Andrew Kelvin

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live brought to you by TD Direct Investing. Everyday I'm joined by guests from across TD, many of whom you'll only see here. We we'll take you through it's moving the markets and answer your questions about investing. Coming up on today's show: inflation remains red-hot. Meaning the Bank of Canada could have more mountain to climb. And as a result, Andrew Kelvin, Chief Canada Strategist at TD Securities is lifting his terminal rate forecast by to get this inflation rate under control. And in today's education segment, ever wonder how your fellow investors are feeling with the markets? Client instance Client Education Instructor Caitlin Cormier takes us through the TD Direct Investing index how to find it and how to read it. A reminder that you can get in touch with us any time by emailing moneytalklive@td.com. (. . . ) seeing some firming and the price of crude and now the American benchmark price per barrel and 89, 42 up at about two and half percent. So money moving towards the big energy names. Showing action of us at this hour. It is up more than 5 1/2%. Noticing a lot of companies in the steel space under pressure today. Some concerns of course with the dope global economy demand for steel going forward. We have Stelco at 4 1/2%, 34, 63. Let's check on Wall Street, the S&P 500. Yesterday was a pretty bruising day. We have not seen a day with those kinds of losses in a couple of years. We have the S&P 500 with a modest 18 points up about half a percent. Not regaining that ground lost yesterday by any means but a little bit of stability back in the trade. Checking in on the tech heavy NASDAQ, a little bit firmer, up about three quarters of a percent, 89 points. Noticing a lot of steel names under pressure today, south of the border, United States steel Corporation. And that's your market update. The battle against inflation remains the Bank of Canada's top priority at the moment. And with higher prices showing very little signs of cooling the central bank has made it clear it will do whatever it takes to get the job done. My next guest says that could include interest rates climbing as high as 4%. That is higher than the previous forecast of 3.5%. Andrew Kelvin, Chief Canada Strategist at TD Securities joins us. Andrew you have to tell us how far this bank needs to get for the job is done. > Thank you for having me. The Bank of Canada's last meeting on September 7 had a hawkish tone to it. The Bank of Canada doesn't necessarily have a firm idea of where the cycle is going to be. If they do, they're not willing to share it because they want to keep all their options open. Necessarily if they are telling you they are not sure if they are close to been finished or not, it implies a risk of a much higher endpoint for rate hikes cycle. So we previously had the bank finished their cycle of 3 1/2%. It now looks to us that 4% is probably more likely of the level. Realistically, you can think about anything from 3 1/2, all the weight of 4 to 4.75% as a plausible endpoint for the Bank of Canada. Although 4% and above would be quite aggressive given the disposition the Canadian economy is in. >> Let's talk about the disposition of the Canadian economy. Obviously with the last rate hike, by their own metrics, we we consider that restrictive territory. We could start seeing some people pulling back with borrowing cost is high and perhaps an impact on the economy. I have to go much further than that. What does that tell us what inflation in the state of the Canadian economy? >> Inflation is the Bank of Canada's main priority is you know. As you noted. The Bank of Canada's job is to bring inflation lower. They have been underestimating the strength of inflation for several years now. They underestimated the strength of the economy coming out of the pandemic. If you go back to the early part of this year, the bank was concerned that with some of the lingering COVID waves we would see a slower first quarter and that never materialized. Part of growth being stronger-than-expected, we have supply chains which were problematic longer than expected. The Bank of Canada anticipated that supply chains of resolve themselves. These are very difficult calls to make at the moment. The fact remains that what is been high for quite some time is starting to seep into longer-term inflation expectations. That's the fear at least. Because I'm sure that most people, there's a perception that inflation is very high. I people believe that inflation will remain high over a long period of time, it makes the Bank of Canada's job are much more difficult. So what they've done is they are moving not just in restrictive territory quickly, which they did, 100 basis points tightening over to mediums which is sick and an extraordinarily rare thing for the central bank to do. They are unlikely to go a little bit further in the cycle. Just to really ensure that the job is done. To really ensure that they will be bringing inflation back down to target. Despite the fact that we have had three months of job losses now. The economy is slowing. Normally the Bank of Canada would see these signs of slowing, take a little bit of a pause and, in a more normal cycle, I might look at the growth figures and say that this is the top. But of course because the Bank of Canada was behind the ball earlier this year and late last year, they now may need to go a little bit further in bringing inflation under control. >> When it comes to rates, do you have a picture for us? A chart? Walk us through what this is telling us. >> What I've done here, there are two points. The darker bar there, that's the market expectation for the Bank of Canada is. The market really firmly expects in basis points. 48 basis points, the market is fully priced in at a 50 Basis Point Move in September. Where I differ a little bit, this is as much of a rhetorical tool as anything, but now that we are at a pretty high level of interest rates relative to where we've been in the past 18 years, given that the economy doesn't look like it did in 2004, 2005, the economy is experiencing quite a bit more leverage and will be more sensing of dangerous rate hikes area I think it would be prudent for the Bank of Canada to the just a bit more cautious towards that 4% target. So the rate hikes have unanticipated consequences. They have been over tightened to an extent. Maybe they would not want to. The other point I raise on a chart >> Yes you get further out and I think I'm seeing a forecast for a cut. >> That's exactly it. The fact that the bank has tightened to this extent to bring inflation expectations under control, they are successful at this which I expect they will be. If we go to, let's call the third quarter of next year because that's all we have it penciled in, they might be looking at an economy where we see the unemployed rate rise by a percentage point, perhaps more. Economy or inflations come lower and we see the peak of inflation. An economy where inflation expectations are becoming low anchored again. They could ask themselves, or save themselves, "do we really need to be at 4% still? Which is a firmly restrictive policy rate? " I think there's room for a scope of the second half of next year for the Bank of Canada start removing some of the tightening that they put in. It will be a more gradual process. It's not going to be symmetrical. They are not going to be cutting by 100 or 75 basis points immediately but we could start to see some gradual easing in the second half of next year. Which would get us to a little bit more normal hopefully by the end of 2024. >> Of course the Bank of Canada is not acting in a vacuum here. There is a whole chorus of global central banks. With the exception of China. Who are on this path as well. At one point could Canada diverge from the United States? Are the dynamics different enough that maybe the Fed keeps going in the Bank of Canada realize they have gone as far as they can go in the economic conditions? >> That's a really good point. I would say, in a vacuum, if you put the same set of challenges in front of the Federal Reserve as the Bank of Canada, there's more room for the Federal Reserve to tighten and that goes back to that household debt issue. Through the whole post…. Canadian households have been able to leverage. US households started a long deleveraging process after the financial crisis in 2009. As a result, Canadian households have 80% more leverage by direct income it then US households. That should make each rate hike in Canada more impactful than a rate hike would be in the US. So with that in mind, I think there is a scope for the Fed to tighten more than the Bank of Canada. We think the Federal Reserve to get all the way to 4 1/2 as the top end of their band where is the Bank of Canada tops out at 4%. Having said all that, the Bank of Canada cannot diverge too far from the Fed. Last cycle, the Bank of Canada finished 75 basis points below the Fed. Over time, those two central banks do tend to move together. If the bank of Canada would fall too far behind the Fed in this cycle, that would have implications for the currency. The currency would weaken. That would have short-term inflation and the Bank of Canada would not especially like it. It's not the main priority or second priority. But it does impact things in the margin. I think it would also be a sense given that, Canada and the US are kind of facing the same demand shocks. If the Fed gets too far ahead of the Bank of Canada, it would raise questions of the Bank of Canada can be taken seriously and it goes back to the credibility question. The make of Canada is not in the position to be disappointing markets and they are not in a position to be inviting questions about their commitment. >> Central bankers have said, including ours, I'm not trying to break some thing. We hear this phrase. They will continue tightening until something breaks. Can they avoid that now? That seems to be the point as you mentioned. We can't fix supply chains of some of these other issues the lease sure can tamp down demand. >> Yeah. The point of slow growth. It's a tricky thing for central banks to say. It's extraordinarily difficult for the central bank to say "we would like to do is lift the employment rate." That's politically, not a feasible thing for any sort of policymaking to make. But that is how much our policy tightening works on some level. What they would like to do is engineer what is called soft landing. There is no technical definition of soft landing. We can argue all day but what it means. It's not especially helpful of the debate. But that's sort of the middle path that they like to sort of go down here. The problem is because they have fallen behind the curve as it were in the early part of the year, they are now trying to make up by hiking by leaps and bounds, 75 to 100 basis points. It just makes the risk that much greater because of the lag. Rates don't go up one day and inflation falls the next. It takes a year, a year and 1/2 for these effects to be fully felled. So given that they are focusing on keeping inflation under control and given there are probably willing to err on the side of over tightening of it, a soft landing is still possible. It just becomes a much, much more difficult thing to achieve when you need to be lifting rates in such a rushed fashion. Which is why when I go back to this idea that I think the most prudent thing for them to do would be to slow down to a more measured pace of tightening going forward. >> Great insight. Great start the show. Andrew Kelvin is here taking your questions about all things related to rates in Canada. And the impact and what it will mean for our economy. We will get to some questions in just a moment's time. A reminder course of how you can get in touch of the sooner questions. Just email MoneyTalkLive@td. com Shares of skidoo maker BRP are in the spotlight today that after the Québec-based company reported a 20% jump in sales for its most recent quarter and raised its annual revenue forecast. BRP says demand for its recreational power sports products remain strong and supply chain issues are beginning to ease. BRP saw a surge in demand for its ski dues and sea doos during the pandemic as lockdowns enclosures left consumers for ways to pass the time indoors. The parent company of Google has lost major court battles with regulators in Europe. A court has upheld a European union antitrust decision that Google broke competition rules. That ruling comes of the more than $4 billion US fine for Alphabet. A record amount for an antitrust violation. The case for centred on Google's android mobile device and its search engine. The International Energy Agency is forecasting a rebound in oil next year despite a global economic slowdown. The agency's call is largely based on China moving past its strict covert protocols in 2023 and continued momentum in global air travel. In the short term, it does see a softening in oil demand amid fears aggressive central bank rate hikes will weigh on economic growth. And here's the benchmark main index in Canada. If you're along the market, you probably want to see a little bit of green on the screen for the TSX Composite Index. 113 points to the upside. Let's take a look at what's happening in the S&P 500. Wall Street of course incurring some heavy losses yesterday. We are seeing some upward momentum as well up a little more than 1/4%. We are back now with Andrew Kelvin of TD Securities taking your questions about rakes. What is your outlook for the housing market? >> So, it is been the understatement of the century. An interesting few months for the housing market. You've seen three, four, five months of price declines. I think it's a little bit difficult to get a handle on the real strength of the market. Given that a lot of declines came from the Summer which is seasonally, a very slow period for the housing market. Were going to learn a lot about Canadian housing and the lack thereof as winter fall. This is a busy. We are starting to enter before real estate. We are looking for average price declines to drop off somewhere in the neighbourhood of 20, 25%. Nationally. Local conditions will vary by localities, condos, houses, the sorts of things. The point I would emphasize though is that we can see a lot of the decline already because compared to February, the average prices in the month of August were lowered by about 18 to 20%. Somewhere in that area. We have seen that decline already in the price. There is probably a little bit more weakness than we believe but historically, if you look at Canadian housing markets, corrections that is, what you see is a sharp decline nationally. In a period of, sort of, staggering prices. Eventually, you'll hit some sort of a shock to the system and causes house prices to rebound whether it be a bunch of rate cuts or economic growth and what have you. The stagnant. Like that can last quite a long time. Same reason for the 90s crash as you recall. But that sort of roadmap where you see a sharp decline in the housing markets sort of consolidate stabilize, you wait for demand to reach the levels that it was at previously when house prices start to increase again. The point I would like to make, stepping back, the only thing that really supports the housing market is population growth in this country is expected to remain quite strong. Canada has been under build. That's why we see rent pressures that we do. Wherever we do wind up, here, it is going to be looking to five, seven years down the line. If we keep growing the population of 1% per year, that does represent a pretty material increase in housing demand over time. Over time you start to see that population growth ramp-up demand combined with some rate cuts we expected in late 2023, early 2024. >> Even though 20 to 25% of an average price decline sounds big, does not take us back to before the pandemic question my> Exactly. It's been really 2 1/2 years now, I suppose, of highly exuberant pricing markets. I think it was very difficult to say from a fundamental perspective that housing became 50% more valuable fundamentally between Summer of 2020 and the spring of 2022. Just if you think about that logically and step back and stopping a market analyst, there's no way that makes sense. >> We put some nice furniture on our front porch but it really was not a driver of the value. >> Exactly. While the population did increase to the pandemic, the pace of increase in population for housing demand slowed. So it was one of those things we did have quite a bit of froth in the market. Some of that came off in interest rates. If it turns out that I'm still being too cautious for the Bank of Canada, it does imply potentially a lower trough in house prices. I think at the bigger picture here is we've already seen quite a bit of the correction and we are looking at the next phase of the housing market being a bit more gentle price decline followed by a period of stability or stagnation, depending on your perspective. >> Let's get another question. Good run down of that situation of housing in this country. Where do you see the dollar going with more Bank of Canada rate hikes? >> So that's a really interesting question. We talked with the Canadian dollar and we tend to think of it versus the US dollar. If you look at this whole cycle, the US looks like it will probably have the central bank that hikes the most. So, I think that's really hard to fade US dollar strength over a two or three quarter horizon. Central bank is likely to hike. The second most is the Bank of Canada however. We've seen that relative stability in the Canadian dollar versus the US dollar despite oil prices doing what they've done despite the Bank of Canada hiking is much as it has. So it seems like the Canadian dollar has not done a whole lot. Versus the euro. Versus the Yen. Versus the British pound. Again, when we think about the Canadian dollar versus the US dollar, it's difficult for me to see a case for to move much above 75 or $0.76. $0.77, let's say. Versus the downside, maybe we can get it down to sort of, 72, 73. That would be the sort of range I would be looking at for the Canadian dollar here. This is something to be predicated on US dollar strength. Not US dollar weakness. The big picture is, as much as, you know, moving to $0.72 seems like a big move, over the long-term, this is really a range trade with the Canadian dollar rather than handing it 77, I should say. This is really a range the Canadian dollar. Not a big directional move. >> When you said 72 human to really big move. Quite the context. Let's get to another question with the state of economy in all this. You see strength in the job market and continuing? A nice rebound from the pandemic. The past couple of months showing signs of softness? >> Sorry I missed that. >> The question was do you see the strength in the job market continuing? We see a bit of softening lately. >> A bit of softening we've seen lately in the job market. That was a bit of a statistical anomaly. If you look at the last jobs report, it was something that had a lot to do with seasonal adjustments. As a loss in the education segment sector in terms of jobs. Related to the way different contracts work in the education sector. If there signed a little later the Summer, it becomes job losses on a seasonally adjusted basis. Having said all that, we are now looking at three consecutive months in a row of job losses. We are in a position where growth is likely to slow materially as inflation starts to fight spending power power as high interest rates start to bite into spending power. We are starting at a pretty low rate of unemployed me to begin with. We read 4.9%. Not that long ago. Extremely low. Unemployment rate. So going forward, on the labour market we do think you're likely to see job growth lag behind the growth in the labour force. We will have some more negative losses and some positive. It's a very volatile series Canadian unemployment. But ultimately, it is something where I do think we need to be prepared for an unemployment rate. … >> As always make sure you do your own research before making investment decisions. We will get back to your questions with Andrew Kelvin and just moments time. A reminder that you can email us anytime@moneytalklive@td.com. Now let's get to our education segment of the day. Being investor means making decisions on the outlook for stocks, sectors even the overall economy. There is a way to know how your fellow investors view things through the TD Direct Investing index. Caitlin Cormier is a Client Education Instructor at TD Direct Investing and joined us with more. Caitlin what information can you find with the direct investing index? On WebBroker? >> It's a great tool we have for you can find out what other investors are feeling, like you said, about the market in different investments. Kind of understanding investor sentiment. So we can do to get to it is we're just going to hop into WebBroker and we can click on the research tab. … This tool does look at the past month for example. For example now we have July 2022. It not only provides time to the overall sentiments we can see here, in July that investors were at -8 is what they felt like. But it also analysed some of the information and provide some insights on investors behaviours. There is both a video and a write up about the report and kind of giving you some insights and detailing some of those kind of specific things that happen. So if we kind of scroll through here, we can see the historical range over the last 13 months see that actually, in July even though it is a bare sentiment, we are directed and self-directed and investors are feeling a little more optimistic than they were in June. And then, as well, like I said, we have a video here that you can watch if you click "recap". There's an article also that really goes into some details and let's you know specifically in some areas, where the most movement lies, where things were. So it's a very interesting tool. One of the pieces of the puzzles for investors to use, really, to get a feel for how other investors are feeling while they are making their investing decisions. >> Some great headline numbers their graphics in terms of sentiment. You gave us a little taste there that perhaps we are getting out of the headline surface. Some are specific information available? How do I get that? > Absolutely. So maybe you have kind of a specific level interest. Whether it's a place in the country, and age category are a type of investor. You can actually take the information it's here and really narrow it down to find some different trends or see some interesting information. So if we hop back in, I will just scroll down a little bit further on the page under the write up here. We can see the most popular Securities as well as last month's trend for direct investors. So what I'll do here is all actually click on the "filters" button. And I'm to choose and age category. Let's just use those Gen Z millennial's. I will kind of leave it at that and see what sort of trends in asset allocation we can see. . I will click on the industry sector here. And we can see this and a little bit of consumer discretionary… If we want to kind of test that information, we can just scroll up and do a filter on this top-tier. If we go under the filter and click Gen Z and click "okay" we can see bought for that category was Shopify the Canadian tech company. So the information is following up here. We see a bit of Air Canada, banking and Tesla thereto. It's interesting to analyse that information further really kind of dive into specific areas of investors to get a little more information on how they were feeling in that month and what different moves they were making. >> Great stuff as always Caitlin. Thanks for joining us. > Thanks so much. By now. >> Caitlin Cormier, Client Education Instructor at TD Direct Investing. Always make sure to check of the learning sector on WebBroker for learning centre's, master classes and webinars. Now before we get back to your questions for Andrew Kelvin, Chief Canada Strategist at TD Securities, a reminder they can get in touch with us by sending us an email anytime moneytalklive@td.com. Or use the box under WebBroker and hit send. Let's get back to your questions with Andrew Kelvin. >> Going back to a point I was talking about with the housing market,one thing that makes it difficult to talk about a recession in Canada is the classical definition. What makes it difficult in the Canadian context as we have this very strong population growth. So, I would be a little bit surprised to see to material negative quarters of GDP in a row. I think that's not the most likely outcome here. What I think we could see, however, is a four or 5/4 where we see GDP growth as positive but just slightly positive and in fact lags behind population growth. That's a scenario where it's not a recession, technically, but GDP falls. People will feel as though they are in a recession even though economists are not talking about the economy being in a recession. I guess the other point I would make, is well he could see a very prolonged period of slow growth, a little bit of slack could come back to the economy… We are starting from a pretty strong starting point. As I mentioned a moment ago, the unemployment rate of 5%, these are record lows we are talking about for on employment rates. So, we had a period of growth and activity where we were probably running above the capacity of this economy. In central banks, we were in excess demand. I think what we are likely to be in for here is a period where you see that demand, sort of, slowly come out of the economy. We pay that back over a year or two. So it should be more than you expect in growth and the really interesting bit about this, which is not interesting for the people involved. I mentioned earlier about the lag. If you are someone who took a mortgage out in 2020 at ultralow rates and locked-in for five years, potentially you are not going to see the impact of the policy tightening until 2025. Just to give you an idea about the way this sort of really strong. Where we need to get back some of that strength, it could be stretched over actually many years. My base case is not a sharp deep recession. It's more of a long period of slower growth. Which I'm not sure is a more optimistic take. >> When you talk about a discussion we had a lot for the pandemic, we talked about productivity in this country. When you talk about GDP growing, because we are going the population, this makes me think of what the whole productivity gap. How is Canada doing on that front? >> No improvement. Yeah. That was sort of the question of the day way back when I was in university and nobody had solved it. The thing I would say is Canada tends to suffer from relatively low business investment as a share of the overall economy. You know, the way of thinking goes that investment in capital machinery and equipment and in a plant and into intellectual property tends to be what drives productivity in Canada. Canada remains really woefully lacking. Business investment intentions are pretty strong for the moment. As growth slows, a lot of the business investment intentions we've seen have been lightly driven by the fact that there is no more people to hire. Or there have not been people to hire that may change in the coming years and quarters. I don't really see it as a silver bullet. I think it continues to plague Canada as an issue. It's a thing that really should be a priority for policymakers up and down the seniority spectrum. That really is the question for Canada. It has been through multiple governments for quite some time. It doesn't seem as though we are in any closer to solve it. > Another question: once the Bank of Canada hits its inflation target, how long will the cuts come? That's a reminder of the beautiful chart we showed at the top of the show. >> Yes. So the really interesting question about that, it's going to depend on at what point the Bank of Canada feels comfortable that its credibility has been restored. So my prior, with the Bank of Canada and inflation expected to move lower over the remainder of the year into the middle part of 2023, we can see inflation at less than 3% in the third quarter of 2023. That's a scenario where the Bank of Canada can maybe start to move towards a little bit of a tightening. With that will be contingent on inflation expectations coming down. If people are still questioning the Bank of Canada, they won't be able to afford to see weakness. So that's the criteria that we need to see the rate cuts to happen. I think really fundamentally, 4% is a really restrictive rate. There's no reason for the make a candidate to stay there once expectations have become re-anchored. > The next question is about oil how it seems to be all over the place and how do we read that in terms of economic impact? >> It will remain the case, we have a period of calm, you have the fact that there are countries with large oil supplies that will from time to time, take action to her move the price of oil in a seemingly noneconomic way. You have that set and supply that really push oil prices lower. Going forward, it's what will remain of all markets, we actually do think it's a pretty reasonable level and are expected to prevail over time, on average to the end of the year. We think the high 80s, low 90s area for oil makes a fair bit of sense. Now what that means to the Canadian economy, $90, $89, $87, wherever we are… These are still levels were oil companies can be extremely profitable area they're still not levels where it's above long-term averages. Still a positive trade compared to where we were two or three years ago. Still positive for the Canadian economy. The thing I would emphasize is that this is not going to be enough to bring new capital investment in a significant way into the energy sector. We have seen investment intentions in Canadian energy really continue to move lower over the last 6 to 7 years. That's a reflection of regulatory issues, it's a regulatory and export capacity building this country and I don't think this period of high oil is going to change any of those structural factors. As a result, I think it's really difficult to see this as something that will drive the economy to the extent that it used to prior to 2015. It used to be that energy prices at these levels would've produced quite a bit more capital investment. Right now it's good for trade shop, it's good for revenues but it probably is in the same tailwind for the economy that used to be. >> All right. We'll get back to your questions with Andrew Kelvin in just a moment time. Sure you do your own research before making an investment decision. A reminder that you get in touch with us anytime. Give a question about investing or withdrawing the markets? Our guests are eager to hear what's on your mind. So that is your questions. There are two ways to get in touch with us: you can send us an email any time. Email moneytalklive@td.com or use the question box right below the screen here on WebBroker. Just writing your question and hit "send". We'll see if one of our guests can get you the answer you need right here on MoneyTalk Live. Lumber prices have seen some pretty big swings in the past two years. With renovation prices looming the prices of come down since the start of the year. Our Anthony Okolie joins us with more. >> Makes Greg. TD Securities says forest product equity performance has been pretty volatile of the past week and they point to sharp decline in a couple of names in the coverage universe that have offset makes performances for the remainder of the names. Now the charter brought along highlights in those performances over the past week. We look at the average sector share price, it was down 1.4% the week of September 5. Versus a gain of 2.6% for the TSX. A gain of 3.6% for the broader S&P 500 index. Now the average decline for the TD Securities coverage is -12% lead by weaker wood products. Losses for lumber prices are based on enormous gains we've seen in the previous two years. In early 2020 of course millions of people were forced to stay home and find ways to spend during the pandemic. Of course one popular option is to take up home renovations and DIY projects which drove this insatiable demand for lumber. Lumber prices have soared in home prices over the same period. But since then lumber prices have been turning downward since its peak as high mortgage rates have resulted in less interest from real estate buyers. As a result, lumber production is also been able to catch up to demand. While North American lumber prices decline, decelerated last week, market reports do appoint to a cautious note. Especially as buyers are still biased towards maintaining low inventories given the demand headwinds that lumber prices have been facing. Greg? >> I will say during the pandemic I had some projects and around the house. They did not involve a lot of lumber. But the prices you said, have come down pretty significant leap. Did they go much lower? >> They have come down dramatically this year. They touched Lowe's in 2020. TD Securities decided one benchmark called north-central… Price. It has fallen 19% in the past five weeks. TD Securities says that the commentary views that prices were near the bottom seems realistic to them. Because prices continue to approach their estimates before cash operating costs for some of these marginal lumber mills. >> Great stuff Anthony. Thanks for that. >> My pleasure. >> MoneyTalk's Anthony Okolie. >> Let's check in with the names of big energy last year. We could really pick any of these big oil companies in terms of putting points on the table for that top line number of the TSX. Pipeline is getting a bit of a bid to. In this environment. We have Pembina Pipeline. South of the border, let's check it on the S&P 500. It is holding in positive territory. It is modest. Some green on the street after yesterday's selloff but it is to the upside. 15 points right now, 3947. The tech heavy NASDAQ, it is faring a little bit firmer than some of the tech names who really got smacked yesterday. Businesses like Apple and Meta and Microsoft. We are seeing a bit of momentum here, up 82 points, almost 3/4 of a percent. Energy companies on Wall Street. Exxon, $98 up 3%. Let's get back to questions for Andrew Kelvin. This one just came in off the platform. We've been talking so much about what's been happening with central banks moving their rates higher. What does that mean for bond funds? >> So, central bank controls interest rates with good authority out to one day tenors actually. The bottom market ought to be a bit more forward-looking than that. We are talking earlier about a potential for rate cuts, as early as next year. I don't think the bond market agrees with me that we will see rate cuts next year but the bond market is looking forward towards rate cuts. That's why we have an inversion of the yield curve. The emerging yield curves are also traditionally seen as the sign of an impending recession. Again, I don't know if recession discussions are necessarily helpful in the Canadian context but I do agree with the bond market that growth is slow. So with that in mind, the Bank of Canada tightening the 4%, a lot of that is in Christ. The 4% is seen by the market as a reason for the terminal rate. Bonds should look like that. And our expectation, actually, is as we get towards the end of the year, we will see yields move lower across a variety of bond maturities. So, from a government security standpoint, we actually think that yields can move lower from here. We would be surprised to see yields in Canada for 10 year bonds or 30 year bonds above the levels they were at last quarter. The highs that we had earlier this year. Now, in terms of, you know, some other recipes and a bond fund, a lot of what happens to provincial bond spreads which are part of our bond market in Canada, those are dependent not as much on the provincial credits as may be you like to think they would be. Because we are seeing some really positive news and provincial finances. Downward revisions on deficit forecast… Energy producing provinces and we see what they are doing in exceptionally good environments. Quite often, just broader risk sentiment for bond markets. To really see provincial bonds move in, we will need to see broader credit to improve which probably requires a bit more of a sustained positive risk tone. To me, we are in an environment which is likely to remain very volatile in terms of the way it swings around. It's likely to remain so until you actually see some certainty that the market believes that we are done for the tight cycle. It does seem as though every month or so, there's a piece of data that comes out in Canada or the US or some other place, that causes us to reevaluate our expectations for the overnight rate and push them higher. So it's clear that that cycle has completed or we are very close to completing it. It's really hard for me to see a sustained risk. >> Let's get to another question. If you are wondering about Prime Minister Trudeau's inflation relief plan. It came out this week. 4 1/2 billion dollars. His neck and make things worse? I guess the idea that monetary policymakers should tighten the reins. It might be a danger. >> There is definitely a push and pull dynamic there. That money will make an overall difference in the inflation dynamic. It's a relatively small amount of money set against 2.6, $2.7 trillion economy. If you start adding zeros to that I think it's a conversation we can have. Now it can move growth prospects and people can ramp up discretionary spending again. That will potentially be inflationary and that would require a more robust response from central banks. Because going all the way back to our first conversation, central banks are mostly concerned with keeping inflation under control. Any sort of material for school… In this country will be in all likelihood with a more robust monetary policy response. >> Andrew Kelvin always great to have you thanks for joining us. >> Thank you. >> Andrew Kelvin, Chief Canada Strategist at TD Securities. Stay tuned, tomorrow we will be focusing on security with Colin Lynch, head of Real Estate with TD Asset Management. You can always get your questions in early by emailing moneytalklive@td.com. That's all the time we have it today. See you tomorrow. [music]