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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to talk about that Bank of Canada rate cut this morning, the second of this cutting cycle. What is to come from the bank? TD Securities Andrew Kelvin gives his insight. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the sustainability of the US debt load, and in today's WebBroker education segment, Bryan Rogers is going to show us how you can find the projected income of assets like GICs here on the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got a text selloff on her hand south of the border. We are modestly in negative territory. Perhaps this is one of those days with the TSX not being heavily comprised of tech names works in our favour. We are down five points on the composite index, just to ticks. Among the notable movers include Canadian National Railway. They are coming out and cutting their earnings forecast at the potential for strike action at the rail.
They are down 4%. I also want to check in on Barrick Gold. With the price of gold a bit higher today lifting up some mining names like Derek. At $26.07 per share, it's up just under 2%. South of the border, we have a different picture. Some earnings from a couple of the Magnificent Seven names. Not looking so magnificent today. The S&P 500 is down 1.6%, 90 points. The tech heavy NASDAQ taking it rougher, down 2.5% and then some, 460 points being fed right now. Tesla, one of those names underwhelming the street today. We will tell you more about it later in the program but right now at $220 per share, he got his lid down more than 10%. And that's your market update.
The Bank of Canada once again cutting its benchmark interest rate by 25 basis points, but we do have some signs of sticky inflation. So the question becomes, how many further cuts may we get this year? 20 etc. discuss is Andrew Kelvin, head of Canadian and global rate strategy with TD Securities. Great to have you back.
>> Pleasure to be here.
>> Big day, lots to go through. Not only the decision but a press conference. MPR.
Let's start with the fact that they delivered that second cut and I think, as a take a look at your notes and commentary on the other side of it, they are leaving the door open for September.
>> I think so. The Bank of Canada's main job, at this meeting, because the rate cut was very widely anticipated, it would have been quite a shock if they had not cut rates today, their main job was to make sure they left as much option out he on the table for them going forward as they possibly could. Every time the Bank of Canada has tried to be a little bit more explicit about what his path is going to be, every time they have tried to be a little bit more clear on how they were thinking or planning on going about their job of implementing monetary policy, it hasn't really worked out for them.
Everyone recalls Gov. Macklem's infamous comment about rate staying low for a long time in 2020.
More recently in 2023, the Bank of Canada said they thought they were done hiking rates but they were not finished hiking rates.
The main task for them today was to come out saying we are cutting rates because we have seen more progress on inflation and the future path or rates will be guided by the passive inflation. I think they achieved that. Anytime a central bank cuts rates, it's going to have a bit of a dovish tinge to it. There cutting because they think inflation is softening. That's reflected in their comments. But I will say that there is perhaps a little bit more of an emphasis on some of the dovish aspects of the Outlook which really did lead markets to believe that September is very much on the table here.
We are not as certain.
I think sequencing is tough. It's very rare for a central bank to, certainly the Bank of Canada, I should say, to start off and easing or tightening cycle with a single one-off move. It has happened before but it is pretty rare. It would have been, as I said, very surprising not to see them cut today. As we go forward, the bank said it is reasonable to expect additional rate cuts this year.
But the sequencing will be tougher.
Where we have I think a fair bit of confidence is that we will see the overnight rate at 4% by the end of this year.
>> And how we get there will be the question but that's the destination. I found it interesting that heading into this if we had, this is not what transpired, but if they had decided not to cut today, the fly in the ointment everyone was pointing to was three month core inflation. They did not seem concerned about it.
>> No, they didn't. I was a bit concerned myself when we received the May inflation print. I became a bit more circumspect in the way I was discussing the July meeting.
The bank addressed it, they did not completely ignore it, they Sutley said three month annualized core inflation is below three so we are comfortable with this.
That's going to be a state or a time-dependent thing. They are comfortable with the three month annualized core inflation a little bit below 3% now but they can't be consistently looking at core inflation momentum that's in the high to use because their target isn't anywhere between one and three, the target is 2%.
Their tolerance for core inflation growth, core price growth at this pace will wane over time. They will probably be less comfortable with core inflation at these levels in September, October, December if that's where it is. As things stand, we expect inflation to moderate but the Bank of Canada did not put too much emphasis on it today. If we do not see a moderation in core inflation going forward, they will have to pay more attention to it.
>> We also got a monetary policy report, a chance for the BOC to stay where they think we are headed. We got some revisions thereto and some pretty important things including economic growth and I think there inflation forecast.
>> Yeah, it was sort of an interesting set of revisions.
On growth, we knew the growth forecast would be revised lower because the first quarter of the year was not as robust as the Bank of Canada had expected. What's interesting on the growth forecast with those downward revisions, they are reasonably on the optimistic side and I think when we could interpret that is it makes it easier for growth to undershoot the bank's forecast which makes it a little bit easier for them to justify or motivate future rate cuts. That sort of a similar dynamic on CPI inflation.
The CPI inflation forecast were a little bit higher than I anticipated for the latter part of this year, and again, I think they are setting up very achievable targets to meet or slide under, I suppose, and I think it helps illustrate how they are comfortable using further with the sort of forecast, which is what they said, and the risks around that forecast are to the downside. It really does, I think, nicely illustrate the fact that there is a pretty good chance that we see further easing later this year.
>> That's a big part of their job, isn't it, to weigh the risks on both sides. It seemed like the statement they were saying we have been worried for a long time about inflation we accelerate in you and now they seem to be worried about the other side.
The labour market is not looking too hot considering how many workers we keep adding to the company and a consumer feeling tapped out. When you look at the Canadian economic landscape are they right to be concerned?
>> I think they are right to be concerned.
Their job is ultimately inflation but the way the Bank of Canada thinks about inflation in the future is due to slack in the economy. Given we had this exceptionally strong population growth and not terrible employment growth by historical standards but employment growth just has not kept up with population growth. The unemployment rate is in the mid sixes. That's an increase that probably surprise them to some extent. The make of Canada said they do not need more slack in the economy to achieve 2% inflation.
When they talk about putting more emphasis on downside risks, I think what they are talking about is the fact that because we have seen the slack into the labour market so quickly and if we were to continue seeing these 1 to 2/10 of a percent point rise in the unemployment rate, pretty quickly we are at a 7% unemployment rate.
At some point, the risks of sub- 2% inflation start to outweigh the risks of above 2% inflation in their minds. This is us kind coming back to a more normal sort of monetary policy stance or receive the risks as symmetric instead of just trying to get inflation lower at all costs.
I think it also explains why the BOC in their most recent speech before today was on wages and they seemed entirely unconcerned. If you look at the data, it will tell you that wage growth remains fairly robust. The theory here is that in an environment of rising on employment rates, ongoing slack in the labour market and the economy more broadly, wage growth will need to slow. On some level, that theory needs to be reflected in the facts on the ground for that theory to hold.
>> The path forward, 4% by the end of the year?
>> That is our forecast.
>> We don't know if that happens in September, or if they pause or if they move at a different time. As we get into next year, you use the word normal there, normal monetary policy.
Where is that neutral rate? They're gonna bring it down and not be pushing the economy and other direction.
>> Even in the best and most certain of times, I don't think central banks really know with the neutral rate is. We have estimates but they are estimates. We never really know. It's not observable, it is inferred. And these are not the best of times.
The Bank of Canada believes that the neutral rate is around 2.75%.
We see it as a little bit higher at TD Securities. We are using a 3% assumption.
Wherever that number is, I think there is a broader consensus, a broader agreement that has been drifting higher in recent years due to things like de-globalization and it will continue to drift higher due to things like a green shift which require a lot of investment and will drag up interest rates and things like demographics which will ultimately shift the world from building savings to drawing down savings. So there is a general sense that neutral rates are going to be higher this cycle compared to last cycle. With the actual number is, we won't know until we get through a monetary policy cycle and see how inflation reacts. I think the other question that is top of mind for me is to what extent is inflation driven by monetary policy? And to what extent is it driven by structural factors?
During the pandemic, we were talking about supply chain blockages, semiconductor shortages, these things as culprits for inflation, right or wrong. There was also massive fiscal stimulus, course.
Going forward and particularly in Canada, in the big handed addresses to the press, we do have structural issues around our housing market that are strictly not an issue of monetary policy. That shortage of housing will be inflationary for a long period of time and it does make the Bank of Canada's job just a little bit more difficult because what they now need to do is lower inflation in all of the non-shelter things to below 2% to make up the fact that shelter inflation will probably remain above 2% for quite some time.
>> Fascinating stuff and a great start to the program. We are going to get to your question about interest rates in the economy for Andrew Kelvin in just a moment's 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.
Alright, let's get back to those earning stories. We are going to start with Tesla, definitely in the spotlight today. The EV maker missing earnings expectations as automotive revenue pulled back 7% year-over-year.
We have seen slowing sales across the EV industry and then, of course, Tesla has been cutting prices through all that to try to stoke some demand. That's the backdrop. The stock is down about 10.5%.
Apparently on the earnings call, Elon Musk made his Robo taxi plans a large focus of the conversation. Let's talk about Alphabet. There revenue and profit lines came in stronger than expected for the second quarter.
Right now, the stock is down about 5%.
What's going on? Investors appear to have some concerns about the company's YouTube business. Advertising revenue there for YouTube was a miss for the quarter but that was offset by Alphabet's cloud services revenue. But it seems right now people are taking this as a negative.
Let's talk about Visa. A disappointing quarter from Visa is raising questions about the health of the consumer. Global payment giants third-quarter revenue came in short of the street expectations.
We all know what the high cost of living and elevated borrowing costs have been squeezing household budgets in consumer spending seems to be feeding through names like these as well. At $253 and change per share, your down a little bit more than 4% on that report. We check in on the markets. We have a tech sectors all off on our hands.
On Bay Street, the TSX Composite Index, we are not as heavily weighted in that direction. We are down 25 points or .11%.
The S&P 500 right now is down to the tune of almost 1.8%. The NASDAQ down about 2 1/2 and then some.
We are back with Andrew Kelvin, take your questions about interest rates and the economy. First one here. On the central-bank theme, as we talked about the BSE, let's get the Fed to into the conversation. How much divergence might we see between the Fed and the BOC?
>> This came up again in the conference.
Gov. Macklem said that while there are limits to divergence from the federal reserve, which he has said before, that we are not close to them. He also suggested that given the path of the US economy recently, things are slowing, he does not think the divergence question is going to become any more pressing than it is today.
I do you happen to agree with him. TD Securities does look for two Fed cuts this year.
And two more Bank of Canada cuts this year. We can argue about the timing of these things in the sequencing of these things. We are looking for a Fed cut in September, to be clear. But at the end of the day, it's 50 more basis points for the BOC and 50 more for the Fed so we don't expect any more divergence then what we see today and I would echo the governor's comment. We are not close to the theoretical limit of divergence. The Canadian US economies have both shifted structurally since the financial crisis.
If you go back to 2007, it was a long time ago now, I suppose, Canada and the US in the housing sector had broadly similar levels of leverage.
There was a decade-long plus period of deleveraging for the housing sector, it's something that was very painful and we don't want to experience that here.
That rate fell by about 1/3 in the US. In Canada our banking sector remained open for business throughout the financial crisis. The real estate market ended up being viewed by a lot of people as a refuge from the market. House prices continued moving higher and the lesson Canadians learned is that housing is great, we should buy more, ideally on leverage, and that was reflected in the change in our household debt structure where we increase the amount of leverage in the household sector by about one third.
Fast forward to today, the Canadian household is almost twice as leveraged as the US household on top of the fact that we have much quicker pass rate of interest rates into households. We do not have 30 year mortgages like in the US. That means that our household sector is much more sensitive to interest rates in the US sector and if there was a shift in the way the two economies have interest-rate sensitivities, the way they experience monetary policy, it should follow that they can have more divergent economic outcomes and therefore more divergent policy outcomes.
And I think the best example of this is the fact that over the last 6/4, the US economy has been far, far stronger than the Canadian economy despite the fact that our population growth has been exceedingly strong so you put all that together, the point I would make here, it's a long one, the point that there will be no more divergence in our base case forecast, whatever the BOC does is unlikely to be dictated by the Federal Reserve. It's unlikely to be dictated by considerations for US monetary policy. It really is going to be a question of how healthy is the Canadian consumer and what are the implications of that for domestic inflation?
It is going to be perhaps in the future a little bit less synchronized with the United States.
>> Interesting points to my question.
Another one now from the audience. That was about divergent. Some him to get this as a follow-on in that conversation.
Where's the loonie headed?
I know if you are out this morning, looking at the relationship with the US dollar, there are a lot of factors at play.
>> There are always other factors at play.
I am always at heart going to be an interest rate differential purist.
In a world where the Canadian economy is slowing relative to the US economy, in a world where we are getting BOC cuts coming in, it's weakening the Canadian dollar. We have seen the Canadian dollar weakened in recent sessions and we think it will continue to weaken particularly as we get to the latter part of the year and we think that we sort of enter a strong dollar or we extended the current strong dollar regime just given the sort of, the US almost exceptionalism in terms of its economic activity.
In that sort of a world, we think the Canadian dollar continues to soften versus the US dollar.
We keep talking and dollars CAD terms, 141, 142, which is about a 70, $0.71 Canadian dollar in CAD to the US dollar terms. It's on a huge depreciation but the general trend here that we have seen in recent sessions, like, we do look forward to it continuing with the moderate weakening in the Canadian dollar in the strong US dollar regime.
>> The Bank of Canada does not target the currency. They have a mandate, it's inflation. At what point though if it weakened to a certain degree, with that start to flow through to some of the things that the Bank of Canada does care about?
>> It is always state-dependent.
They have an inflation target. The source and threaten their inflation target, they have a problem.
That is when you hit that limit of divergence. For a given level of Canadian economic activity, there is almost always going to be-- or put differently, given the level of the Canadian dollar, there is always a level of Canadian economic activity that can justify it.
If we were to be in an extremely deep recession, the Bank of Canada would have a lot more tolerance for a week Canadian dollar than in the sort of soft landing scenario that we envisage and to be clear, we do envisage a soft landing, it's also about the speed of adjustment. A gradual depreciation, and I'm just going to put some numbers out there, these are not our forecast, but a gradual move to 68 or $0.67 over a year or 18 months is not going to wear the Bank of Canada the way a quick move into that sort of arrange wood.
So the speed of the adjustment matters. I think one of the reasons the speed of adjustment matters is, first, inflation is about rates of change. Their target is a 2% year-over-year increase in price levels. So if you spread your depreciation over a long period of time, so will be the path of inflation. The other piece of it, I think this might be as important as the pass-through into Canadian prices, it's about expectations. You and I see the Canadian dollar moving lower.
It fell by .1%. Okay, well, moving on.
>> The average Canadian does not get too excited.
>> It we see the Canadian dollar dropping by ascent today, we start to get excited.
That's not exactly the one I want to use, excited, because it's a positive connotation and not too many of us… >> We look at it was a little more scrutiny.
>> We notice and what you risk is inflation expectations becoming unanchored at that point and that can pass-through into broader prices. There is worry there.
All of which is to say I think we would need to see a really sharp move like a quick move below the $0.70 level for the BOC to really take notice of it in a way where it might actually start to feedback into Canadian monetary policy.
>> Alright, let's take another question now from the audience about retail sales.
We know that there weakening. Our viewers noticed the same thing. Lots of concern about debt, how better things to the consumer?
>> They are not great for the consumer.
I do think there is one silver lining that's a little bit underreported which is the amount of savings that Canadian households have is actually substantially higher as a share of GDP or as a savings rate than what we saw prior to the pandemic.
>> We knew we had put the money aside but then we were thinking that when everything opened up, it would just… >> And we did burn through some of that money but wage growth has actually been quite strong in Canada over the past few years so we are looking at wage growth right now at seven, 7 1/2% year-over-year.
It's quite strong.
Debt service ratios have actually been stable in Canada for the past year or so and part of that is interest payments that share income are going up but game organizations are getting extended as well so actually the debt service payments as a share of income have been pretty stable.
We have mortgage renewals coming.
Five years is the most common length.
That's going to continue putting pressure on Canadian households. But the fact that there is a buffer of savings sitting in aggregate in the system that can help some households whether that coming storm does suggest that maybe the most negative interpretations of the future of the Canadian household are overblown.
We are looking at sort of flat per capita household consumption, maybe slightly negative per capita household consumption in the coming year. It's not a good story and these are in real terms, I should add, but it's not a hugely negative one and that's why say it's consistent with a soft landing, to our thought process, rather than a hard landing.
>> Okay.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andrew Kelvin on interest rates and the economy in just a moment's 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.
If you are looking to find the projected income of assets like GICs, WebBroker has tools which can help. Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> This is an important topic lately because a lot of people using GICs or bonds or even looking at dividend paying stocks, especially with interest rates being higher, GICs might be more prevalent. But if you're somebody that's been trading stocks with the intent of collecting income through dividend, there is a tool and web broker that many may not have seen before.
Unless you have stumbled upon it, you may have come across it but if you haven't, it's a really useful tool for tracking things like your dividends and income. So we will jump into web broker and the place you will find this is you go under the accounts tab and you're good to see on the very left-hand side balances, holdings, etc. All of his account details. Then you're going to look or the projected income. That nothing really in this to show you.
If I was in my personal account you could see all of my stocks that pay dividends and things like that that would be listed there. Any GICs. And it's gonna show you down below the income that you are receiving from each.
You can do this as well. If you go into this projected income, you're gonna see your own stuff already if you have a but if you're not sure what it would look like, you can click on this? And it will pull up everything about the stool. On the right-hand side, it shows the overall what it looks like.
You can see these green lines which show you for everything in your account if you have some thanks stocks and maybe you have like a pipeline stock that pays a high dividend, a GIC as well, I'm gonna show you the breakdown of every single month of how much income you are going to receive from all those different investments on a trailing 12 month period.
Sorry, a forward-looking 12 month period.
You go down, get an idea of what it looks like. This would be the bar graph that shows you're gonna get an average of around $207 in income for all of your positions. It's gonna show you you can set a target, a monthly target which is the shop here to say this is what I want to get to. I want to get to $1000 a month in terms of income for all of my investments and then you can strategize around that and say I've got a by these GICs, I'm gonna look at these particular stocks and see how it works out in terms year totals.
As you scroll down, you can look at it by individual account or all your comes together in a single further, this is what it looks like at the bottom typically.
These are a couple of examples stocks.
It will show you the quantity that you hold, a total and also just an individual amount that it's going to be paid in terms of separate time frames. It could be quarterly for a lot of stocks, could be monthly for some of them. Also with GICs it could be more on an annual basis. That it's gonna show you the monthly average of what you will get an income. Look at that and check out with the projected income tool is and that's how you'd find that in my broker if you're looking for information just to show you that on an ongoing basis.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or uses QR code. It will navigate to TD Direct Investing's YouTube page and there you can find more informative videos.
Now before you get back to your questions about interest rates and the economy for Andrew Kelvin, a reminder of how you can get in touch with us.
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.
We are back with Andrew Kelvin, taking your questions about the economy and interest rates. This one about what is to come. The US election, how can it impact Canada's economy?
>> Oh, so many ways!
[laughing] This is a really… Not to say something too obvious, but this is a really interesting election, not just because of those sort of really heated rhetoric you see in the media but also because it's, until very recently, it was two candidates we had already seen as president running against each other.
I think the change in the presumptive Democratic nominee does add an extra layer of uncertainty to what the economic and locations for Canada are but there is I think a general sense that if Kamala Harris were to win the election, it would sort of imply a continuation of the policies that are currently in place and therefore implications for Canada that things do not really change, we keep going as we have been going. There's a bit more uncertainty if we have as a change in administration which is one of the most obvious things a person can say. I think a lot of the focus is around trade policy.
Tariffs have been really central to the presumptive Republican platform. It's not obvious to us how that would factor in for Canada. The fact that USMCA was ultimately an agreement that was signed under a Trump presidency… >> He would be happy with his own deal.
>> To a certain degree.
It won't be totally unaltered.
Whoever wins this election, there will be changes coming to the USMCA, specifically tightening up the sort of re-export rules because the thing that the US very much does not want to have is Canada or Mexico become sort of a finally assembly stage IV non-USMCA participants to be selling goods. I think the question I have around trade is for Canada to maintain its market access unfettered and given how integrated the auto sector is and given that the path to the White House runs through some traditional automotive manufacturing states, I do not foresee a US policy that would significantly damage the northern auto manufacturers in the US and so I'm not overly worried there. I think the question is, will Canada have to impose tariffs or nontariff barriers to non-USMCA participants in order to stay in USMCA?
We'll recently that the US come to Canada and says, if you want to stay in USMCA, you are going to put tariffs up to all these countries. That's an open question.
It's something we have seen reported in the press and it's really hard to speculate where that's going to fall because everything is hypothetical here and frankly even when you know who the president is going to be, it still can be highly uncertain. The other bit of it that's sort of interesting, whoever wins the election, I think markets have had a hard time looking beyond it. Markets have had a really hard time with this idea that we are going to price in the world beyond because we have no idea what that roles could look like the one thing that's probably going to be the case under both parties is we are going to get a lot of debt issuance next year. Both parties are looking at running large deficits. Maybe a Republican administration focuses more on tax cuts and a democratic one focuses more on spending but the deficits are to remain significant. That does not change no matter who wins the election and I think that something more gets to not appreciate right now.
>> Moving onto the next one, whether it's, Harry's or her former Pres. Trump, of your says both Dems and Republicans look like they are going to be big spenders. Should we be concerned about debt levels and issuance?
>> The way I think about this is back through Canada.
What this implies, and if it's with the neutral rate conversation, neutral weights, overnight rates at central banks are not going to be as low in the next 20 years as they were in the last 20 years, most likely, on average. There might be periods where we get a rate in Canada that's one or 2% but on average the rate will probably be higher. That is probably also who many think about term borrowing rates. The US has the tremendous advantage of being the world reserve currency. If Canada were to try to run fiscal policy like the US would, it would not work, we would not get close to these levels because it would have significant implications for Canadian bond yields and governments would have to reverse course.
The US, as the world's reserve currency, has a little bit of a greater ability to issue debt into the world and have people agree to buy it.
But, as you issue more and more debt, the price at which people will accept that debt starts to fall. It's like, okay, instead of letting it two or 3%, and I was 3 1/2, 3.7, four.
Ultimately, we think term borrowing in the US will be higher over the next 10 years or so than they were over the previous 10.
It doesn't need to be dramatic. We can be talking about US 10 year yields at 3.7, 3.75, thereabouts, as an average range for the next little while.
But ultimately it's going to be higher term rates as well and that will pass through to Canada because our bond markets are very highly correlated.
>> Interesting stuff. Let's talk about this one closer to home. I think looking up to the housing market as we see this declining rate? We have had to cut snow.
>> This thing with the cut today is that it was so widely expected that you didn't get a dramatic reaction in markets. Yields did fall a bit, there was a reaction in the market but it was not huge. We are talking five or six basis points for 5 year bonds.
As the rate cuts pass through, it's helpful for variable-rate borrowers, short-term borrowing costs, people are going to get to your mortgages and through your mortgages, those rates will continue to fall as we continue to work through the cycle but we are not going to get tremendous relief in terms of four or five year borrowing rates just because it's already sort of anticipated so it's still helpful for the housing market but we are still going to be in an environment where financing costs are going to be substantially higher than they were at any point between 2007 and 2022.
I think the bigger thing that's coming up in the housing market is this pent-up demand for housing. Even with student visa caps in place, population continues to expand faster than the supply of housing but ultimately that is going to translate into increased housing activity. We did see some of softness and prices at the end of 2023. It's been pretty, call it flat to soft dish on a national basis through 2024. We can probably see a little bit of a pickup in activity in the fall. That perhaps brings a little bit of pickup and prices but at the end of the day, households remained very stretched his so as much as we can see prices and activity increase, it's unlikely to be one of these bonanzas in the housing market that we have seen over the past cycle.
>> Fascinating stuff. We will get back your questions for Andrew Kelvin on interest rates in the economy in just a moment.
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 at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
The United States, like other major economies, has seen a large increase in its debt and deficits in recent years. I know you in the audience by sending in questions about it have noticed it as well. Unlike the rest of the world, the US is not expected to see debt service costs rise considerably over the next several years. Our Anthony will lead taking a look at a new TD Economics report on this.
>> The US is also running large deficits and it's expected to remain over the next several years. The US is not alone and carrying a high debt burden, as this first chart shows. The US debt to GDP ratio compares the US to its peers. It clearly can see that while Italy has visibly higher ratios, the US is not much higher versus Canada, France and the UK and the debt to GDP ratio is expected to arise for US, UK and France while it comes down to the other countries. On the deficit front, again, very similar story.
The US 2024 deficit is not too far off from France, Italy and the UK, as the next chart will show.
It also shows that Canada is actually doing quite, even better than the other countries with a much smaller deficit as the chart shows. We also have continued, expect to see continued modest improvement over the next several years.
Now, TD Economics obviously will combine the report with debt and deficit to assess whether country's fiscal policy is sustainable.
The next chart, as you can see here, TD Economics combines these metrics over time to compare the economies. Generally speaking, when you are, if you are closer to the bottom right quadrant of this chart ranking the greater need to reduce both your deficit and debt levels, it is clear that the US is in a difficult position, as you can see here.
They have both higher debt and higher deficits. The US does have the benefit of maintaining lower borrowing costs versus other countries but the longer it stays in this position, the more untenable it becomes. In addition to that, deficits also affect economic growth, bearing any changes in circumstances, reducing the deficit will also typically reduce growth.
TD Economics concludes that while the US, Italy, UK and France all have to devote a bigger portion of their annual output to service debt, the US has an advantage.
They can borrow it more favourable rates despite their high debt and deficits versus the rest of the world. And so when you compare the US to the rest of the world, the US is exceptional in that it is the only high debt country not to make the adjustment to their deficit reduction in coming years, even though again it is projected to be the same in 2020 for the following five years. They can borrow at favourable rates but this may not last forever, according to TD Economics.
>> Interesting stuff. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the heat map. Give a tech selloff on her hand. Shopify is down 4% but as we know, the TSX Composite Index is not weighted heavily intact. We have CN Rail down on an earnings warning due to possible strike action, a little bit of movement in energy and material space to the upside. It's flat in Toronto. South of the border, it's a different story. We had test learnings, Alphabet earnings, these are two of the Magnificent Seven. Not so magnificent today. The market is not pleased with what they are getting. You have Tesla down to the tune of about 10%.
You got Google there, that would be Alphabet, down about five. Nvidia, the chipmakers, this is not the day for Texans of the border.
We are back now with Andrew Kelvin from TD Securities.
Here's another audience question. What is your view of Maple bonds? I'm not sure what a maple bond is.
>> The maple bond market is basically non-Canadian issuers borrowing in Canada.
It's hard to say that it's one thing. The thing with bond markets is there isn't one bond, it's a bunch of different bonds and issuers that have different characteristics. The reason why you might have foreign borrowers issuing in Canada are several, maybe they have Canadian dollar needs or maybe they are trying to diversify their funding sources, perhaps because it is advantageous to borrowing Canada from a price perspective for them or perhaps they just want to have more markets open. We saw the opposite dynamic of the Canadian provinces when they for many years have been borrowing outside the Canadian dollar to try to diversify their funding sources, even when it was maybe a little bit more costly, but then this year when the call shot up they borrowed huge amounts of money without having to damage domestic spreads which showed that strategy of diversify your borrowing, funding sources was, long run, very favourable. The thing with the corporate bonds, sorry, the Maple bonds, I would say for a domestic investor, without actually getting into valuations in specific names, what it does is it expands the universe of Canadian dollar debt that is available to a domestic investor, whether it's corporate, which don't have the same profiles in Canada, as well as some sort of high-quality international clause I government borrowers, SSA's and source super nationals who are AAA rated government-backed entities which will often borrow, not too often, but from time to time, to the Canadian dollar market just to keep a diverse source of funding available.
Really, it just expands the universe of potential investments for a domestic bond investor.
>> Great inflation there. Before we let you go, quick recap. We got a rate cut today for the BOC, the second in a row in the cutting cycle.
What we think will happen next?
>> So right now, I'm still going to say a hold in September. I think the Bank of Canada has been a little bit to blasé and how they've communicated their comfort with the three month annualized or inflation at 2.9% but what it does do is make that next CEPI print… The September meeting is always difficult because there's not a lot of… >> There is a low.
>> It's an early September meeting, there's a short period of time between July and September. We tend not to hear a lot from the Bank of Canada in August.
Participants are on vacation, investors are on vacation.
Potentially there people at the BOC on vacation.
>> I think to signed off by saying have a great summer.
>> He did say that.
Maybe he is not going to be giving us a speech in two weeks.
That always make September an interesting one because we are walking in on an information desert. I'm not super concerned about growth data improving and derailing potential cut in September because we are in excess supply, we do not need more excess supply and even with less excess supply the bank and still cut.
We should still get a CEPI print on August 20. That to me is the pivotal data point potentially. If we see substantial deceleration in core CPI inflation, then a September rate cut becomes I think much more likely.
If it shows that CPI is re-accelerating, I think it much more difficult for the Bank of Canada to ease in September. It's going to be an interesting one no matter what.
Probably more interesting than today.
>> My calendar has the 20th of this as well. Hopefully we will chat with you around then. We'll see.
>> I hope so.
>> You are always invited to come back.
Thanks a lot.
>> Thank you.
>> Andrew Kelvin is head of Canadian and global rate strategy with TD Securities.
As always, make sure you do your own research before making any investment decisions.
if you have time to get your question today, we are going to aim to get it into future shows. Stay tuned for tomorrow show. We are going to have Haining Zha, VP and Dir. for asset allocation research at TD Asset Management on the program.
He wants to take your questions about China's economy in the markets. And a reminder you can get a head start with those 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.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to talk about that Bank of Canada rate cut this morning, the second of this cutting cycle. What is to come from the bank? TD Securities Andrew Kelvin gives his insight. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the sustainability of the US debt load, and in today's WebBroker education segment, Bryan Rogers is going to show us how you can find the projected income of assets like GICs here on the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We've got a text selloff on her hand south of the border. We are modestly in negative territory. Perhaps this is one of those days with the TSX not being heavily comprised of tech names works in our favour. We are down five points on the composite index, just to ticks. Among the notable movers include Canadian National Railway. They are coming out and cutting their earnings forecast at the potential for strike action at the rail.
They are down 4%. I also want to check in on Barrick Gold. With the price of gold a bit higher today lifting up some mining names like Derek. At $26.07 per share, it's up just under 2%. South of the border, we have a different picture. Some earnings from a couple of the Magnificent Seven names. Not looking so magnificent today. The S&P 500 is down 1.6%, 90 points. The tech heavy NASDAQ taking it rougher, down 2.5% and then some, 460 points being fed right now. Tesla, one of those names underwhelming the street today. We will tell you more about it later in the program but right now at $220 per share, he got his lid down more than 10%. And that's your market update.
The Bank of Canada once again cutting its benchmark interest rate by 25 basis points, but we do have some signs of sticky inflation. So the question becomes, how many further cuts may we get this year? 20 etc. discuss is Andrew Kelvin, head of Canadian and global rate strategy with TD Securities. Great to have you back.
>> Pleasure to be here.
>> Big day, lots to go through. Not only the decision but a press conference. MPR.
Let's start with the fact that they delivered that second cut and I think, as a take a look at your notes and commentary on the other side of it, they are leaving the door open for September.
>> I think so. The Bank of Canada's main job, at this meeting, because the rate cut was very widely anticipated, it would have been quite a shock if they had not cut rates today, their main job was to make sure they left as much option out he on the table for them going forward as they possibly could. Every time the Bank of Canada has tried to be a little bit more explicit about what his path is going to be, every time they have tried to be a little bit more clear on how they were thinking or planning on going about their job of implementing monetary policy, it hasn't really worked out for them.
Everyone recalls Gov. Macklem's infamous comment about rate staying low for a long time in 2020.
More recently in 2023, the Bank of Canada said they thought they were done hiking rates but they were not finished hiking rates.
The main task for them today was to come out saying we are cutting rates because we have seen more progress on inflation and the future path or rates will be guided by the passive inflation. I think they achieved that. Anytime a central bank cuts rates, it's going to have a bit of a dovish tinge to it. There cutting because they think inflation is softening. That's reflected in their comments. But I will say that there is perhaps a little bit more of an emphasis on some of the dovish aspects of the Outlook which really did lead markets to believe that September is very much on the table here.
We are not as certain.
I think sequencing is tough. It's very rare for a central bank to, certainly the Bank of Canada, I should say, to start off and easing or tightening cycle with a single one-off move. It has happened before but it is pretty rare. It would have been, as I said, very surprising not to see them cut today. As we go forward, the bank said it is reasonable to expect additional rate cuts this year.
But the sequencing will be tougher.
Where we have I think a fair bit of confidence is that we will see the overnight rate at 4% by the end of this year.
>> And how we get there will be the question but that's the destination. I found it interesting that heading into this if we had, this is not what transpired, but if they had decided not to cut today, the fly in the ointment everyone was pointing to was three month core inflation. They did not seem concerned about it.
>> No, they didn't. I was a bit concerned myself when we received the May inflation print. I became a bit more circumspect in the way I was discussing the July meeting.
The bank addressed it, they did not completely ignore it, they Sutley said three month annualized core inflation is below three so we are comfortable with this.
That's going to be a state or a time-dependent thing. They are comfortable with the three month annualized core inflation a little bit below 3% now but they can't be consistently looking at core inflation momentum that's in the high to use because their target isn't anywhere between one and three, the target is 2%.
Their tolerance for core inflation growth, core price growth at this pace will wane over time. They will probably be less comfortable with core inflation at these levels in September, October, December if that's where it is. As things stand, we expect inflation to moderate but the Bank of Canada did not put too much emphasis on it today. If we do not see a moderation in core inflation going forward, they will have to pay more attention to it.
>> We also got a monetary policy report, a chance for the BOC to stay where they think we are headed. We got some revisions thereto and some pretty important things including economic growth and I think there inflation forecast.
>> Yeah, it was sort of an interesting set of revisions.
On growth, we knew the growth forecast would be revised lower because the first quarter of the year was not as robust as the Bank of Canada had expected. What's interesting on the growth forecast with those downward revisions, they are reasonably on the optimistic side and I think when we could interpret that is it makes it easier for growth to undershoot the bank's forecast which makes it a little bit easier for them to justify or motivate future rate cuts. That sort of a similar dynamic on CPI inflation.
The CPI inflation forecast were a little bit higher than I anticipated for the latter part of this year, and again, I think they are setting up very achievable targets to meet or slide under, I suppose, and I think it helps illustrate how they are comfortable using further with the sort of forecast, which is what they said, and the risks around that forecast are to the downside. It really does, I think, nicely illustrate the fact that there is a pretty good chance that we see further easing later this year.
>> That's a big part of their job, isn't it, to weigh the risks on both sides. It seemed like the statement they were saying we have been worried for a long time about inflation we accelerate in you and now they seem to be worried about the other side.
The labour market is not looking too hot considering how many workers we keep adding to the company and a consumer feeling tapped out. When you look at the Canadian economic landscape are they right to be concerned?
>> I think they are right to be concerned.
Their job is ultimately inflation but the way the Bank of Canada thinks about inflation in the future is due to slack in the economy. Given we had this exceptionally strong population growth and not terrible employment growth by historical standards but employment growth just has not kept up with population growth. The unemployment rate is in the mid sixes. That's an increase that probably surprise them to some extent. The make of Canada said they do not need more slack in the economy to achieve 2% inflation.
When they talk about putting more emphasis on downside risks, I think what they are talking about is the fact that because we have seen the slack into the labour market so quickly and if we were to continue seeing these 1 to 2/10 of a percent point rise in the unemployment rate, pretty quickly we are at a 7% unemployment rate.
At some point, the risks of sub- 2% inflation start to outweigh the risks of above 2% inflation in their minds. This is us kind coming back to a more normal sort of monetary policy stance or receive the risks as symmetric instead of just trying to get inflation lower at all costs.
I think it also explains why the BOC in their most recent speech before today was on wages and they seemed entirely unconcerned. If you look at the data, it will tell you that wage growth remains fairly robust. The theory here is that in an environment of rising on employment rates, ongoing slack in the labour market and the economy more broadly, wage growth will need to slow. On some level, that theory needs to be reflected in the facts on the ground for that theory to hold.
>> The path forward, 4% by the end of the year?
>> That is our forecast.
>> We don't know if that happens in September, or if they pause or if they move at a different time. As we get into next year, you use the word normal there, normal monetary policy.
Where is that neutral rate? They're gonna bring it down and not be pushing the economy and other direction.
>> Even in the best and most certain of times, I don't think central banks really know with the neutral rate is. We have estimates but they are estimates. We never really know. It's not observable, it is inferred. And these are not the best of times.
The Bank of Canada believes that the neutral rate is around 2.75%.
We see it as a little bit higher at TD Securities. We are using a 3% assumption.
Wherever that number is, I think there is a broader consensus, a broader agreement that has been drifting higher in recent years due to things like de-globalization and it will continue to drift higher due to things like a green shift which require a lot of investment and will drag up interest rates and things like demographics which will ultimately shift the world from building savings to drawing down savings. So there is a general sense that neutral rates are going to be higher this cycle compared to last cycle. With the actual number is, we won't know until we get through a monetary policy cycle and see how inflation reacts. I think the other question that is top of mind for me is to what extent is inflation driven by monetary policy? And to what extent is it driven by structural factors?
During the pandemic, we were talking about supply chain blockages, semiconductor shortages, these things as culprits for inflation, right or wrong. There was also massive fiscal stimulus, course.
Going forward and particularly in Canada, in the big handed addresses to the press, we do have structural issues around our housing market that are strictly not an issue of monetary policy. That shortage of housing will be inflationary for a long period of time and it does make the Bank of Canada's job just a little bit more difficult because what they now need to do is lower inflation in all of the non-shelter things to below 2% to make up the fact that shelter inflation will probably remain above 2% for quite some time.
>> Fascinating stuff and a great start to the program. We are going to get to your question about interest rates in the economy for Andrew Kelvin in just a moment's 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.
Alright, let's get back to those earning stories. We are going to start with Tesla, definitely in the spotlight today. The EV maker missing earnings expectations as automotive revenue pulled back 7% year-over-year.
We have seen slowing sales across the EV industry and then, of course, Tesla has been cutting prices through all that to try to stoke some demand. That's the backdrop. The stock is down about 10.5%.
Apparently on the earnings call, Elon Musk made his Robo taxi plans a large focus of the conversation. Let's talk about Alphabet. There revenue and profit lines came in stronger than expected for the second quarter.
Right now, the stock is down about 5%.
What's going on? Investors appear to have some concerns about the company's YouTube business. Advertising revenue there for YouTube was a miss for the quarter but that was offset by Alphabet's cloud services revenue. But it seems right now people are taking this as a negative.
Let's talk about Visa. A disappointing quarter from Visa is raising questions about the health of the consumer. Global payment giants third-quarter revenue came in short of the street expectations.
We all know what the high cost of living and elevated borrowing costs have been squeezing household budgets in consumer spending seems to be feeding through names like these as well. At $253 and change per share, your down a little bit more than 4% on that report. We check in on the markets. We have a tech sectors all off on our hands.
On Bay Street, the TSX Composite Index, we are not as heavily weighted in that direction. We are down 25 points or .11%.
The S&P 500 right now is down to the tune of almost 1.8%. The NASDAQ down about 2 1/2 and then some.
We are back with Andrew Kelvin, take your questions about interest rates and the economy. First one here. On the central-bank theme, as we talked about the BSE, let's get the Fed to into the conversation. How much divergence might we see between the Fed and the BOC?
>> This came up again in the conference.
Gov. Macklem said that while there are limits to divergence from the federal reserve, which he has said before, that we are not close to them. He also suggested that given the path of the US economy recently, things are slowing, he does not think the divergence question is going to become any more pressing than it is today.
I do you happen to agree with him. TD Securities does look for two Fed cuts this year.
And two more Bank of Canada cuts this year. We can argue about the timing of these things in the sequencing of these things. We are looking for a Fed cut in September, to be clear. But at the end of the day, it's 50 more basis points for the BOC and 50 more for the Fed so we don't expect any more divergence then what we see today and I would echo the governor's comment. We are not close to the theoretical limit of divergence. The Canadian US economies have both shifted structurally since the financial crisis.
If you go back to 2007, it was a long time ago now, I suppose, Canada and the US in the housing sector had broadly similar levels of leverage.
There was a decade-long plus period of deleveraging for the housing sector, it's something that was very painful and we don't want to experience that here.
That rate fell by about 1/3 in the US. In Canada our banking sector remained open for business throughout the financial crisis. The real estate market ended up being viewed by a lot of people as a refuge from the market. House prices continued moving higher and the lesson Canadians learned is that housing is great, we should buy more, ideally on leverage, and that was reflected in the change in our household debt structure where we increase the amount of leverage in the household sector by about one third.
Fast forward to today, the Canadian household is almost twice as leveraged as the US household on top of the fact that we have much quicker pass rate of interest rates into households. We do not have 30 year mortgages like in the US. That means that our household sector is much more sensitive to interest rates in the US sector and if there was a shift in the way the two economies have interest-rate sensitivities, the way they experience monetary policy, it should follow that they can have more divergent economic outcomes and therefore more divergent policy outcomes.
And I think the best example of this is the fact that over the last 6/4, the US economy has been far, far stronger than the Canadian economy despite the fact that our population growth has been exceedingly strong so you put all that together, the point I would make here, it's a long one, the point that there will be no more divergence in our base case forecast, whatever the BOC does is unlikely to be dictated by the Federal Reserve. It's unlikely to be dictated by considerations for US monetary policy. It really is going to be a question of how healthy is the Canadian consumer and what are the implications of that for domestic inflation?
It is going to be perhaps in the future a little bit less synchronized with the United States.
>> Interesting points to my question.
Another one now from the audience. That was about divergent. Some him to get this as a follow-on in that conversation.
Where's the loonie headed?
I know if you are out this morning, looking at the relationship with the US dollar, there are a lot of factors at play.
>> There are always other factors at play.
I am always at heart going to be an interest rate differential purist.
In a world where the Canadian economy is slowing relative to the US economy, in a world where we are getting BOC cuts coming in, it's weakening the Canadian dollar. We have seen the Canadian dollar weakened in recent sessions and we think it will continue to weaken particularly as we get to the latter part of the year and we think that we sort of enter a strong dollar or we extended the current strong dollar regime just given the sort of, the US almost exceptionalism in terms of its economic activity.
In that sort of a world, we think the Canadian dollar continues to soften versus the US dollar.
We keep talking and dollars CAD terms, 141, 142, which is about a 70, $0.71 Canadian dollar in CAD to the US dollar terms. It's on a huge depreciation but the general trend here that we have seen in recent sessions, like, we do look forward to it continuing with the moderate weakening in the Canadian dollar in the strong US dollar regime.
>> The Bank of Canada does not target the currency. They have a mandate, it's inflation. At what point though if it weakened to a certain degree, with that start to flow through to some of the things that the Bank of Canada does care about?
>> It is always state-dependent.
They have an inflation target. The source and threaten their inflation target, they have a problem.
That is when you hit that limit of divergence. For a given level of Canadian economic activity, there is almost always going to be-- or put differently, given the level of the Canadian dollar, there is always a level of Canadian economic activity that can justify it.
If we were to be in an extremely deep recession, the Bank of Canada would have a lot more tolerance for a week Canadian dollar than in the sort of soft landing scenario that we envisage and to be clear, we do envisage a soft landing, it's also about the speed of adjustment. A gradual depreciation, and I'm just going to put some numbers out there, these are not our forecast, but a gradual move to 68 or $0.67 over a year or 18 months is not going to wear the Bank of Canada the way a quick move into that sort of arrange wood.
So the speed of the adjustment matters. I think one of the reasons the speed of adjustment matters is, first, inflation is about rates of change. Their target is a 2% year-over-year increase in price levels. So if you spread your depreciation over a long period of time, so will be the path of inflation. The other piece of it, I think this might be as important as the pass-through into Canadian prices, it's about expectations. You and I see the Canadian dollar moving lower.
It fell by .1%. Okay, well, moving on.
>> The average Canadian does not get too excited.
>> It we see the Canadian dollar dropping by ascent today, we start to get excited.
That's not exactly the one I want to use, excited, because it's a positive connotation and not too many of us… >> We look at it was a little more scrutiny.
>> We notice and what you risk is inflation expectations becoming unanchored at that point and that can pass-through into broader prices. There is worry there.
All of which is to say I think we would need to see a really sharp move like a quick move below the $0.70 level for the BOC to really take notice of it in a way where it might actually start to feedback into Canadian monetary policy.
>> Alright, let's take another question now from the audience about retail sales.
We know that there weakening. Our viewers noticed the same thing. Lots of concern about debt, how better things to the consumer?
>> They are not great for the consumer.
I do think there is one silver lining that's a little bit underreported which is the amount of savings that Canadian households have is actually substantially higher as a share of GDP or as a savings rate than what we saw prior to the pandemic.
>> We knew we had put the money aside but then we were thinking that when everything opened up, it would just… >> And we did burn through some of that money but wage growth has actually been quite strong in Canada over the past few years so we are looking at wage growth right now at seven, 7 1/2% year-over-year.
It's quite strong.
Debt service ratios have actually been stable in Canada for the past year or so and part of that is interest payments that share income are going up but game organizations are getting extended as well so actually the debt service payments as a share of income have been pretty stable.
We have mortgage renewals coming.
Five years is the most common length.
That's going to continue putting pressure on Canadian households. But the fact that there is a buffer of savings sitting in aggregate in the system that can help some households whether that coming storm does suggest that maybe the most negative interpretations of the future of the Canadian household are overblown.
We are looking at sort of flat per capita household consumption, maybe slightly negative per capita household consumption in the coming year. It's not a good story and these are in real terms, I should add, but it's not a hugely negative one and that's why say it's consistent with a soft landing, to our thought process, rather than a hard landing.
>> Okay.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Andrew Kelvin on interest rates and the economy in just a moment's 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.
If you are looking to find the projected income of assets like GICs, WebBroker has tools which can help. Bryan Rogers, Senior client education instructor with TD Direct Investing has more.
>> This is an important topic lately because a lot of people using GICs or bonds or even looking at dividend paying stocks, especially with interest rates being higher, GICs might be more prevalent. But if you're somebody that's been trading stocks with the intent of collecting income through dividend, there is a tool and web broker that many may not have seen before.
Unless you have stumbled upon it, you may have come across it but if you haven't, it's a really useful tool for tracking things like your dividends and income. So we will jump into web broker and the place you will find this is you go under the accounts tab and you're good to see on the very left-hand side balances, holdings, etc. All of his account details. Then you're going to look or the projected income. That nothing really in this to show you.
If I was in my personal account you could see all of my stocks that pay dividends and things like that that would be listed there. Any GICs. And it's gonna show you down below the income that you are receiving from each.
You can do this as well. If you go into this projected income, you're gonna see your own stuff already if you have a but if you're not sure what it would look like, you can click on this? And it will pull up everything about the stool. On the right-hand side, it shows the overall what it looks like.
You can see these green lines which show you for everything in your account if you have some thanks stocks and maybe you have like a pipeline stock that pays a high dividend, a GIC as well, I'm gonna show you the breakdown of every single month of how much income you are going to receive from all those different investments on a trailing 12 month period.
Sorry, a forward-looking 12 month period.
You go down, get an idea of what it looks like. This would be the bar graph that shows you're gonna get an average of around $207 in income for all of your positions. It's gonna show you you can set a target, a monthly target which is the shop here to say this is what I want to get to. I want to get to $1000 a month in terms of income for all of my investments and then you can strategize around that and say I've got a by these GICs, I'm gonna look at these particular stocks and see how it works out in terms year totals.
As you scroll down, you can look at it by individual account or all your comes together in a single further, this is what it looks like at the bottom typically.
These are a couple of examples stocks.
It will show you the quantity that you hold, a total and also just an individual amount that it's going to be paid in terms of separate time frames. It could be quarterly for a lot of stocks, could be monthly for some of them. Also with GICs it could be more on an annual basis. That it's gonna show you the monthly average of what you will get an income. Look at that and check out with the projected income tool is and that's how you'd find that in my broker if you're looking for information just to show you that on an ongoing basis.
>> Our thanks to Bryan Rogers, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or uses QR code. It will navigate to TD Direct Investing's YouTube page and there you can find more informative videos.
Now before you get back to your questions about interest rates and the economy for Andrew Kelvin, a reminder of how you can get in touch with us.
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.
We are back with Andrew Kelvin, taking your questions about the economy and interest rates. This one about what is to come. The US election, how can it impact Canada's economy?
>> Oh, so many ways!
[laughing] This is a really… Not to say something too obvious, but this is a really interesting election, not just because of those sort of really heated rhetoric you see in the media but also because it's, until very recently, it was two candidates we had already seen as president running against each other.
I think the change in the presumptive Democratic nominee does add an extra layer of uncertainty to what the economic and locations for Canada are but there is I think a general sense that if Kamala Harris were to win the election, it would sort of imply a continuation of the policies that are currently in place and therefore implications for Canada that things do not really change, we keep going as we have been going. There's a bit more uncertainty if we have as a change in administration which is one of the most obvious things a person can say. I think a lot of the focus is around trade policy.
Tariffs have been really central to the presumptive Republican platform. It's not obvious to us how that would factor in for Canada. The fact that USMCA was ultimately an agreement that was signed under a Trump presidency… >> He would be happy with his own deal.
>> To a certain degree.
It won't be totally unaltered.
Whoever wins this election, there will be changes coming to the USMCA, specifically tightening up the sort of re-export rules because the thing that the US very much does not want to have is Canada or Mexico become sort of a finally assembly stage IV non-USMCA participants to be selling goods. I think the question I have around trade is for Canada to maintain its market access unfettered and given how integrated the auto sector is and given that the path to the White House runs through some traditional automotive manufacturing states, I do not foresee a US policy that would significantly damage the northern auto manufacturers in the US and so I'm not overly worried there. I think the question is, will Canada have to impose tariffs or nontariff barriers to non-USMCA participants in order to stay in USMCA?
We'll recently that the US come to Canada and says, if you want to stay in USMCA, you are going to put tariffs up to all these countries. That's an open question.
It's something we have seen reported in the press and it's really hard to speculate where that's going to fall because everything is hypothetical here and frankly even when you know who the president is going to be, it still can be highly uncertain. The other bit of it that's sort of interesting, whoever wins the election, I think markets have had a hard time looking beyond it. Markets have had a really hard time with this idea that we are going to price in the world beyond because we have no idea what that roles could look like the one thing that's probably going to be the case under both parties is we are going to get a lot of debt issuance next year. Both parties are looking at running large deficits. Maybe a Republican administration focuses more on tax cuts and a democratic one focuses more on spending but the deficits are to remain significant. That does not change no matter who wins the election and I think that something more gets to not appreciate right now.
>> Moving onto the next one, whether it's, Harry's or her former Pres. Trump, of your says both Dems and Republicans look like they are going to be big spenders. Should we be concerned about debt levels and issuance?
>> The way I think about this is back through Canada.
What this implies, and if it's with the neutral rate conversation, neutral weights, overnight rates at central banks are not going to be as low in the next 20 years as they were in the last 20 years, most likely, on average. There might be periods where we get a rate in Canada that's one or 2% but on average the rate will probably be higher. That is probably also who many think about term borrowing rates. The US has the tremendous advantage of being the world reserve currency. If Canada were to try to run fiscal policy like the US would, it would not work, we would not get close to these levels because it would have significant implications for Canadian bond yields and governments would have to reverse course.
The US, as the world's reserve currency, has a little bit of a greater ability to issue debt into the world and have people agree to buy it.
But, as you issue more and more debt, the price at which people will accept that debt starts to fall. It's like, okay, instead of letting it two or 3%, and I was 3 1/2, 3.7, four.
Ultimately, we think term borrowing in the US will be higher over the next 10 years or so than they were over the previous 10.
It doesn't need to be dramatic. We can be talking about US 10 year yields at 3.7, 3.75, thereabouts, as an average range for the next little while.
But ultimately it's going to be higher term rates as well and that will pass through to Canada because our bond markets are very highly correlated.
>> Interesting stuff. Let's talk about this one closer to home. I think looking up to the housing market as we see this declining rate? We have had to cut snow.
>> This thing with the cut today is that it was so widely expected that you didn't get a dramatic reaction in markets. Yields did fall a bit, there was a reaction in the market but it was not huge. We are talking five or six basis points for 5 year bonds.
As the rate cuts pass through, it's helpful for variable-rate borrowers, short-term borrowing costs, people are going to get to your mortgages and through your mortgages, those rates will continue to fall as we continue to work through the cycle but we are not going to get tremendous relief in terms of four or five year borrowing rates just because it's already sort of anticipated so it's still helpful for the housing market but we are still going to be in an environment where financing costs are going to be substantially higher than they were at any point between 2007 and 2022.
I think the bigger thing that's coming up in the housing market is this pent-up demand for housing. Even with student visa caps in place, population continues to expand faster than the supply of housing but ultimately that is going to translate into increased housing activity. We did see some of softness and prices at the end of 2023. It's been pretty, call it flat to soft dish on a national basis through 2024. We can probably see a little bit of a pickup in activity in the fall. That perhaps brings a little bit of pickup and prices but at the end of the day, households remained very stretched his so as much as we can see prices and activity increase, it's unlikely to be one of these bonanzas in the housing market that we have seen over the past cycle.
>> Fascinating stuff. We will get back your questions for Andrew Kelvin on interest rates in the economy in just a moment.
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The United States, like other major economies, has seen a large increase in its debt and deficits in recent years. I know you in the audience by sending in questions about it have noticed it as well. Unlike the rest of the world, the US is not expected to see debt service costs rise considerably over the next several years. Our Anthony will lead taking a look at a new TD Economics report on this.
>> The US is also running large deficits and it's expected to remain over the next several years. The US is not alone and carrying a high debt burden, as this first chart shows. The US debt to GDP ratio compares the US to its peers. It clearly can see that while Italy has visibly higher ratios, the US is not much higher versus Canada, France and the UK and the debt to GDP ratio is expected to arise for US, UK and France while it comes down to the other countries. On the deficit front, again, very similar story.
The US 2024 deficit is not too far off from France, Italy and the UK, as the next chart will show.
It also shows that Canada is actually doing quite, even better than the other countries with a much smaller deficit as the chart shows. We also have continued, expect to see continued modest improvement over the next several years.
Now, TD Economics obviously will combine the report with debt and deficit to assess whether country's fiscal policy is sustainable.
The next chart, as you can see here, TD Economics combines these metrics over time to compare the economies. Generally speaking, when you are, if you are closer to the bottom right quadrant of this chart ranking the greater need to reduce both your deficit and debt levels, it is clear that the US is in a difficult position, as you can see here.
They have both higher debt and higher deficits. The US does have the benefit of maintaining lower borrowing costs versus other countries but the longer it stays in this position, the more untenable it becomes. In addition to that, deficits also affect economic growth, bearing any changes in circumstances, reducing the deficit will also typically reduce growth.
TD Economics concludes that while the US, Italy, UK and France all have to devote a bigger portion of their annual output to service debt, the US has an advantage.
They can borrow it more favourable rates despite their high debt and deficits versus the rest of the world. And so when you compare the US to the rest of the world, the US is exceptional in that it is the only high debt country not to make the adjustment to their deficit reduction in coming years, even though again it is projected to be the same in 2020 for the following five years. They can borrow at favourable rates but this may not last forever, according to TD Economics.
>> Interesting stuff. Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the heat map. Give a tech selloff on her hand. Shopify is down 4% but as we know, the TSX Composite Index is not weighted heavily intact. We have CN Rail down on an earnings warning due to possible strike action, a little bit of movement in energy and material space to the upside. It's flat in Toronto. South of the border, it's a different story. We had test learnings, Alphabet earnings, these are two of the Magnificent Seven. Not so magnificent today. The market is not pleased with what they are getting. You have Tesla down to the tune of about 10%.
You got Google there, that would be Alphabet, down about five. Nvidia, the chipmakers, this is not the day for Texans of the border.
We are back now with Andrew Kelvin from TD Securities.
Here's another audience question. What is your view of Maple bonds? I'm not sure what a maple bond is.
>> The maple bond market is basically non-Canadian issuers borrowing in Canada.
It's hard to say that it's one thing. The thing with bond markets is there isn't one bond, it's a bunch of different bonds and issuers that have different characteristics. The reason why you might have foreign borrowers issuing in Canada are several, maybe they have Canadian dollar needs or maybe they are trying to diversify their funding sources, perhaps because it is advantageous to borrowing Canada from a price perspective for them or perhaps they just want to have more markets open. We saw the opposite dynamic of the Canadian provinces when they for many years have been borrowing outside the Canadian dollar to try to diversify their funding sources, even when it was maybe a little bit more costly, but then this year when the call shot up they borrowed huge amounts of money without having to damage domestic spreads which showed that strategy of diversify your borrowing, funding sources was, long run, very favourable. The thing with the corporate bonds, sorry, the Maple bonds, I would say for a domestic investor, without actually getting into valuations in specific names, what it does is it expands the universe of Canadian dollar debt that is available to a domestic investor, whether it's corporate, which don't have the same profiles in Canada, as well as some sort of high-quality international clause I government borrowers, SSA's and source super nationals who are AAA rated government-backed entities which will often borrow, not too often, but from time to time, to the Canadian dollar market just to keep a diverse source of funding available.
Really, it just expands the universe of potential investments for a domestic bond investor.
>> Great inflation there. Before we let you go, quick recap. We got a rate cut today for the BOC, the second in a row in the cutting cycle.
What we think will happen next?
>> So right now, I'm still going to say a hold in September. I think the Bank of Canada has been a little bit to blasé and how they've communicated their comfort with the three month annualized or inflation at 2.9% but what it does do is make that next CEPI print… The September meeting is always difficult because there's not a lot of… >> There is a low.
>> It's an early September meeting, there's a short period of time between July and September. We tend not to hear a lot from the Bank of Canada in August.
Participants are on vacation, investors are on vacation.
Potentially there people at the BOC on vacation.
>> I think to signed off by saying have a great summer.
>> He did say that.
Maybe he is not going to be giving us a speech in two weeks.
That always make September an interesting one because we are walking in on an information desert. I'm not super concerned about growth data improving and derailing potential cut in September because we are in excess supply, we do not need more excess supply and even with less excess supply the bank and still cut.
We should still get a CEPI print on August 20. That to me is the pivotal data point potentially. If we see substantial deceleration in core CPI inflation, then a September rate cut becomes I think much more likely.
If it shows that CPI is re-accelerating, I think it much more difficult for the Bank of Canada to ease in September. It's going to be an interesting one no matter what.
Probably more interesting than today.
>> My calendar has the 20th of this as well. Hopefully we will chat with you around then. We'll see.
>> I hope so.
>> You are always invited to come back.
Thanks a lot.
>> Thank you.
>> Andrew Kelvin is head of Canadian and global rate strategy with TD Securities.
As always, make sure you do your own research before making any investment decisions.
if you have time to get your question today, we are going to aim to get it into future shows. Stay tuned for tomorrow show. We are going to have Haining Zha, VP and Dir. for asset allocation research at TD Asset Management on the program.
He wants to take your questions about China's economy in the markets. And a reminder you can get a head start with those 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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