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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, TD Asset Management's Christian Medeiros will take us through the four debt ceiling scenarios he's watching as we approach the June 1 deadline. MoneyTalk's Anthony Okolie is going to have a look at a new report on the state of small business in Canada. And in today's WebBroker education segment, Nugwa Haruna is going to take us through some of the asset allocation tools that are available on the platform.
So here's how you can touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before get our guest today, let's get you an update on the market. Of course, we are going to talk about the fact that we don't have a debt ceiling resolution just yet. The market has its eye on that and a few other things.
Toronto feeling the weight of some of the financial stocks. Of course, bank earnings season, some misses and some increased provisions put aside in case of loans going sour. But also the price of crude under pressure today as well.
So we got hundred and 76 point we will call that deficit in Toronto, almost a full percent. The pullback in American benchmark crude prices is weighing on energy stocks. Crescent Point Energy down about 4% at this hour.
Also seeing a pullback in the price of gold hitting some of the mining names including Kinross. It is down more than 3 1/2%. South of the border, it's interesting. I'll be, there has been concern in the markets about the debt ceiling. We have some green on the screen. Nvidia after hours yesterday blew the doors off when it came to the court that they had but there sales forecast going forward based on chip demand, based on how much processing power all this AI, artificial intelligence, needs. So you do have a 21 point gain on the S&P 500, good for a little more than half a percent. The tech heavy NASDAQ, understandably doing a bit better, considering the Nvidia news. 1 1/4% to the upside. Let's take a look at Nvidia shares themselves.
A big boost here because they really boosted that sales forecast for this current quarter. You're up about 26% right now, 385 bucks per share. This is putting Nvidia closer and closer to trillion dollar market Territory.
Very rare, only a few of the big tech names are in that space had about.
So it is something to watch.
I think the magic number, don't quote me, is $400 per share. Getting closer, not quite..
That's a market update.
While there are some signs of progress in the US debt ceiling talks, American lawmakers still have not reached a deal.
Joining us now with four potential scenarios on where things could go from here is Christian Medeiros, portfolio manager with TD Asset Management. Great to have you back on the show.
>> Thank you.
>> So as we talk and we talked and we talk and we get closer to an American long weekend, you gotta start mapping out what could happen. You have four scenarios.
Walk us through them.
> Number one is getting a deal past through the house.
This is what is going to have to happen at the end of the day.
The most likely outcome in order for us to get through this.
So when we go in, next Thursday is the next date on June 1, but we would expect at this scenario played out is an announcement of some sort of deal by some time on the weekend, which would give legislatures enough time to go over the bill, passing through the house and Senate, have the president's signature and get it all done before the next day.
So that's the first scenario and best case scenario.
>> Obviously the cleanest scenario to in terms of all of this. Short of that, let's go to number two.
>> Number two is delay.
So if we cannot get a deal done or come to an agreement, let's by ourselves more time. Two ways to delay things.
The first, the best outcome of the delays, would be to pass a short-term extension. Let's get down the road to be a few weeks. Maybe we can get to the budget negotiations in September. Bias a few more months or weeks to discuss the debt ceiling.
The second issue, the second way of delaying it, it's much more problematic but is technically possible, is the treasury could decide if we go through the ex-date and don't have any deal, we have it raise the debt limit, let's prioritize payments only on principal and interest so that we avoid a default for the US government. The problem with that those there's a lot of other expenditures that the treasury has to make and without it the ability to to raise more money.
if that persist for weeks, days, longer, it hits GDP.
The second thing is he would be able to avoid a downgrade in US government debt because rating agencies would get quite skittish.
>> I think Finch last evening put them on notice. They said, we are watching this and you're ready. At the AAA rating rate for the United States. That's at stake.
So get a deal, get behind us, move on, delay it.
Number three, I think, as you put it is a more fanciful resolution.
Some wild ideas or some very interesting ideas that have been thrown out there.
> Jerome Powell called these ideas rabbit in the hat. technically at thetreasury could manage $1 trillion coin.
Both parties don't think this is a good option.
The second let's talk about a little bit more is the 14th amendment. Technically, the U.S. Constitution, there is 1/14 amendment that says the US debt needs to be honoured effectively.
It is very debatable whether the Supreme Court and legal challenges would stand up at the present were to say, I invoke the 14th amendment. The treasury continues to issue debt. Let's avoid the debt ceiling, it's unconstitutional.
What would happen and that scenarios that any debt issued after that 14th amendment would be from a second-tier treasury.
People wouldn't be sure if the Supreme Court would validate it or not.
It's very risky and we don't think that would happen unless we are in the absolute worst case scenario.
>> That sort of leads us, I think, and to number four.
A worst case scenario.
>> The worst case scenario would be an absolute default.
With two parties playing a game of chicken, we are getting closer and closer to the cliff. As I mentioned, there are a number of parachutes that would prevent us from getting to a default. It could delay it, could use that prioritization, just paying the interest payments, could use the 14th amendment, maybe some other wacky scenarios. But if all of those were to fail, we would default because if you are missing interest payments on those debt after the estate, that would be a worst case scenario, a severe market event.
>> I've talked to people who basically said, because you'd be in uncharted territory, we know it would be serious but we can't say this, this and this will happen. Something we don't know.
>> It's like a Y2K event.
We have never dealt with US treasuries defaulting before.
Our brokers, our platforms, everyone ready to deal with defaulting treasury securities, are they prepared to deal with that?
We could have pretty severe liquidation events or concerns and the default era.
The other aspect is US government debt is the risk free asset for the entire world. As an important asset class. If that were to be called into question, that would raise a whole bunch of issues for all asset classes.
I think that would be a very negative market event but that is one that there are a lot of mechanisms we have in place to hopefully avoid.
>> Investors could be forgiven, given the track record of the past decade or more,when you run into some kind of trouble, the central bank of the Fed right to the rescue.
If you do end up in a default scenario, is there anything the Fed can do?
>> We have some indication of what they might do because back in 2011 when we had another very contentious debt ceiling conflict, we had a meeting with the Fed after that you was enacted and discussed hey, what would you have done things got really bad?
And so what they would do is mostly provide liquidity to the market through reverse repo facilities, perhaps support money market funds, but also there was some discussion of maybe swapping defaulting securities as well appear to their things they could do to provide liquidity to the market, but they are very careful to make sure to avoid the Fed's independence. They do want to be seen as financing the government are getting in the way of fiscal policy.
So they would provide liquidity to make sure the market still functions as smoothly as possible, but the Fed cannot save this scenario.
At the end of the day, legislators need to pass a debt ceiling raise in order to solve this issue.
>> Interesting stuff and interesting days ahead. We are going to get your questions about asset allocation for Christian Medeiros in just a moment's time.
And a reminder the contact us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Nvidia in the spotlight today. The chipmaker says the processing demands of artificial intelligence will drive $11 million in sales for this current quarter.
That is far above what the street was expecting to hear from Nvidia on the sales forecast, and the surge in Nvidia shares right now up 25% is pushing the company closer to $1 trillion market valuation.
Best Buy, the latest retailer to deliver an earnings beat despite fears of an economic slowdown.
While sales did fall year over year, the electronics retailer's earnings-per-share exceeded expectation.
Best Buy setting by full-year sales forecast but it is warning that consumers are more cautious when it comes to making big purchases. Energy investors getting a mixed message from OPEC and its partners. The price of American benchmark crude is under pressure today after a Russian official said they see no need for further production cuts. Earlier this week, the Saudi suggested spiky leaders were betting against oil could feel more pain next month.
a quick check in on the markets, we will start here at home with TSX Composite Index, a sizable pullback, 164 point, a little bit shy of a full present the downside.
we are seeing some weakness and financials as we get into bank earnings season and some weakness in energy names based on the price of crude being lower.
South of the border, the S&P 500 at 25 points to the upside, a little bit or the half a percent.
Right now we are back with Christian Medeiros taking your questions about asset allocation. Let's get to them. Here is a tough one. Has a market already reached the bottom or a bottom?
>> We have a market bottoming checklist. The first one is that is unique to the cycle is inflation. We haven't had that be such a major issue in past cycles but it obviously is today. When we look at inflation and our leading indices of inflation they have moderated materially but they are not leveling off yet. We think it will continue to slow to the three, 3 1/2% range by the end of the year and into the next year. But will the Fed be comfortable with that level in order to cut?
We don't know if that's necessarily the case.
For market bottoming hopes, if that requires a Fed cut, we don't think we are quite there yet. The second metric would be growth.
When we look at leading growth figures particularly on the manufacturing side of the economy, they have started to bottom here and maybe start to inflect.
Producing a strong inflection that would have us more optimist on the growth front but I would caution that this is manufacturing which is traditionally cyclic.
But we had all of these COVID disruptions, it has been much stronger than past periods. This indicator might not be as strong as it was in the past. The third is market sentiment.
You expect to see a big liquidation event, volatility spike, a lot of investor sentiment concerns but we haven't really seen that necessarily.
At the present moment, market sentiment is still fairly strong at the measures we look at.
So we haven't seen that washout moment. The last one of the fundamentals.
We still think there's a little bit more to go an earnings based on macro data. Earnings should be a little bit lower.
And then the other thing you're looking at is valuation.
Valuations are quite strong.
Especially in the US equity markets.
That has been the primary driver of return so far this year. So I think valuations are a little bit too hot.
So altogether, we think there is a bit more downside to go as we go through this process and go through a recessionary period.
>> Is the flipside of this question then, if you like somebody could ask, when we see rallies during the cycle, how can we know they are the real deal or bear market rallies? You go through a checklist?
>> For it to be the real deal, we would want to see a strong, stable re-inflection and growth momentum.
We would want to see the Fed to be controlled to get into a position where they could normalize rates which would mean inflation is close to their target or very clearly on a path towards their target. We would also expect valuations and earnings to reflect what we expected to be in a recessionary period.
And secondly it's important to have water sentiment and higher volatility and investor fear being high because that tends to be a good opportunity to step back, step into markets and call bottom perhaps.
>> Let's get to another window. The debt ceiling on a lot of mindset there.
We've got a lot to talk about what it would mean for the US. What would it mean for Canada?
>> Great question.
For Canada, it's really going to be a product of global risk sentiment.
Historically, we've had very contentious debt ceiling debate, was going down to the wire, markets to get jittery. 2011, we saw a big risk off event and that had the requisite asset class performances that you would expect.
We thought that would follow through the Canada as well. I don't think Canada as a classes will be immune from global market trade that will be a short-term impact. In the long run, if we continue to have polarization in US politics and debt ceiling debate, both of these are relevant, maybe Canadian assets are attractive to global investors who want to diversify away from a market tensions and US politics.
>> We had someone ask, does Canada have a debt ceiling?
>> No, Canada doesn't. Only one other country does, Denmark. But they said it at such a high level that is unlikely to be reached.
The reason why the US has this debt ceiling is that U.S. Congress used to had to pass every bill as a bond.
That was onerous during the world wars as they needed to raise debt. They introduce this debt ceiling legislation that we've been stuck with it ever since.
People have always wanted to repeal but it's a useful political a virtual so no one really wants to get rid of it.
>> Investing stuff. Has one about the inflationary environment that we have been living through.
Our central banks actually making inflation worse by raising rates? This is supposed to be the tool to cool inflation but of course you raise the cost of living.
>> Is a typical economic market sentiment would say it won't over the long, the medium to long term.
The interest rates work with a leg and higher rates will repress credit and money creation in society and that will lead to slower growth and inflation. But the argument could have merit. One argument to it support would be that in the short term if you increaseeexpense to corporations, maybe they pass on that expense to the bottom line.
They want to make up for that in the pricing power.
So if their interest expenses are higher, maybe you charge more for those groceries at the grocery store.
Hypothetically it's possible. I haven't seen any really strong economic papers proving that to be a former Tory and I think on any reasonable time horizon, interest rates should and will slow inflation.
>> Best Buy, the latest retailer this week, Abercrombie and Fitch, some big US retail names came out and beat expectations.
despite everyone saying a recession is coming, there is a real concern that a recession could be coming.
We don't know how deep it could be, how profound.
The consumers keep spending.
Has this been unusual through this hiking cycle that the consumer continues to have this kind of strength?
>> Hiking cycle have very long legs. Sometimes even more than a year.
So it's not entirely unusual that interest rates wouldn't affect them yet, especially in the US market where mortgages are fixed.
As a result, passing those costs to consumers it takes longer.
Consumers had large excess savings coming into this.
And then what we have Seymour's recently is a big uptick in credit products.
More borrowing from credit cards and credit lines.
So consumers have ways to maintain their consumption over time. The other thing to keep in mind is that inflation is quite high. These are nominal figures as well.
Earnings expectations for a lot of these companies are quite low because people are expecting a recession to happen sooner.
It is possible to surprise in the near term but over time I think consumers will experience increasing stress as these effects of rates are experienced with a long leg.
>> Interesting points indeed.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for Christian Medeiros on asset allocation in just a moment's time.
A reminder course that you get in touch with us at any time.
Just email moneytalklive@td.com.
Now let's get to our educational segment of the day.
we are talking asset allocation. WebBroker has tools which can help. Joining us now with more is Nugwa Haruna, Senior client education instructor at TD Direct Investing.
always great to see you. Take us through.
>> It's always a pleasure being here. Investors who are looking to manage their portfolio, they are able to do that effectively and WebBroker.
So as we have mentioned, asset allocation and diversification are very important when it comes to constructing a portfolio because there are different kinds of asset classes. There is expertise, fixed income, cash and cash equivalents in some other kind of investments available and investors may try to utilize to balance out their portfolios in response to different things that happen in the economy.
Let's hop into a broker to take a look at how investors can manage this. Once in WebBroker, an investor will click on accounts and go asset allocation. What this does is it gives the investor a breakdown of what they are holding in a specific account. So if I scroll down, I'm using a demo account right now, but for an investor who does have assets, they will be able to see what that breakdown is in things like Canadian equities, US equities, so these would be stocks or ETFs that hold stocks.
You'll also be able to see what their position is when it comes to fixed income, and finally cash and cash equivalents. If they want to cease more details, they can do that by scrolling down and each of these categories are broken down into the value of how much the investor paid and what the market value is as well is the weight in the portfolio. Now for investors who want to learn a little more, they can do that by clicking on the learn more tab here. So once I do that, it'll give me an example of what it should actually look like if I do have some kind of asset makes in my portfolio. Investors can read this to get to more details.
>> Alright, so people start to take a look at what their asset mix is. What if they were interested in seeing the historical returns of a portfolio with a similar asset mix and how it's performed over the past couple of years?
>> Right, so if an investor wants to find out if they are on track to meet their goals, they are able to utilize a tool in WebBroker called the goals tool and it also shows you based on what your asset mix is if there is a potential that you will hit those goals.
So let's hop into WebBroker and take a quick look at what that looks like.
So in WebBroker, you go to the goals tool, one of the taps which is the second step let's you look at asset mixes and look at what returns have looked like historically or create your own custom asset mix.
Now to save us time, I've already started creating a goal and it's always on the second step that you will be able to look at what these asset mixes look like Cohiba to adjust to highlight a couple.
I have a more conservative portfolio here.
If you want to see what the details are, you click on the details.
This gives us a portfolio that is holding 30% in equity, 70% in fixed income. The investor can see that in the last 15 years, a portfolio that help these asset classes what the historical returns look like. You'll see the best year was about 15%, worst year down about 10%, average return about 4.
8%.
Then, an investor can gauge whether they are able to withstand some of the fluctuation that will happen by holding these asset mixes.
But finally I want to highlight, if an investor already has their asset allocation, they can actually create a new profile to match with that asset allocation is.
So I'm just going to pull some numbers. When I review my asset allocation makeup, I 35% Canadian equities, let's say 25% US, then up to 10% here, just making it up as I go along, Gr, 15% here, and then maybe 5% and 10% in cash. And then I can actually do a calculation.
Gso I'm going to go update historical returns here and once I do that, I'm actually able to see in the last 15 years, keeping in mind that historical returns are no guarantee of what's going to happen in the future, but at least it gives me an idea of what the potential of fluctuation to expect in my portfolio could look like.
And then I'm able to see the best year for portfolio with these kinds of, with this kind of breakdown was up about 20% but also down about 22% with an average return of about 6.2%. And you can go ahead and create that.
Just giving investors a way to track, if they are on their way to track these goals based on historical numbers.
>> Thanks for that.
>> It was a pleasure.
>> Nugwa Haruna, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
before you back to your questions on asset allocation for Christian Medeiros, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Christian Medeiros, take your questions about asset allocation.
Lots of concern about the debt ceiling and for good reason.
We are getting onto the wire. If there is a debt ceiling default, a viewer wants to know if that would hurt demand for US debt and will undermine the dollars global standing?
>> Yeah, so the most likely default scenario, it would probably be short lived. The treasury would probably make up past payments after we make a deal.
So we would see short-term market reaction in that scenario, and over the medium term people would still be using treasuries, they would still be using the US dollar.
It would be an immediate change but I think over the longer term, what that would mean if we did get into a default scenario is that of course there's going to be a higher risk premium probably on US debt because you're going to have this risk where this concern happen every time the debt ceiling debate gets contentious. You would also have some more pressure on the US dollars well. They are not many other good alternatives.
US assets are going to be demanding probably a higher risk premium in that scenario and investors are going to be a little bit more concerned and investors are going to want to diversify their holdings a bit more. I think it's a long-term headwind if we go into a default scenario.
But I don't expect in a default scenario that we would have a complete change in the global orientation.
>> This question recalls the bigger debate is been brewing for a while.
This idea of long return DD dollarization in the world economy.
The US dollar might lose the prominence. What would have to happen over what period of time for that actually to transpire?
>> I think the law would have to happen. The issue is that there are not a lot of good alternatives.
The issue is also that with dollars in the global reserve, a lot of trades are not made in dollars.
The surpluses are invested in treasuries which are safe asset and only the US really has such a large stock of treasuries outstanding to absorb that global liquidity, has that supportive market, strong Fed and central bank.
A lot of global countries and companies are now going to start relying on other countries that don't have such deep and liquid capital markets, that don't have their trade denominated in the currency, and so it's very hard to see that changing. A lot of things would have to happen and the US would have to lose significant standing for that to completely change.
>> Another question. The viewer is warning you. Tough question. Where do you think Canadian energy company's are going to be by the end of the year?
>> So Canadian energy, there are two sides. On the commodity side, which is always going to be a driver, oil is really reflectinga more recessionary scenario which I think is nice.
It's giving us potentially a little bit more of a margin of safety but the there is probably some more downside in oil to go. For Canadianenergy equities, really good capital and shareholder returns, really solid balance sheets, so they would be a lot safer in a recessionary scenario from the balance sheet perspective. We think over the longer term they're going to continue to be really nice generators of buybacks, dividends and stronger earnings.
But it's really hard to hold those companies if you think we are going into a recession. So despite the little margin of safety that you're getting from the shareholder returns, the safe you're getting the oil price, if you have only one shorter-term horizon, it's tricky to hold energy stocks into a recession if that's your view. So I wouldn't put them as a high priority sector in my view at the moment just given the macroenvironment.
But over a medium to longer-term perspective, there really attractive, they are really an attractive place to be.
>> The Saudis were sort of intimating that ahead of their next plus meeting that if anyone is speculating against oil, theymight be in for some pain. Russian officials were pouring water on that. The of the plus part of that equation.
It's hard to read with the cartels of do.
>> Supply on the energy side is for the most part quite attractive.
We have seen really aggressive draws on inventories, we have seen really aggressive seasonality.
It's not really surprising our expectations.
China is our second biggest supplier of oil. All these supply factors point to a tight market but at the end of the day we think we are going into recession a demand is going to fall, that will weigh on oil in the near term. So this is what we are playing with. But when we get to that recessionary scenario and see these demand concerns lifted, that gives a better supply backdrop and potentially better oil prices and that would be better for Canadian energy outfits.
>> Hearing a lot about commercial real estate weakness.
Perhaps they go into an office a couple days a week where there are more empty seats than there used to be.
what's the impact?
>> Canadian real estate, multiple subsections are strong and have good fundamentals. The one that's in concern his office. That's the main battle at the moment. That's just because the way that we are engaging with work in the post-COVID environment. For Canadian investors,global office reads can be issues.
there can be issues on the bank side.
Office commercial real estate is really not as big a proportion of the driver for those Canadian bank stocks.
So for Canadian investors, the office realties section is probably not going to be a material concern or driver but would be a bigger concern is how well our Canadian mortgage owners are able to adapt to higher interest rates, how long do they stay high, will that have a big effect of the consumer?
that will have a bigger impact than the single subset of offices alone.
> Of you are asking a currency question.
What is the outlook for the loonie?
>> The loonie, I think, on the oil side of the equation, I think it's too soon to get a big push higher in oil prices unless we think the macroenvironment is going to change.
So that will not be a huge driver of loonie strength.
the predominant driver of the loonie, especially versus the US dollar, has been rate differentials. There has been a big shift recently.
Investors were expecting the Central Bank of Canada, the BOC, to be cutting aggressively later this year but now they are really pricing in quite a bit of hikes after the lost data.
I think it's unlikely that the BOC will switch from a pause to an aggressive hiking stance.
So given that kind of dynamic, I think the market will be disappointed by that, I don't think it will be a big driver either. And lastly, a big driver of the Canadian dollars seems to be a global risk sentiment.
Given the debt ceiling dynamics we have here, the potential for more weakness in the equity markets, those are the recent high, that probably does not work in favour of the loonie. So all those things put together, it is not a particularly optimistic picture for the Canadian dollar.
>> Interesting stuff. We're going to back your questions for Christian Medeiros on asset allocation in a moment.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian small business confidence has been on the rise for several months and is now at its highest level in nearly a year.
So it's driving that optimism? Joining us out more is Anthony Okolie, dig into the latest figures.
>> Thanks very much, Greg. Small business confidence in Canada improved again in May and as you mention has been on the rise for several months in a row.
Confidence about the next 12 months actually inched up to 56.4 points and now that still about five points below the historical average.
Meanwhile, the short-term outlook based on three-month expectation was unchanged at 53 1/2 point. That's about two points below its historical average.
Now of course, the number above 50 shows that business owners are feeling confident versus negatively about the environment over the next few months.
When we break things out by province, all but two provinces reported optimism levels above mid 50.
Those would be Saskatchewan and Québec.
They were both just below 50 in May.
in PEI, to Newfoundland and Labrador, they were leading in optimism over the long term with significant improvements versus April.
when we break things down by sector, long-term optimism was improving overall in most sectors but only three industries reported confidence levels below the 50 mark level.
Those would be agriculture, transportation and finance, insurance, real estate and leasing. For the agricultural businesses, that marks the 12th consecutive month a very low optimism.
Meanwhile, labour shortages and their side effects is still one of the biggest challenges for small businesses and it continues to be a big factor, limiting sales or production growth. When we look at full-time staffing plans, they are moderate for this time of year with only 22% of businesses looking to hire while 12% are considering layoffs.
Supply-chain indicators show that some difficulties have been resolved on the supply side leading to some optimism.
But many issues remain especially on the distribution and input cost side.
Now some other positive news, average wage increase plans have seen a small drop from April's levels.
So overall, the uptick in confidence over recent months is welcome news but overall optimism is still relatively blunted compared to historical levels with a longer-term and a level below the pre-pandemic average of about 62 points.
>> It makes sense. A small business might want to ramp up and increase sales but doesn't have the workers to get to where they want to be. Any other factors holding them back?
>> Yeah, I think many businesses continue to worry about the lack of domestic demand.
That's a big worry. And it's the third largest concern which impacted roughly 1/3 of respondents. Some of the headwinds such as supply-chain backlogs and gas prices have been easing, others have intensified. Now TD Economics has said a strong growth outlook for Canadian economies this year combined with high rates will likely weigh on business, investment and expansion plans.
They want to say that the consumer is likely to be put under increased financial stress over 23 three which will weigh on sales and margins and ultimately, that will affect businesses bottom lines.
>> Great?
>> Interesting stuff. Thanks Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
let's do a quick check in on the market. At the TSX Composite Index, a 164 point deficit, little 51%. We are in the thick of financials reporting season. We are seeing pressure on energy names with benchmark American crew pulling back.got Baytex energy down a little bit more than 4%.
Barrick Gold, we have seen the price of gold pulled back a little bit as well, some of the miners under pressure, Barrick among them.
down about 1/2%, nothing too dramatic.
South of the border, debt negotiations continue and we get closer to June 1 which the Treasury has said is the date that they will run out of cash to make good on their commitments.
so you're getting down to the wire. But you also had Nvidia come out with a very strong sales forecast based on demand for its chips, based on the artificial intelligence boom. Through getting some green on the screen. Got the S&P 500 up 28 points, more than half a percent, two thirds of a percent to the upside down.
What was good for Nvidia is good for the broader NASDAQ it seems. Let's check in on the NASDAQ. It's up 1.
7%. Also good for some of its competitors. Much has been said about Nvidia's chips having a bit of an advantage when it comes artificial intelligence applications.
Intel is not feeling that love. At $27.
13 per share, we will round up, you got Intel down about 6 1/2%.
We are back now Christian Medeiros from TD Asset Management.
We are talking asset allocation. Seller wants to know about geographic opportunities.
Is this a good time to invest in Europe or Asia over North America? On the platform, we cannot give you investing advice but we can definitely talk about different geographies and risks and opportunities.
>> What I think is really interesting this time around this year which has maybe slipped under the radar is we have had strong US equity entire performance has been the actual performance of European equities, particularly Germany and France and then also the strong performance of Japan.
All of which have hit recent highs.
What's really happened there is a couple of things.
One, love concerns about a potential US recession and some people are looking to other markets. The other one is these are the markets with central banks that have lower interest rates than the US and perhaps are not really as restrictive on the economy in the near term.
Another aspect is a lot of investors want to play the China reopening but are a comfortable allocated to Chinese equities in which case you allocate to countries that have really good exposure to China, either from the manufacturing side, whether it be from luxuries, such as many stocks located in France, or other industrial goods, such as Japan. So these countries, the company's within them, they have a back doorway to play the China reopening and they have also been to the year with lower valuations and a fairly attractive mix.
Speaking about Japan in particular, it's quite interesting because there is a lot of corporate governance reform that is taking place. Solar companies are trading below book, previously management teams were not as interested in shareholder returns, sitting on a bunch of cash on the balance sheet.
Over time, there have been more and more activists and that Mark and Naya have been pushing a lot of these companies to shore up their balance sheets, pants with the excess cash that they don't need, divest of unnecessary divisions, perhaps improve their shareholder returns.
So with the Japanese equities, you have a very interesting story that I think is overlooked in North America of its shareholder improvement and shareholder forward thought process.
>> Okay.
We are running out of time for question. Before I let you go, we started the program with conversation about the US debt ceiling and talked about wouldn't it be interesting during this program if we actually came to a deal.
Or take a look around, I'm not seeing anything.
> We will have to wait.
>> Maybe just a recap for the audience, was on the table right now?
You're getting down to it. June 1 is quickly approaching.
What does it mean to be watching those investors?
>> Over the next few days and through the weekend, you are going to see negotiators try to work through the deal.
The main question is going to be how much money there when to cut or. They are going to be fighting through that.
Once the agreement is reached, if it is announced, then we are going to have to see that pass through the house and the Senate.
if we don't see a deal on the table by early next week, things are getting pretty tight, we are going to have to hope that they can punt the debt ceiling further along to buy some time for negotiation.
if they can't do that, we are going to get into some more funky territory where they choose whether to prioritize interest payments or the you something funkier like the 14th amendment or atrillion dollar coin.
>> Whenever anyone says trillion dollar coin, I imagine a heist movie.
It's ripe for a Hollywood plot.
>> Hopefully makes it all the way to the bank account.
>> Always great having you. I look forward to the next time.
>> Thank you.
>> Are things to her to Medeiros, per flu manager at TD Asset Management. We'll be back tomorrow with an update on the markets, has our best interviews of the week and then on Monday, Daniel Ghali, commodity strategist with TD Securities will be our guest taking your questions by commodities. And reminder that you get a head start.
Just email moneytalklive@td.com.
That's all the time we have for show today. Thanks for watching. We'll see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, TD Asset Management's Christian Medeiros will take us through the four debt ceiling scenarios he's watching as we approach the June 1 deadline. MoneyTalk's Anthony Okolie is going to have a look at a new report on the state of small business in Canada. And in today's WebBroker education segment, Nugwa Haruna is going to take us through some of the asset allocation tools that are available on the platform.
So here's how you can touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before get our guest today, let's get you an update on the market. Of course, we are going to talk about the fact that we don't have a debt ceiling resolution just yet. The market has its eye on that and a few other things.
Toronto feeling the weight of some of the financial stocks. Of course, bank earnings season, some misses and some increased provisions put aside in case of loans going sour. But also the price of crude under pressure today as well.
So we got hundred and 76 point we will call that deficit in Toronto, almost a full percent. The pullback in American benchmark crude prices is weighing on energy stocks. Crescent Point Energy down about 4% at this hour.
Also seeing a pullback in the price of gold hitting some of the mining names including Kinross. It is down more than 3 1/2%. South of the border, it's interesting. I'll be, there has been concern in the markets about the debt ceiling. We have some green on the screen. Nvidia after hours yesterday blew the doors off when it came to the court that they had but there sales forecast going forward based on chip demand, based on how much processing power all this AI, artificial intelligence, needs. So you do have a 21 point gain on the S&P 500, good for a little more than half a percent. The tech heavy NASDAQ, understandably doing a bit better, considering the Nvidia news. 1 1/4% to the upside. Let's take a look at Nvidia shares themselves.
A big boost here because they really boosted that sales forecast for this current quarter. You're up about 26% right now, 385 bucks per share. This is putting Nvidia closer and closer to trillion dollar market Territory.
Very rare, only a few of the big tech names are in that space had about.
So it is something to watch.
I think the magic number, don't quote me, is $400 per share. Getting closer, not quite..
That's a market update.
While there are some signs of progress in the US debt ceiling talks, American lawmakers still have not reached a deal.
Joining us now with four potential scenarios on where things could go from here is Christian Medeiros, portfolio manager with TD Asset Management. Great to have you back on the show.
>> Thank you.
>> So as we talk and we talked and we talk and we get closer to an American long weekend, you gotta start mapping out what could happen. You have four scenarios.
Walk us through them.
> Number one is getting a deal past through the house.
This is what is going to have to happen at the end of the day.
The most likely outcome in order for us to get through this.
So when we go in, next Thursday is the next date on June 1, but we would expect at this scenario played out is an announcement of some sort of deal by some time on the weekend, which would give legislatures enough time to go over the bill, passing through the house and Senate, have the president's signature and get it all done before the next day.
So that's the first scenario and best case scenario.
>> Obviously the cleanest scenario to in terms of all of this. Short of that, let's go to number two.
>> Number two is delay.
So if we cannot get a deal done or come to an agreement, let's by ourselves more time. Two ways to delay things.
The first, the best outcome of the delays, would be to pass a short-term extension. Let's get down the road to be a few weeks. Maybe we can get to the budget negotiations in September. Bias a few more months or weeks to discuss the debt ceiling.
The second issue, the second way of delaying it, it's much more problematic but is technically possible, is the treasury could decide if we go through the ex-date and don't have any deal, we have it raise the debt limit, let's prioritize payments only on principal and interest so that we avoid a default for the US government. The problem with that those there's a lot of other expenditures that the treasury has to make and without it the ability to to raise more money.
if that persist for weeks, days, longer, it hits GDP.
The second thing is he would be able to avoid a downgrade in US government debt because rating agencies would get quite skittish.
>> I think Finch last evening put them on notice. They said, we are watching this and you're ready. At the AAA rating rate for the United States. That's at stake.
So get a deal, get behind us, move on, delay it.
Number three, I think, as you put it is a more fanciful resolution.
Some wild ideas or some very interesting ideas that have been thrown out there.
> Jerome Powell called these ideas rabbit in the hat. technically at thetreasury could manage $1 trillion coin.
Both parties don't think this is a good option.
The second let's talk about a little bit more is the 14th amendment. Technically, the U.S. Constitution, there is 1/14 amendment that says the US debt needs to be honoured effectively.
It is very debatable whether the Supreme Court and legal challenges would stand up at the present were to say, I invoke the 14th amendment. The treasury continues to issue debt. Let's avoid the debt ceiling, it's unconstitutional.
What would happen and that scenarios that any debt issued after that 14th amendment would be from a second-tier treasury.
People wouldn't be sure if the Supreme Court would validate it or not.
It's very risky and we don't think that would happen unless we are in the absolute worst case scenario.
>> That sort of leads us, I think, and to number four.
A worst case scenario.
>> The worst case scenario would be an absolute default.
With two parties playing a game of chicken, we are getting closer and closer to the cliff. As I mentioned, there are a number of parachutes that would prevent us from getting to a default. It could delay it, could use that prioritization, just paying the interest payments, could use the 14th amendment, maybe some other wacky scenarios. But if all of those were to fail, we would default because if you are missing interest payments on those debt after the estate, that would be a worst case scenario, a severe market event.
>> I've talked to people who basically said, because you'd be in uncharted territory, we know it would be serious but we can't say this, this and this will happen. Something we don't know.
>> It's like a Y2K event.
We have never dealt with US treasuries defaulting before.
Our brokers, our platforms, everyone ready to deal with defaulting treasury securities, are they prepared to deal with that?
We could have pretty severe liquidation events or concerns and the default era.
The other aspect is US government debt is the risk free asset for the entire world. As an important asset class. If that were to be called into question, that would raise a whole bunch of issues for all asset classes.
I think that would be a very negative market event but that is one that there are a lot of mechanisms we have in place to hopefully avoid.
>> Investors could be forgiven, given the track record of the past decade or more,when you run into some kind of trouble, the central bank of the Fed right to the rescue.
If you do end up in a default scenario, is there anything the Fed can do?
>> We have some indication of what they might do because back in 2011 when we had another very contentious debt ceiling conflict, we had a meeting with the Fed after that you was enacted and discussed hey, what would you have done things got really bad?
And so what they would do is mostly provide liquidity to the market through reverse repo facilities, perhaps support money market funds, but also there was some discussion of maybe swapping defaulting securities as well appear to their things they could do to provide liquidity to the market, but they are very careful to make sure to avoid the Fed's independence. They do want to be seen as financing the government are getting in the way of fiscal policy.
So they would provide liquidity to make sure the market still functions as smoothly as possible, but the Fed cannot save this scenario.
At the end of the day, legislators need to pass a debt ceiling raise in order to solve this issue.
>> Interesting stuff and interesting days ahead. We are going to get your questions about asset allocation for Christian Medeiros in just a moment's time.
And a reminder the contact us at any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Nvidia in the spotlight today. The chipmaker says the processing demands of artificial intelligence will drive $11 million in sales for this current quarter.
That is far above what the street was expecting to hear from Nvidia on the sales forecast, and the surge in Nvidia shares right now up 25% is pushing the company closer to $1 trillion market valuation.
Best Buy, the latest retailer to deliver an earnings beat despite fears of an economic slowdown.
While sales did fall year over year, the electronics retailer's earnings-per-share exceeded expectation.
Best Buy setting by full-year sales forecast but it is warning that consumers are more cautious when it comes to making big purchases. Energy investors getting a mixed message from OPEC and its partners. The price of American benchmark crude is under pressure today after a Russian official said they see no need for further production cuts. Earlier this week, the Saudi suggested spiky leaders were betting against oil could feel more pain next month.
a quick check in on the markets, we will start here at home with TSX Composite Index, a sizable pullback, 164 point, a little bit shy of a full present the downside.
we are seeing some weakness and financials as we get into bank earnings season and some weakness in energy names based on the price of crude being lower.
South of the border, the S&P 500 at 25 points to the upside, a little bit or the half a percent.
Right now we are back with Christian Medeiros taking your questions about asset allocation. Let's get to them. Here is a tough one. Has a market already reached the bottom or a bottom?
>> We have a market bottoming checklist. The first one is that is unique to the cycle is inflation. We haven't had that be such a major issue in past cycles but it obviously is today. When we look at inflation and our leading indices of inflation they have moderated materially but they are not leveling off yet. We think it will continue to slow to the three, 3 1/2% range by the end of the year and into the next year. But will the Fed be comfortable with that level in order to cut?
We don't know if that's necessarily the case.
For market bottoming hopes, if that requires a Fed cut, we don't think we are quite there yet. The second metric would be growth.
When we look at leading growth figures particularly on the manufacturing side of the economy, they have started to bottom here and maybe start to inflect.
Producing a strong inflection that would have us more optimist on the growth front but I would caution that this is manufacturing which is traditionally cyclic.
But we had all of these COVID disruptions, it has been much stronger than past periods. This indicator might not be as strong as it was in the past. The third is market sentiment.
You expect to see a big liquidation event, volatility spike, a lot of investor sentiment concerns but we haven't really seen that necessarily.
At the present moment, market sentiment is still fairly strong at the measures we look at.
So we haven't seen that washout moment. The last one of the fundamentals.
We still think there's a little bit more to go an earnings based on macro data. Earnings should be a little bit lower.
And then the other thing you're looking at is valuation.
Valuations are quite strong.
Especially in the US equity markets.
That has been the primary driver of return so far this year. So I think valuations are a little bit too hot.
So altogether, we think there is a bit more downside to go as we go through this process and go through a recessionary period.
>> Is the flipside of this question then, if you like somebody could ask, when we see rallies during the cycle, how can we know they are the real deal or bear market rallies? You go through a checklist?
>> For it to be the real deal, we would want to see a strong, stable re-inflection and growth momentum.
We would want to see the Fed to be controlled to get into a position where they could normalize rates which would mean inflation is close to their target or very clearly on a path towards their target. We would also expect valuations and earnings to reflect what we expected to be in a recessionary period.
And secondly it's important to have water sentiment and higher volatility and investor fear being high because that tends to be a good opportunity to step back, step into markets and call bottom perhaps.
>> Let's get to another window. The debt ceiling on a lot of mindset there.
We've got a lot to talk about what it would mean for the US. What would it mean for Canada?
>> Great question.
For Canada, it's really going to be a product of global risk sentiment.
Historically, we've had very contentious debt ceiling debate, was going down to the wire, markets to get jittery. 2011, we saw a big risk off event and that had the requisite asset class performances that you would expect.
We thought that would follow through the Canada as well. I don't think Canada as a classes will be immune from global market trade that will be a short-term impact. In the long run, if we continue to have polarization in US politics and debt ceiling debate, both of these are relevant, maybe Canadian assets are attractive to global investors who want to diversify away from a market tensions and US politics.
>> We had someone ask, does Canada have a debt ceiling?
>> No, Canada doesn't. Only one other country does, Denmark. But they said it at such a high level that is unlikely to be reached.
The reason why the US has this debt ceiling is that U.S. Congress used to had to pass every bill as a bond.
That was onerous during the world wars as they needed to raise debt. They introduce this debt ceiling legislation that we've been stuck with it ever since.
People have always wanted to repeal but it's a useful political a virtual so no one really wants to get rid of it.
>> Investing stuff. Has one about the inflationary environment that we have been living through.
Our central banks actually making inflation worse by raising rates? This is supposed to be the tool to cool inflation but of course you raise the cost of living.
>> Is a typical economic market sentiment would say it won't over the long, the medium to long term.
The interest rates work with a leg and higher rates will repress credit and money creation in society and that will lead to slower growth and inflation. But the argument could have merit. One argument to it support would be that in the short term if you increaseeexpense to corporations, maybe they pass on that expense to the bottom line.
They want to make up for that in the pricing power.
So if their interest expenses are higher, maybe you charge more for those groceries at the grocery store.
Hypothetically it's possible. I haven't seen any really strong economic papers proving that to be a former Tory and I think on any reasonable time horizon, interest rates should and will slow inflation.
>> Best Buy, the latest retailer this week, Abercrombie and Fitch, some big US retail names came out and beat expectations.
despite everyone saying a recession is coming, there is a real concern that a recession could be coming.
We don't know how deep it could be, how profound.
The consumers keep spending.
Has this been unusual through this hiking cycle that the consumer continues to have this kind of strength?
>> Hiking cycle have very long legs. Sometimes even more than a year.
So it's not entirely unusual that interest rates wouldn't affect them yet, especially in the US market where mortgages are fixed.
As a result, passing those costs to consumers it takes longer.
Consumers had large excess savings coming into this.
And then what we have Seymour's recently is a big uptick in credit products.
More borrowing from credit cards and credit lines.
So consumers have ways to maintain their consumption over time. The other thing to keep in mind is that inflation is quite high. These are nominal figures as well.
Earnings expectations for a lot of these companies are quite low because people are expecting a recession to happen sooner.
It is possible to surprise in the near term but over time I think consumers will experience increasing stress as these effects of rates are experienced with a long leg.
>> Interesting points indeed.
As always, make sure you do your own research before making any investment decisions.
we will get back your questions for Christian Medeiros on asset allocation in just a moment's time.
A reminder course that you get in touch with us at any time.
Just email moneytalklive@td.com.
Now let's get to our educational segment of the day.
we are talking asset allocation. WebBroker has tools which can help. Joining us now with more is Nugwa Haruna, Senior client education instructor at TD Direct Investing.
always great to see you. Take us through.
>> It's always a pleasure being here. Investors who are looking to manage their portfolio, they are able to do that effectively and WebBroker.
So as we have mentioned, asset allocation and diversification are very important when it comes to constructing a portfolio because there are different kinds of asset classes. There is expertise, fixed income, cash and cash equivalents in some other kind of investments available and investors may try to utilize to balance out their portfolios in response to different things that happen in the economy.
Let's hop into a broker to take a look at how investors can manage this. Once in WebBroker, an investor will click on accounts and go asset allocation. What this does is it gives the investor a breakdown of what they are holding in a specific account. So if I scroll down, I'm using a demo account right now, but for an investor who does have assets, they will be able to see what that breakdown is in things like Canadian equities, US equities, so these would be stocks or ETFs that hold stocks.
You'll also be able to see what their position is when it comes to fixed income, and finally cash and cash equivalents. If they want to cease more details, they can do that by scrolling down and each of these categories are broken down into the value of how much the investor paid and what the market value is as well is the weight in the portfolio. Now for investors who want to learn a little more, they can do that by clicking on the learn more tab here. So once I do that, it'll give me an example of what it should actually look like if I do have some kind of asset makes in my portfolio. Investors can read this to get to more details.
>> Alright, so people start to take a look at what their asset mix is. What if they were interested in seeing the historical returns of a portfolio with a similar asset mix and how it's performed over the past couple of years?
>> Right, so if an investor wants to find out if they are on track to meet their goals, they are able to utilize a tool in WebBroker called the goals tool and it also shows you based on what your asset mix is if there is a potential that you will hit those goals.
So let's hop into WebBroker and take a quick look at what that looks like.
So in WebBroker, you go to the goals tool, one of the taps which is the second step let's you look at asset mixes and look at what returns have looked like historically or create your own custom asset mix.
Now to save us time, I've already started creating a goal and it's always on the second step that you will be able to look at what these asset mixes look like Cohiba to adjust to highlight a couple.
I have a more conservative portfolio here.
If you want to see what the details are, you click on the details.
This gives us a portfolio that is holding 30% in equity, 70% in fixed income. The investor can see that in the last 15 years, a portfolio that help these asset classes what the historical returns look like. You'll see the best year was about 15%, worst year down about 10%, average return about 4.
8%.
Then, an investor can gauge whether they are able to withstand some of the fluctuation that will happen by holding these asset mixes.
But finally I want to highlight, if an investor already has their asset allocation, they can actually create a new profile to match with that asset allocation is.
So I'm just going to pull some numbers. When I review my asset allocation makeup, I 35% Canadian equities, let's say 25% US, then up to 10% here, just making it up as I go along, Gr, 15% here, and then maybe 5% and 10% in cash. And then I can actually do a calculation.
Gso I'm going to go update historical returns here and once I do that, I'm actually able to see in the last 15 years, keeping in mind that historical returns are no guarantee of what's going to happen in the future, but at least it gives me an idea of what the potential of fluctuation to expect in my portfolio could look like.
And then I'm able to see the best year for portfolio with these kinds of, with this kind of breakdown was up about 20% but also down about 22% with an average return of about 6.2%. And you can go ahead and create that.
Just giving investors a way to track, if they are on their way to track these goals based on historical numbers.
>> Thanks for that.
>> It was a pleasure.
>> Nugwa Haruna, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
before you back to your questions on asset allocation for Christian Medeiros, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Christian Medeiros, take your questions about asset allocation.
Lots of concern about the debt ceiling and for good reason.
We are getting onto the wire. If there is a debt ceiling default, a viewer wants to know if that would hurt demand for US debt and will undermine the dollars global standing?
>> Yeah, so the most likely default scenario, it would probably be short lived. The treasury would probably make up past payments after we make a deal.
So we would see short-term market reaction in that scenario, and over the medium term people would still be using treasuries, they would still be using the US dollar.
It would be an immediate change but I think over the longer term, what that would mean if we did get into a default scenario is that of course there's going to be a higher risk premium probably on US debt because you're going to have this risk where this concern happen every time the debt ceiling debate gets contentious. You would also have some more pressure on the US dollars well. They are not many other good alternatives.
US assets are going to be demanding probably a higher risk premium in that scenario and investors are going to be a little bit more concerned and investors are going to want to diversify their holdings a bit more. I think it's a long-term headwind if we go into a default scenario.
But I don't expect in a default scenario that we would have a complete change in the global orientation.
>> This question recalls the bigger debate is been brewing for a while.
This idea of long return DD dollarization in the world economy.
The US dollar might lose the prominence. What would have to happen over what period of time for that actually to transpire?
>> I think the law would have to happen. The issue is that there are not a lot of good alternatives.
The issue is also that with dollars in the global reserve, a lot of trades are not made in dollars.
The surpluses are invested in treasuries which are safe asset and only the US really has such a large stock of treasuries outstanding to absorb that global liquidity, has that supportive market, strong Fed and central bank.
A lot of global countries and companies are now going to start relying on other countries that don't have such deep and liquid capital markets, that don't have their trade denominated in the currency, and so it's very hard to see that changing. A lot of things would have to happen and the US would have to lose significant standing for that to completely change.
>> Another question. The viewer is warning you. Tough question. Where do you think Canadian energy company's are going to be by the end of the year?
>> So Canadian energy, there are two sides. On the commodity side, which is always going to be a driver, oil is really reflectinga more recessionary scenario which I think is nice.
It's giving us potentially a little bit more of a margin of safety but the there is probably some more downside in oil to go. For Canadianenergy equities, really good capital and shareholder returns, really solid balance sheets, so they would be a lot safer in a recessionary scenario from the balance sheet perspective. We think over the longer term they're going to continue to be really nice generators of buybacks, dividends and stronger earnings.
But it's really hard to hold those companies if you think we are going into a recession. So despite the little margin of safety that you're getting from the shareholder returns, the safe you're getting the oil price, if you have only one shorter-term horizon, it's tricky to hold energy stocks into a recession if that's your view. So I wouldn't put them as a high priority sector in my view at the moment just given the macroenvironment.
But over a medium to longer-term perspective, there really attractive, they are really an attractive place to be.
>> The Saudis were sort of intimating that ahead of their next plus meeting that if anyone is speculating against oil, theymight be in for some pain. Russian officials were pouring water on that. The of the plus part of that equation.
It's hard to read with the cartels of do.
>> Supply on the energy side is for the most part quite attractive.
We have seen really aggressive draws on inventories, we have seen really aggressive seasonality.
It's not really surprising our expectations.
China is our second biggest supplier of oil. All these supply factors point to a tight market but at the end of the day we think we are going into recession a demand is going to fall, that will weigh on oil in the near term. So this is what we are playing with. But when we get to that recessionary scenario and see these demand concerns lifted, that gives a better supply backdrop and potentially better oil prices and that would be better for Canadian energy outfits.
>> Hearing a lot about commercial real estate weakness.
Perhaps they go into an office a couple days a week where there are more empty seats than there used to be.
what's the impact?
>> Canadian real estate, multiple subsections are strong and have good fundamentals. The one that's in concern his office. That's the main battle at the moment. That's just because the way that we are engaging with work in the post-COVID environment. For Canadian investors,global office reads can be issues.
there can be issues on the bank side.
Office commercial real estate is really not as big a proportion of the driver for those Canadian bank stocks.
So for Canadian investors, the office realties section is probably not going to be a material concern or driver but would be a bigger concern is how well our Canadian mortgage owners are able to adapt to higher interest rates, how long do they stay high, will that have a big effect of the consumer?
that will have a bigger impact than the single subset of offices alone.
> Of you are asking a currency question.
What is the outlook for the loonie?
>> The loonie, I think, on the oil side of the equation, I think it's too soon to get a big push higher in oil prices unless we think the macroenvironment is going to change.
So that will not be a huge driver of loonie strength.
the predominant driver of the loonie, especially versus the US dollar, has been rate differentials. There has been a big shift recently.
Investors were expecting the Central Bank of Canada, the BOC, to be cutting aggressively later this year but now they are really pricing in quite a bit of hikes after the lost data.
I think it's unlikely that the BOC will switch from a pause to an aggressive hiking stance.
So given that kind of dynamic, I think the market will be disappointed by that, I don't think it will be a big driver either. And lastly, a big driver of the Canadian dollars seems to be a global risk sentiment.
Given the debt ceiling dynamics we have here, the potential for more weakness in the equity markets, those are the recent high, that probably does not work in favour of the loonie. So all those things put together, it is not a particularly optimistic picture for the Canadian dollar.
>> Interesting stuff. We're going to back your questions for Christian Medeiros on asset allocation in a moment.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian small business confidence has been on the rise for several months and is now at its highest level in nearly a year.
So it's driving that optimism? Joining us out more is Anthony Okolie, dig into the latest figures.
>> Thanks very much, Greg. Small business confidence in Canada improved again in May and as you mention has been on the rise for several months in a row.
Confidence about the next 12 months actually inched up to 56.4 points and now that still about five points below the historical average.
Meanwhile, the short-term outlook based on three-month expectation was unchanged at 53 1/2 point. That's about two points below its historical average.
Now of course, the number above 50 shows that business owners are feeling confident versus negatively about the environment over the next few months.
When we break things out by province, all but two provinces reported optimism levels above mid 50.
Those would be Saskatchewan and Québec.
They were both just below 50 in May.
in PEI, to Newfoundland and Labrador, they were leading in optimism over the long term with significant improvements versus April.
when we break things down by sector, long-term optimism was improving overall in most sectors but only three industries reported confidence levels below the 50 mark level.
Those would be agriculture, transportation and finance, insurance, real estate and leasing. For the agricultural businesses, that marks the 12th consecutive month a very low optimism.
Meanwhile, labour shortages and their side effects is still one of the biggest challenges for small businesses and it continues to be a big factor, limiting sales or production growth. When we look at full-time staffing plans, they are moderate for this time of year with only 22% of businesses looking to hire while 12% are considering layoffs.
Supply-chain indicators show that some difficulties have been resolved on the supply side leading to some optimism.
But many issues remain especially on the distribution and input cost side.
Now some other positive news, average wage increase plans have seen a small drop from April's levels.
So overall, the uptick in confidence over recent months is welcome news but overall optimism is still relatively blunted compared to historical levels with a longer-term and a level below the pre-pandemic average of about 62 points.
>> It makes sense. A small business might want to ramp up and increase sales but doesn't have the workers to get to where they want to be. Any other factors holding them back?
>> Yeah, I think many businesses continue to worry about the lack of domestic demand.
That's a big worry. And it's the third largest concern which impacted roughly 1/3 of respondents. Some of the headwinds such as supply-chain backlogs and gas prices have been easing, others have intensified. Now TD Economics has said a strong growth outlook for Canadian economies this year combined with high rates will likely weigh on business, investment and expansion plans.
They want to say that the consumer is likely to be put under increased financial stress over 23 three which will weigh on sales and margins and ultimately, that will affect businesses bottom lines.
>> Great?
>> Interesting stuff. Thanks Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
let's do a quick check in on the market. At the TSX Composite Index, a 164 point deficit, little 51%. We are in the thick of financials reporting season. We are seeing pressure on energy names with benchmark American crew pulling back.got Baytex energy down a little bit more than 4%.
Barrick Gold, we have seen the price of gold pulled back a little bit as well, some of the miners under pressure, Barrick among them.
down about 1/2%, nothing too dramatic.
South of the border, debt negotiations continue and we get closer to June 1 which the Treasury has said is the date that they will run out of cash to make good on their commitments.
so you're getting down to the wire. But you also had Nvidia come out with a very strong sales forecast based on demand for its chips, based on the artificial intelligence boom. Through getting some green on the screen. Got the S&P 500 up 28 points, more than half a percent, two thirds of a percent to the upside down.
What was good for Nvidia is good for the broader NASDAQ it seems. Let's check in on the NASDAQ. It's up 1.
7%. Also good for some of its competitors. Much has been said about Nvidia's chips having a bit of an advantage when it comes artificial intelligence applications.
Intel is not feeling that love. At $27.
13 per share, we will round up, you got Intel down about 6 1/2%.
We are back now Christian Medeiros from TD Asset Management.
We are talking asset allocation. Seller wants to know about geographic opportunities.
Is this a good time to invest in Europe or Asia over North America? On the platform, we cannot give you investing advice but we can definitely talk about different geographies and risks and opportunities.
>> What I think is really interesting this time around this year which has maybe slipped under the radar is we have had strong US equity entire performance has been the actual performance of European equities, particularly Germany and France and then also the strong performance of Japan.
All of which have hit recent highs.
What's really happened there is a couple of things.
One, love concerns about a potential US recession and some people are looking to other markets. The other one is these are the markets with central banks that have lower interest rates than the US and perhaps are not really as restrictive on the economy in the near term.
Another aspect is a lot of investors want to play the China reopening but are a comfortable allocated to Chinese equities in which case you allocate to countries that have really good exposure to China, either from the manufacturing side, whether it be from luxuries, such as many stocks located in France, or other industrial goods, such as Japan. So these countries, the company's within them, they have a back doorway to play the China reopening and they have also been to the year with lower valuations and a fairly attractive mix.
Speaking about Japan in particular, it's quite interesting because there is a lot of corporate governance reform that is taking place. Solar companies are trading below book, previously management teams were not as interested in shareholder returns, sitting on a bunch of cash on the balance sheet.
Over time, there have been more and more activists and that Mark and Naya have been pushing a lot of these companies to shore up their balance sheets, pants with the excess cash that they don't need, divest of unnecessary divisions, perhaps improve their shareholder returns.
So with the Japanese equities, you have a very interesting story that I think is overlooked in North America of its shareholder improvement and shareholder forward thought process.
>> Okay.
We are running out of time for question. Before I let you go, we started the program with conversation about the US debt ceiling and talked about wouldn't it be interesting during this program if we actually came to a deal.
Or take a look around, I'm not seeing anything.
> We will have to wait.
>> Maybe just a recap for the audience, was on the table right now?
You're getting down to it. June 1 is quickly approaching.
What does it mean to be watching those investors?
>> Over the next few days and through the weekend, you are going to see negotiators try to work through the deal.
The main question is going to be how much money there when to cut or. They are going to be fighting through that.
Once the agreement is reached, if it is announced, then we are going to have to see that pass through the house and the Senate.
if we don't see a deal on the table by early next week, things are getting pretty tight, we are going to have to hope that they can punt the debt ceiling further along to buy some time for negotiation.
if they can't do that, we are going to get into some more funky territory where they choose whether to prioritize interest payments or the you something funkier like the 14th amendment or atrillion dollar coin.
>> Whenever anyone says trillion dollar coin, I imagine a heist movie.
It's ripe for a Hollywood plot.
>> Hopefully makes it all the way to the bank account.
>> Always great having you. I look forward to the next time.
>> Thank you.
>> Are things to her to Medeiros, per flu manager at TD Asset Management. We'll be back tomorrow with an update on the markets, has our best interviews of the week and then on Monday, Daniel Ghali, commodity strategist with TD Securities will be our guest taking your questions by commodities. And reminder that you get a head start.
Just email moneytalklive@td.com.
That's all the time we have for show today. Thanks for watching. We'll see you tomorrow.
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