Bart Melek

[music] Hello, I'm Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. every day I'll be joined by guests from across TD many of whom you'll only see here. We'll take you through its moving the markets and answer your questions about investing. Coming up on today's show: we'll discuss the tug-of-war in the oil market between growth and concerns about tight supply with Bart Melek Head of Commodities Strategy with TD Securities. And in today's WebBroker education segment, Nugwa Haruna will show us how to find company financial statements on the platform. And here's how you can get in touch with us. Just email moneytalklive@td.com or fellows of your response box under the video player here on WebBroker. Before we get to our guests today let's get you an update on the markets. A bit of a rough start to the trading week after the downside in that risk sentiment that took hold on Friday heading into the weekend. Right now, the TSX, 19,936 down 175 point a little less than a full percent. We are seeing a sizable pullback in the price of crude today. A lot of volatility in that space. A lot of big energy names under pressure. Let's check in on Manulife. Seeing a lot of weakness across a lot of sectors right now. Down about 2 1/2%. On Wall Street, we have some selling pressure as well, the S&P 500, the broader read of the American market right now down to the tune of almost 70 points where we start the trading week at about 1.6%. Seeing some weakness in the tech names. Obviously when the risk comes off, it seems the tech names lead the way in terms of taking the brunt. The NASDAQ 100 down now more than a full 2%. And some of the energy names under pressure as well including Occidental Petroleum as well, now little more than 3%. An aftermarket update. The price of oil is back below $90 a barrel as investors continue to weigh recession fears with concerns in a tight supply. Joining us now to discuss the outlook for the energy market is Bart Melek, Head of Commodities Strategy with TD Securities. A lot of questions about where were at at. Enlighten us. >> Wonderful to be here again. Are the reason there is downside pressure is very poor performance in China. In fact, TD securities believes that growth for this year will probably have a two hand on it. … Possibly headed for a recession. The Federal Reserve may not pivot in early February like we've seen the bond market price that we could have higher rates for longer. And that all means that oil demand now currently estimated at well over 2 million barrels per day growth in 2023 may not actually materialize indeed. TD securities, in fact, I have modelled significantly lower it may be, between 1.2 to 1.5 million barrels. When I take that data into my model, I come up with a surplus in the third quarter. Probably balanced market in the fourth quarter. And that, basically means that the crisis pricing for the big risk of disruptions get priced out of the market and that would explain much of what we have seen on the downside with crude markets. >> You brought some great charts. This one actually illustrates the weakening of commodity demand that you were just talking about. Please walk us through the picture and what it means for the audience. >> What this is is a proprietary estimate of rare demand trends moving for commodities. This is very much based on the pricing. But those price signals do not come out of a vacuum. This is very much based fundamentally on very poor Chinese data. As we, all I think all know now, we continue to have a COVID zero policy in that area. Industrial activity is pointing to a contraction in the next few months. We have seen recently the stalling of movement, tracking or essentially mobility data. It is also showing that mobility is not really recovering as much as we thought. But aside from the demand side of the equation, there is a big risk of a large increase in supply coming from Iran. And that is on the potential solution to the Iran nuclear problem. Where the United States and, you know, we quite define those P5, permanent members +1, Germany, thinking of making a deal which would allow Iran access to the global market again. Of course, they would have to conform to some limitations on their nuclear program. But essentially, that is that to potentially 1 million barrels of crude within the next 12 months. >> You had a great tournament as well. I ran on the prospects of a deal… Let's see in terms of, this is a question too, we know they have welled up in the global market. How quickly can they return that oil to the market? It looks like this graph… Please explain this to quickly to the audience. >> Based on history of 2015 when the fields at that time were not really damaged, we really see no evidence that the current fields in Iran have been damaged permanently. So they can most likely introduce .2 million barrels of new supply within a month. Some .7 million barrels in the next six months and .9 to 1 million barrels within one month. And there is one very important element to remember. They have 100 million barrels of inventory of petroleum products and crude that can be deployed in fairly quick order. Last time around, when the P5 plus one nuclear deal allowed I ran to reenter the global market, we have seen a reduction in price from 52, that was the price when the deal was announced. Then a month later on August 29, we saw maybe $32. That is something I wrote about last Wednesday in the publication. >> If we didn't get a deal, let's play the other side, if we didn't get a deal, because we document this for quite some time, are there other areas? I think of OPEC and its ability to be that swing participant. I think we had some warnings from OPEC themselves. Perhaps we can't wrap up quite as quickly as the world thinks we can in times of tightness. >> We certainly think that's a problem. That's been a problem for quite a long time where OPEC has promised to deliver a lot more crude than they actually did. In fact, this time around last month, they promised 648,000 barrel increase. They did not deliver. And I think there is very little possibility that they could deliver as much crude as many people think they have. That could be strategic. That could be due to constraints in the oil fields. But we also know that they have the ability to keep markets quite tight for a variety of reasons. Some strategic. Some logistical and technological reasons. The issue of course within OPEC is that the countries that have the quotas don't have supply and the ones that don't have the supply have the quotas. So there would have to be some sort of reordering of policy within their organization. But I don't think at this point, that is going to be an issue. Everyone is focusing on a slowdown in demand and certainly the forward markets are… And we have seen strategic traders remove some of that positioning and we have seen outflows over the last month or so from long positions into a more neutral stance. > Speaking of policy, adding into a midterm election cycle in the United States, the Biden administration has good reason to want to bring down, which we've seen, the price of the pump come down over the past several weeks, but keep them down and push them even lower. Voters get angry when more and more of their money is going into the tanks. How influential has the Biden administration been in the crew to trade? >> They have been very influential. One, they have directed the strategic petroleum reserve for a significant amount of crude. The sum of 1 million barrels a day. Without that, these markets would have been much, much, much tighter. While we are somewhat negative, you couldn't really say we are overly negative. We are still looking at prices in the 80s for our quarterly forecast going into 2022, the final months and 2023. We essentially think that those SPR releases will ultimately stop as planned. If Iran does have an oversupply over time, OPEC will remove some of the promised crude increases from the plan and stabilize these markets. So while we do think for now, there will be downside pressure, we don't think it will be a route. > At these levels, as you mentioned, still flirting around $90, is the oil and gas industry all that concerned when you are getting this for a barrel? >> I think based on what we know about the cost structure within places like Saudi Arabia and Russia and Canadian, I think these prices, everybody is covering their cost and then some. Would you like to make more money? I think the answer inevitably is of course they would. But are there concerns that this is going to be a problem? I don't think right now it's in the cards. >> Great start the program. Working to get to your questions about commodities with Bart Melek in just a moment's time. A reminder that you can get in touch with us any time by emailing us at MoneyTalk Live at TD, or filling out that viewer response box on WebBroker. And now the top stories in the world of business. Let's take a look at how the markets are trading. Theatre operator ''Cineworld'' says it's considering filing for bankruptcy protection that it struggles to manage a debt of some $35 billiom dollars in debt. A filing today the British-based cinema operator says it's talking with stakeholders as it seeks to restructure the business. Closer to home, Cineplex has filed legal action against the company after ''Cineworld'' dropped its bid to purchase Cineplex in 2020. Elon musk says Tesla is raising the price of its premium driver assistance system by 25%. In a tweet, musk said the price of its full self driving service or "FSD" will jump the $15,000. US. On September 5. Tesla drivers currently pay $12 upfront when they buy a vehicle or $199 a month as part of a subscript and plan.… It's another volatile session for crude oil. Nuclear deal with Iran, Pres. Joe Biden met with European leaders over the weekend with the possibility of resurrecting a deal with the Iran was discussed. Such a deal would see Iranian crude return to global markets as traders way signs of global economic weakness against constraints supply. (....) we are seeing broad-based selling across on Wall Street as well. We are back now with Bart Melek from TD securities taking questions about commodities. That a nice discussion about oil at the top of the show. Let's time the natural gases. Prices in Europe are sitting at the 14 year high. Can things will even hire from your? >> I think they can. with winter, prices will continue to face upward pressure. Certainly in North America, we are seeing a plant that was off-line reducing about two BCF of LNG. Coming back online in October. So in addition to the woes in Europe, we are going to have more demand on our local market to be exported into Europe and the rest of the world. So, for the foreseeable future, the winter could be, you know, quite, quite challenging. Europe of course has a plan to reduce consumption by 15% or so. That is a combination of moral suasion and market reaction to the higher price. We are already seeing smelters of aluminum and other metals voluntarily shut down. And that's mainly because the energy cost of power, for example, is so high that the current prices, the metals simply will not cover the cost of energy. So that's helping. But as we get into peak heating season, I suspect that these pressures will be significantly more. And that will ultimately have an impact on petroleum products as well. A diesel and other things as well. Because where you can substitute natural gas or petroleum products, you will and that will continue to be supportive of the price. So even if crude prices drift a little lower because of the weaker global demand, for 2023, that will be expected, and potential new supply from Iran, we will probably have pressure on the cracks or on the fuel itself as gas is in short supply, essentially. >> Obviously North American producers in terms of LNG putting those exports to where they are in high demand in Europe, how does that play into the North American market though? For natural gas? Clearly we have concerns in Europe that are very specific and singular to Europe. The Russian invasion of Ukraine… Does it start to make its way back? >> Yes. There is not a great big pipeline from North America to the Asian market or the European market. As you know. We basically have to take local gas, liquefied and put it on these ships in liquid form and transform them. There is a limited amount of capacity to liquefy and transport it. So it will have an impact once that plant comes back online. But, there will be a limit to how much upside is moved into the North American market, other parts of the world like Europe. Just because prices are high in Europe doesn't necessarily mean that increases demand. We don't have the shipping capacity and processing capacity to take domestically produced, or North American gas, to the rest of the world. So there will be an impact but not a huge impact. The bigger impact in North America will be what we produce and what we consume. That too will very much be weather driven here. >> Let's move on to some of the metals. Precious metals. What's your outlook for gold amid the Fed's rate hiking cycle? >> Well, we have been negative we've been negative on silver, silver and copper. We have put a short trait of copper in a short trait of silver. Gold, we think adjusts lower. Ultimately, we believe that the Federal Reserve will not pivot as early as February and much of the recent rally, not only in the metals, but in risk markets broadly, that includes equities, have been driven by this idea that Federal Reserve. At 350 basis points and reverse fairly quickly as the economy moderates. Well, there is, I think, an increased amount of signalling by Mr. Powell etc. I think there is every reason to believe that they might stay at these high levels for longer than the market thought. Big reason of course: inflation. We've seen inflation in the United States and in Canada for that matter, ease off a little bit mainly due to energy and transportation. But the fact of the matter is, there are ingrained structural issues from logistics to high rents and unavailability of rentals that are pushing prices higher. We have seen that in, you know, throughout the entire system. Services which account for some 70% of the economy in the United States are facing price pressures. Least of which is higher labour costs. We all hear about the problems on the labour side. It's difficult to find people. As we move away from COVID and the economy reorient from durable goods more to services, it seems that people want to travel a lot. They want to dine out and do all the fun things that require you to go outside of the house. That needs staffing. Unemployment is very, very low, a 50 year low in the United States I believe. And Canada. Record lows. The wages are growing. So the Federal Reserve and the Bank of Canada for that matter, in the UK, we just saw inflation at over 10%. All those key central banks will have to continue to restrict monetary policy for the foreseeable future. What is that mean? That means rates on the share of the curve will likely move even higher in the inflation expectations will move slowly lower. In real terms, that means that real interest rates should go up. Particularly on the short end of the curve and that is historically been a negative for gold, silver and some, to a lesser extent, base metals like copper. >> Before we get to the next segment, I will as quickly if gold still has that place in the portfolio were usually put it traditionally? I'm no expert. But it seems the last seven years, what is Gold doing? I don't understand. >> Gold, when you compare to risk assets and other assets has actually done pretty well. It did its job. It didn't collapse. It did pretty well in his off its peaks, yes, but is still not bad. It has not been responding to the interest rates as much as people believe. That has probably been a good thing and that's due to convexity. But I still like gold. I still think gold and silver to somewhat of a lesser extent, is a good hedge and protection for purchasing power. When I look at Fed policy and inflation, what I've said is still valid. But long term, we are probably good to have a Federal Reserve that allows inflation to be somewhat above the 2% Target. Real rates will be somewhat lower than you would've had before. So, yes, at this point they will get restricted because you don't want this inflation but if inflation gets down to 2.8, 3%, I don't think they will sweat it too much. Perhaps real rates will continue to be quite accommodative for a prolonged period of time. Because I suspect the Fed, once it gets inflation mostly out of control, will not necessarily be overly aggressive and try to get them to target. And at the same time I think the US dollar will try to moderate as the rate differentials between the US and other economies close in or narrow. I think gold should do okay. I would say that once we move into a more dovish stance, I don't think that will happen until 2023 or late 2023, rather, we could possibly see new highs in gold. >> Fascinating stuff. As always do your own research before making investment decisions. We will get back in just a moment's time with Bart Melek. A reminder that you can get in touch with us at any time by emailing us@moneytalklive.com. And now her education segment. Earnings season means files for investors to look at. If you're interested in company's financial statements, WebBroker has tools that can help you. Joining us now Nugwa Haruna, see your client education instructor with TD. Hello Nugwa. > It is a pleasure being here Greg. in WebBroker investors have access to three main financial statements which would be the income statement, the balance sheet as well as the cash flow statement. So let's go to WebBroker and I'll show investors where they can actually locate this information while we talk about what each of those financial statements are. So once in WebBroker, an investor would click on "research " then click on "stocks" and sticking in today's theme, which is on commodities, were going to look at some of the fundamentals. So once you click on "fundamental" and you go to "financial statements", you were able to pull them out. Let's talk about each one. The income statement is also known as the profit statement which shows investors information. It gives investors an idea of what the expectations are as well is what the net profits are for the company. There is also the "balance sheet" and what this shows investors is essentially a network statement at a specific point in time of that company. It shows information like the total assets, which would be just how much the company owns. It shows investors the total liability, so just so much as the company owes as well as total shareholder equity and this would be information on, you know, how much shareholders have invested into the company. Finally there is the "cash flow statement " this tells investors how efficient the company is that managing cash that comes in and goes out of the company. So it gives investors an idea of how well the company pay off their debt obligations as well as how good it is a funding it's operating expenses. So investors within WebBroker can actually find information on an annual basis as well is a quarterly and annual basis for all these financial statements. >> Nugwa, great stuff as always. Thanks for much for joining us> Thanks for having me. >> Thanks to Nugwa Haruna, senior client instructor at TD Direct Investing. Coming up on Wednesday this week, Nugwa is actually going to join us right here in person for a special edition of MoneyTalk Live. We'll be taking questions about the WebBroker platform. Nugwa knows pretty much all there is to know so make sure you get those questions and friends at a time. You can get in touch with us at any time. Our guests are eager to hear what's on your mind so send us your questions. There are two ways to get in touch with us: you can send us an email anytime@moneytalklive@td.com or write in your question and hit send on WebBroker. We are back now with Bart Melek taking your questions about commodities. This one about food inflation. Do you think it will be a long-term problem? What's your outlook for the agricultural space? >> I don't formally cover agricultural commodities but I do have some opinions. Well, several things drive in food prices. Of course supply and demand. That something everyone knows about and currently there is a war in one of the world's bread baskets, Ukraine and Russia are in a conflict. Grain from Ukraine that normally moves to world markets is not moving. That ultimately will very much contribute to a lack of supply and hunger around the world. At the same time, the problem with natural gas around the world also means higher prices. It also means that fertilizer prices, nitrogen that uses a lot of natural gas inputs has been going up, skyrocketing. There is a lack of supply of not only nitrogen but also potash. Again, Russia and Ukraine are exporters of all that. Of course, Canada is the biggest one but the fact of the matter is that we are not enough. That means that the intensity of use of these chemical fertilizers is likely diminishing because of the cost and the lack of availability. That means crop yields will likely be lower and that means the supply versus demand will likely be less as well. You know, there is also a drought issue around the world various reasons including climate change. So we are not in a good spot globally as far as food is concerned. Feed will likely be higher that means meat products and meats itself will likely be under pressure. So I'm afraid that food costs will remain high and may even go significantly higher as we move deeper into 2022. >> You articulated quite well that everything is interdependent with each other. Food, natural gas, it's interconnected in a way where if you get a problem once it starts to flow through the entire system. >> Exactly. It's a very complicated supply chain and we have not even mentioned logistics yet. Trucking issues… Processing plant issues, whether that be China or other parts of the world. Of course fuel costs have risen quite a bit. And quite often, you have pricing of these inputs into processed foods. I suspect all those hedges have worn off by now and producers of these processed foods are paying full freight and ultimately they're going to pass it on to us, the consumer. I think particularly people on the lower end of the income distribution will find it increasingly difficult. It's a huge, huge problem. Not only, of course in North America, but it is a much greater problem in emerging markets. Particularly those that imported grains from Ukraine. >> Another question that we have off the platform: we talked about gold earlier… Can we get your outlook on copper? Obviously copper has many industrial uses but there are concerns with the global economy. >> Well, for the record, I absolutely love copper. I think copper is the ESG metal. It is the critical metal that will be used for EV's. Her green power generation, transmission, everything we need to reduce our global carbon footprint will need copper. And I think, if you're looking at one metal that is necessary for this and has very few substitutes, that's copper. We have seen prices over 10,000 over the last few months and now we have China slumping significantly. As I said, we can easily see it to handle on GDP growth in 2022. We are seeing some recovery in production around the world as COVID becomes less of an issue. That means that the stresses that we've seen in the market will continue to ease somewhat. Inventories of goods containing copper, everything from piping that is used in construction which is reacting to higher interest rates to, I'm not going to say air-conditioners, but later on in the year, when it's a little cooler… Industrial products that use copper will be less. And as supply starts emerging a little higher, that tightness will likely mean that some traders will want to sell it. So we showed copper in our last trade and entered it around 8000. We think that it goes down to around 7100 or 7000. Historically, that is still an excellent price. But it's not the highest price we've seen. There is a risk to the downside. Just for reference, historically, during a recession or a slowdown cycle, when the Federal Reserve and other central banks are participating or generating rather, tight monetary policy, usually you have between 40 and 60% declines in copper. So we are somewhat negative for now. But we think long-term, copper is the metal that should be alright. We think… >> Longer term, do we have enough copper? If it's at the centre of everything were trying to do an carbon reduction? >> We do not. We have enough for the next couple of years but if indeed we are correct and there will be a mass movement across the world to move into carbon free vehicles, power generation, there has not been enough investment to guarantee supply for the long term. So long term, we could have a real, real problem. In fact, my hypothesis is that the entire reduction of CO2 globally in the economy could very well be in jeopardy if we don't see those long-term investments materialize rather soon. So that's something that is going to be very important to look at. But I think once we start going into recovery mode and monetary policy easily we are back into growth mode again, copper could very much surprise on the upside of 24, 2025. >> Fascinating stuff. We will get back with your questions in just a moment's time for Bart Melek. A reminder to make your own decisions by doing your own research. You can get in touch with us any time. Just email us at MoneyTalk Live, MoneyTalkLive@td.com or, you can use the question box right below the screen here on WebBroker. Just writing your question and hit send. Well we have reached that point in the Summer. The Jackson Hole symposium, investors eagerly awaiting any comments they can get on the future path of interest rates. Joining us now is Anthony Okolie up from money talk. >> 50 Basis Points in September and November with a few points by December. They also believe a rate of 3.7% leaving the odds of a 75 Basis Point Hike in September just about even. Now, TD securities also says that the July F1 minutes reaffirm the intent to move towards a significant policy stance to push back inflation towards 2%. A speech from Powell had Jackson Hole symposium this week will likely reinforce the message that multiple size rate hikes are still in forecast and easing of monetary policy should not be expected to be on the horizon anytime soon. As a result, TD security said that Jackson Hole could set the stage for the rally or rather to stall the rally and the risk if not potentially roll over into the fall. Of course with the US midterms on the horizon, TD security says they cannot dismiss more geopolitical chaos including the weaponization of supply chains. >> Anthony, you hinted there that easing will not be anytime soon. The big question of the Summer for investors has been the payment. We are getting signals from Powell the Summer that the pivot is not that far away. What's the outlook on that? >> Given the TD securities expects that the Fed. Hiding rates by the end of the year, belief that the pivot will be towards easy monetary policy by the third quarter 2023. In addition to that, they expect that the markets will tighten by the Fed as well. > Great stuff as always. Thanks Anthony. > My pleasure. > Money talks Anthony Okolie. Let's check in on Wall Street. The TSX and hundred and 80 points, little shy of 4%. 19,931. Across the sectors, a lot of downside pressure. Not a lot of green on the screen today. Crescent Point Energy: some of the energy names have come off their lows of the morning. Checking on it earlier today, it was a little bit more pressure than this but it is off the lows. Down about half a percent at this hour. Tech has been getting hit today. When you get into a risk environment, sometimes the tech names take the brunt of it. Indeed, we have Shopify at 43, 09 down to the tune of about 3%. Wall Street, the S&P 500 right now. In terms of the sectors down there, pretty broad-based. … Let's check in on the NASDAQ. Indeed down just a little more than 2%. Let's check in on one of the Wall Street banking heavyweights: under some pressure here, the Bank of America. Down to the tune of 2%. We are back now with Bart Melek from TD securities. We have another question. All these discussions of the scarcity and high prices of certain commodities, all this renewed interest in nuclear, is it here to stay? >> Again, I don't formerly forecast the price of your but we do coverthe price of uranium but we do cover energy and it sounds like nuclear will be necessary for reducing the carbon footprint of the global economy. Countries like China have plans to put in numerous, dozens of reactors over the next 10, 20 and 30 years. I think others as well. A key reason for that is that, 1, they don't produce any CO2 and they are a good source of so-called baseload power. We do know that there is a problem with solar and a problem with wind. The problem is that the sun doesn't always shine when you need energy. The peak power doesn't really, the peak demand it doesn't always happen during the daytime. It certainly doesn't always happen when the wind happens to be blowing. Globally, certainly in North America and Europe, there is not the storability levels yet. That could caption that carbon free renewable energy, storage like you would natural gas in a reservoir and then use that up during the period when you don't have generation because it is interruptible power. So you will need a significant amount of your power generation to come from so-called "baseload" to even the supply. So, you know, you will need all of these other inputs to even it out and it seems to me that nuclear is a good solution to provide reliable power that is cheap and doesn't admit any CO2. There are those environmental challenges but I think in the final analysis, if we are to use energy, in the amounts that we are using in the world, we will use more and more as time goes on… It is something that will be, I think, a viable source that we are going to have to consider and most likely implement across the world. >> That's all the time we have your question of the show before we let Bart Melek go, any final thoughts about, really, the wild ride that we've been on in terms of commodity prices this year? >> A big part of it of course has been due to China. Unexpected slow down there. We have expected a pretty significant increase in demand. As China was supposed to come out of COVID. It seems now that the exit from COVID mode isn't going to be quick. It might continue well into 2023. We don't know. But there is that risk. And of course, we in the markets have been very much reacting to what the Fed has said and what they have not said. You mentioned the pivot. And I think were to get some clarity from Jackson Hole when Mr. Powell gives us an idea, I think, of what he intends to do. We had TD securities expect that rates will be somewhat higher than the market is believed for longer. You know, pivoting in the latter part of the year, seems much more reasonable. Of course, the details will very much depend on where inflation is going. So, while the Fed will tell us what their thinking, the actual actions will very much depend on data and I always say that forecasting is hard particularly of the future. It is something tough to forecast the future. So much of what will happen will be on a "wait-and-see basis" we will see. But I suspect probably tighter policy for longer. >> Always a fascinating discussion. Appreciate you joining us. >> It was a pleasure. >> Thanks to Bart Melek from TD securities. On Wednesday we will be doing a special edition of MoneyTalk Live with Nugwa Haruna here taking your questions about the WebBroker platform and how best to use it. You don't want to miss an opportunity so get those questions in ahead of time for us. Email moneytalklive@td.com. That's all the time we have for today. Thanks for watching and will see you tomorrow. [music]