Andrew Kelvin

[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 discuss how many more rate cuts we may get and how big they may be. The Bank of Canada warns of opposing forces on inflation. Fascinating right decision today, lots to dig into with TD Securities Andrew Kelvin. MoneyTalk's Anthony Okolie is going to have a look at a new report on real estate investment trusts. An adjacent broker education segment, Bryan Rogers will show us how you can find out whether trade you made has been completed. 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. Yesterday was not a pretty day for the markets. A little more stability today. We have TSX Composite Index up a modest 43 points, about 1/5 of a percent. Noticing as the Bank of Canada delivered a rate cut this morning, more on the horizon, yields are coming down. Some traditional yield plays on Bay Street are getting a bit. Not huge but it's been creeping higher in recent sessions. BCE is up another one percent or so. Noticing some weakness in the mining names. The price of gold is fairly stable today but a little bit of giveback in the space. Barrick Gold, nothing too dramatic, and $26.27, down a little more than 1%. South of the border, after yesterday's tech driven selloff that was pretty broad-based across many names, you're down just five takes on the S&P 500. The tech heavy NASDAQ, want to see what's happening there but it's pretty much flat so far on the session today, lease last time I checked. Little more to the downside, just shy of a fit of a percent. Nvidia yesterday was down 9.5%, wiped a lot off its market And the markets felt the pain along with some of the other chip stocks today, it is just sort of sitting there. $107 and change, it is down 1/5 of a percent. Dollar Tree, a little more dramatic movement, cutting its full-year forecast, pointing to pressure on middle and higher and consumers. Dollar Tree down almost 20% in today's session. And that's your market update. The Bank of Canada has cut rates by another 25 basis points, but as it monitors what it calls opposing forces on inflation and signs of a slowing economy, how many more cuts may be ahead and how big could they get? Joining us now to discuss is Andrew Kelvin, head of Canadian and global rate strategy with TD Securities. Great to have you here. >> Pleasure to be here. >> Let's get your reaction. There was a lot in there, the press conference, the statement, the decision. >> It's an interesting decision because it was all about subtext, all about the nuance. Markets had fully priced in a 25 basis point cut. It was near unanimous. The decision itself seemed a bit of a foregone conclusion by the market. I think what was interesting was when we are in transition periods, you kind of get mixed economic data. Something's will point to signs of strength and others to signs of weakness. It's a bit of a choose your own adventure. The bank really chose a very dovish, negative path and what they chose to emphasize. There was a lot of focus on the need for the economy to perform a little bit better it's they are going to be able to achieve their 2% inflation target. They are talking about the progress towards 2% as though it was not a done deal but there's clearly increasing confidence that we are going to get to two and if there was a big take away for me, it was the reiteration that they are symmetrical and how they are thinking about the target. Inflation above 2% is equally problematic as inflation below 2%. It's that focus that has been growing on the downside risk which to my mind was the news, to my mind that's really what gave us a dovish tint to this meeting and that's where the news was. >> I always print off the statement ahead and the same things were jumping out to me. Tiff Macklem saying we need to increasingly guard against the risk that the economy is to weekend inflation falls too much. After going through that period of high borrowing costs, inflation was so stubborn, these lines really jumped out to me eight. In terms of we care about inflation being below the targets, above the economy functions well. Are they turning to worry now that they are behind the curve? >> They would never tell you that they are behind the curve. But clearly that is starting to seep into the thought process. To contrast that to how they sounded in April or June when you're about to start cutting rates were very early in the easing cycle. There is agreement that there would be lower rates but only if inflation allows us to. It was always very carefully hinged to rate cuts will depend on inflation going lower and don't worry, if inflation doesn't move lower, we will stop cutting rates. We are committed to getting down to 2%. On the consensus is on making sure the economy does not suffer needlessly. It's been this cretin from being really focused on making sure they don't cut too quickly to know it seems like making sure they don't cut too slowly. >> They talked twice in the opening statement about opposing forces. This felt new to me as well. How they are defining it. You and I have talked about the fact that if you stripped out shelter costs, inflation was already where it needed to be. They are calling that an opposing force now. Were they trying to get I? >> Goes back to this notion of what are they trying to emphasize? Because if the Bank of Canada had been inclined to push back against future rate cut expectations, and I am careful to say that when I mean cut and not hike. That can be difficult when changing between cycles. Three month annualized core inflation is running at about 2 1/2% so the inflation momentum is not yet pointing to a return to two and in the statement, they talked about shelter price being a large contributor to inflation but it is showing signs of easing and then they said some other services are also showing inflation which struck me as I won't use the word flippant but it was very comfortable dismissing the fact that there was the sort of core services inflation… They are comfortable with the idea that there is enough slack in the economy that inflation should move lower and I think that really explains their comfort in talking about the move to 2%. They see the economy has softened enough, the unemployment rate at 6.4, 6.5%, in their view, the economy has weakened sufficiently that they don't need to worry about cutting too quickly. For them, it seems like the risks are more balanced and I think in their heart of hearts, given the direction of where we are going, it sure sounds like they are worried about cutting too slowly. >> They are worried about cutting too slowly, they laid out this very dovish tilt in the opening statements from Gov. Macklem. The first question out of the gate was why not 50 basis points? Given what you've given us today. >> There is also the second question. Although he must've known this is going to be the first question he was going to get, there was an awfully long pause. He collected his thoughts. That's the responsible thing to do. So there is a strong consensus for 25 basis point move and then the governor and council discussed a variety of scenarios which is the responsible thing for them to be doing. For them not to be considering the circumstances in which they would cut by 50 basis points, then they are not doing their jobs. The way it was sort of framed was there was a strong consensus for 25 basis point cut today. In the future, if the economy deteriorates further, perhaps they will need to increase the pace of rate cuts. Conversely, if inflation proves to hear or some segments of the services sector showing sticky inflation, if that remain sticky, perhaps you will have to slow or take pauses at some point in the future. What I think about a 50 basis point cut, I think about an economy that is materially weaker than what we have seen so far in Canada. That's not to say that the economy could not deteriorate from here, it's often say that there are not versions of this world where they will need to start cutting by 50, we are talking about Q4 growth in Canada around 1.5%. That's not great when we are growing population around 3 1/2% per year. Clearly, there some pockets of the labour market around new entrants to the labour force, young people, that sort of thing. The aggregate growth numbers, keep in mind, inflation is above 2%. For them to come by 50 basis points, because the expectation of the market won't be that they will go 50 and go back to 25, the market will start pricing and a lower terminal rate, additional 50 basis point cut, the market will run with that if they were to cut by 50. That would be a lot of easing going into the economy which would strike me as a real gamble when you haven't seen really significant weakness in grow so far and when inflation is still running above two. I do believe that they should probably be eminently achieving their inflation target before they even consider cutting by 50 basis points as long as there is absent detail scenario as we saw in 2020. As you mentioned the terminal rate, the endpoint of all this. How do you see the rest of this year playing out, where we end of next year? >> We think they will cut again in October and December. They just sounded sufficiently dovish to me when you heard them in the press conference and they read their statement, they seem that they are really looking for reasons to continue easing. I think they have in mind a series of 25 basis point cuts. I think in October and December we see 25 basis point rate cuts. It would probably take a lot to get the BSU deposit October. It would be a monumental 180 in this sort of view of the economy. I think an October pauses very difficult to see. There is always go for them to have the weight of data cause them to change their biases or liens or intuition again. So you never want to say any of these things are done deals but given their recent sort of revealed dovish and is, given that we do expect mediocre growth and improvement on the inflation front through the rest of 2024, I think October and December makes sense for rate cuts. -2025, we think that perhaps the pace of easing flows. We don't expect them to hit the percent until sometime in the second half of 2025. Q4 2025. We do think we will see a pause at some point next year given that inflation is nearing above two but that again will be heavily dependent on the data and the point I would make is we are using a 3% assumption for the terminal rate. We think that's where neutral rates are in Canada at TD Securities. If we get to 2% inflation and we don't see a re-acceleration of growth at any point next year, that would argue for a move below neutral, that would argue for a change in monetary policy in 2025. That's probably something they have in the back of their minds as they go to these discussions. If we are going to need to be changing policy next year, maybe that's a good reason for more consecutive 25 basis point cuts this year. >> Interesting stuff and restart the program. If you have questions on the BOC, where interest rates are headed or how the economy is doing, send them in and Andrew will take them. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker. Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading. Shares of Nvidia in the spotlight today, following that selloff yesterday that wipe some $280 billion off the company's market value. While that nearly 10% pullback yesterday came amid a broader slump in the markets on economic worries, Nvidia's modest earnings beat last week failed to overly impressed the market. And today, investors are weighing an unconfirmed media report that Nvidia received a subpoena from the US Department of Justice as part of an antitrust probe. You put it all together of the stock is pretty much the slot today, down a modest $0.17. Another major US retailers getting cautious on the US consumer. This time it is Dick's Sporting Goods. Handily be expectations for the most recent quarter, it did raise its full-year guidance but not as much as the street was expecting. Other major retailers south of the border are sounding the same notes of caution over the economy and the consumer's health. U.S. Steel says thousands of American jobs are at risk if its proposed merger with Japan's Nippon Steel is scuttled. This morning comes amid political opposition to that deal, including from VP Kamala Harris and her presidential opponent, Donald Trump. Over the long weekend, Harry said she wants U.S. Steel to stay, quote, American owned and operated. Trump has also pledged to block the deal. Quick check in on the market. Will start from Bay Street. After yesterday's selling pressure on both sides of the border, a little more constructive today. Nothing too impressive. 25 points to the upside, about 1/10 of a percent. Substance of the border, the broader region of the market, the S&P 500, modestly to the downside, nine points or 1/5 of a percent. We are back with Andrew Kelvin, taking your questions about interest rates in the economy. First one here. All summer we spoke of divergence. Our divergence concerns waning since the Fed looks likely to cut? >> A lot of the divergence concerns that had emerged in the latter part of last year in the early part of this year, it reflected the fact that the US and Canadian economy seemed to be operating at different speeds. The Canadian economy was looking at 1% growth last year while the US economy was stronger. In recent months, we have seen cracks emerge in the US economy. We have started to see concerns emerge around the US consumer, general sense of slowing economic activity, weaker labour market performance in the US and in the US, there was explicitly a dual mandate. The Federal Reserve is supposed to control inflation and promote maximum employment so the labour market weakness, it does factor into the Bank of Canada's consideration, it is a more important thing for the Fed than it is the Bank of Canada, it is there in their mandate. The Federal Reserve is now expected to cut rates. People are looking for a rate cut this month, a 25 basis point move this month, and the Fed is excited to cut rates rapidly. That reflects the fact that there is I think a perception that the Fed as a central bank hiked a lot more than the BOC coming out of the pandemic and is now waiting to cut rates, may be more behind the curve than some of its pure central banks. We are not talking about divergence, we are talking about convergence, we are talking about the Federal Reserve catching up to where the BOC is, so rather than them operating on two speeds, it back to the North American economy operating closer to one speed, at a slower speed. >> We have a 75 basis point head start. There has been, it bounces back again through the summer, you get a weak piece of economic data, the markets get a little excited, the pundits say we 50 basis points from the Fed, what are they waiting for? What are the chances, what would motivate the Fed to go 50 basis points? >> I think you have to see a much sharper deterioration in economic activity. The employment rate in the US is rising but it's still in the mid-to low for us. We are not in an environment that necessarily requires 50 basis point moves. I think you would need to see something starkly weaker on the US economy to justify a 50 basis point move. There is an element of this where it's been a long time since we've seen interest rates at these levels. I think there is an element where people believe that because these rates are so much higher than what prevailed between 2007 and 2020 that we need to get back to those 2007 to 2020 levels and quickly. >> Is that wishful thinking for days that are passed and not likely to return? >> For some people, wishful thinking, for other people, it may not be something that they are looking forward to but there is that perception and the thing I would just emphasizes it does look likely that 2007 to 2020 period was itself an anomaly. While it is possible that we get back to that range, it's unlikely that we will be wholly within that 022%, 0 to 1/2% range and the overnight rate that persisted for 13 years. There are structural factors in the global economy that reduced very low inflation and very low interest rates in that decade. Those factors are not present today so I think going forward, perhaps markets and households and businesses and governments need to keep in mind that interest rates probably are not going back to what they were in 2019 or 2018. >> Fascinating stuff. Let's stay on the whole interest-rate thing. This is an interesting angle. With rate cuts in Canada looking about certain going forward, why is the Canadian dollar been driven up in the last couple of days? Canadian dollar strength, what's going on? >> It goes back to that convergence notion. Canadian dollars pair with Fed cuts now approaching, it September now, the Federal Reserve is expected to cut rates this month, they are expected to cut rates twice more next quarter. That something that is not a support for the US dollar versus the Canadian dollars we had seen before and these Canadian rate cuts had been sort of widely expected, well telegraphed. We have gone from a world where the Bank of Canada was cutting and the Federal Reserve was not and we are moving to one we believe were both central banks are cutting. That's something that supports Canadian dollar strength. >> Where do you think the Canadian dollar settles? >> The Canadian dollar has been a stable currency. We don't necessarily see a change in that. We probably keep bouncing in a range from between 71 1/2 to $0.74. I think that's the world we are talking about for the Canadian dollar. Maybe we get back to the 71 1/2, 72 area for the end of this year but over a 6/4 horizon, that's the sort of world we are talking about. >> Another question here, sticking on borrowing costs of this country. So want to hear look for Canadian bond yields. >> Sure. The Canadian bond story is a really interesting story for us. I think it's interesting but I'm also a rate strategist. If I look at where Canadian five year bond yields are today, they are modestly below 3%, 10, 15 basis points above 3%. That's probably from a very long-term horizon, it's a rich level, a bit of a low yield. If I just look at what I think the fair value of a government of Canada bond yield is, 3%, I'm probably saying, the yields are actually little bit low here. The thing of it is bond yields in Canada, the most important driver for day-to-day, week to week, month-to-month fluctuations, is what happens in the US. The US have yet to start their easing cycle. If we are going to use a sporting analogy, the Bank of Canada's in the fourth inning here and the Federal Reserve is taking the ceremonial pitch. It's the national anthem. I was at the Blue Jays game last night. So there is still room for US rates to move lower. That's what I'm getting to hear. What we have seen in this process is the BOC has moved through its easing cycle. As much as markets are forward-looking, they are not perfectly forward-looking. Every piece of data we get, markets revise lower it their long-term estimate for where the BOC will get you. The Fed still has to go through that process. There still room for US yields to move potentially substantially lower. 10 year yields could fall by 40 or 50 basis points by the end of the year. It's a fairly short period of time for both of that magnitude. This is a world where you have the US as the most important driver for Canadian yields. You probably are in a world where we can see Canadian rates continue to move lower as well. It won't be to nearly the same extent as the US given that Canadian yields already look a little bit on the low side but also to longer-term fair values but as long as you're talking about being in the early to middle stages of a global easing cycle, that probably supports lower yields in Canada going forward. >> Interesting stuff and has a lot of ramifications for borrowers and investors. As always, make sure you do your own research before making any investment decisions. we are going to get your questions for Andrew Kelvin and 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. In today's education segment, we are going to discuss what happens after you actually place a trade in my broker. Joining us now with more is Bryan Rogers, Senior client education instructor with TD Direct Investing. Always great to see you. Let's talk about where an investor goes on the platform after they place a trade to know what's going on. >> Yeah, I thought this would be a great one to review because I know we had a viewer question a little while ago about when you are entering stocks onto your watchlist, where does it go? It was one of those things where it's not completely obvious sometimes and it was around this trade notification and looking at your order status. So understanding once you place a trade, where does it go and were defined on my broker? I know we have talked a lot about market orders, limit orders, stop orders, how to enter those, but we will look at what happens after you enter that trade what are some of the options available as well. So we jump into web broker, it is known as order status. You are looking at what is the status of the order after you placed it. As an example, we have Nvidia appear. If we were looking to do any buy or sell, once you do that transaction, we are going to go to the trading tab. Then order status. It's right here. There is nothing in there, no open orders in my account at the moment and this is a test account so I can't enter any. We usually have to use our imagination a little bit. But you will see a listing of all the orders, all orders across your counsel or you can see your open orders, fill orders or cancel so you can go to any of these on an active basis, you can also go to historical and if you're looking for a little bit more information on that, remember, everything on web broker, you can go to this? On the right-hand side and if I click that, it's me to an area of what are the options that are going to be there? It tells you action, symbol, price, etc. In the field status, the most important one, it will show the order date, what is the status, the current status of the order. Is it open, is it open pending to be triggered with the market, is it open and already triggered, is it filled? There's a lot of stuff to see there. So if you're looking for a glossary of terms, what does it mean if you see one of these things, under review, what does that mean? It's being reviewed by representative to see if it's gonna be acceptable within your account within certain parameters and things like that. It's pretty rare, it could happen, has been cancelled, is it historical, has been rejected? All these things are available. Just click that? If you want to know what some of the things that are there, what they are saying, but really what is gonna look like is you're just gonna see a list of orders by symbol and there's going to be a pencil icon to modify your order, change or cancel your order, right from the order status. >> Sometimes people on the platform will probably know that orders can go several hours or days before they get filled. Anyway you can be notified of a fill? >> That's a great thing to be aware of as well. I believe it automatically goes on there. If someone is using their web broker account, the open the account recently, there's a thing called trade notification. You are going to get notified when a trade is filled if you are in web broker at the time and but just what we will do is you will show everybody how you can set that up and check to see what your settings are. So if you are interested, if you place a limit order and the stock had a drop down in price, if you're doing a buy, you might want to know, has that order filled? How do I know if it is filled, partially filled, something like that? So to check that you're going to go to the very top bar of settings and services right here, the top right hand side. If you go to customer site, the second tab in right there is when we are looking for, trade notifications. You can see where your settings are. You can show trade notifications or don't show them, if you want to see them you want to make sure it's checked off. You can see whenever and orders filled, whenever an order is partially filled, whenever an order is rejected. These are parameters you can set up yourself. Then you can talk about where it's gonna show up. The bottom right, the bottom left? And how long. Sometimes you'll notice if you did it for her 10 or 15 seconds, that's a long time for it to sit there. You may not want to go that far but you could, you could definitely do so, keep it up for however long or keep it on the bottom right or left until you decide to close it, so the choice is yours there. Just to give you an idea, click on that? Again like I mentioned earlier. If I click this year, now I can get an idea of your some of the parameters. I'll show you what it looks like. It's gonna look like this. You see one of these boxes will pop up, whether holder is bought, whether it's completely sold or rejected, some of those other notifications there, but mainly as can be bought, sold and rejected and you will be able to keep tabs on your orders and you will know right away if it's filled or not outside of just going into that order status. >> Great stuff as always. Thanks that. >> Thanks, Greg. >> Bryan Rogers, Senior client education instructor with TD Direct Investing. For more educational resources, you can check out the learning centre on my broker or use this QR code. It will navigate to TD Direct Investing Tutu page. Once you are there, you will find more formative videos. We are back with Andrew Kelvin, taking your questions about the economy and interest rates. This one just came in. What are the odds that the US Fed catches up with the Bank of Canada such that the spread in our rates narrows? >> That's a great question. It really is a question of time frames. In the very short-term, pretty slim. You would need to see multiple 50 basis point moves from the Fed, we don't think so. Longer-term, it's highly likely. I would dream this two ways. The first is that because the Bank of Canada has started earlier, they can have maybe a more moderate pace of easing which supports the Fed potentially moving more quickly through 2025. There will be a little bit less opportunity for them to take positive. That will help the Fed catch up in the easing cycle to Canada. Probably annex your story. Longer-term and backup of 2025 into 2026, I would say it's extremely likely, and here I would refer to history. If you take a 30 year view and you get the spread between the Bank of Canada and the Federal Reserve, the median spread is that the Bank of Canada rate is in line with the Federal Reserve. We tend to think of initial rates in Canada and the US as being close to equal. We see them as equal. In that sort of the world, we can't have that divergence for periods of a year, 6/4, the Bank of Canada and the Fed are quite different levels of interest rates. In the long term, we think they are likely to wind up at about the same place. At some point we get into the later parts of this easing cycle globally, we are likely to see the federal funds rate and the Bank of Canada target rate converge. >> Great question there, great answer as well. Let's get to the next one. A viewer wants to know, the dreaded our word. Who gets hit first and harder by recession, Canada or the US? >> We do not expect a recession in either place. >> Ever again or the next little while? I will take ever again. >> That would be great, I would love to say that. It would be irresponsible of me, that's another our word. We don't have a recession in our base case. I think on the basis of the most recent data, you would have to argue Canada is maybe a little bit closer or at risk in the near term given that we had a pretty soft June GDP number, soft lead in in July. Our jobs market has been a little shaky the past couple of months although the jobs data is extremely volatile. I think you can sort of point to that very strong or not strong but very high level of household that it Canada as a plausible trigger for a recession in Canada or retrenchment in household spending coupled with slower population growth over the latter part of the year. You can tell that story. It's not the story that we think is the most likely and I would just say up front, I have been actually impressed with the degree of resiliency Canadian household spending. It has slowed for sure, households are feeling the pinch. But we have seen is a degree of flexibility around how households are managing their debt whereas mortgages come up for renewal, people are perhaps extending amortization so interest-- debt service ratios in Canada, long story short, have been stable for about the last year which is a less punitive outcome than we would have expected. It's our base case but I think you could look at the sort of state of the Canadian household in terms of its indebtedness and see the risks are probably greater here and in terms of magnitudes, that's really difficult to determine because you get a large magnitude recession, I think you probably need a shock that's either in the system and we just don't know about it and cannot foresee it because if we can foresee it we would be doing something about it, or you need a purely external shock as we had in 2020 and those are extremely difficult to see. We will see how the evolution of the global protectionist trend evolves over the next year and a bit because we were to talk about a world where the US would become extraordinarily protectionist and impact Canada with sanctions the same way non-USMCA partners are being spoken of with tariffs potentially, that would be the sort of world where we can talk about Canada being in a deep recession and the US not being in one or a mild one. You can always concoct these scenarios. They are scenarios that we can come up with. It does get a little bit arbitrary. >> Another one from the audience. Policy changes from governments, are they having any noticeable impact on housing or labour? >> It's probably a little bit early to make definitive statements about this. We are getting data for, we just got the last piece of June data, we are getting data for July and August. When we think about the student visa caps, we are not really going to see the impacts that those have on things like rents, on things like consumption activity, until we start getting Q3 and really Q4 data. We won't be able to say definitively until later in the year. There are anecdotal stories going around, media reports going around the perhaps rental markets are softening up. We can look at some of the recent headlines around the first rent declines in quite some time and condo markets. We can potentially connect those two things like government policy changes but that's not a firm sort of line you can draw from a to B. It's a possibility but there could be any other number of things behind that sort of singular data point. So we need more time but if you think about the fact that one of the big reasons behind the increase in the unemployment rate has been a big run up in the labour force. As population growth starts to slow this year and into next year, that becomes less of a force. If you think about one of the things that's been driving housing affordability being more demand than supply, that perhaps her to come back into balance next year or the year after but one thing I would certainly emphasizes that some of these imbalances that we are trying to correct, they did not spring up overnight. These are multiyear imbalances that built and built and built and the idea that we are going to solve them very quickly is very difficult for me to swallow that notion. >> We are going to get back your questions for Andrew Kelvin on the economy in just a moment's time. As always, make sure you do your own research before making any investment decisions. and a reminder that you can get in touch with us at any time. 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 Bank of Canada today delivered its third rate cut in a row and there is confidence that there is more to come. We have a new TD Cowen report suggesting that the Canadian realist a sector might be looking like an interesting opportunity for yield seeking investors, particularly over GICs and money market funds. Our Anthony Okolie has been digging into the report and joints is now in the details. >> TD Cowen is saying that macro conditions are setting the conditions for REIT market growth here in Canada. They have revised their target prices higher to reflect this improved outlook. In their view, strong fundamentals in most sectors plus the direction and level of interest rates could result in increased trading activity as well as lower Rates, so with the estimate of investor potential return on real estate investment trust obviously generally the higher the Rate, the higher the risk, the lower the Rate, the lower the risk. TD Cowen says that in addition to naff growth, the REIT sector is attracting more interest from general investors as well as yield seeking investors, particularly as GICs and money market funds and high interest savings accounts become less attractive. This renewed interest could push sector evaluations to long-term averages and potentially above if we don't see a backup and interest rate. Right now, Canadian rates are trading at 86% of their naps, versus 94% average since 2010. TD Cowen breaks down the outlook for four of the key sectors and I will go through them here. We will start with the retail sector. Retail focused REITs, they revise the target prices there and that reflects strengthening tenant demand for retail space, helped by population growth here in Canada. That's leading to upward pressure on markets and occupancy rates. Another sector that they look at, industrials, they believe tenant demand there is re-accelerating as interest rates and their volatility continues to moderate. With supply growth continuing to fall, TD Cowen sees occupancy rates and market growth rebounding and that should cause them to generate above average total returns. The residential, they expect acquisition activity to pick up late in 2024 and into early 2025 as five year and 10 year bond yields are down to about 3% range. That should help property buyers generate positive investment spreads relative to the debt costs. Senior housing, they project strong net operating income growth and that is the best near-term Navajo growth among the subsectors. >> Interesting take on the space. What's the risks? >> Some of the key risks include local and general economic conditions, potentially slowing rent growth, higher vacancies, adverse rental legislation as well as potential loss of some key personnel management. >> 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. This is the heat map function, a nice view of the market movers on the TSX 60 by price and volume. A calm day in the markets today as compared to yesterday, the first trading day of the month. Brookfield is down to the tune of about 2%, bam, a little bit of a bounce back for Cameco, uranium plays were under pressure along with the broader market yesterday. These are not huge moves but it's interesting. We have been talking about the fact that there have been three Bank of Canada rate cuts in a row, we are expecting more. Some parts of the market were unloved in a high interest rate environment have lately been getting bid. BCE up slightly, Rogers a little behind. We are seeing moves and telecom plays and utility stocks as well which can sometimes become more in favour of people are seeking yield as rates come down. South of the border, very dramatic start to September for American stocks, sell off in the US markets, Nvidia was the poster child of that selloff yesterday, it was down 9 1/2%, and right now it's up over 1%. AMD is up a little higher along with Tesla. We are back now with Andrew Kelvin from TD Securities. Someone says, an article in The Globe and Mail today suggested that Canada needs to have a much more coordinated effort to control inflation between the government and central bank. I would like your guests thoughts on this and what the government should be doing more of? >> Sure thing. I haven't read The Globe and Mail articles weight don't want to comment on the specifics. I would say in general, one point worth making is that Canadian fiscal policy today is not significantly expansionary. Government spending is growing faster than the overall rate of the economy we expect that there's a little bit of an expansionary element to it but it's not the sort of world we were in in 2020 or 2021 where government spending was the bulk of the increase in economic activity directly or and directly. I don't know that we are in an especially expansionary environment for fiscal policy. Having said that, if the Bank of Canada is trying to bring inflation lower and we see government spending growing quicker than the pace of the broader economy, these are forces working against each other. If your singular goal is bring inflation lower, as the Bank of Canada is right now, having the government and central bank point in the same direction make things much easier and if you can think of a certain hypothetical world-- well it's not hypothetical, we lived through this. It government policy had been less expansionary, fiscal policy less expansionary and 2022, let's say, or 2021 even, the Bank of Canada may not have needed to tighten to nearly the same extent that it did. The Bank of Canada at the end of the day is trying to hit 2% and if the government moves in opposite directions, just means you maybe need to have higher rates for longer than you otherwise would. Conversely, in an environment where we have below 2% inflation and the Bank of Canada is trying to bring inflation higher, is really helpful if the government is outspending a little bit more and this is what we had in 2020. The Bank of Canada moved interest rates were essentially zero to try to stoke inflation in the economy and the government also help stoke inflation in the economy by going out with a huge physical sales package. I don't want this to sound like a criticism because it's easy to sit here in 2024 and say what should've been done differently. >> There were a lot of complicated forces at play. >> And time was of the essence. Spending a year to figure precisely what needed to be done would have left you with a much weaker economy to try to fix. I understand how these decisions kind of came to be. It is generally helpful to have the two pointing in the same direction and I think it may be more likely, this is necessarily just a Canadian thing, it could be the place globally, the cost of living has become a real concern for people around the globe and we have been in a period where governments were able to spend a little bit more money, a little bit more money, without having to worry about stroking inflation because we were in that disinflationary period from 2005 to 2020 which was due to things like the widespread growth of the Internet, the rise of East Asian manufacturing complex. Now that voters are putting cost-of-living top of mind, we may be entering an era where governments are going to be a little bit more concerned about not moving opposite where inflation goals are but I'll say the last point of this is that while monetary policy tends to act very productively, it tends to impact the economy in very predictable ways. Every fiscal policy is different. Every fiscal policy it takes place in different contexts. The legs around fiscal policy are highly uncertain. I would put forward that while maybe extension a fiscal policy was making the bank of Canada's life more difficult in 2023 and the early part of 2024, today, I don't think the Bank of Canada would welcome a more restrained fiscal stance. In the Bank of Canada, given that they have these concerns about slack growing in the economy, I would expect when they see reports about strong government spending that they would welcome that. >> Fascinating insights. Before we let you go, we started the show with another rate cut from the Bank of Canada. The path forward. What are your thoughts? >> We think we see another 25 Basis Point Rate Cut in December, another in October as well. October, December, 25 basis point moves. Then we get into 2025, we are going to see where the inflation backdrop is. The Bank of Canada, as long as they think they are on a path to 2%, they are likely to keep moving at 25 basis point increments. Certainly tomorrow 25 basis point moves this year and then we will see, maybe we have a bit of a pause in the early part of 2025 as they wait to get that sort of final quarter percentage point of access inflation out of the system. >> Always a pleasure having you here. >> Thank you for having me. >> Our thanks to Andrew Kelvin, head of Canadian and global rate strategy at TD Securities. As always, make sure you do your own research before making any investment decisions. and if we did not have time to get your question today, we are going to aim to get into future shows. Stay tuned for tomorrow's program. Jennifer Nowski, VP, Dir. and prayerfully manager with TD Asset Management will be our guest and she wants to take your questions about Canadian dividend and commodity stocks. You can get a head start with those questions. Just email MoneyTalkLive@TD.com. That's all the time we have the show today. Thanks for watching and we will see you tomorrow. [theme music]