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[music] Coming up on today's show.
The central banks potentially across discussing the future path of rates and what it means for asset prices.
MoneyTalk's Anthony Okolie will give us a preview on what to expectemail MoneyTalk Live ATD.com or Philip of your response box in the video player on WebBroker. Now before we get to our guest of the day let's get you an update on the markets.
First a trading day.
A shortened week.
Both the Americans and here at home of course at a Labor Day long weekend.
Not too much momentum to the up side with 79 points with the TSX Composite Index.
Nothing too severe.
About 1/3 of a percent. Among the most actively traded names on the TSX that the sour include some of the energy names.
Crude oil continuing to press higher. West Texas intermediate my screen.
Just a bit below 88 bucks a barrel. It's been sort of a grind on a gradual basis, higher and higher for crude prices.
Same for all the energy names. Athabasca oil at three bucks and $0.99 a share up about 2.3%.
Gold is not telling the same story. We have some pressure on some of the names including B-2, with four bucks and $0.10 a share. Down a little more than 2%.
South of the border let's check on the S&P 500. 12 points in the hole, nothing too dramatic. About 1/4%. The tech heavy NASDAQ. It seems to be a big mixed bag right now. The tech names, the headlight on the NASDAQ is down 19 points. A little more than 1/10 of a percent.
Notice in Carnival Corporation, West Carnival Cruise Lines on the move today at 15 bucks and $0.44 a share, down about two and half percent the to start the short week. week.
Central banks may be at a crossroads as we begin to see signs of slowing economy. So what does it all mean for us at prices heading into the fall?
Joining us now to discuss, Anna Castro, Managing Director and how retail asset allocation at TD Asset Management.
Anna great to have you on the show.
>> Thank you nice to be here.
>> We've come out of a long weekend and you have a sense that people are more serious, getting back to their desks. We have interest-rate announcements this month. We had a run of economic data through this Summer. A bit mixed but some signs of slowing.
What can at all mean for central banks?
>> It gives the central bag options on how to manage the path from here.
They want to be data dependent. Because they've had over a year of aggressive rate increases, both in Canada, Bank of Canada as well as Federal Reserve.
You seen some economic data slowness from economic activity, spending.
Wage is increasing, if not as hot as they were before.
People still remain employed.
On the flipside, inflation is also been trending lower. From high single digits before, more than the 4% handle and it could be at the high threes, however, it still did not totally under control in the central bankers can move past it and say "we have won the war".
So from here on forward, they want to watch how the data indicates how their tightening has flowed into the system. The economy, corporations and consumers. But what they want to have his flexibility to go back and make sure that inflation is trending to where they would be comfortable.
>> You get a sense when you hear from our central-bank governor, Jay Powell, south of the border, a real reticence to say "mission accomplished". They don't want to declare the fight as one.
It could have dangerous consequences on the other side.
>> Yes. They want to make sure that inflation is the priority right now.
The other component of their mandate is to make sure that there is full employment.
Employment labour, as I mentioned, is pretty strong. So that's not a worry.
Growth is okay as long as it's resilient.
If anything, they want to make sure that they don't of inflationary pressures come back because we've had some of those where there we are rearing their head and they want to make surethat it is controlled.
> If we take them at their word, they've been, they may not be telling us that if they need to go a little more they will, then they will stay there for a while.
Keeping interest rates elevated. If that's the reality that we are looking at, maybe no more hikes? Maybe a hike or two depending on the data coming in as you said.
What is it actually mean for us at prices?
>> In terms of asset prices, you have more options for income.
In this environment, you have fixed income, bond yields are higher which means, unlike what we had in prior decades, you have a higher level, if income for example, a basket of bonds, high-quality government and corporate to give you about 5% which you haven't seen in multiple decades.
That also means you have GICs, high savings account offering alternatives in terms of high levels of income compared to equities.
And so, you have more choices in terms of your investment universe.
However, that also means higher bond yields will impact valuations. So that will also pressure prices of the equity market which has had a very strong year today.
To date. It's all about managing expectations from where we are here. The other component he was a high level of interest rate is not just about evaluation but also it is a way to curtail demand.
It's higher cost of debt, higher cost of spending, so this could also impact economic growth and expectations moving forward.
So if we expect higher interest rates than we had before, higher cost of spending, you could have lower economic growth moving forward and that means earnings expectations should also come down.
>> This is what the central banks of trying to engineer.
There is saying "inflation was way too high for comfort and we need to bring it down to do that" slower economy means lower labour market.
At this point, where we are, perhaps at a crossroads for the central banks, are we at a crossroads for the economy?
What is the economy telling us about what we where we are in the cycle?
>> We are in the late stage of the cycle.
So far, the economy is been resilient because of the strong labour market.
The key question here is, you know, central banks, when they increase increased interest rates, they try to impact demand but it's very blunt and it takes time to flow through. So we are like a little debt over here. Next year, you will have more time for this tightening to flow through. In the late stage of the economy, you really need to think about quality of your investments.
First of all, you need to think of at the price that you bought that investment because you need your, the price that you pay impacts your long-term returns in that investment. Second, having a good source of income.
Helps you whether through you yourself as an investor, higher interest rates and higher inflation or inflation higher than before.
The other component two is to make sure that the companies that you lend to, as well as that your body, have the capability to whether this wide range of economic environment to be able to stand a weakening economic demand. To be able to price and price increases if needed, have different sources of demand for their goods and services and have a strong balance sheet to have access to capital and be able to be affording a higher cost of interest when they have to refinance their debt moving forward.
And so, in that type of environment, as an investor, you have to really think and do your due diligence.
Different scenarios sources of cash flows of what you are investing into, whether it's a fixed income, equities, or alternatives.
And it's important to have a diversified investment so that you have different sources of returns there.
And they can account different types of horizons.
So what I'm saying is not to put all your eggs in one basket and what has worked, perhaps last year or early this year.
It may not work moving forward, important to assess really what you're buying into and which are holding in your portfolio.
>> I wanted to ask you about that about what is work so far going forward.
Certain parts of the equity market whether tech, particularly big tech in the US is that a good run so far this year, starting to see oil companies gaining off the back of crude, is the market being a little too optimistic that you get the no landing, the soft landing… Everybody will be just fine with inflation under control and no one gets hurt?
>> The fixed income market has seen volatility the past few weeks.
Your seeing volatility of the bond side.
With the equity market, yes we do believe it is more complacent.
You're not seeing as much volatility there and they are expecting for example, the S&P 500 next year, earnings growth of 12%.
That is quite high later in the cycle. So, the situation is quite fluid.
What is happened this year, because coming into this year, people expected worse from a recession early on.
You've had a relief saying things are better or the worst is behind us.
What is being priced in is the worst is behind us. Moving forward, earnings is expected to grow 12%.
Expectation as well is that you would have easier financial conditions.
In the past few months, you had a lot of short coverings.
So that is why the market, the equity market has done quite well. And in that case, the price action of both equities and high-yield credit has given people more confidence feeling that the worst is behind us.
But in reality, what we would like to highlight is that the price action is one thing, the other components that we make sure is the earnings model of these companies, the sources of cash flows remain resilient as we enter a late stage of the cycle where there are different types of economic outcomes and financial conditions that could be possible. Or even like not just higher interest rate for longer, but also a higher than in the past inflation rate. So all of this has to come into play before quickly thinking that everything is going to be like it was before.
Earnings will accelerate and the Fed will cut and that means lower interest rates like it was in the pasI think it's important to be prudent and thoughtful of the process.
>> Great insights as always with Anna Castro.
A reminder of courseyou can get in touch with us at any time by emailing moneytalklive@td.com or fill out the viewer response box.
Now here's an update on the top stories in the world of business and a look at how the markets are trading.
Semiconductor maker ARM has set up a price range for its upcoming initial public offering which could see it valued at up to $52 billion.
The offering price range of $47-$51 a share is laid out in a new filing with US regulators.
Less than 10% of arms shares will trade in New York and the remaining shares will be owned by Softbank – which acquired the British ship design company in 2016.
The ongoing Hollywood writers and actors strike is hitting the bottom line of at least one studio.
Warner Bros.
discovery says the labour action could shave up to $500 million off earnings this year. That said, Warner Bros. is forecasting adjusted annual profit up to one $11 billion in large part due to the blockbuster success of the movie Barbie.
Saudi Arabia says it will extend its voluntarily oil production cut of 1 million barrels per day until the end of the year. That's on top of almost 1.7 million barrel per day of voluntary cuts from other OPEC+ members.
The International Energy Agency says oil supply could become tighter in coming months if China sees a recovery in demand.
Here's a quick check on the markets right now. We have a ghost in the machine.
But right now off to a bit of a weak start on both Bay and Wall Street. A short trading week indeed.
We are back now with Anna Castro taking your questions about asset allocation.
Let's get to them.
The big event of the week for us here in Canada comes tomorrow. What to expect for the Bank of Canada on Wednesday?
>> So the Bank of Canada has a choice to pause.
They have a little bit of buffering mainly because some of their recent economic data has shown that it's weaker.
And they have a chance to assess how their higher rates they put through is flowing into the economy.
However, they could also decide to have an insurance, an extra hike, just to make sure that inflation is under control.
In this case, whatever they decide tomorrow or in the coming months, we are towards the latter part end of the hiking cycle and it's not, they can shift to more waiting as to how long they have to stay there. What they have been clear on is that they want this on their toes. They don't want us to think that they are going to be cutting and interest rates will fall really quickly. Because they want to make sure again, the price stability I talked about, the demand, is more contained moving forward until the next year.
>> When I think about the bets that are placed in the market, in terms of what a central-bank is going to do, it's not that a central-bank it's more that they are beholden.
I think right now the markets are saying "I think it's a pause for this meeting." Maybe a chance later this year. We often follow that but do central banks at some point not want to disturb markets? Markets are sort of saying one thing right?
If you do another thing you're getting a bit of a dislocation of the markets.
Do they consider themselves much higher?
>> In general they provide forward guidance.
For that reason. Because they want to have normal functioning markets. The last thing they would want is they lose their credibility, which was an issue about a year ago with inflation being, running faster and they were late in controlling it.
So what they want to make sure is they are credible.
They are providing forward guidance so it's a normal healthy functioning market.
What they also don't want to do is a speculative behaviour, encourage that.
In this case, you're right. What's expected tomorrow for a Bank of Canada, even the Fed leader this month, is they will pause.
But, they want to say like "no, don't get too excited and think that that means it will be easier moving forward. Because once you do that, then behaviour picks up again and then, as I mentioned, this is a very blunt way for them to control demand.
And that is one thing they want to manage through in terms of this economic market.
> This next question we had a couple of times the Summer. It's an interesting one.
Our rate hikes making inflation worse? I mean they are raising the cost of money.
>> I think that's a fair question because of the calculation, it makes things more expensive because your mortgages become more expensive.
Even psychologically, when you think broadly, if you were a landlord and you borrowed money, you would want to have a higher rent to be paid to you because of the higher cost of your debt.
Conceptually it does make it rent more expensive, but overall, by making interest rates higher, this is a way to reduce spending and reduce demand. So the goal is to actually make things cheaper moving forward because of the reduction in demand.
On the flipside, I do want to mention that the central banks are not control supply.
So when you're talking about this, Greg, it's one thing to be a reminder of where we are in the cycle. Inflation has been under control because the supply chains have been backed.
The supply chain if she was less of an issue.
What they're trying to make sure, people make it more costly to spend.
Companies do.
Acts and paying their workers through that… But moving forward, in this type, where we are right now, we are vulnerable to supply shops.
So that is one component that central banks don't have control over.
>> You want to keep a careful eye.
I think of this morning, China inundated with reigns.
This could affect their crops. The wildfires… A lot of things that can't be controlled right?
>> Yes.
>> Interesting times indeed. Another question here.
Should investors be looking at emerging markets for does for diversification?
>> So, emerging markets, the nice thing is they have diversified or different sources of sources of economic growth. As well is the type of companies that they have.
When you think about investors there are a wide range of investors in emerging markets to have more risk and volatility in them.
It is attractive in the sense that here in Canada, the US, we are so focused on inflation.
The central banks are tightening. In some emerging market they don't have an inflation problem and they are actually easing or making it easier for people to spend and borrow.
So that is attractive. However, the rule of law, what is, you know, what is required for listed companies, governance, it varies depending on which emerging-market that you invest in.
The emerging market is many, many countries, not just one country. And there are different rules there about what other rights of investors as well as some of the government policies that they have.
That any investor needs to be mindful of.
>> Important to know, the rules and jurisdiction you're investing in. When you're talking about the fact that some of these emerging markets are not dealing with, you know, out of controlled inflation, they are actually trying to stimulate the economy, I've heard that argument then put over to say that it makes it interesting from a fixed income perspective, if they are at that point. If they are cutting, it could be something for their bond markets and you might want to take a look at.
> That's a fair point.
So to portfolio, when you have a Global Fixed Income portfolio, that something we consider. In terms of emerging-market sources of diversification of returns and the type of companies.
However, you have to think too, about being a Canadian investor and what does that currency translation look like?
Because for fixed income, you care about getting your money back and that money for the coupon and you care as a Canadian investor of getting that income and that coupon and that principal back in Canadian dollars.
So something to make it a little bit more complex.
You were investing in emerging markets.
>> A good point on that. Upfront as well.
As always at home make sure you do your own research before making any investment decisions.
We will get back to your questions with Anna Castro an asset allocation and just moments time.
A reminder of course that you get in touch with us at any time by emailing MoneyTalk Live ATD.com.
Now it's get to our educational segment of the day.
In today's education segment, were taking another look at TD's advanced dashboard. A platform designed for active traders available through TD Direct Investing.
Bryan Rogers, Senior Client Education Instructor with TD Direct Investing joins us now.
Ryan, great to see you! Let's talk about customization and advanced dashboard. We talked about it quite a bit lately.
Can you talk about a favourite way that you can update what you see on the platform?
>> Yeah absolutely Greg.
So the big difference between WebBroker and advanced dashboard is the availability to do a lot of customization.
The ability to change what you see. One of the favourite things I find on that for multiple reasons is the ability to customize a watchlist.
So you know, the users that have used WebBroker for a long timewould know that you can only do 10 symbols total per watchlist and WebBroker.
You can only do 10 watchlist total.
So if you're looking at adding a lot more symbols, you know, that gets a bit limiting.
That's one thing.
I do love in advance dashboard.
It's unlimited the number of symbols and watchlist you can create and things like that.
But, if you wanted to customize the templates, you can do that as well.
You can customize what you see in terms of the call of show there. You're not limited to what is being provided by the platform itself. Just that initial template you have and WebBroker as an example.
So we jump into advance dashboard.
I want to share my screen and show you how you can do that. There are hundreds of ways so we won't have time to go into everything. But just to give you a rough idea, we go there, I'm on the watchlist right now and you can see, I have a number of columns across the top.
There are a couple of ways you can customize these as well.
I'm on a standard view.
So one thing I want to remember and have everyone remember is that there's a template option. You can have a drop down with a number of standard templates that will be there.
You can add some custom ones as well which I will show you in a moment.
I got a standard one and I can actually change the size of these columns if I want to make up a little bit wider, kind of like if you're in Microsoft Excel, you can always change the column with.
I can sort by any of these Collins just by clicking ascending and descending if I wanted to sort by volume, for example.
And I can actually grab the column to if I want to left click and drag. I can move the call in to wherever I like. I'm not restricted to what's there.
That's a couple of simple ways you can do things. But you notice here, I want a standard and it says standard editing because I edited a little bit.
I'm on a standard platform or template and I can scroll over and you can see, as my mom used to say, there is everything but the kitchen sink.
You could even see the names here. You can drag the name over if you want to see closer to the symbol.
You have a lot of columns there that you may not want to see. So, there is a basic template so you just use that if you wanted to really quickly go. There's only just a few columns here.
Let's say you wanted somewhere in between the standard and basic and you want to just eliminate some of these extra columns. You can go to the top and go to this little hamburger menu at the top here.
You're going to go to "manage templates.
Once you're there, one of the tips and tricks we always let people know to his you can go to the standard and you can actually duplicate that.
If you go to duplicate and call it something else, let's say, custom 10 or something like that. I think I've a bunch of custom ones.
Make sure you have a unique name.
Save and all you have to do now is a add and remove whatever you don't want.
So if I take out randomly a bunch of these, I will just show you really quickly.
What it's gonna look like and what, I don't want to spend too much time but just remove an ad and since this one has just about everything in it, I can just remove that kind of stuff.
And now I'm going to have a much simpler actual template. So as I showed this, let me to show this.
Once I close it, you're gonna want to select the one that you just named. I called it custom 10, for example.
Now you can see, I have a lot less Collins. If I scroll to the right, there is quite a few less.
I did that really quickly.
You're gonna want to deal with a little more thought in there with what you want to see. But now you have a new template that you can access any time from the template drop down.
Now Bryan, in my WebBroker, I do have my watchlist but I think you set off the top, I've got 10 lists which is as far as I can go.
It sounds like you can have a lot more options with what you took me through.
> Yes yes.
You can only get those, if you're looking at more than 100, your little bit stuck on WebBroker. So good point.
I gave that away earlier that you can do more in advance dashboard. Let me take a quick jump back to WebBroker.
I want to show everybody reminder while I'm there.
In case you're wondering.
You did say, Bryan, that you did more than 100 total.
At least more than 10 watchlist it.
It's unlimited.
You can add as many symbols.
I got one here that is a Dow Jones one that I imported from a little while ago from a different platform.
But if we go once again on that hamburger menu, you will appear and you can actually import a watchlist.
If you want to import a watchlist from let's say, you're using Google financer a lot of times I hear people using for years.
You can import or export that list.
Usually there's an awful un-option to export and you can imported here.
You can import a large list.
But you don't even want to create one menu. You can go here and go to "new watchlist " he will type in a name and type in something that is unique or not there and it will get you a message. You would not want to do standard but if you did say, like, custom like I did earlier, custom five, something like that… And then go create your watchlist, it will take you to a blank screen and then you just start entering symbols and you can enter as many as you want manually.
It just add that over time. You can do that as many times as you want with as many symbols as you want to Greg.
>> All right.
You didn't give it away earlier Bryan.
We call it "tease" you whet the appetite of the audience and they want to hear more.
>> Absolutely.
>> Our thanks to Bryan Rogers, senior client education instructor at TD Direct Investing.
Make sure to check out the learning centre and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Now, before we get back your questions about asset allocation with Anna Castro, a reminder of how you can get in touch with us.
you can email us anytime at moneytalklive@td.com or you can fill in the question box right here on WebBroker.
We will see if one of our questions will be answered on MoneyTalk Live.
>> We are back with Anna Castro.
This one just coming in, this question.
(Greg reads the question) >… Very specific advice here on the platform.
But as you hear the question, what does it put to mind for you?
>> >> I like that last part of the question which is long-term growth. Yes they are very specific.
What you have is an opportunity right now is higher level of income that is possible from high quality both government and corporate bonds. So, this is important because you are able to lock that high level of income from a high interest rate environment benefiting from that right now and lock that up for a particular period.
Let's say five years.
If your view is that, while interest rates remained elevated but in about a year or so, they would be trending lower, because central-bank action, that means a GIC will not… Will have a refinancing risk. When you get your money from a GIC or any cash right now, you have to think about when that matures. What level of interest rates would you have to invest in to sustain that moving forward. Right now you have an opportunity to have high quality corporations and government as I mentioned.
This mid single digits to a little bit of low single-digit type of coupon. You could benefit from and lock that down for a certain number of years moving forward.
The nice thing about having a fixed income, public fixed income investment is that these can be sold any time as opposed to a GIC. So if things change and their opportunities arise, you have an extra option now and flexibility to invest and proceed to something else. The third component is that fixed income, public fixed income benefits from capital gains when yields go down. So when yields go down, their market price value goes up and so that is an extra benefit aside from the higher coupons.
> Which you don't get with a GIC because you've agreed, you know, this is my coupon, this is my interest rate and all you will get back is your principal.
>> Exactly I think if you were also mentioned nonregistered accounts.
So there is a tax benefit of well as well from having fixed income that the thought >> Another question came into the past couple of seconds. How long could inflation stay elevated?
What if we are not winning the battle as aggressively as we thought?
>> I wish we all had the crystal ball that I'm sure the central bankers what the crystal ball as well. In terms of how, let's start off with with the central banks expect in their forward guidance.
They expect inflation to be for both Canada and the US, to be trending, you know, like, closer to the hide to dislike towards the end of next year. One year from now, the early 2025. But, that assumes that, again, this high level of interest rate that we have reduces demand.
It can be, inflation stays elevated.
That period or shorter if, for example we have an economic slowdown in a recession.
So the demand reduction is even more material. So inflation and the price of goods and services and wages go down as you know, more people become unemployed.
Inflation can actually become less of a problem earlier in next year. If that is the situation. On the flipside, inflation could last more than another year if you have a surprise supply shock. So that is one it's more random or unforeseen at this stage. So overall, in terms of elevated inflation of let's say, 3%, three or 4% level expectation another year.
Absent a more deep economic slowdown on the horizon.
>> It will end sooner. The central banks, I think they hoped they win that battle.
>> Yes they want it all. They want to have inflation under control but not too many job losses.
And in an orderly manner.
And I think what we have is what we are in, we just have to be, they are humble in this sense that's why they are becoming data dependent and looking at the options.
But overall, I think so far, what we are seeing is that they are able to successfully drive inflation down through higher costs.
> Okay.
Here's an interesting question now.
If you were once to get your thoughts on Japanese equities. Only the past couple of months to people seem to have a little more interest in what is happening in Japan.
>> I think it was probably even triggered, aside from the price move, because Warren Buffett became quite public about investing in Japanese equities. So Japanese equities, again, you need to do your due diligence. There are many, many companies there in different sectors.
What does it offer?
Let me talk about the positive.
Japanese equities are benefiting from improved earnings growth and economic growth outlook.
The second aspect is that some investors are also appreciating the improved governance because the stock exchange has talked about "how do you improve governance and how do you address companies that have low price to book value and how do you better think about your capital allocation or the use of your cash in your balance sheet?
How do you become more efficient than your assets". So that's something getting people more interested. First of all, signs of inflation, when there was nothing before, economic activity, that is saying something's positive. There is improved governance in the UN and historically Japanese equities are cheaper and forth, because of, in the beginning of the year, those that were worried about investing directly in China, but want to benefit from the Chinese, I guess, improvement in economy in terms of some demand whether in semis or capital equipment, then Japanese companies do benefit from that. Because of the nature of the sectors of this stock exchange. However, on the flipside, is that there is been many decades of expectations gone down. After some renewed excitement and you do have, while it is still cheap in terms of valuations, it has run up quite a bit. It's all about, when you think you're investing in Japanese equities, they do introduce that diversification exposure on global growth, cheaper valuation but you have to do your research.
Because things can change really quickly.
>> You say it's been a long time. Maybe there were other times when Japan, interesting again, it didn't become interesting then.
>> Yes a decade ago people got excited over economics and then it moved and now this time we will see.
The interesting thing about the government change in Japan is it is more social pressure. So it's more about encouraging them to disclose how they are improving and managing their assets, efficiency capital allocation but there is no real stick if you are not doing that.
So the key thing here is you know, Japan social pressure doesn't matter.
The key is how they continue to exceed expectations here that's the thing with equity markets.
Fascinating stuff.
We will get back to your questions with Anna Castro on asset allocation.
Make sure to always do your own research when making investment decisions and a reminder you can get in touch with us anytime.
Our guests are eager to answer what's on your mind. Send us your questions.
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We will answer right here at MoneyTalk Live.
Canada's economy unexpectedly contracted in the second quarter, far lower than the Bank of Canada's forecast. Anthony Okolie joins us now to discuss TD Economics view on the outlook for interest rates and the economy. It was an interesting number there Anthony.
>> Yes of course and we have the Bank of Canada tomorrow and TD Economics expects the Bank of Canada will hold its key rates steady at 5%.
You also expect Bank of Canada to hold for the rest of the year as well. Of course, the latest saw GDP data has taken the pressure off of the Bank of Canada according to TD Economics. Both payrolls and TD data shows that the economy has cooled substantially after the success of hikes since March 2022. With first-quarter GDP growth going downward, second-quarter GDP contracting .2% annual rate, well below at the Bank of Canada expected at 1/2%, of course driving that week second-quarter print, we saw a steep decline in consumption growth. Both household spending actually slowed to .1%.
Well below will be so on the first quarter. This again, despite the boost from ongoing rapid population growth. That seems to suggest that the cumulative effects of the past interest rate hikes are having a real impact on budget where a Canadian households. The second-quarter household savings rate data also indicated that consumers are not really spending their wages, their wage gains.
This next chart shows, the savings rate actually edged up 1.4% points the savings data according to TD Economics suggests that things are still trending in the right direction for the Bank of Canada to meet its mandate.
Finally, when we look at what's happening in money markets, they are now pricing in a stronger odds of the Bank of Canada will hold steady at its meeting tomorrow.
Markets pricing starting the week with roughly 6 intent odds of a hike by the end of the year.
Those audits have fold back dramatically to more moderate one in 10 chance as of last Friday.
Of course, bond markets have rallied last week with both intent and five-year yields following between 50 to 25 basis points.
During that same period.
So in total, TD Economics has a case for further rate hikes, weakening last week helped lift hopes of a potential soft landing here in Canada.
Greg?
>> So we did get that modest contraction of the second quarter.
We are already living in the third quarter now.
What's the thought there?
Some people are saying "what if we are already in the middle of a technical recession?" >> TD Economics says looking ahead to the third quarter, GDP growth looks to be getting off to a weak start.
We did see stats Canada flash estimates showing the economy failing to grow in July and TD Economics says that this is sort of in line with their view that the overall economy and economic momentum will remain week for the rest of this year.
With rates said to remain well in restrictive territory, sitting at 5% right now, we will stay there the coming months, the prospect of strong growth in the second half of this year seems far off.
>> Interesting stuff.
Interesting morning tomorrow.
I know you will be all over it and I'll be talking to you and the other side but thanks Anthony.
>> Yes with that reminder, let's get the plug-in. Tomorrow I will be interviewing Maria that the thought of the economists of TD to get an immediate reaction after the Bank of Canada rate decision.
Looking forward to that of the website.
Thanks Anthony.
> My pleasure.
>> MoneyTalk Live's Anthony Okolie. Now for an update on the markets.
Let's go back into TD's advanced map here with the heat function.
Screening through the TSX 60 by price and volume. We've seen the price of American benchmark crude climb higher day after day.
Some of the big energy names, not huge moves on a daily basis but they've been drawing higher as well.
Yes Suncor taking up a lot of real estate on the screen, indicating a certain amount of volume behind that trade and again a gain of about 1.
4%.
The green on the screen seems to be pretty much that energy space. Let's take a look down at the materials, under some pressure with some gold miners.
Some of the miners of exposure, to other metals. First Quantum standing there almost 5% at this hour.
We can look south of the border as well, speeding through the S&P 100. A bit of a mixed bag among these names.
Not tonight give a lot of rhyme or reason.
Tesla now clearly dominating the middle of the screen with a jump of about 4 1/2%.
You start getting into the tech space and it's a big mix you've got Amazon, down modestly, Microsoft up modestly, even the chipmakers, depending on which ones you parse through, that's not a very coherent story.
Short trading week.
We will see how it all shakes out. You can get more information on TD advanced dashboard by visiting td.com/advanced dashboard.
We are back now with Anna Castro from TD Asset Management taking your questions.
Here is an interesting one.
>> It is still a concern.
The regional banks and I think, you've also noticed the last few months you have their credit rate reaching and two of them came back with more of other commentary in terms of the risk of the banking sector.
What was positive was the decisive factor in action from authorities with regulators as well as from the central banks who calmed the markets to make sure there is liquidity in the system. However, the foundational aspect of the regional banks, they are very exposed in commercial real estate.
The commercial real estate sector, the challenges remain when you see offices in the asset class and commercial real estate as well as in different types of the concentration of those regional banks. So that is something that is been flagged and remains more importantly, there is increased regulation in the regional banks which means that they will need to put up more capital.
He will be more costly for them and the other component is that they will have to be more concerned about how much they can actually let down. So more capital requirements for regional banks because they were not as regulated before and that means they will have availability what they will lend out.
>> A lot of challenges for the space.
Obviously, some of the smaller banks and regionals are more tied to an economy as well.
So if we get a recession, that's a downside.
But if you get a lift off at some point, with that help the space or is there too many issues?
>> The regional banks in general, by location specifics, the regional banks are specific as well. There are very exposed to small, medium types of businesses. So when you think of… There is this time compared to other, other global financial crisis, you've had increasing bankruptcies in difficulties and small companies.
And in that case, they would also be more exposed there.
But let's say you have suddenly, all these small and medium companies are able to get through and not have all those difficulties, no bankruptcies, the consumer remain strong, then the regional banks would benefit in terms of their earnings outlook.
>> Anna, always a pleasure having you great insights looking for to the next time.
>> Thank you so much.
>> Our thanks to Anna Castro, managing director at retail asset allocation at TD Asset Management, be sure to do your own research before making investment decisions.
Stay tuned on Wednesday, Andrew Kelvin head of Canadian and global rate strategy at TD Securities will be our guest taking your questions with the economy and interest rates.
A reminder you can get a head start just email moneytalklive@td. com.
That's all the time we have for today thanks for watching. We will see you tomorrow.
[music]
The central banks potentially across discussing the future path of rates and what it means for asset prices.
MoneyTalk's Anthony Okolie will give us a preview on what to expectemail MoneyTalk Live ATD.com or Philip of your response box in the video player on WebBroker. Now before we get to our guest of the day let's get you an update on the markets.
First a trading day.
A shortened week.
Both the Americans and here at home of course at a Labor Day long weekend.
Not too much momentum to the up side with 79 points with the TSX Composite Index.
Nothing too severe.
About 1/3 of a percent. Among the most actively traded names on the TSX that the sour include some of the energy names.
Crude oil continuing to press higher. West Texas intermediate my screen.
Just a bit below 88 bucks a barrel. It's been sort of a grind on a gradual basis, higher and higher for crude prices.
Same for all the energy names. Athabasca oil at three bucks and $0.99 a share up about 2.3%.
Gold is not telling the same story. We have some pressure on some of the names including B-2, with four bucks and $0.10 a share. Down a little more than 2%.
South of the border let's check on the S&P 500. 12 points in the hole, nothing too dramatic. About 1/4%. The tech heavy NASDAQ. It seems to be a big mixed bag right now. The tech names, the headlight on the NASDAQ is down 19 points. A little more than 1/10 of a percent.
Notice in Carnival Corporation, West Carnival Cruise Lines on the move today at 15 bucks and $0.44 a share, down about two and half percent the to start the short week. week.
Central banks may be at a crossroads as we begin to see signs of slowing economy. So what does it all mean for us at prices heading into the fall?
Joining us now to discuss, Anna Castro, Managing Director and how retail asset allocation at TD Asset Management.
Anna great to have you on the show.
>> Thank you nice to be here.
>> We've come out of a long weekend and you have a sense that people are more serious, getting back to their desks. We have interest-rate announcements this month. We had a run of economic data through this Summer. A bit mixed but some signs of slowing.
What can at all mean for central banks?
>> It gives the central bag options on how to manage the path from here.
They want to be data dependent. Because they've had over a year of aggressive rate increases, both in Canada, Bank of Canada as well as Federal Reserve.
You seen some economic data slowness from economic activity, spending.
Wage is increasing, if not as hot as they were before.
People still remain employed.
On the flipside, inflation is also been trending lower. From high single digits before, more than the 4% handle and it could be at the high threes, however, it still did not totally under control in the central bankers can move past it and say "we have won the war".
So from here on forward, they want to watch how the data indicates how their tightening has flowed into the system. The economy, corporations and consumers. But what they want to have his flexibility to go back and make sure that inflation is trending to where they would be comfortable.
>> You get a sense when you hear from our central-bank governor, Jay Powell, south of the border, a real reticence to say "mission accomplished". They don't want to declare the fight as one.
It could have dangerous consequences on the other side.
>> Yes. They want to make sure that inflation is the priority right now.
The other component of their mandate is to make sure that there is full employment.
Employment labour, as I mentioned, is pretty strong. So that's not a worry.
Growth is okay as long as it's resilient.
If anything, they want to make sure that they don't of inflationary pressures come back because we've had some of those where there we are rearing their head and they want to make surethat it is controlled.
> If we take them at their word, they've been, they may not be telling us that if they need to go a little more they will, then they will stay there for a while.
Keeping interest rates elevated. If that's the reality that we are looking at, maybe no more hikes? Maybe a hike or two depending on the data coming in as you said.
What is it actually mean for us at prices?
>> In terms of asset prices, you have more options for income.
In this environment, you have fixed income, bond yields are higher which means, unlike what we had in prior decades, you have a higher level, if income for example, a basket of bonds, high-quality government and corporate to give you about 5% which you haven't seen in multiple decades.
That also means you have GICs, high savings account offering alternatives in terms of high levels of income compared to equities.
And so, you have more choices in terms of your investment universe.
However, that also means higher bond yields will impact valuations. So that will also pressure prices of the equity market which has had a very strong year today.
To date. It's all about managing expectations from where we are here. The other component he was a high level of interest rate is not just about evaluation but also it is a way to curtail demand.
It's higher cost of debt, higher cost of spending, so this could also impact economic growth and expectations moving forward.
So if we expect higher interest rates than we had before, higher cost of spending, you could have lower economic growth moving forward and that means earnings expectations should also come down.
>> This is what the central banks of trying to engineer.
There is saying "inflation was way too high for comfort and we need to bring it down to do that" slower economy means lower labour market.
At this point, where we are, perhaps at a crossroads for the central banks, are we at a crossroads for the economy?
What is the economy telling us about what we where we are in the cycle?
>> We are in the late stage of the cycle.
So far, the economy is been resilient because of the strong labour market.
The key question here is, you know, central banks, when they increase increased interest rates, they try to impact demand but it's very blunt and it takes time to flow through. So we are like a little debt over here. Next year, you will have more time for this tightening to flow through. In the late stage of the economy, you really need to think about quality of your investments.
First of all, you need to think of at the price that you bought that investment because you need your, the price that you pay impacts your long-term returns in that investment. Second, having a good source of income.
Helps you whether through you yourself as an investor, higher interest rates and higher inflation or inflation higher than before.
The other component two is to make sure that the companies that you lend to, as well as that your body, have the capability to whether this wide range of economic environment to be able to stand a weakening economic demand. To be able to price and price increases if needed, have different sources of demand for their goods and services and have a strong balance sheet to have access to capital and be able to be affording a higher cost of interest when they have to refinance their debt moving forward.
And so, in that type of environment, as an investor, you have to really think and do your due diligence.
Different scenarios sources of cash flows of what you are investing into, whether it's a fixed income, equities, or alternatives.
And it's important to have a diversified investment so that you have different sources of returns there.
And they can account different types of horizons.
So what I'm saying is not to put all your eggs in one basket and what has worked, perhaps last year or early this year.
It may not work moving forward, important to assess really what you're buying into and which are holding in your portfolio.
>> I wanted to ask you about that about what is work so far going forward.
Certain parts of the equity market whether tech, particularly big tech in the US is that a good run so far this year, starting to see oil companies gaining off the back of crude, is the market being a little too optimistic that you get the no landing, the soft landing… Everybody will be just fine with inflation under control and no one gets hurt?
>> The fixed income market has seen volatility the past few weeks.
Your seeing volatility of the bond side.
With the equity market, yes we do believe it is more complacent.
You're not seeing as much volatility there and they are expecting for example, the S&P 500 next year, earnings growth of 12%.
That is quite high later in the cycle. So, the situation is quite fluid.
What is happened this year, because coming into this year, people expected worse from a recession early on.
You've had a relief saying things are better or the worst is behind us.
What is being priced in is the worst is behind us. Moving forward, earnings is expected to grow 12%.
Expectation as well is that you would have easier financial conditions.
In the past few months, you had a lot of short coverings.
So that is why the market, the equity market has done quite well. And in that case, the price action of both equities and high-yield credit has given people more confidence feeling that the worst is behind us.
But in reality, what we would like to highlight is that the price action is one thing, the other components that we make sure is the earnings model of these companies, the sources of cash flows remain resilient as we enter a late stage of the cycle where there are different types of economic outcomes and financial conditions that could be possible. Or even like not just higher interest rate for longer, but also a higher than in the past inflation rate. So all of this has to come into play before quickly thinking that everything is going to be like it was before.
Earnings will accelerate and the Fed will cut and that means lower interest rates like it was in the pasI think it's important to be prudent and thoughtful of the process.
>> Great insights as always with Anna Castro.
A reminder of courseyou can get in touch with us at any time by emailing moneytalklive@td.com or fill out the viewer response box.
Now here's an update on the top stories in the world of business and a look at how the markets are trading.
Semiconductor maker ARM has set up a price range for its upcoming initial public offering which could see it valued at up to $52 billion.
The offering price range of $47-$51 a share is laid out in a new filing with US regulators.
Less than 10% of arms shares will trade in New York and the remaining shares will be owned by Softbank – which acquired the British ship design company in 2016.
The ongoing Hollywood writers and actors strike is hitting the bottom line of at least one studio.
Warner Bros.
discovery says the labour action could shave up to $500 million off earnings this year. That said, Warner Bros. is forecasting adjusted annual profit up to one $11 billion in large part due to the blockbuster success of the movie Barbie.
Saudi Arabia says it will extend its voluntarily oil production cut of 1 million barrels per day until the end of the year. That's on top of almost 1.7 million barrel per day of voluntary cuts from other OPEC+ members.
The International Energy Agency says oil supply could become tighter in coming months if China sees a recovery in demand.
Here's a quick check on the markets right now. We have a ghost in the machine.
But right now off to a bit of a weak start on both Bay and Wall Street. A short trading week indeed.
We are back now with Anna Castro taking your questions about asset allocation.
Let's get to them.
The big event of the week for us here in Canada comes tomorrow. What to expect for the Bank of Canada on Wednesday?
>> So the Bank of Canada has a choice to pause.
They have a little bit of buffering mainly because some of their recent economic data has shown that it's weaker.
And they have a chance to assess how their higher rates they put through is flowing into the economy.
However, they could also decide to have an insurance, an extra hike, just to make sure that inflation is under control.
In this case, whatever they decide tomorrow or in the coming months, we are towards the latter part end of the hiking cycle and it's not, they can shift to more waiting as to how long they have to stay there. What they have been clear on is that they want this on their toes. They don't want us to think that they are going to be cutting and interest rates will fall really quickly. Because they want to make sure again, the price stability I talked about, the demand, is more contained moving forward until the next year.
>> When I think about the bets that are placed in the market, in terms of what a central-bank is going to do, it's not that a central-bank it's more that they are beholden.
I think right now the markets are saying "I think it's a pause for this meeting." Maybe a chance later this year. We often follow that but do central banks at some point not want to disturb markets? Markets are sort of saying one thing right?
If you do another thing you're getting a bit of a dislocation of the markets.
Do they consider themselves much higher?
>> In general they provide forward guidance.
For that reason. Because they want to have normal functioning markets. The last thing they would want is they lose their credibility, which was an issue about a year ago with inflation being, running faster and they were late in controlling it.
So what they want to make sure is they are credible.
They are providing forward guidance so it's a normal healthy functioning market.
What they also don't want to do is a speculative behaviour, encourage that.
In this case, you're right. What's expected tomorrow for a Bank of Canada, even the Fed leader this month, is they will pause.
But, they want to say like "no, don't get too excited and think that that means it will be easier moving forward. Because once you do that, then behaviour picks up again and then, as I mentioned, this is a very blunt way for them to control demand.
And that is one thing they want to manage through in terms of this economic market.
> This next question we had a couple of times the Summer. It's an interesting one.
Our rate hikes making inflation worse? I mean they are raising the cost of money.
>> I think that's a fair question because of the calculation, it makes things more expensive because your mortgages become more expensive.
Even psychologically, when you think broadly, if you were a landlord and you borrowed money, you would want to have a higher rent to be paid to you because of the higher cost of your debt.
Conceptually it does make it rent more expensive, but overall, by making interest rates higher, this is a way to reduce spending and reduce demand. So the goal is to actually make things cheaper moving forward because of the reduction in demand.
On the flipside, I do want to mention that the central banks are not control supply.
So when you're talking about this, Greg, it's one thing to be a reminder of where we are in the cycle. Inflation has been under control because the supply chains have been backed.
The supply chain if she was less of an issue.
What they're trying to make sure, people make it more costly to spend.
Companies do.
Acts and paying their workers through that… But moving forward, in this type, where we are right now, we are vulnerable to supply shops.
So that is one component that central banks don't have control over.
>> You want to keep a careful eye.
I think of this morning, China inundated with reigns.
This could affect their crops. The wildfires… A lot of things that can't be controlled right?
>> Yes.
>> Interesting times indeed. Another question here.
Should investors be looking at emerging markets for does for diversification?
>> So, emerging markets, the nice thing is they have diversified or different sources of sources of economic growth. As well is the type of companies that they have.
When you think about investors there are a wide range of investors in emerging markets to have more risk and volatility in them.
It is attractive in the sense that here in Canada, the US, we are so focused on inflation.
The central banks are tightening. In some emerging market they don't have an inflation problem and they are actually easing or making it easier for people to spend and borrow.
So that is attractive. However, the rule of law, what is, you know, what is required for listed companies, governance, it varies depending on which emerging-market that you invest in.
The emerging market is many, many countries, not just one country. And there are different rules there about what other rights of investors as well as some of the government policies that they have.
That any investor needs to be mindful of.
>> Important to know, the rules and jurisdiction you're investing in. When you're talking about the fact that some of these emerging markets are not dealing with, you know, out of controlled inflation, they are actually trying to stimulate the economy, I've heard that argument then put over to say that it makes it interesting from a fixed income perspective, if they are at that point. If they are cutting, it could be something for their bond markets and you might want to take a look at.
> That's a fair point.
So to portfolio, when you have a Global Fixed Income portfolio, that something we consider. In terms of emerging-market sources of diversification of returns and the type of companies.
However, you have to think too, about being a Canadian investor and what does that currency translation look like?
Because for fixed income, you care about getting your money back and that money for the coupon and you care as a Canadian investor of getting that income and that coupon and that principal back in Canadian dollars.
So something to make it a little bit more complex.
You were investing in emerging markets.
>> A good point on that. Upfront as well.
As always at home make sure you do your own research before making any investment decisions.
We will get back to your questions with Anna Castro an asset allocation and just moments time.
A reminder of course that you get in touch with us at any time by emailing MoneyTalk Live ATD.com.
Now it's get to our educational segment of the day.
In today's education segment, were taking another look at TD's advanced dashboard. A platform designed for active traders available through TD Direct Investing.
Bryan Rogers, Senior Client Education Instructor with TD Direct Investing joins us now.
Ryan, great to see you! Let's talk about customization and advanced dashboard. We talked about it quite a bit lately.
Can you talk about a favourite way that you can update what you see on the platform?
>> Yeah absolutely Greg.
So the big difference between WebBroker and advanced dashboard is the availability to do a lot of customization.
The ability to change what you see. One of the favourite things I find on that for multiple reasons is the ability to customize a watchlist.
So you know, the users that have used WebBroker for a long timewould know that you can only do 10 symbols total per watchlist and WebBroker.
You can only do 10 watchlist total.
So if you're looking at adding a lot more symbols, you know, that gets a bit limiting.
That's one thing.
I do love in advance dashboard.
It's unlimited the number of symbols and watchlist you can create and things like that.
But, if you wanted to customize the templates, you can do that as well.
You can customize what you see in terms of the call of show there. You're not limited to what is being provided by the platform itself. Just that initial template you have and WebBroker as an example.
So we jump into advance dashboard.
I want to share my screen and show you how you can do that. There are hundreds of ways so we won't have time to go into everything. But just to give you a rough idea, we go there, I'm on the watchlist right now and you can see, I have a number of columns across the top.
There are a couple of ways you can customize these as well.
I'm on a standard view.
So one thing I want to remember and have everyone remember is that there's a template option. You can have a drop down with a number of standard templates that will be there.
You can add some custom ones as well which I will show you in a moment.
I got a standard one and I can actually change the size of these columns if I want to make up a little bit wider, kind of like if you're in Microsoft Excel, you can always change the column with.
I can sort by any of these Collins just by clicking ascending and descending if I wanted to sort by volume, for example.
And I can actually grab the column to if I want to left click and drag. I can move the call in to wherever I like. I'm not restricted to what's there.
That's a couple of simple ways you can do things. But you notice here, I want a standard and it says standard editing because I edited a little bit.
I'm on a standard platform or template and I can scroll over and you can see, as my mom used to say, there is everything but the kitchen sink.
You could even see the names here. You can drag the name over if you want to see closer to the symbol.
You have a lot of columns there that you may not want to see. So, there is a basic template so you just use that if you wanted to really quickly go. There's only just a few columns here.
Let's say you wanted somewhere in between the standard and basic and you want to just eliminate some of these extra columns. You can go to the top and go to this little hamburger menu at the top here.
You're going to go to "manage templates.
Once you're there, one of the tips and tricks we always let people know to his you can go to the standard and you can actually duplicate that.
If you go to duplicate and call it something else, let's say, custom 10 or something like that. I think I've a bunch of custom ones.
Make sure you have a unique name.
Save and all you have to do now is a add and remove whatever you don't want.
So if I take out randomly a bunch of these, I will just show you really quickly.
What it's gonna look like and what, I don't want to spend too much time but just remove an ad and since this one has just about everything in it, I can just remove that kind of stuff.
And now I'm going to have a much simpler actual template. So as I showed this, let me to show this.
Once I close it, you're gonna want to select the one that you just named. I called it custom 10, for example.
Now you can see, I have a lot less Collins. If I scroll to the right, there is quite a few less.
I did that really quickly.
You're gonna want to deal with a little more thought in there with what you want to see. But now you have a new template that you can access any time from the template drop down.
Now Bryan, in my WebBroker, I do have my watchlist but I think you set off the top, I've got 10 lists which is as far as I can go.
It sounds like you can have a lot more options with what you took me through.
> Yes yes.
You can only get those, if you're looking at more than 100, your little bit stuck on WebBroker. So good point.
I gave that away earlier that you can do more in advance dashboard. Let me take a quick jump back to WebBroker.
I want to show everybody reminder while I'm there.
In case you're wondering.
You did say, Bryan, that you did more than 100 total.
At least more than 10 watchlist it.
It's unlimited.
You can add as many symbols.
I got one here that is a Dow Jones one that I imported from a little while ago from a different platform.
But if we go once again on that hamburger menu, you will appear and you can actually import a watchlist.
If you want to import a watchlist from let's say, you're using Google financer a lot of times I hear people using for years.
You can import or export that list.
Usually there's an awful un-option to export and you can imported here.
You can import a large list.
But you don't even want to create one menu. You can go here and go to "new watchlist " he will type in a name and type in something that is unique or not there and it will get you a message. You would not want to do standard but if you did say, like, custom like I did earlier, custom five, something like that… And then go create your watchlist, it will take you to a blank screen and then you just start entering symbols and you can enter as many as you want manually.
It just add that over time. You can do that as many times as you want with as many symbols as you want to Greg.
>> All right.
You didn't give it away earlier Bryan.
We call it "tease" you whet the appetite of the audience and they want to hear more.
>> Absolutely.
>> Our thanks to Bryan Rogers, senior client education instructor at TD Direct Investing.
Make sure to check out the learning centre and WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Now, before we get back your questions about asset allocation with Anna Castro, a reminder of how you can get in touch with us.
you can email us anytime at moneytalklive@td.com or you can fill in the question box right here on WebBroker.
We will see if one of our questions will be answered on MoneyTalk Live.
>> We are back with Anna Castro.
This one just coming in, this question.
(Greg reads the question) >… Very specific advice here on the platform.
But as you hear the question, what does it put to mind for you?
>> >> I like that last part of the question which is long-term growth. Yes they are very specific.
What you have is an opportunity right now is higher level of income that is possible from high quality both government and corporate bonds. So, this is important because you are able to lock that high level of income from a high interest rate environment benefiting from that right now and lock that up for a particular period.
Let's say five years.
If your view is that, while interest rates remained elevated but in about a year or so, they would be trending lower, because central-bank action, that means a GIC will not… Will have a refinancing risk. When you get your money from a GIC or any cash right now, you have to think about when that matures. What level of interest rates would you have to invest in to sustain that moving forward. Right now you have an opportunity to have high quality corporations and government as I mentioned.
This mid single digits to a little bit of low single-digit type of coupon. You could benefit from and lock that down for a certain number of years moving forward.
The nice thing about having a fixed income, public fixed income investment is that these can be sold any time as opposed to a GIC. So if things change and their opportunities arise, you have an extra option now and flexibility to invest and proceed to something else. The third component is that fixed income, public fixed income benefits from capital gains when yields go down. So when yields go down, their market price value goes up and so that is an extra benefit aside from the higher coupons.
> Which you don't get with a GIC because you've agreed, you know, this is my coupon, this is my interest rate and all you will get back is your principal.
>> Exactly I think if you were also mentioned nonregistered accounts.
So there is a tax benefit of well as well from having fixed income that the thought >> Another question came into the past couple of seconds. How long could inflation stay elevated?
What if we are not winning the battle as aggressively as we thought?
>> I wish we all had the crystal ball that I'm sure the central bankers what the crystal ball as well. In terms of how, let's start off with with the central banks expect in their forward guidance.
They expect inflation to be for both Canada and the US, to be trending, you know, like, closer to the hide to dislike towards the end of next year. One year from now, the early 2025. But, that assumes that, again, this high level of interest rate that we have reduces demand.
It can be, inflation stays elevated.
That period or shorter if, for example we have an economic slowdown in a recession.
So the demand reduction is even more material. So inflation and the price of goods and services and wages go down as you know, more people become unemployed.
Inflation can actually become less of a problem earlier in next year. If that is the situation. On the flipside, inflation could last more than another year if you have a surprise supply shock. So that is one it's more random or unforeseen at this stage. So overall, in terms of elevated inflation of let's say, 3%, three or 4% level expectation another year.
Absent a more deep economic slowdown on the horizon.
>> It will end sooner. The central banks, I think they hoped they win that battle.
>> Yes they want it all. They want to have inflation under control but not too many job losses.
And in an orderly manner.
And I think what we have is what we are in, we just have to be, they are humble in this sense that's why they are becoming data dependent and looking at the options.
But overall, I think so far, what we are seeing is that they are able to successfully drive inflation down through higher costs.
> Okay.
Here's an interesting question now.
If you were once to get your thoughts on Japanese equities. Only the past couple of months to people seem to have a little more interest in what is happening in Japan.
>> I think it was probably even triggered, aside from the price move, because Warren Buffett became quite public about investing in Japanese equities. So Japanese equities, again, you need to do your due diligence. There are many, many companies there in different sectors.
What does it offer?
Let me talk about the positive.
Japanese equities are benefiting from improved earnings growth and economic growth outlook.
The second aspect is that some investors are also appreciating the improved governance because the stock exchange has talked about "how do you improve governance and how do you address companies that have low price to book value and how do you better think about your capital allocation or the use of your cash in your balance sheet?
How do you become more efficient than your assets". So that's something getting people more interested. First of all, signs of inflation, when there was nothing before, economic activity, that is saying something's positive. There is improved governance in the UN and historically Japanese equities are cheaper and forth, because of, in the beginning of the year, those that were worried about investing directly in China, but want to benefit from the Chinese, I guess, improvement in economy in terms of some demand whether in semis or capital equipment, then Japanese companies do benefit from that. Because of the nature of the sectors of this stock exchange. However, on the flipside, is that there is been many decades of expectations gone down. After some renewed excitement and you do have, while it is still cheap in terms of valuations, it has run up quite a bit. It's all about, when you think you're investing in Japanese equities, they do introduce that diversification exposure on global growth, cheaper valuation but you have to do your research.
Because things can change really quickly.
>> You say it's been a long time. Maybe there were other times when Japan, interesting again, it didn't become interesting then.
>> Yes a decade ago people got excited over economics and then it moved and now this time we will see.
The interesting thing about the government change in Japan is it is more social pressure. So it's more about encouraging them to disclose how they are improving and managing their assets, efficiency capital allocation but there is no real stick if you are not doing that.
So the key thing here is you know, Japan social pressure doesn't matter.
The key is how they continue to exceed expectations here that's the thing with equity markets.
Fascinating stuff.
We will get back to your questions with Anna Castro on asset allocation.
Make sure to always do your own research when making investment decisions and a reminder you can get in touch with us anytime.
Our guests are eager to answer what's on your mind. Send us your questions.
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Canada's economy unexpectedly contracted in the second quarter, far lower than the Bank of Canada's forecast. Anthony Okolie joins us now to discuss TD Economics view on the outlook for interest rates and the economy. It was an interesting number there Anthony.
>> Yes of course and we have the Bank of Canada tomorrow and TD Economics expects the Bank of Canada will hold its key rates steady at 5%.
You also expect Bank of Canada to hold for the rest of the year as well. Of course, the latest saw GDP data has taken the pressure off of the Bank of Canada according to TD Economics. Both payrolls and TD data shows that the economy has cooled substantially after the success of hikes since March 2022. With first-quarter GDP growth going downward, second-quarter GDP contracting .2% annual rate, well below at the Bank of Canada expected at 1/2%, of course driving that week second-quarter print, we saw a steep decline in consumption growth. Both household spending actually slowed to .1%.
Well below will be so on the first quarter. This again, despite the boost from ongoing rapid population growth. That seems to suggest that the cumulative effects of the past interest rate hikes are having a real impact on budget where a Canadian households. The second-quarter household savings rate data also indicated that consumers are not really spending their wages, their wage gains.
This next chart shows, the savings rate actually edged up 1.4% points the savings data according to TD Economics suggests that things are still trending in the right direction for the Bank of Canada to meet its mandate.
Finally, when we look at what's happening in money markets, they are now pricing in a stronger odds of the Bank of Canada will hold steady at its meeting tomorrow.
Markets pricing starting the week with roughly 6 intent odds of a hike by the end of the year.
Those audits have fold back dramatically to more moderate one in 10 chance as of last Friday.
Of course, bond markets have rallied last week with both intent and five-year yields following between 50 to 25 basis points.
During that same period.
So in total, TD Economics has a case for further rate hikes, weakening last week helped lift hopes of a potential soft landing here in Canada.
Greg?
>> So we did get that modest contraction of the second quarter.
We are already living in the third quarter now.
What's the thought there?
Some people are saying "what if we are already in the middle of a technical recession?" >> TD Economics says looking ahead to the third quarter, GDP growth looks to be getting off to a weak start.
We did see stats Canada flash estimates showing the economy failing to grow in July and TD Economics says that this is sort of in line with their view that the overall economy and economic momentum will remain week for the rest of this year.
With rates said to remain well in restrictive territory, sitting at 5% right now, we will stay there the coming months, the prospect of strong growth in the second half of this year seems far off.
>> Interesting stuff.
Interesting morning tomorrow.
I know you will be all over it and I'll be talking to you and the other side but thanks Anthony.
>> Yes with that reminder, let's get the plug-in. Tomorrow I will be interviewing Maria that the thought of the economists of TD to get an immediate reaction after the Bank of Canada rate decision.
Looking forward to that of the website.
Thanks Anthony.
> My pleasure.
>> MoneyTalk Live's Anthony Okolie. Now for an update on the markets.
Let's go back into TD's advanced map here with the heat function.
Screening through the TSX 60 by price and volume. We've seen the price of American benchmark crude climb higher day after day.
Some of the big energy names, not huge moves on a daily basis but they've been drawing higher as well.
Yes Suncor taking up a lot of real estate on the screen, indicating a certain amount of volume behind that trade and again a gain of about 1.
4%.
The green on the screen seems to be pretty much that energy space. Let's take a look down at the materials, under some pressure with some gold miners.
Some of the miners of exposure, to other metals. First Quantum standing there almost 5% at this hour.
We can look south of the border as well, speeding through the S&P 100. A bit of a mixed bag among these names.
Not tonight give a lot of rhyme or reason.
Tesla now clearly dominating the middle of the screen with a jump of about 4 1/2%.
You start getting into the tech space and it's a big mix you've got Amazon, down modestly, Microsoft up modestly, even the chipmakers, depending on which ones you parse through, that's not a very coherent story.
Short trading week.
We will see how it all shakes out. You can get more information on TD advanced dashboard by visiting td.com/advanced dashboard.
We are back now with Anna Castro from TD Asset Management taking your questions.
Here is an interesting one.
>> It is still a concern.
The regional banks and I think, you've also noticed the last few months you have their credit rate reaching and two of them came back with more of other commentary in terms of the risk of the banking sector.
What was positive was the decisive factor in action from authorities with regulators as well as from the central banks who calmed the markets to make sure there is liquidity in the system. However, the foundational aspect of the regional banks, they are very exposed in commercial real estate.
The commercial real estate sector, the challenges remain when you see offices in the asset class and commercial real estate as well as in different types of the concentration of those regional banks. So that is something that is been flagged and remains more importantly, there is increased regulation in the regional banks which means that they will need to put up more capital.
He will be more costly for them and the other component is that they will have to be more concerned about how much they can actually let down. So more capital requirements for regional banks because they were not as regulated before and that means they will have availability what they will lend out.
>> A lot of challenges for the space.
Obviously, some of the smaller banks and regionals are more tied to an economy as well.
So if we get a recession, that's a downside.
But if you get a lift off at some point, with that help the space or is there too many issues?
>> The regional banks in general, by location specifics, the regional banks are specific as well. There are very exposed to small, medium types of businesses. So when you think of… There is this time compared to other, other global financial crisis, you've had increasing bankruptcies in difficulties and small companies.
And in that case, they would also be more exposed there.
But let's say you have suddenly, all these small and medium companies are able to get through and not have all those difficulties, no bankruptcies, the consumer remain strong, then the regional banks would benefit in terms of their earnings outlook.
>> Anna, always a pleasure having you great insights looking for to the next time.
>> Thank you so much.
>> Our thanks to Anna Castro, managing director at retail asset allocation at TD Asset Management, be sure to do your own research before making investment decisions.
Stay tuned on Wednesday, Andrew Kelvin head of Canadian and global rate strategy at TD Securities will be our guest taking your questions with the economy and interest rates.
A reminder you can get a head start just email moneytalklive@td. com.
That's all the time we have for today thanks for watching. We will see you tomorrow.
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