energy sector has not seen the same sort of marginal investment incremental investment as we had seen in past cycles. I would say that this recent move in oil prices on the back of the OPEC announcement, we do think it is a little bit overdone here.
It is not obvious at all, the OPEC production increases will actually come to pass.
>> Interesting stuff. Back to the state of this economy on a different front, a viewer wants to know if anything could be done to help Canada's productivity rate? I think this came up during the press conference today too.
>> Things can be done.
Whether they will be done is an entirely different question.
This the fiscal policy question.
It's something that people always asked the Bank of Canada about.
They have no impact.
>> The senior deputy took the question and said "if the cost of borrowing comes down that might be one part of the situation but this is a long-standing problem in Canada. It's not just about borrowing costs".
>> It goes through several different governments of both political stripes. It's a long-standing issue.
People that support capital formation, more targeted skills training programs would boost productivity. We have a shortage in specific skills trading.
We can do to rectify those shortages? Would boost productivity.
There are measures, tax measures that could be taken in incentivizing capital investment.
The government is trying to do it with a subsidy regime and battery plans for example, I would just relate back to the last 40 years and say that we've been having this conversation in Canada for a long time. Whatever that fixes, it's not gonna be a simple one.
It will probably take the concerted effort of several governments over a long period of time to rectify it.
You can't unpick 40 years of poor productivity growth in four months.
>> Not exactly the same issue of how long we have a conversation. I think maybe when I was around 20 Toronto to Montréal… The Fed, won't that be cool.
My older son who was almost 21 now is asking if they will bring high-speed trains now.
And I say "we'll see, we'll see". We will get back to your questions with Andrew Kelvin and the economy with interest rates in just a moment's time and as a reminder to do your own research before making any investment decisions. And a reminder of how you can get in touch with us.
You can email us your questions at moneytalklive@td.
com or you can use the question box right below this screen right here on WebBroker.
Just writing your question and hit "send". We'll see if one of our guests can get you the answer you need right here at MoneyTalk Live.
> Commodities have attracted a lot of attention in 2024 with gold, silver and copper prices reaching historic levels.
But a pretty choppy ride in recent sessions which raises questions about whether there is more room to run here. Anthony Okolie has been taking a look at that TD Securities report on this very issue and brings us the details.
>> As you mentioned we are all starting with gold which has a deep slide from record highs and a lot of that has to do with of course the Fed continuing to display a hawkish tone on rates, markets also priced an early Summer rate cuts. However, TD Securities is still seeing some aggressive buying of gold in Asia as protection or hedge against depreciating currency.
And of course with the Fed's favourite inflation measures showing signs of cooling, TD Securities gold markets should be well supported the Summer and they continue to see gold on solid footing. Now we will move to oil were energy markets continue to remain under pressure. Of course the news that OPEC+ plans to phase out voluntary output cuts by October of this year, despite that decision, TD Securities believes that markets will remain in balance or a slight deficit for now.
You know, longer-term, certainly fundamentals, could worsen. The momentum signals have gone to the downside and that's because the voluntary cuts could wind down in 2025 in addition to that there is a prospect of more supply hitting the markets from non-OPEC countries.
Turning to copper of course, copper prices have been falling.
They drop below the? Of $10,000, a metric ton for the first time in three weeks. Of course we are seeing a lacklustre demand from top buyer which is China. That's a key factor. And copper, like other metals such as iron or steel, nickel and aluminum, they are impacted by the demand from China which accounts for more than 50% of global demand for metals.
Now, taking a look under the hood, TD Securities global commodity demand indicator which is offering support for the red metal. Now TD Securities does note that it is unclear if the strong demand growth is due to improving macro tailwinds, macroeconomic tailwinds, or just stockpiling.
Looking forward though, TD Securities sees risks to the copper prices if there is a lack of evidence supporting the narrative of a tight supply in the copper market.
Greg?
>> Interesting stuff thanks Anthony.
>> My pleasure.
>> MoneyTalk Live's Anthony Okolie. And now for an update on the markets.
We are having look at today's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
Let's jump into the heat map function here. A nice picture of the market movers. This is a TSX 60 that we are persuading by price and volume.
On my screen here you have gold up percent today, silver up almost 2% silver and copper almost up to percent. Perhaps a bit of a bounce back.
Maybe some of those selloffs for those metals were a little bit overdone.
Some of the mining names, tech up about 15%, First Quantum up but 6%.
We have some green on the screen there for the minors.
Not a lot happening in the heavyweight financials but a little bit of upside for some of the big energy names as well.
So it does have a top buying TSX number in positive territory at this hour. South of the border, let's check in the S&P 100. We do have tech on the rally mode today, let's take a look at it. We have Nvidia up almost 3%. Its competitor AMD, over the weekend they came in with new AI processing tips.
Intel came up with some as well. Getting a bit of a modest bid. Really seems to be for the activities today in the markets.
> We are back now with Andrew Kelvin from TD Securities let's talk rates in economy.
Here the questions about perhaps some of our changing demographics. Will changes to student immigration policy of a lasting impact?
>> I think they will.
I mentioned earlier that there is this imbalance between supply and demand of housing. Having slower population growth will help bring that supply and demand for housing back into balance.
Even though we are talking about students, we are talking more about the renting population then a homeownership population in the short term at least.
But it should still help bring that overall demand for shelter back into balance with where supply is but that will take some time.
On top of that, as we start to see population growth slow, later this year as the sort of impact of the student Start to Abide, That Is Going to Have Negative Applications for Both Employment and for, Just Because I Can Be Fewer Potential Workers, and for Demand.
Demand for Services, Demand for Goods.
Even If Students, Perhaps on Average, Spend a Little Bit Less Than the Cup Typical Canadian Household, >> They Are Still Spending.
>> They Are Still Spending.
Reducing Reduction of Population Growth 11 Packs.
On Top of That There Will Be Some Impacts in Terms of Provincial Budgets and Foreign Students Have Been Helping Pave the Way for Higher Education in This Country.
For A Few Years Now, for Quite Some Time Really, but Particularly for A Few Years Now, That Will Have Some Implications Just in Terms of Fiscal Policy Probably Not Anything We Would Notice of the Level of Where Interest Rates Would Settle and Whatnot.
>> Interesting Stuff.
One More Question before We Say Goodbye to Andrew.
We Save This One for Last. How Could the US Election Impact Canada?
>> Really Easy.
This Is a Really Strange Election for a Whole Bunch of Reasons.
But the One That I Keep Coming Back to Is We Have Seen Canada, Pres. Joe Biden and We've Seen Canada with Pres.
Donald Trump.
I Think Both Pres.'s Would Be Fiscal Expansionist in the Next Term with Whoever That Happens to Be. In Terms of the Global Financial Market Impacts, Just Purely from a Borrowing and Spending Perspective, Pretty Similar Now, the Industry Probably Leans a Little More Towards Tariffs under a Trump Presidency.
That Would Have Implications for Global Growth but We Are in USMC A. US MCA Probably Comes up for Renegotiation under Both Pres.'s but Insofar As Is Concerned That Countries Could Be… Chinese Goods into the US Which Is Apparently a Concern, Is Not Obvious to Me That Canada Would Be to Dramatically Impacted by That Now. Any Uncertainty Is Bad for… When You Talk about What It Takes to Boost Productivity, Uncertainty, Does Not Help with People Making Large Capital Investments. So the Uncertainty Is on Some Sense, Harmful.
But I Almost, from a Purely Economic Standpoint, Purely from a Canadian Standpoint, There Might Be Less Uncertainty Today Than There Was in 2015 or 2016.
>> Before We Let You Go, a Pretty Significant Today It Day in This Country in Terms of Monetary Policy, the Hiking Cycle Holding for so Long Has Cut.
How Do You See It and What Happens?
>> I Think the Cut Again in July.
I Think That's the Next Move. I Think the Data, I Think We Are in a Stable Path Back to 2% Inflation at That the Data Will Show That in the Coming Months.
So I Expect Another 25 Basis Cut in July. I think the pause in September take stock over the economy is and I think they will conclude that the economy is, the Bank of Canada can cut more.
4% by the end of this year.
3% by the end of 2025 but economists forecast 18 months out are best taken with a grain of salt, let's say.
>> Andrew always great to have you, love the conversation and we got you on the right day most definitely.
>> Thanks for having me it's been a pleasure.
>> Our thanks to Andrew Kelvin, head of Canada and global rate strategy with TD Securities.
As always, be sure to do your own research before making any investment decisions and if you didn't have time to get to your question today will aim to get it into future shows.
Stay tuned on Thursday so, Monica Yeung, VP director and Portfolio Manager at TD Asset Management will be our guest taking your questions about Canadian equities. And a reminder that you get a head start by emailing moneytalklive@td.com. That's all the time for a show, take care!
[music]
We we'll take you through it's moving the markets and answer your questions about investing.
Coming up on today show TD Securities Andrew Kelvin gives us his reaction to the decision of Bank of Canada. And what could be in the cards ahead.
MoneyTalk's Anthony Okolie will look at what's weighing on the commodity space in a recent session. And in today's WebBroker education segment, Jason Hnatyk will show us how you can keep track of interest rates decisions on the WebBroker platform.
Here's how you can get in touch with us. Just email MoneyTalkLive@td.com or Philip that viewer response box on the video player and WebBroker.
Before we get to all that let's get you an update on the market.
Starting in over the TSX Composite Index, we have some green on the screen as we talk about some of the volatilities and commodities lately.
Some down sessions for the TSX Composite Index right now hundred 20 points down half a percent, among the most actively traded names include Fortuna silver mines.
Raising $172 million by issuing convertible senior notes. In proceeds from that operation, the market doesn't like the sound of it. If we can show you that which I believe is… I'll upload it on my screen to tell you what it's doing. Now it's on the big screen. Down about 13% on the name. Under pressure. It's got a New York listing as well.
Copper, this is probably a rebound story along with the other mining names got hit pretty hard in recent sessions, nine bucks and $0.14 a share above 2.7%. Now south of the border, the US economy is perhaps cooling, which will allow the Fed at some point to cut interest rates like our Central Bank to today.
So we have about 37 points on the screen. Three quarters of a percent for the S&P 500 and apparently Nvidia is on the move again higher hitting new highs, lifting the NASDAQ with along with it 1.4% to the upside. And enterprises… Hewlett-Packard, pleasing the street with 94 bucks and $0.74 a share and that's her market update.
The Bank of Canada has cut its key interest rate by 25 basis points, becoming the first G-7 nation to begin easing borrowing costs after an aggressive hiking cycle.
Our Central Bank also signalling that more cuts may be ahead.
Joining us now to break it all down as Andrew Kelvin, head of Canada and global rates a strategy with TD Securities. Great to have you on the program.
>> Thanks for having me. Great to be here.
>> You made this call ahead of the announcement and indeed they did cut. Give us your reaction to what you saw today and the rationale behind the cut.
>> Not a lot of surprises with the decision. We did expect to cut as you know. But also in the way they describe the cut. They talked about, they really did indicate that it would probably be more gradual easing cycle compared to what we saw with the hiking cycle.
The rationale for the cut is pretty straightforward.
The data was just there.
Inflation momentum has really been flagging throughout 2020 rather 2020 for the start of the year.
With US core inflation.
Underline momentum and inflation.
Running in the sort of mid to low threes. Last two months it is been below 2%.
So inflation is been moving steadily lower, still pretty high but not as high as it'd been within the banks percentage Bank… Inflation returning on a more sustainable way and that's really the key. We've seen enough sort of soft CPI prints that they can feel comfortable about this trend being sustained. And the growth data in the first quarter was not as strong as they had expected. The Bank of Canada had been looking for a 2.8% Q1 GDP print and it came in at 1.7. While the details may suggest it was a strong 1.7, the fact is DSC was looking for 2.8. Inflation softening, growth as expected, that is the data they need to go to a less restrictive but still restrictive stance and there was an argument to be made for waiting to make extra, extra sure.
>> You said in your note persistence and wage growth could have been the thing to hang their hats on that.
>> They did address that actually at the press conference in a statement. Essentially noting that they are starting to see some signs of moderation and wage growth as well.
So I think it's a reasonable argument. The unemployment rate in Canada is increasing quite sharply over the last year.
So they are slacking in the labour market. It's not as sharp as it once was. Wage growth is much more likely turned to margin compression from businesses.
In passing inflation and that type of environment when you have unemployment rate, 6% or above, it does follow that you shouldn't see the same wage pressures going forward so I think it all makes sense. The data was there for them.
There was a route to be perhaps extra-cautious which would have had minimal cost to the economy but at the end of the day, I think they just looked at the economy and supported interest rate cuts so they cut. I think it's pretty straightforward.
>> They were confident, you can expect more cuts at future meetings but there's always risks right?
You mention the wage growth, they listed geopolitics but also home pricing. Having a lot of people having their eye on that.
>> I was a little bit surprised to see that so explicitly mentioned. That's usually something you dig into an NPR to find.
It shows that they are sensitive to what we are seeing with shelter price inflation, I think the reality of this is with there being a big housing demand, which is something that Gov.
Rogers did mention in the press conference, given that there is a sort of overhang of demand, we are looking at shelter price inflation that will be above headline inflation probably for quite a long time.
If they can get inflation to be sufficiently below two, then you can run with your 2% inflation target with shelter inflation being a bit more persistent. But it's such a big part of the basket.
And it can move rapidly in this country.
It's about 1/4 of CPI. If you have 1/4 of CPI that can move in leaps and bounds, it clearly represents a threat to achieving a 2% inflation target one way or another.
Like in the current contents we are talking about with rising house prices, but the same could be true if they were over tightened and could put them through disinflation pretty quickly as well.
It's obviously not what happened.
But those risks over a long enough horizon to become symmetric.
>> I will ask you a question that Gov. Macklin was asked and I don't know if he was able to deliver a zinger. Someone said we have this decision today what about July?
Are there more cuts?
Let's see where the moment… That's how we answer the question. What you think is the next?
>> He answered that on the second time he was asked about July. I guess he thought about it the first time he answered. I think they will cut in July.
Historically it's very rare to go from certain dormant monetary policies to a new phase of monetary policy cycle and not move back to back meetings.
It's happened before. It's not totally unprecedented.
The two most recent times, I would point to, would be in private financial crisis, the Bank of Canada hiked rates in July 2007 and the world changed between July and September in 2007. So clearly they did not follow through.
If you look at government policies insurance cuts when he went from 1% to 75 basis points on the back of the oil crash in the middle of the last decade, he framed those as insurance cuts.
I think it's hard to use insurance framing today. And in fact as he did not frame them as insurance cuts so we now know that they don't see them that way which would have been an odd position for the Bank to take regardless. So on a releasee that is a Pres. either.
I do look forward for them to cut rates in July. I would say from the banks perspective, cutting in June and July and then waiting to see where you are and taking a pause in September is entirely consistent with the message that the pace of easing will be gradual.
I will also add that they did emphasize that this will be data dependent.
We have two more CPI prints ahead of the July meeting.
If those both come out quite a bit stronger-than-expected, the Bank of Canada will start having second thoughts with this path they have started on. But I would just say, I think it would be unusual for the Bank to not cut rates in July and I think we create a communication challenge for them to not cut rates in July because if they don't cut in July and they're not willing to provide explicit guidance, >> What are you worried about?
>> Exactly.
Why would we believe you when you say you expect for the rate cuts at that point.
Do you mean once every six months? I just think if they were to take a pause, immediately after this cut, it would create more challenges that it would produce benefits.
>> So we got the June 1, we get a July 1 on pause in September, and inflation continues to move the way they want, how do you see that key benchmark rate by the end of this year?
>> We think we can get two more cuts in the fourth quarter. We do think that by that point, we will have several fairly weak growth quarters behind us.
Not negative. We are not talking recession here.
Again, population growth is too strong for us to talk about a recession, mild activity slowdowns.
But we can of growth, combined with inflation that has been proven to be sustainable at 2%, that we can get a few more rate cuts from the BOC in the fourth quarter.
We think it will end the year at 4%.
>> I want to ask you about, obviously they will be watching the data this Friday.
We will get a jobs report. How do you guys see this?
Is this one of those reports were the Bank says what we do?
> The job reports are just… I think there is always enough moving parts in a jobs report that you can pick and choose the things that suit a given narrative. The thing I would say is that, well, the job growth has been, at face, quite strong through the first four months of 2024. The population growth has been even stronger.
So given that we are looking at an unemployed unemployment rate that is above 6% now, we have sort of fallen short to break even number of jobs by 15 to 20,000 per month through 2024.
I think it would be very difficult for the Bank of Canada to see a sufficiently large surprise that they had second thoughts about the first round of rate cuts.
I think that a jobs number that was quite strong was followed by several more jobs that could filter through and how they think about the latter part of the year.
But at the end of the day there's a lot of slack in the Gov. address this in a press conference. He did note that given this slack in the economy, there is room for a period of above trend growth that is consistent with inflation still coming in lower and nowhere is that more evident to my mind then in the labour market.
>> Great insights as always with Andrew Kelvin on a fairly significant day.
We will get your questions about interest rates in the economy with Andrew in just a moment's time.
You can get in touch with us any time by emailing moneytalklive@td.com or Phil at that viewer response box under the video player and WebBroker.
Now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Shares of Hewlett-Packard Enterprises are on the move today, the company is forecasting sales above Wall Street estimates for its third-quarter, pointing to strong demand for servers designed for artificial intelligence.
They say I servers sales more than doubled in its most recent quarter.
Cybersecurity firm crowd strike holdings is also getting a boost today. The company beat estimates for us most recent quarter and it's forecasting strong results for its most recent quarter.
Crowd striking holdings up to the tune of about 9%.
Deere & Co says it will cut jobs at as it deals with the slowdown in demand for farm equipment. The planned cuts are in the wake of lowering its annual profit forecast in recent weeks. The demand for farm equipment is come down under pressure amid lower crop prices.
Day three, here we go, hundred 29 points about how to percent for the TSX Thompson index and south of the border, our tech stocks on the move again, Nvidia hitting new all-time highs definitely lifting the tech heavy NASDAQ and S&P 500 up as well.
36 points, about two thirds of a percent.
Back now with Andrew Kelvin taking your questions about interest rates and the economy. First one, still connected to what we were talking about at the top of the show.
How much divergence might we see between the Fed and BOC?
>> So this is a matter of significant interest amongst markets. A thick it's a matter of significant disagreement to be honest with you.
The governor was asked about this.
And I'm going to mention the governor's words first because I think it sort of nicely echoes my feeling on the subject.
He said that while there are limits to divergence, they don't believe that they are close to them yet.
Which is interesting because we are now fully 75 basis points below the feds upper bound. If you want to look at private financial crisis, the BOC is about 100 basis points below the Fed for a long period of time.
We've been looking at that as sort of the starting point for the conversation around how much the BOC and Fed can diverge 100 basis points.
It would give the BOC another cut before the Fed does anything.
But I would also make the argument that when you move 25 basis point increments, 75 is close to 100. So what the governor seems to be indicating is that from the Bank of Canada's percent perspective, hundred basis points isn't a firm line. It is in a firm maximum that they can divert from the Fed.
Ultimately these things are all state-dependent.
Depending on what the underlying condition of what the Canadian and US economies are.
If we are in a world where the US economy is humming right along quite strongly, while the Canadian economy has been decelerated for a long period of time or inflation remains divergent, we can have larger gaps between where the Bank of Canada and where the Fed is.
In that instance where you have tipping into disinflation, currencies that are weaker your friend not your enemy.
Having said all that if you look at history, the Bank of Canada tends to not be concerned about specific levels in but you do typically find that when you get the Canadian dollar having a six in front of it instead of a seven. Sometimes it factors a little more into conversations.
It's the speed of adjustment and a reason for adjustment the really tends to focus the Bank of Canada's attention. So in the past, when we've had the sort of sharp moves below 60 basis points, below $0.
70 I apologize, into the 60s, that seem a bit disorderly, it tends to be that sort of move that focuses the Bank of Canada's attention.
So the currency probably will serve as a binding constraint but it's that it's at levels that are a long ways away from where we are now.
So we think the Bank of Canada probably will get more than 100 basis points below the Fed. We do believe the Federal Reserve will cut prices here.
>> When you think they're gonna start?
>> September.
You get up political question where >> Do they want to do it before the November election?
> What you want to keep policy tight before the election?
>> One side… >> Exactly. As soon as you start considering pop concerning politics it becomes a political decision. So we think they will be guided by the data.
We have a Fed cut in September.
But assuming this economy proves to be stronger, the Fed is unable to move at that September meeting assuming, I don't know that I would see that is something that ties the Bank of Canada's hands in the fourth quarter assuming that inflation has sort of stabilized around 2% at that time.
>> You talked about the currency impact of divergence and obviously along the line, so he wants to get your outlook for the loonie, if things transpire the way you're thinking between the Bank of Canada and the Fed in our economies, which is the loonie look like in six months, two years…?
>> Divergence doesn't… I believe translates into about a 71 CAD CAD to US dollar. Exchange rate so it should be a bit weaker from here. But I would just emphasize that you know, for all the sort of US exceptionalism that we've seen relative to Canada, relative to Europe, the Canadian dollars are quite stable.
I don't think we need to see incredibly large depreciation from here but it should absolutely depreciate.
> We are at the stage now where it feels like, the old saying about the Canadian currency that relationship breaks down. It's all been about central banks for so long now.
His energy just not really a big part of the conversation when it comes to our dollar?
> It's not.
This reflects structural shifts in our economy.
After this Saudi oil in 2015 which really lowered energy prices, we have some investments in the Canadian sector declining and declining.
We have all been worn with issues run difficulty building export capacity whether it be Keystone or the delays in the TMX pipeline.
The fact the Canadian oil, these are really big capital-intensive projects. And in an environment where there is global uncertainty around hydrocarbon demand on a 10 year horizon, these are perhaps not the most appealing places for energy companies to put their incremental investment dollars. We have seen fairly steady decline in energy investing in Canada, going back to the middle of the last decade. As a real test to my mind to that is 2022.
When we had oil that was $100 or hire a barrel and you didn't see >> We saw the announcements… > Exactly. No new projects.
The big wave of M&A, you didn't see a big wave of hiring in the energy sector.
You didn't see 10 years prior to that. So to my mind, the energy sector is still very important in our economy largest export category but I think it's the more mature part of our economy then something will be significantly incremental.
>> Interesting stuff.
Let's take a question on the housing market, also tied into today's announcement as well.
Once the health of the housing market?
>> $64,000 question.
This is what everyone wants to talk to.
Obviously I think it's going to be helpful for house prices, we do think it will see a little bit of a rebound in house prices and part of the year, some of the recent housing data coming out of Vancouver and Toronto, has seen big drops in sales.
Lower interest rates will be helpful for producing housing activity but the thing I would stresses in so far as markets have before today, been pricing and sort of 60 basis points, using from the BOC this year variable rate borrowers are gonna see the benefit of a rate cut right away perhaps. But that's not necessarily to be true for fixed term borrowers.
So people looking to borrow at a fixed term just because a good portion of the rate cuts that we expect at that the market that we expect this year, were already reflected in existing, >> Bond yields.
> Bond yields which passed into mortgage rates.
It will be helpful and I think it will restore confidence because I would expect households to feed that see the first cut and see more coming so I think it will be positive for housing activity but it's not clear to me that this is going to, this certainly isn't going to solve the affordability issue. Up at it that way.
>> 25 basis points isn't going to get the $2 million house.
As always at home make sure you do your own research before making any investment decisions.
Back with your questions with Andrew Kelvin in just a moment's time.
You can join us with your questions any time by emailing MoneyTalkLive@td.
com.
Let's get to our educational segment of the day.
>> Of course the big news of the data we've been covering on the show is the interest rate decision from the Bank of Canada.
If you're looking to keep track of other rate moves, WebBroker has tools which can help. Jason Hnatyk, Senior Client Instructor with TD Direct Investing joins us now with more.
We might be the first G-7 to move but there are expectations there.
How do we stay up-to-date with all this?
>> Yeah Greg great to be here as always Greg.
This is certainly a story on the tip of everybody's tongue as you said, there will be others and other banks that are gonna want to keep track of the WebBroker with tools that will be really useful to help you stay informed. So let's jump to the platform and let's go through some of those right now.
So I'm gonna start us out on the homepage here.
This is kind of where you get an overall dashboard view of what's going on and I don't want to sleep on what we have on this page.
First of all our future reports down here on the bottom side. Right hand side. Light reading one have in the morning when you have your coffee but there's the morning news calls here and this is going to really get you primed up and set for what's gonna happen before the opening bell.
As you expect, the topic of the day, the list is the rate cuts out of the Bank of Canada.
And then going back to the homepage, this time moving towards the top of the page, we've got our market updates. Bank of Canada happens to be, the first country in the G-7 to start eating easing monetary policy.
Will guess what this updates throughout the day so it's a great opportunity to see as the market moves, how this is going to be change and affecting your own account.
Next, if you want to do a little more research, finding some other new stories, that's gonna be under the aptly named research tab at the top of the page.
I like come right into the news and commentary section for one key feature.
This area is searchable within the platform. So if we just type in "interest rates for today's date, we can go ahead and search that and we can all the stories that are being published out there from all of the companies that we've got in our news feed. So great opportunity there.
Next I want to show you a great chance to get some commentary from our friends over at TD Economics.
Going up to the research tab again at the top of the page and choosing "our reports " section. Lots of great information from third-party providers such as Argus and MorningStar, we can die then and get sector and industry research but TD Economics can be found about half the way down on the left-hand side of the page. We can jump into their page, I will show you to really good pieces of information they provide. One we can see they got Canadian US as well as global information but clicking on the financial, information about the history of divergence where the Bank of Canada and the Fed have kind of gone separate directions, some nice reading there.
But even further if we click on the "economy" section and go to "commentaries". This is were people of jumped in and provided their insights which you've done a great job covering but here's a way to absorb it. Three great resources right on the platform to keep you informed.
>> Okay you're on the platform and maybe have a mind to trading. How do investors use all this information to help them with their trading?
>> Great point there.
That's what it's all about. Trying to take advantage of the news that we've seen here.
So let's jump back on the platform and I'll show you a couple of quick things that we can really take advantage of.
First I want to show really some timely learning opportunities that can help with trading. If we go up to the top of the page, and this time choose "learn" our team with our video content is doing a great job.
They posted a new video this morning about three investing opportunities free to take advantage of. Not only is it posted here in WebBroker but it's also posted on our TD Direct Investing YouTube page, a little shameless plug to get everybody out there and subscribe to this channel. We are regularly putting out new content including what will include and what we've talked about here about our investing ideas. But jumping back into the platform, one of the ways I think can really be helpful is using the screeners tool in WebBroker.
Done under "research" again.
We've got "screeners".
A mentor on a screen for just some sectors in the industry which might be more apt to respond in a positive way to a rate cut.
If we just choose our screen and clear all of the predefined screens, when you're doing your own screens, I'll do a very broad screen.
If we focus on sectors and industries, we will set the exchanges, you know the Canadian market, until it's really focused in on the Canadian rate, but if we just think about, what sectors, and you mention a few of them already, we will think about real estate, baby financial services companies, maybe we want to broaden that out technology companies.
I know in broad searches we have 891 matches but it's just some food for thought so you can start to drill down to find companies that might be in a spot to kind of really move in a bold direction with some of these decisions coming out of the Bank of Canada.
>> Those rate sensitive parts the market. Jason great work thanks for that.
>> My pleasure.
>> Jason Hnatyk, Senior Client Education Instructor with TD Direct Investing. For more educational resources you can always check out the learning centre on WebBroker or use the QR code to navigate to TD Direct Investing's YouTube page where there are more informative videos.
Now before we get back to questions about interest rates, and the economy, let's get back to them.
Do you see in outperformance of Canadian treasuries versus US treasuries given the divergence between the BOC and the feds key policy rates?
I want to factor in that currency and what it will have on inflows of capital versus US. I know you want to Tackle the first part of the question in terms of what's in your wheelhouse.
>> Yeah. It's a really multifaceted question.
So, if we start working our way up the curve, at the to your point, to your government of Canada bonds, US treasuries at two years… I think there's more room for, to see divergence in terms of the performance of short and government of Canada versus the US. Like, we can see that spread move more negative. We can see a bigger gap between front and yields of Canada and the US. I think it's really interesting when we start to go up to 10 year bonds, a lot more factors not just the Bank of Canada come into play.
Specifically US deficits have been, and will continue to be, extremely large.
Even in a world where the Bank of Canada and the Fed are at a steady state and at the exact same rates, you would still expect to see Canadian yields below US yields. Now having said all that, I think the 10 year government of Canada yields were about 93 basis points below the US when I walked over here today.
That's probably too much in the long term perspective.
We tend to think about rates being approximately the same level.
We think 3%, lots of people disagreed with those levels are, but in terms of the spread between the long-term, you know, average values, fair values for Canadian, we think that they should be very, very close to each other.
That's not reflected on longer-term bond yields to the extent that it should be.
If I look at the pricing there, I actually think the market has the long-term trajectory for the Bank of Canada.
About us well thought out as it could. Obviously, the average path of our expectations will be the path that they can actually take.
No one has a crystal ball. But it's a pretty reasonable base case.
Markets have a much more shallow easing path several years out for the Fed I think Fed has been under… Over a sort of 3 to 4 year horizon.
That's reflected in the already very stretched valuations between Canadian 10 year and third year bonds in US 10 year and third year bonds so while there is room for a bit more divergence, I don't know if I would share that same sentiment for a longer duration bonds and I would say in terms of looking for catalysts, the one we probably need is the Fed actually starting to cut rates and driving it in long-term pricing of Fed expectations which is although, I think valuations for me don't line up about how I feel about bond markets but they can continue not lining up how I feel about bond markets for several months.
>> Interesting stuff great analysis there.
Let's get back to oil now.
(Greg reads the question) >> It does hurt the Canadian economy. The petro currency, the harm done by low oil prices is perhaps is not as great as it once was but it is negatively impacting Canadian economy revenues… Corporate profits, because when, the thing you sell as a corporation becomes less valuable, you make less money. That's, you know, arithmetic.
We used to talk with her being a 0.
2 to 0.3% passage to Canadian GB GDP for Canadian oil prices.
Now that's probably a little bit lower given that the energy sector has not seen the same sort of marginal investment incremental investment as we had seen in past cycles. I would say that this recent move in oil prices on the back of the OPEC announcement, we do think it is a little bit overdone here.
It is not obvious at all, the OPEC production increases will actually come to pass.
>> Interesting stuff. Back to the state of this economy on a different front, a viewer wants to know if anything could be done to help Canada's productivity rate? I think this came up during the press conference today too.
>> Things can be done.
Whether they will be done is an entirely different question.
This the fiscal policy question.
It's something that people always asked the Bank of Canada about.
They have no impact.
>> The senior deputy took the question and said "if the cost of borrowing comes down that might be one part of the situation but this is a long-standing problem in Canada. It's not just about borrowing costs".
>> It goes through several different governments of both political stripes. It's a long-standing issue.
People that support capital formation, more targeted skills training programs would boost productivity. We have a shortage in specific skills trading.
We can do to rectify those shortages? Would boost productivity.
There are measures, tax measures that could be taken in incentivizing capital investment.
The government is trying to do it with a subsidy regime and battery plans for example, I would just relate back to the last 40 years and say that we've been having this conversation in Canada for a long time. Whatever that fixes, it's not gonna be a simple one.
It will probably take the concerted effort of several governments over a long period of time to rectify it.
You can't unpick 40 years of poor productivity growth in four months.
>> Not exactly the same issue of how long we have a conversation. I think maybe when I was around 20 Toronto to Montréal… The Fed, won't that be cool.
My older son who was almost 21 now is asking if they will bring high-speed trains now.
And I say "we'll see, we'll see". We will get back to your questions with Andrew Kelvin and the economy with interest rates in just a moment's time and as a reminder to do your own research before making any investment decisions. And a reminder of how you can get in touch with us.
You can email us your questions at moneytalklive@td.
com or you can use the question box right below this screen right here on WebBroker.
Just writing your question and hit "send". We'll see if one of our guests can get you the answer you need right here at MoneyTalk Live.
> Commodities have attracted a lot of attention in 2024 with gold, silver and copper prices reaching historic levels.
But a pretty choppy ride in recent sessions which raises questions about whether there is more room to run here. Anthony Okolie has been taking a look at that TD Securities report on this very issue and brings us the details.
>> As you mentioned we are all starting with gold which has a deep slide from record highs and a lot of that has to do with of course the Fed continuing to display a hawkish tone on rates, markets also priced an early Summer rate cuts. However, TD Securities is still seeing some aggressive buying of gold in Asia as protection or hedge against depreciating currency.
And of course with the Fed's favourite inflation measures showing signs of cooling, TD Securities gold markets should be well supported the Summer and they continue to see gold on solid footing. Now we will move to oil were energy markets continue to remain under pressure. Of course the news that OPEC+ plans to phase out voluntary output cuts by October of this year, despite that decision, TD Securities believes that markets will remain in balance or a slight deficit for now.
You know, longer-term, certainly fundamentals, could worsen. The momentum signals have gone to the downside and that's because the voluntary cuts could wind down in 2025 in addition to that there is a prospect of more supply hitting the markets from non-OPEC countries.
Turning to copper of course, copper prices have been falling.
They drop below the? Of $10,000, a metric ton for the first time in three weeks. Of course we are seeing a lacklustre demand from top buyer which is China. That's a key factor. And copper, like other metals such as iron or steel, nickel and aluminum, they are impacted by the demand from China which accounts for more than 50% of global demand for metals.
Now, taking a look under the hood, TD Securities global commodity demand indicator which is offering support for the red metal. Now TD Securities does note that it is unclear if the strong demand growth is due to improving macro tailwinds, macroeconomic tailwinds, or just stockpiling.
Looking forward though, TD Securities sees risks to the copper prices if there is a lack of evidence supporting the narrative of a tight supply in the copper market.
Greg?
>> Interesting stuff thanks Anthony.
>> My pleasure.
>> MoneyTalk Live's Anthony Okolie. And now for an update on the markets.
We are having look at today's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
Let's jump into the heat map function here. A nice picture of the market movers. This is a TSX 60 that we are persuading by price and volume.
On my screen here you have gold up percent today, silver up almost 2% silver and copper almost up to percent. Perhaps a bit of a bounce back.
Maybe some of those selloffs for those metals were a little bit overdone.
Some of the mining names, tech up about 15%, First Quantum up but 6%.
We have some green on the screen there for the minors.
Not a lot happening in the heavyweight financials but a little bit of upside for some of the big energy names as well.
So it does have a top buying TSX number in positive territory at this hour. South of the border, let's check in the S&P 100. We do have tech on the rally mode today, let's take a look at it. We have Nvidia up almost 3%. Its competitor AMD, over the weekend they came in with new AI processing tips.
Intel came up with some as well. Getting a bit of a modest bid. Really seems to be for the activities today in the markets.
> We are back now with Andrew Kelvin from TD Securities let's talk rates in economy.
Here the questions about perhaps some of our changing demographics. Will changes to student immigration policy of a lasting impact?
>> I think they will.
I mentioned earlier that there is this imbalance between supply and demand of housing. Having slower population growth will help bring that supply and demand for housing back into balance.
Even though we are talking about students, we are talking more about the renting population then a homeownership population in the short term at least.
But it should still help bring that overall demand for shelter back into balance with where supply is but that will take some time.
On top of that, as we start to see population growth slow, later this year as the sort of impact of the student Start to Abide, That Is Going to Have Negative Applications for Both Employment and for, Just Because I Can Be Fewer Potential Workers, and for Demand.
Demand for Services, Demand for Goods.
Even If Students, Perhaps on Average, Spend a Little Bit Less Than the Cup Typical Canadian Household, >> They Are Still Spending.
>> They Are Still Spending.
Reducing Reduction of Population Growth 11 Packs.
On Top of That There Will Be Some Impacts in Terms of Provincial Budgets and Foreign Students Have Been Helping Pave the Way for Higher Education in This Country.
For A Few Years Now, for Quite Some Time Really, but Particularly for A Few Years Now, That Will Have Some Implications Just in Terms of Fiscal Policy Probably Not Anything We Would Notice of the Level of Where Interest Rates Would Settle and Whatnot.
>> Interesting Stuff.
One More Question before We Say Goodbye to Andrew.
We Save This One for Last. How Could the US Election Impact Canada?
>> Really Easy.
This Is a Really Strange Election for a Whole Bunch of Reasons.
But the One That I Keep Coming Back to Is We Have Seen Canada, Pres. Joe Biden and We've Seen Canada with Pres.
Donald Trump.
I Think Both Pres.'s Would Be Fiscal Expansionist in the Next Term with Whoever That Happens to Be. In Terms of the Global Financial Market Impacts, Just Purely from a Borrowing and Spending Perspective, Pretty Similar Now, the Industry Probably Leans a Little More Towards Tariffs under a Trump Presidency.
That Would Have Implications for Global Growth but We Are in USMC A. US MCA Probably Comes up for Renegotiation under Both Pres.'s but Insofar As Is Concerned That Countries Could Be… Chinese Goods into the US Which Is Apparently a Concern, Is Not Obvious to Me That Canada Would Be to Dramatically Impacted by That Now. Any Uncertainty Is Bad for… When You Talk about What It Takes to Boost Productivity, Uncertainty, Does Not Help with People Making Large Capital Investments. So the Uncertainty Is on Some Sense, Harmful.
But I Almost, from a Purely Economic Standpoint, Purely from a Canadian Standpoint, There Might Be Less Uncertainty Today Than There Was in 2015 or 2016.
>> Before We Let You Go, a Pretty Significant Today It Day in This Country in Terms of Monetary Policy, the Hiking Cycle Holding for so Long Has Cut.
How Do You See It and What Happens?
>> I Think the Cut Again in July.
I Think That's the Next Move. I Think the Data, I Think We Are in a Stable Path Back to 2% Inflation at That the Data Will Show That in the Coming Months.
So I Expect Another 25 Basis Cut in July. I think the pause in September take stock over the economy is and I think they will conclude that the economy is, the Bank of Canada can cut more.
4% by the end of this year.
3% by the end of 2025 but economists forecast 18 months out are best taken with a grain of salt, let's say.
>> Andrew always great to have you, love the conversation and we got you on the right day most definitely.
>> Thanks for having me it's been a pleasure.
>> Our thanks to Andrew Kelvin, head of Canada and global rate strategy with TD Securities.
As always, be sure to do your own research before making any investment decisions and if you didn't have time to get to your question today will aim to get it into future shows.
Stay tuned on Thursday so, Monica Yeung, VP director and Portfolio Manager at TD Asset Management will be our guest taking your questions about Canadian equities. And a reminder that you get a head start by emailing moneytalklive@td.com. That's all the time for a show, take care!
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