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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 them you'll only see here.
We are going to take you there with moving the market and answer your questions about investing.
Coming up on today show: we are going to hear why today's feature guest, Daniel Ghali, says the recent weakness we've seen in the price of crude may be a case of markets anticipating a Goldilocks scenario for supply, and that just might not play out. Also in today's WebBroker education segment, Bryan Rogers is going to walk us through how trailing stops work and how you can set them up on this WebBroker platform.
So here's I get in touch with us to your questions and comments. Just email moneytalklive@td.com or you can fill out the viewer response box right under the video player here on WebBroker.
Before we get our guest today, let's get you an update on the markets. We got a bit of aWait and see feel is there right now. Of course, Jerome Powell, US Federal Reserve chair is giving a speech and all market participants are pretty curious to hear what the tone will be of that speech.
It's all about the path of rate hikes going forward.
They feel the need to ease up at some point? Markets are making a lot of bets off of all the tea leaves we get from different fed speakers but we got the big one today, Jerome Powell. So heading into that, we got a bit of weakness no. 93 point to the downside for the TSX, despite the fact that we're seeing a pop in the price of crude today, down about half a percent. Seeing a bit of a bid into some of the tech names here at home, including Shopify. It's up a little more than 3%, 52 bucks even per share. Some weakness in the company Nutrienthe last time I checked. Let's check in on it now and see where it sitting. Shopify of, is Nutrien still down?
Indeed it is. We've got Nutrien down to the tune of about 3%, 107 bucks and change. Again, says of the border, you've got the eyes on Wall Street waiting to hear from Jerome Powell, what he has to say about the progress they are making to try to tame inflation and how much further they need to go and how much more aggressive they need to be when it comes to raising rates. They been pretty aggressive so far this year.
The market is always watching for signs they might ease up on that. But the S&P 500 basically flat now, down just two points. The tech heavy NASDAQ, let's see how it stacks up against the broader market. Right now, it's modestly in positive territory with the 41 point gain, a little more than 1/3 of a percent. Some of the big financial names on Wall Street feeling pressure today. Nothing too dramatic. It J.P. Morgan at 134 per share, down a little less than 2%.
That's your market update.
We are continuing to see volatile trading in the price of crude oil.
Investors are weighing supply and demand concerns. Our guest today says any downward pressure on oil might just be the markets pricing in a Goldilocks scenario that may not player.
Joining us now for more, Daniel Ghali, Senior commodity strategist at TD Securities. Welcome to the program.
Let's dig into this.
It is been quite a couple of weeks, couple of years, even a couple of days with oil, raising its gains for the year and then suddenly back above $80 per barrel.
What's going on here?
>> Yeah, you're absolutely right, Greg.
There is a sense out there that commodity market participants and markets in general are celebrating the end of the energy crisis. There is good reason for that because crude prices are now back to nearly where they started the year off. You have demand concerns emanating from the fact that we are barreling towards a recession and the reality is that the supply side of the equation more recently has actually caught up, despite previous underperformance. So all of these things together have created a context in which oil prices have come off substantially and in which people are starting to look at the future, thinking that perhaps the worst is behind us when it comes to the energy crisis.
>> What should they be thinking, though?
If that's what they are thinking, are their heads in the right space?
>> Well, exactly.
I think there's a bit of complacency out there in the markets. When you think about the demand side of the equation, certainly demand is going to slow but the critical caveat here is that oil demand across the world is still going to grow nonetheless.
Perhaps at a slower rate, but it's going to grow. The main question that brings up is: where is the marginal barrel going to come from?
if you follow me down that rabbit hole, you quickly start to see holes in the narrative.
Let's talk about where those barrels might come from, first the US, one of the world's largest producers of oil.
There is been, you know, and if you're, you know, repeating myself, we've certainly discussed this several times over, but there's been a historical disconnect here between the price of crude oil and the production that we are seeing out of the US and the rest of the world. Part of that is driven by ESG concerns that are prohibiting capital expenditures in that sector, but the other part of it is that the behaviour of these participants has changed.
People are stakeholders want these companies to return capital to them as opposed to reinvesting.
Outside of the US, most of the growth out there that the market is exciting for next year is coming from a few producers and not that grows actually has to do with the high price environment that we are in. It's a result of legacy projects that just happen to be coming to completion over the next year.
So that leaves us with all the other producers, namely with an OPEC plus. That's where most of the risk lies when it comes to production next year.
And let's talk about Russia, it's one of the most evident pieces of supply risks out there. So far, Russian exports have actually been doing quite well.
Part of that story is the world is stockpiling because they fear the sanctions that are coming and going to disrupt their output, and so the world has stockpiled in anticipation of that.
But another part of the story is that really nobody knows what the sanctions are gonna look like respective to the G7 and how that is going to impact oil markets come that date.
Another part of the story is within the broader OPEC group, Libya is one nation where we've seen a tremendous amount of geopolitical risk and the country is still facing a political crisis that has been ongoing since 2014. You still have an election season that is coming up that could once again bring forward some production risks for this nation. Don't forget that earlier this year, we lost about a million barrels a day from Libya.
If we lose that again into next year, who's going to make up for that lost supply?
>> So with all this uncertainty and all of these variables and moving pieces, it seems to me that we are not going to get passes volatility anytime soon. Right now looking at West Texas intermediate, the American benchmark, it was up almost 3%. It was down 3% recently.
>> I think volatility is here to stay.I think particularly so in oil when you've had an exodus from the money manager space, mostly because when managers were positionedfor disruption in the G7 sanctions and thus far the reports that we've had our that the sections are going to be watered down nor that there is lack of consensus among the G7 can groups on how strict to be on Russian oil restriction.
> In past OPEC decisions, they will say in an upcoming meeting… There's always a cycle of OPEC meetings and what they may or may not do.
Does OPEC want to see a certain level of crude prices?
>> I think certainly we are at levels that would be consistent with what you call the OPEC put, with the strike on the OPEC put.
What that means is that OPEC would probably come to higher prices than where we are today and the reason we say that is because prices are really close to where they ended their historic agreement last meeting and where they had their first production cut since the pandemic.
If you think about it, spare capacity globally is really concentrated among the few nationswho are at the helm of OPEC. They are essentially, today, the swing producers in oil markets and they have a grasp on this market because of all the issues that we previously discussed with the US and other producers out there. So it is in their interest and in their power to keep oil prices… > Earlier this year, even a couple of months ago, there was some tension between what OPEC was up to you and what Washington wanted to see in terms of crude oil prices. Of course, you had the Biden administration and not having the strategic petroleum reserve. How to set storyline up?
At some point, you can only tap it so much.
> That's absolutely right. There's a lot of moving pieces in there.
You know, you mentioned the discontent between Saudi Arabia and the US when it comes to both the SPR and OPEC's decision to cut. When you think about the big picture geopolitical risk in the Middle East, you have one nation, Iran namely, that is facing already significant sanctions, that is making progress on their nuclear ambitions, that is really destabilizing the balance of power in the Middle East. That is an incentive for Saudi Arabia to keep their strategic relationship with the US. But at the same time, when you are looking forward 10 years down the lineand oil man is expected to decline, you might want to monetize that is much as possible for the time you can.
> So with this much uncertainty, this much volatility, this many moving pieces, can we even attempt to put a price around we think we might see a barrel of oil go for on average heading into next year?
>> Yeah, absolutely.
I think most of Southside banks expect higher oil prices. The reasons are typically because supply is constrained and we also agree with that view. You know, we are looking for oil prices to rally north of the hundred dollars per barrel, so there still a significant amount of upside here.
The key idea, I think, is that the right.
.
.
if we think oil can go to hundred dollars per barrel, it will take a huge disruption to see them go hundred and $20 per barrel.
>> We will get back your questions in a moment. A reminder that you can get in touch with us in your questions at any time.
Email moneytalklive@td.com or fill out the viewer response boxright here under the video playerhere on WebBroker.
Now is give you an update on the markets and business stories.
Pipeline giant Enbridge is raising its dividend as a reaffirms its full-year earnings guidance. The payout to shareholders will increase by more than 3% to $3.
55 per share annualized, effective next March.
In release, Enbridge CEO Al Monaco says he expects strong growth next year despite global economic challenges.
Amazon says shoppers opened their wallets on the platform and record breaking numbers over the holiday shopping weekend. The e-commerce giant says Apple Airpods, the Echo Dot Smart Speaker and Hasbro's Gaming Connect 4 were some of the high demand items.
The Bank of Canada is posting the first loss in its history. The central bank's third quarter report shows a loss of $522 million for those three months. That is the revenue it collects on the interest from assets it holds failed to keep pace with the interest it's paying out on settlement balances that are held with the bank.
A quick check in on the markets.
We will start here at home on Bay Street with the comp.
I had a Jerome Powell speaking in a little less than an hour and 1/2 time, we've seen a bit of a wait and see out there.
You do have a nice firm price for crew today. It's been pretty whipsaw.
Got the TSX down 94 points were about half a percent.
Said to the border, again, of course, Wall Street is waiting on Jerome Powell's words as well.
3951 on the S&P 500, the Rotary to the American market, down very modest 6 1/2 points.
We are back now with Daniel Ghali, taking your questions about commodities, so let's get to them.
Here's a forward-looking one for the year.
For 2023, fast upon us, which metal are you more bullish on for the EV demand?
They listed them here for us: nickel, lithium, copper, cobalt, silver or do you want to choose all of them?
>> It's a really good question and I want to say is part of our 2023 outlook, we done a lot of deep dive analysis on how those structural tailwinds for demand are faring.
What we found is that in China, because electric vehicle sales have been promoted and subsidized to such an extent over the last year, and that they captured a substantial amount of market share in China.
You have to think that your typical electric vehicle is going to contain or consume a lot more copper and nickel than traditional internal combustion engine type vehicle would. So today, about 30% of all auto sales are electric vehicles in China and just that 30% piece is already consuming more copper than the entire remainder of the automotive segment. So it's a really positive story. For the first dogs that those structural tailwinds are feeding through to those market balances in copper and not something we expected to continue to the next decade.
>> Do we have enough to see a ramp up in the electrification of everything, trying to reduce our carbon footprints with EVs in particular, do we have enough of these materials, of these metals?
>> we could have enough of it, but we are not seeing the amount of capital expenditures that would be required for us to meet the demand that's going to be out there 10 years from today, so you'd need mining companies in particular to dramatically ramp up their exploration and mining of potential assets.
>> So we are seeing this push towards EVs, you're talking about the opportunity there in the consumption, the hunger it's going to have, some of these key metals. What some downside risk here, what could go wrong with that there?
>>well, certainly, when you look into 2023, you have strong structural outlook, looking 10 years down the line, there's a really positive story there as electrification starts to consume more of these metals.
But you also have a very negative cyclical outlook. We are barely towards a recession. We have China's property sector, which is a huge consumer of industrial metals in particular, is faring really poorly.
Certainly, China's policymakers are trying to stimulate it, but you have a lack of confidence from homebuyers now that suggests a slow recovery of the property sector into the first half of the next year. So while you have these kind of positive stories longer-term and near-term, in the next one to three years,there are some aspects that should contain prices.
> Interesting stuff.
We'll get another question no.
Can we get your guests outlook for the big one, for gold?
>> Gold is a really interesting one. Prices have rallied substantially since they had their year-to-date lows. Part of that story is true for many other markets out there, market participants are starting to think about peak hawkish central banks and some people think that that precedes a pivot for central banks. But we actually don't think that will be the case.
In fact, we think that gold prices could fall significantly from where they are today.
The main reason is that when you look at the drivers of inflation and break them down between demand driven drivers or supply driven drivers, you still have a significant amount of supply constraints particularly in the services side of the equation which should keep inflation only on the grind lower. What the Fed would need in order to prohibit as the market is hoping for is a substantial decline in inflation, potentially as the market expects it potentially in the first quarter of next year. But we think it's going to take a lot longer than that before they are in a position where they can cut rates.
>> What's happening in the dynamics of the market where the market is getting ahead of a lot of forecasts as to how quickly we can tame inflation?
You see it come down to take or to month-to-month in the markets very excited but we are still talking about inflation. In this country, almost 7, and with that. In the United States. These are very hot numbers.
>> Yeah, you're right.
The reality is that the market is sending false signals.
What I mean by that is that we are all so in… A lot of market participants were short gold ahead of the recent rally and that short contributed to these higher prices. One of the things we do particularly well here at TD Securities, I would say, is advanced positioning analytics. As part of that, we track systematic trend followers, that's one cohort that's become very important among markets, and our analytics suggests that they contributed to these higher prices. They had a massive short position which they were forced to cover as strategies improved and they are one of the reasons we think thatthese prices might be sending false signals here.
>> Fascinating stuff there about the mechanics of the market and why things move sometimes.
I'll get another question, this one about the strength we have seen in the US dollar this year.
Obviously, this has been an interesting one lately in terms of swinging back-and-forth.
But what did it mean for commodities overall? Are we starting to see and ease? This pullback we have started to seen in the US buck lately, is it the real deal?
>> Great question. A lot of people are wondering the same thing.
The reality is that a lot of the drivers we were discussing, macro, big picture drivers, like central bank heartlessness, our drivers for the US dollars.
There is typically relationship where the stronger the US dollar is related to lower commodity prices but I think that over simple five things. You have to consider that some drivers are common to both markets and that affects the correlation a little bit. But when we are looking forward, we actually expect the US dollar to continue rallying at least in the near term and a big part of that story is, again, positioning. We had a huge mountain of long liquidations in the US dollar.
Firstly, people were short other currencies that they were forced to cover.
that's part of why… >> I always find a correlation particularly between gold and the US dollar so fascinating because if you step back, if you're reading a textbook, first it says, gold is the traditional safe Haven, the US dollar is a traditional safe haven. But wait a minute, if both are havens at the same time, something's not working. As part of that story is that emerging markets tend to be huge consumers of commodities like gold particularly as well.
So a stronger US dollar makes it difficult for these emerging markets, makes more expensive for them to purchase gold.
> Fastening stuff as always. At home, make sure you do your own research before you make any investment decisions. You'll get back to your questions for Daniel Ghali on commodities in a moment's time.
Our minor, you in touch with us anytime. Just email moneytalklive@td.com. Let's get our educational segment of the day.
Trailing stop orders are one method investors can use to try to handle market volatility and WebBroker has tools which can help you set up such an order.
Joining us now for more on this is Bryan Rogers, Senior client education instructor at TD Direct Investing.
Bryan, first maybe explain to our viewers how trailing stop order differs from a regular order.
>> Yeah, absolutely. Just a reminder, for those that aren't aware of what a stop order is, so a regular stop order is commonly used as a sell order where you can kind of set a sort of limit order, you can set it triggers what we would call it where you can put that below your current stock price. So if you want to protect your profit or you just want to minimize losses if the stock is going to be forecasted or you are speculating it could drop, you can use that stop order so instead of entering a market order or limit order to sell, you are going to put in something that is currently below the market price hoping that you can just stave off a major loss or protect the profit you already have. So with a trailing stop, we have additional technology that can make ita little more convenient and it also makes it quite a bit more or conjugated when you are learning these orders. I would say the best way we can explain this is I have a video.
I want to run this video to show you what actually happens. You can see here, if we have a sell order at $10… A buy order at $10 for a sell order at nine dollars, that would be regular. You can change that, you just have to fix that as a stop order and you would get stopped out at a dollar below what you ended up buying your stock at, so you can have a bit of a prophet there.
Or you can do a trail, a Delta they call it, so a factor of… You can set it at one dollar and you can see the stock, is a kind of moves around but it doesn't go that one dollar trailing stock, it can eventually rise.
You can see that one dollar is following as it goes up and up and you can see it getting up to $12, almost 13 and so on.
As long as it's always rising and not dropping to whatever your trailing stop orders, is going to continue to follow it on the upside.
So eventually you can see as the stock moves across and starts to get back down, you will notice now that we have a much different stop.
It could be at about $11, one of this 12 or 1250.
Maybe 1150. It is going to follow by that one dollar range.
>> That's a great graphic visitation.
In all that video because it just really shows you what's happening there.
It sort of makes it clear to the viewer. So now what if you are intrigued by this, how do you actually enter a trailing stop order in WebBroker?
>> Yeah, and that's where does get a little bit tricky silow taking people who this part because it's different than when you are entering a limit order that you are likely used to what you are doing buying and selling, so we will jump into WebBroker. This is a random stock.
You can see on my screen I'm just on Microsoft.
It's a trade ticket or order ticket. You can click on sell. You can use stop orders for a buy element. Active traders mutes us that as an entry point.
You can use it that way. Above the market.
But we are going to use it for a sell order. So typically own the stock. If you want to sell 100 shares of Microsoft, let's say for example is trading right now at $240 and you had bought it a while ago, maybe last year if you had bought it at 200, you have a pretty good profit to protect any if you think it might be starting to drop, you can go here and on your price type, it you selected set of market limit, you go down to the bottom and you have trailing stop market and trailing stop limit.
We are only going to look at the trailing stop market right now.
The trailing stop limit is very much the same and actually maybe I will just show you because there is an added element. The basically you are going to trigger a market order when the trailing stop happens or you are going to trigger a limit order when that trailing stops as well.
So we will select the first one here. You can see the thing that differs, it comes up with the trigger Delta, that's Reagan entering like I showed in the video, we had a one dollar Delta, you probably don't want to go that close but you can do something say like $10 and you notice that right away what happens is it shows you you are estimated stop is $231, about $10 lower than the current bid.
You can also do a percentage as well.
So if I do 10%, then it's going to follow by 10% as it goes up. The only difference with the limit, if we do a trailing stop limit order, make sure to put in your trigger Delta, let's say we do $10.
But the other thing is with the limit, it's an offset.
You can put in $0.50.
What I want to make sure people are aware of is that it can assure you that estimate, there's that estimated stop, and then there's you are estimated limit order that would go in that is going to be associated with that trailing stop. So in this way, you can actually potentially get a higher return or a higher sell rate using that trailing stop versus a regular stop order.
>> Great stuff as always, Bryan. Very instructive.
Thanks for joining us.
>> Thanks, Greg.
>> Bryan Rogers, senior client education instructor at TD Direct Investing.
Make sure to check out the Learning Center in WebBroker from our educational videos, live, interactive master classes and upcoming webinars.
Before you get back to your questions about commodities for Daniel Ghali, a reminder of how you get in touch with us.
Got a question you about what's driving the markets are investing?
Our guests are eager to hear what's on your mind, so Sen. question. There are two ways you can get in touch with us. Send us an email anytime@moneytalklive@td.com or you can use the question box right below the screen here in WebBroker.just writing your question and hit send.
We'll see if one of our guest can get you at your answer right here at MoneyTalk Live.
We are back now with Daniel Ghali, taking your questions about commodity stocks so let's get back to them.this coming in in the last couple of minutes. How will Canadian oil producers do in 2023?
>> It's a great question. When you think about the outlook for Canadian oil as a commodity, there's a few things you have to considerin addition to what you typically consider in terms of the oil price outlook.
The first, I would say, is that Canada has been plagued over the last few years by export capacity issues, and that's one of the major pieces to think about when you're looking at the outlook for Canadian oil.
So some of the positive angles that you could look at are particularly a, will Russian seaport crude exports be constrained next year?
So if in fact the price Does go through and Russia chooses to avoid those sanctions by using their own tankers and perhaps looking at a dark shipping fleet to try to avoid the sanctions, does not open the door for Canadian oil to be more competitive in terms of their export capacity to Asia, for instance? Those are the types of pieces of the puzzle that we want to consider.
>> Fascinating staff, geopolitics a big part of all of this. Another question here, this one about gasoline prices, something we've all felt this year.
What's the outlook for gasoline prices? It seems like the prices stay high even when crude goes down.
What's the matter here?
>> Yeah, certainly I can understand how that can get frustrating for a lot of people.
The reality of the equation is when you're looking at gasoline prices, you also have to consider refining capacity and refining utilization across the entire world.
In the US in particular, you had refinery capacity start to or I should say utilization start to come online again and that's a positive for prices.
But you also had huge shutdowns in Europe, two of Europe's largest refineries were shut down, one because of labour issues, the other because of an operational issue.
So Europe is again looking at the US as their source for these fuels and so that's actually constraining the US's availability of gasoline and in turn the prices of gasoline.
>> I know sometimes someone is looking at this and what they feel is the disconnect between the two.
They say, if it's about refineries and particularly domestically, why can't they build more? But they are pretty expensive proposition.
>> Does our expensive propositions and I think it's quite unlikely. You have some refineries that are off-line today and even with the high price environment, you haven't seen much of a push to reopen them. It's an expensive proposition and also likely to take a long time before that happens.
>> Interesting stuff there. Another question.
Got a lot of questions coming in fast and furious.
Let's try to get them to the mall. It was Daniel's outlook for natural gas?
>>when you think about natural gas, you have to think about where in the world is that natural gas price?
When you are thinking about what's been really popular as a narrative out there is the European gas prices, Europeans have actually done a tremendous amount of work to shore up their inventories for the winter season and actually so far the winter season has been pretty mild and that has helped suppress prices.
But when you look forward to 2023 and start thinking about how gas prices might evolve there, you have to consider the fact that China has been essentially completely out of the LNG market that Europe is not relying on to offset the losses from Russian gas.
A big part of that story is China's COVID zero policy that has constrained their own consumption.
If you do see a gradual reopening in China, perhaps even a faster paced reopening in China, then they are going to be back in the LNG market that's going to make a lot harder for Europe to secure the supplies without competing on price.
>> People will be looking for LNG in that scenario.
What can Canada provide the world in terms of LNG?
We've talked about LNG for a long time in this country.
Are we making headway in actually getting our products out to the world?
>> Not much headway because we don't have a lot of export capacity as well.
Longer-term, it's still something that Canada should potentially consider.
The reality is that, you know, LNG markets are still overwhelmingly dominated by long-term contracts where some consumers look to secure their supply for the next five years or more, longer periods like that. And it appears that for some of the popular export markets like Japan for instance, all shipments to 2026 are already sold out. What that tells you is that these tremendous opportunity on the more volatile market where Canada can actually fill the gap there.
>> Fascinating stuff. Next one back to the metals. One of our viewers wants to get your take on platinum.
>> Sure. Platinum is one of the more niche precious metals markets.
It's typically used in auto catalysts and particularly so in diesel engines. So it's been in a bear market for quite some time as a result of the world using less and less in diesel engines and part of that story is electrification but also that diesel engines were primarily consumed in Europe where the world has really shifted in terms of their preferences for types of vehicles that they consume.
Now for this year in particular, you've had a massive mining disruption in South Africa.
One smelter alone that produces platinum, about 12% of the world platinum, has been off-line.
That's related to rebuild and then some faulty materials that prolong the period of time it would really make off-line.
But that's actually, the guidance suggests that it's going to come online as soon as the end of this year so you really don't have much time left where platinum markets are as tight as they are today and in fact we expect them to loosen up the next three months.
> Beyond platinum's role, as you said, as a catalyst and mostly in diesel, is there much other industrial use for it?
Or is that sort of the primary pieces behind it?
>> That is absolutely one of the primary pieces of the puzzle when it comes to industrial uses for platinum.
but as a precious metal which also tends to be very heavily consumed by the investor community.
So this year, investors have actually it massively liquidated platinum and it's been the physical side of the equation that is tightened markets, supporting prices and kept prices from falling off a cliff.
Looking into next year, you still have, as we discussed for gold, a difficult investment thesis. So you would inspect investors to still shy away from platinum into next year and so that's one of the pieces of the puzzle that they won't be able to rely on. I will say this, however. Platinum and platinum metals in general are one of the most interesting ESG plays out there.
They actually benefit tremendously from structure admissions control regulations across the world.
This is something that's already happening in China and in India that supports the amount of platinum consumed per vehicle. So as you go forth through time and these older cars come out of the market, newer cars that require more platinum content come in, that's a positive story in the longer term.
>> Fascinating stuff there and platinum. We're going to back your questions for Daniel Ghali on commodities in just a moment time.
As always, make sure you do your own research before you make any investment decisions and reminder you can get in 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 writing your question and hit send. We will see if one of our guests can get you your answer right here at MoneyTalk Live.
As we await Jerome Powell's latest words about an hour away, we did get another read on the strength of the US economy this morning. A second reading on the third quarter.
And it turns out the economy is stronger than previous I thought. Our Anthony Okolie has been digging in and joins us now for more.
>> Thanks very much. Yes, the US economy in the third quarter actually grew 2.9% annually, that's a slight upgrade from the 2.6% in the last months advance estimate and just above the 2.7% forecasted. As the chart shows that I brought along, Realty did rebound from two consecutive declines in the first half, both in Q1 and Q2, but we are still seeing some recession fears which are continuing to linger. The second read again shows that the US economy grew despite the slowdown that we saw in consumer spending over the summer.
And the US economy and main engine, again, which is consumer spending was revised slightly higher but again still down from the 2% that we saw in the first, in the second quarter rather. This suggests that the impact of the drop in household net worth after the second quarter pull back in stock markets combined with higher interest rates, red-hot inflation, has been a big drag on consumer spending in the third quarter.
Now, when you look within the numbers, all the gains in consumer spending were actually driven by services, things like accommodation, spending in restaurants, travel, spending on goods across durables and nondurables in the sector, the estimate was still down as well.
Now, of course, this was driven by the shift that we saw in spending habits by consumers that were coming out of the pandemic.
When we look at nonresidential investing, it was again lower in the second reading but the decline was much smaller versus the advanced estimates.
Let's switch over to residential investing. The revision was slightly lower but again, home construction did slow in the third quarter and that's sharp pullback that we saw in housing activity resulted in residential investing suffering the largest quarterly drag on economic growth since late 2007.
And finally, we look at the chief source of GDP rebound, it's really shrinking trade deficit. We did see exports, there was a modest upgradein the second estimate. Greg?
> Here's where we take it back to the big show today, Jerome Powell, less than an hour away.
People are waiting to hear what he's going to say.
What did they think over a TD Economics about fourth quarter growth, the growth of the US economy in 2023?
Ultimately it all comes back to the cost of borrowing.
>> Looking at the fourth quarter, TD Economics expects that it will show some resilience. When you look at things like consumer spending and business investment, they are holding up reasonably well heading into the fourth quarter. So they expect the US GDP to expand about 2%. Again, not quite as robust as we saw in the third quarter but still respectable. But as a rapid rate hikes continue to weigh on the broader economy, they expect growth to fall to in your stall speed when we head into 2023.
As for rate policy, again, third quarter GDP is a backward -looking indicator, so it's unlikely to impact Jerome Powell's speech or the Fed decision going forward. TD Economics expects 50 basis point rate hike.
They think that's likely at the December 14 meeting followed by 25% increment in early 2023 as needed. They think this will allow the Fed time enough to pause and wash with the impact of the past interest rate hikes have on economic data going forward.
>> Fascinating stuff. Definitely the big question of the year hanging over us. Thanks.
>> My pleasure.
>> Money talks Anthony Okolie. Let's check in on those markets now. Jerome Powell about an hour away.
With markets, there's a bit of weight and see it,right now with the CSX, pretty firm on the price of crude, sort of drifting lower through the session. Down hundred 30 points now, little more than half a percent.
We see this firm price for crude but it isn't really playing into equity strength when it comes to some of the biggest energy names. We have Cenovus at 26 bucks and $0.96 per share, down a lot bit more than 2 1/2%.
West Fraser Timber seems like some of the lumber plays are under pressure today.
Nothing too dramatic. About 105 bucks and change, down a little bit more than 2% on the same. South of the border, let's check in on the S&P 500 and see how it is setting up ahead of Jerome Powell.
It's been drifting a bit lower through the lunchtime session will we've been having our discussion with Dana. It's down 16 points right now, a little less than half a percent.
The tech heavy NASDAQ, how does it stack up against the broader market?
It was positive at the top of the show and its drifted modestly into negative territory now, we've seen some weakness in the big Wall Street banks, J.P. Morgan, Bank of America. Let's check in on that one now and see how it's faring.
Bank sector on both sides of the border showing a bit of weakness today.
It's pretty modest, 36 bucks and change, Bank of America down 1 1/3%.
We are back now with Daniel Ghali from TD Securities, we are talking about commodity silica to the next question.
Our commodities the place to be over the next five years with inflation where it's at?
>> Yeah, I mean, if you think about commodities in the longer term, there is a huge amount of evidence that we are entering into what you would call a supercycle where demand is going to outpace supply growth for the foreseeable future. That is true for industrial metals, for energy markets.
You could also argue for a supercycle where demand is going to slow it a slower pace than supply.
both of these things argue for a higher inflation for a longer period of time as well, and commodities are one of the ways to protect yourself against that higher inflation.
> If you do get that higher inflation, you get the central banks refusing to ease off and they continue the battle, and shorter terms, is that the big question right now for the quadrant means, that we end up in a recessionary environment next year and perhaps it's deeper and longer than we were hoping?
Everyone hopes that if we get a recession that they will barely notice but that's not a done deal.
>> It certainly looks like we're moving towards a recession.
It's something that might last on the structural outlook. It's like that might last 10 years or longer than that.
Perhaps on the one your outlook, yes, the bank is going to slow the fast pace but there are the supply issues that will linger for the next decade.
The Fed can try all at once to slow energy driven inflation, but the reality is that they really don't have much control over that.
Commodities are real assets and monetary policy is really tough to, it's hard to print commodities.
>> Let's take another question right now, this one we touched on a little earlier in the show.
China's zero COVID policy, how much of a risk is it to wider commodity demand?
>> It indicates for quite a long time. When we think about trying to zero COVID policy, it had an impact both on the demand side of the equation, especially in the earlier stages of the pandemic, but it's also had increasingly an impact on the supply side.
China is also a massive… They can similar commodities but they also produce large quantities as well.
Especially in their final stages.
For industrial metals, it's had a sort of balancing effect. It lowers demand but also lower supply in terms of lockdowns.
But for energy markets, it's actually been a huge driver of lower demand, both for crude oil and petroleum products but also for gas and LNG markets.
>> We can squeeze one more question in here before you run out of time.
This viewer taking note of recent comments our Prime Minister Trudeau said to the German Chancellor that there is no business case for an LNG port on the East Coast. Do you agree with that take?
>> I think in the longer term, there is a business case for LNG terminals.
Again, when you think about the energy transition, natural gas and LNG are going to play a role for the foreseeable future.
The European gas crisis, so far, it does look like year up is is safe for this winter. But again, we spoke about this earlier, very few European companies want to takelong-term commitments that would be able to finance new LNG terminals.
They are going to be using it, but they don't want to commit for the next 15 years.
What they would prefer is a commitment for the next five years.
But that's not going to get an LNG terminal built.
So this is an opportunity for Canadian LNG to play a role in this market. It's more volatile piece of the equation but it's a piece that tends to come at a premium.
so I do think there is a role to play there.
>> Daniel, was great to have you. Always such an insightful conversation. I look forward to next one.
>> Thanks for having me.
>> Thanks to Daniel Ghali, Senior commodity strategist at TD Securities.
Stay tuned. When tomorrow show, Jason Hnatyk, client education instructor at TD Direct Investing, will be our guest taking your questions on how to better utilize this WebBroker platform.
A reminder, you get your questions in ahead of time.
Email moneytalklive@td.com.
Get your head start.
That's all the time we have the show today.
Thanks for watching. We will see you tomorrow.
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Every day, I'll be joined by guests from across TD, many of them you'll only see here.
We are going to take you there with moving the market and answer your questions about investing.
Coming up on today show: we are going to hear why today's feature guest, Daniel Ghali, says the recent weakness we've seen in the price of crude may be a case of markets anticipating a Goldilocks scenario for supply, and that just might not play out. Also in today's WebBroker education segment, Bryan Rogers is going to walk us through how trailing stops work and how you can set them up on this WebBroker platform.
So here's I get in touch with us to your questions and comments. Just email moneytalklive@td.com or you can fill out the viewer response box right under the video player here on WebBroker.
Before we get our guest today, let's get you an update on the markets. We got a bit of aWait and see feel is there right now. Of course, Jerome Powell, US Federal Reserve chair is giving a speech and all market participants are pretty curious to hear what the tone will be of that speech.
It's all about the path of rate hikes going forward.
They feel the need to ease up at some point? Markets are making a lot of bets off of all the tea leaves we get from different fed speakers but we got the big one today, Jerome Powell. So heading into that, we got a bit of weakness no. 93 point to the downside for the TSX, despite the fact that we're seeing a pop in the price of crude today, down about half a percent. Seeing a bit of a bid into some of the tech names here at home, including Shopify. It's up a little more than 3%, 52 bucks even per share. Some weakness in the company Nutrienthe last time I checked. Let's check in on it now and see where it sitting. Shopify of, is Nutrien still down?
Indeed it is. We've got Nutrien down to the tune of about 3%, 107 bucks and change. Again, says of the border, you've got the eyes on Wall Street waiting to hear from Jerome Powell, what he has to say about the progress they are making to try to tame inflation and how much further they need to go and how much more aggressive they need to be when it comes to raising rates. They been pretty aggressive so far this year.
The market is always watching for signs they might ease up on that. But the S&P 500 basically flat now, down just two points. The tech heavy NASDAQ, let's see how it stacks up against the broader market. Right now, it's modestly in positive territory with the 41 point gain, a little more than 1/3 of a percent. Some of the big financial names on Wall Street feeling pressure today. Nothing too dramatic. It J.P. Morgan at 134 per share, down a little less than 2%.
That's your market update.
We are continuing to see volatile trading in the price of crude oil.
Investors are weighing supply and demand concerns. Our guest today says any downward pressure on oil might just be the markets pricing in a Goldilocks scenario that may not player.
Joining us now for more, Daniel Ghali, Senior commodity strategist at TD Securities. Welcome to the program.
Let's dig into this.
It is been quite a couple of weeks, couple of years, even a couple of days with oil, raising its gains for the year and then suddenly back above $80 per barrel.
What's going on here?
>> Yeah, you're absolutely right, Greg.
There is a sense out there that commodity market participants and markets in general are celebrating the end of the energy crisis. There is good reason for that because crude prices are now back to nearly where they started the year off. You have demand concerns emanating from the fact that we are barreling towards a recession and the reality is that the supply side of the equation more recently has actually caught up, despite previous underperformance. So all of these things together have created a context in which oil prices have come off substantially and in which people are starting to look at the future, thinking that perhaps the worst is behind us when it comes to the energy crisis.
>> What should they be thinking, though?
If that's what they are thinking, are their heads in the right space?
>> Well, exactly.
I think there's a bit of complacency out there in the markets. When you think about the demand side of the equation, certainly demand is going to slow but the critical caveat here is that oil demand across the world is still going to grow nonetheless.
Perhaps at a slower rate, but it's going to grow. The main question that brings up is: where is the marginal barrel going to come from?
if you follow me down that rabbit hole, you quickly start to see holes in the narrative.
Let's talk about where those barrels might come from, first the US, one of the world's largest producers of oil.
There is been, you know, and if you're, you know, repeating myself, we've certainly discussed this several times over, but there's been a historical disconnect here between the price of crude oil and the production that we are seeing out of the US and the rest of the world. Part of that is driven by ESG concerns that are prohibiting capital expenditures in that sector, but the other part of it is that the behaviour of these participants has changed.
People are stakeholders want these companies to return capital to them as opposed to reinvesting.
Outside of the US, most of the growth out there that the market is exciting for next year is coming from a few producers and not that grows actually has to do with the high price environment that we are in. It's a result of legacy projects that just happen to be coming to completion over the next year.
So that leaves us with all the other producers, namely with an OPEC plus. That's where most of the risk lies when it comes to production next year.
And let's talk about Russia, it's one of the most evident pieces of supply risks out there. So far, Russian exports have actually been doing quite well.
Part of that story is the world is stockpiling because they fear the sanctions that are coming and going to disrupt their output, and so the world has stockpiled in anticipation of that.
But another part of the story is that really nobody knows what the sanctions are gonna look like respective to the G7 and how that is going to impact oil markets come that date.
Another part of the story is within the broader OPEC group, Libya is one nation where we've seen a tremendous amount of geopolitical risk and the country is still facing a political crisis that has been ongoing since 2014. You still have an election season that is coming up that could once again bring forward some production risks for this nation. Don't forget that earlier this year, we lost about a million barrels a day from Libya.
If we lose that again into next year, who's going to make up for that lost supply?
>> So with all this uncertainty and all of these variables and moving pieces, it seems to me that we are not going to get passes volatility anytime soon. Right now looking at West Texas intermediate, the American benchmark, it was up almost 3%. It was down 3% recently.
>> I think volatility is here to stay.I think particularly so in oil when you've had an exodus from the money manager space, mostly because when managers were positionedfor disruption in the G7 sanctions and thus far the reports that we've had our that the sections are going to be watered down nor that there is lack of consensus among the G7 can groups on how strict to be on Russian oil restriction.
> In past OPEC decisions, they will say in an upcoming meeting… There's always a cycle of OPEC meetings and what they may or may not do.
Does OPEC want to see a certain level of crude prices?
>> I think certainly we are at levels that would be consistent with what you call the OPEC put, with the strike on the OPEC put.
What that means is that OPEC would probably come to higher prices than where we are today and the reason we say that is because prices are really close to where they ended their historic agreement last meeting and where they had their first production cut since the pandemic.
If you think about it, spare capacity globally is really concentrated among the few nationswho are at the helm of OPEC. They are essentially, today, the swing producers in oil markets and they have a grasp on this market because of all the issues that we previously discussed with the US and other producers out there. So it is in their interest and in their power to keep oil prices… > Earlier this year, even a couple of months ago, there was some tension between what OPEC was up to you and what Washington wanted to see in terms of crude oil prices. Of course, you had the Biden administration and not having the strategic petroleum reserve. How to set storyline up?
At some point, you can only tap it so much.
> That's absolutely right. There's a lot of moving pieces in there.
You know, you mentioned the discontent between Saudi Arabia and the US when it comes to both the SPR and OPEC's decision to cut. When you think about the big picture geopolitical risk in the Middle East, you have one nation, Iran namely, that is facing already significant sanctions, that is making progress on their nuclear ambitions, that is really destabilizing the balance of power in the Middle East. That is an incentive for Saudi Arabia to keep their strategic relationship with the US. But at the same time, when you are looking forward 10 years down the lineand oil man is expected to decline, you might want to monetize that is much as possible for the time you can.
> So with this much uncertainty, this much volatility, this many moving pieces, can we even attempt to put a price around we think we might see a barrel of oil go for on average heading into next year?
>> Yeah, absolutely.
I think most of Southside banks expect higher oil prices. The reasons are typically because supply is constrained and we also agree with that view. You know, we are looking for oil prices to rally north of the hundred dollars per barrel, so there still a significant amount of upside here.
The key idea, I think, is that the right.
.
.
if we think oil can go to hundred dollars per barrel, it will take a huge disruption to see them go hundred and $20 per barrel.
>> We will get back your questions in a moment. A reminder that you can get in touch with us in your questions at any time.
Email moneytalklive@td.com or fill out the viewer response boxright here under the video playerhere on WebBroker.
Now is give you an update on the markets and business stories.
Pipeline giant Enbridge is raising its dividend as a reaffirms its full-year earnings guidance. The payout to shareholders will increase by more than 3% to $3.
55 per share annualized, effective next March.
In release, Enbridge CEO Al Monaco says he expects strong growth next year despite global economic challenges.
Amazon says shoppers opened their wallets on the platform and record breaking numbers over the holiday shopping weekend. The e-commerce giant says Apple Airpods, the Echo Dot Smart Speaker and Hasbro's Gaming Connect 4 were some of the high demand items.
The Bank of Canada is posting the first loss in its history. The central bank's third quarter report shows a loss of $522 million for those three months. That is the revenue it collects on the interest from assets it holds failed to keep pace with the interest it's paying out on settlement balances that are held with the bank.
A quick check in on the markets.
We will start here at home on Bay Street with the comp.
I had a Jerome Powell speaking in a little less than an hour and 1/2 time, we've seen a bit of a wait and see out there.
You do have a nice firm price for crew today. It's been pretty whipsaw.
Got the TSX down 94 points were about half a percent.
Said to the border, again, of course, Wall Street is waiting on Jerome Powell's words as well.
3951 on the S&P 500, the Rotary to the American market, down very modest 6 1/2 points.
We are back now with Daniel Ghali, taking your questions about commodities, so let's get to them.
Here's a forward-looking one for the year.
For 2023, fast upon us, which metal are you more bullish on for the EV demand?
They listed them here for us: nickel, lithium, copper, cobalt, silver or do you want to choose all of them?
>> It's a really good question and I want to say is part of our 2023 outlook, we done a lot of deep dive analysis on how those structural tailwinds for demand are faring.
What we found is that in China, because electric vehicle sales have been promoted and subsidized to such an extent over the last year, and that they captured a substantial amount of market share in China.
You have to think that your typical electric vehicle is going to contain or consume a lot more copper and nickel than traditional internal combustion engine type vehicle would. So today, about 30% of all auto sales are electric vehicles in China and just that 30% piece is already consuming more copper than the entire remainder of the automotive segment. So it's a really positive story. For the first dogs that those structural tailwinds are feeding through to those market balances in copper and not something we expected to continue to the next decade.
>> Do we have enough to see a ramp up in the electrification of everything, trying to reduce our carbon footprints with EVs in particular, do we have enough of these materials, of these metals?
>> we could have enough of it, but we are not seeing the amount of capital expenditures that would be required for us to meet the demand that's going to be out there 10 years from today, so you'd need mining companies in particular to dramatically ramp up their exploration and mining of potential assets.
>> So we are seeing this push towards EVs, you're talking about the opportunity there in the consumption, the hunger it's going to have, some of these key metals. What some downside risk here, what could go wrong with that there?
>>well, certainly, when you look into 2023, you have strong structural outlook, looking 10 years down the line, there's a really positive story there as electrification starts to consume more of these metals.
But you also have a very negative cyclical outlook. We are barely towards a recession. We have China's property sector, which is a huge consumer of industrial metals in particular, is faring really poorly.
Certainly, China's policymakers are trying to stimulate it, but you have a lack of confidence from homebuyers now that suggests a slow recovery of the property sector into the first half of the next year. So while you have these kind of positive stories longer-term and near-term, in the next one to three years,there are some aspects that should contain prices.
> Interesting stuff.
We'll get another question no.
Can we get your guests outlook for the big one, for gold?
>> Gold is a really interesting one. Prices have rallied substantially since they had their year-to-date lows. Part of that story is true for many other markets out there, market participants are starting to think about peak hawkish central banks and some people think that that precedes a pivot for central banks. But we actually don't think that will be the case.
In fact, we think that gold prices could fall significantly from where they are today.
The main reason is that when you look at the drivers of inflation and break them down between demand driven drivers or supply driven drivers, you still have a significant amount of supply constraints particularly in the services side of the equation which should keep inflation only on the grind lower. What the Fed would need in order to prohibit as the market is hoping for is a substantial decline in inflation, potentially as the market expects it potentially in the first quarter of next year. But we think it's going to take a lot longer than that before they are in a position where they can cut rates.
>> What's happening in the dynamics of the market where the market is getting ahead of a lot of forecasts as to how quickly we can tame inflation?
You see it come down to take or to month-to-month in the markets very excited but we are still talking about inflation. In this country, almost 7, and with that. In the United States. These are very hot numbers.
>> Yeah, you're right.
The reality is that the market is sending false signals.
What I mean by that is that we are all so in… A lot of market participants were short gold ahead of the recent rally and that short contributed to these higher prices. One of the things we do particularly well here at TD Securities, I would say, is advanced positioning analytics. As part of that, we track systematic trend followers, that's one cohort that's become very important among markets, and our analytics suggests that they contributed to these higher prices. They had a massive short position which they were forced to cover as strategies improved and they are one of the reasons we think thatthese prices might be sending false signals here.
>> Fascinating stuff there about the mechanics of the market and why things move sometimes.
I'll get another question, this one about the strength we have seen in the US dollar this year.
Obviously, this has been an interesting one lately in terms of swinging back-and-forth.
But what did it mean for commodities overall? Are we starting to see and ease? This pullback we have started to seen in the US buck lately, is it the real deal?
>> Great question. A lot of people are wondering the same thing.
The reality is that a lot of the drivers we were discussing, macro, big picture drivers, like central bank heartlessness, our drivers for the US dollars.
There is typically relationship where the stronger the US dollar is related to lower commodity prices but I think that over simple five things. You have to consider that some drivers are common to both markets and that affects the correlation a little bit. But when we are looking forward, we actually expect the US dollar to continue rallying at least in the near term and a big part of that story is, again, positioning. We had a huge mountain of long liquidations in the US dollar.
Firstly, people were short other currencies that they were forced to cover.
that's part of why… >> I always find a correlation particularly between gold and the US dollar so fascinating because if you step back, if you're reading a textbook, first it says, gold is the traditional safe Haven, the US dollar is a traditional safe haven. But wait a minute, if both are havens at the same time, something's not working. As part of that story is that emerging markets tend to be huge consumers of commodities like gold particularly as well.
So a stronger US dollar makes it difficult for these emerging markets, makes more expensive for them to purchase gold.
> Fastening stuff as always. At home, make sure you do your own research before you make any investment decisions. You'll get back to your questions for Daniel Ghali on commodities in a moment's time.
Our minor, you in touch with us anytime. Just email moneytalklive@td.com. Let's get our educational segment of the day.
Trailing stop orders are one method investors can use to try to handle market volatility and WebBroker has tools which can help you set up such an order.
Joining us now for more on this is Bryan Rogers, Senior client education instructor at TD Direct Investing.
Bryan, first maybe explain to our viewers how trailing stop order differs from a regular order.
>> Yeah, absolutely. Just a reminder, for those that aren't aware of what a stop order is, so a regular stop order is commonly used as a sell order where you can kind of set a sort of limit order, you can set it triggers what we would call it where you can put that below your current stock price. So if you want to protect your profit or you just want to minimize losses if the stock is going to be forecasted or you are speculating it could drop, you can use that stop order so instead of entering a market order or limit order to sell, you are going to put in something that is currently below the market price hoping that you can just stave off a major loss or protect the profit you already have. So with a trailing stop, we have additional technology that can make ita little more convenient and it also makes it quite a bit more or conjugated when you are learning these orders. I would say the best way we can explain this is I have a video.
I want to run this video to show you what actually happens. You can see here, if we have a sell order at $10… A buy order at $10 for a sell order at nine dollars, that would be regular. You can change that, you just have to fix that as a stop order and you would get stopped out at a dollar below what you ended up buying your stock at, so you can have a bit of a prophet there.
Or you can do a trail, a Delta they call it, so a factor of… You can set it at one dollar and you can see the stock, is a kind of moves around but it doesn't go that one dollar trailing stock, it can eventually rise.
You can see that one dollar is following as it goes up and up and you can see it getting up to $12, almost 13 and so on.
As long as it's always rising and not dropping to whatever your trailing stop orders, is going to continue to follow it on the upside.
So eventually you can see as the stock moves across and starts to get back down, you will notice now that we have a much different stop.
It could be at about $11, one of this 12 or 1250.
Maybe 1150. It is going to follow by that one dollar range.
>> That's a great graphic visitation.
In all that video because it just really shows you what's happening there.
It sort of makes it clear to the viewer. So now what if you are intrigued by this, how do you actually enter a trailing stop order in WebBroker?
>> Yeah, and that's where does get a little bit tricky silow taking people who this part because it's different than when you are entering a limit order that you are likely used to what you are doing buying and selling, so we will jump into WebBroker. This is a random stock.
You can see on my screen I'm just on Microsoft.
It's a trade ticket or order ticket. You can click on sell. You can use stop orders for a buy element. Active traders mutes us that as an entry point.
You can use it that way. Above the market.
But we are going to use it for a sell order. So typically own the stock. If you want to sell 100 shares of Microsoft, let's say for example is trading right now at $240 and you had bought it a while ago, maybe last year if you had bought it at 200, you have a pretty good profit to protect any if you think it might be starting to drop, you can go here and on your price type, it you selected set of market limit, you go down to the bottom and you have trailing stop market and trailing stop limit.
We are only going to look at the trailing stop market right now.
The trailing stop limit is very much the same and actually maybe I will just show you because there is an added element. The basically you are going to trigger a market order when the trailing stop happens or you are going to trigger a limit order when that trailing stops as well.
So we will select the first one here. You can see the thing that differs, it comes up with the trigger Delta, that's Reagan entering like I showed in the video, we had a one dollar Delta, you probably don't want to go that close but you can do something say like $10 and you notice that right away what happens is it shows you you are estimated stop is $231, about $10 lower than the current bid.
You can also do a percentage as well.
So if I do 10%, then it's going to follow by 10% as it goes up. The only difference with the limit, if we do a trailing stop limit order, make sure to put in your trigger Delta, let's say we do $10.
But the other thing is with the limit, it's an offset.
You can put in $0.50.
What I want to make sure people are aware of is that it can assure you that estimate, there's that estimated stop, and then there's you are estimated limit order that would go in that is going to be associated with that trailing stop. So in this way, you can actually potentially get a higher return or a higher sell rate using that trailing stop versus a regular stop order.
>> Great stuff as always, Bryan. Very instructive.
Thanks for joining us.
>> Thanks, Greg.
>> Bryan Rogers, senior client education instructor at TD Direct Investing.
Make sure to check out the Learning Center in WebBroker from our educational videos, live, interactive master classes and upcoming webinars.
Before you get back to your questions about commodities for Daniel Ghali, a reminder of how you get in touch with us.
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We are back now with Daniel Ghali, taking your questions about commodity stocks so let's get back to them.this coming in in the last couple of minutes. How will Canadian oil producers do in 2023?
>> It's a great question. When you think about the outlook for Canadian oil as a commodity, there's a few things you have to considerin addition to what you typically consider in terms of the oil price outlook.
The first, I would say, is that Canada has been plagued over the last few years by export capacity issues, and that's one of the major pieces to think about when you're looking at the outlook for Canadian oil.
So some of the positive angles that you could look at are particularly a, will Russian seaport crude exports be constrained next year?
So if in fact the price Does go through and Russia chooses to avoid those sanctions by using their own tankers and perhaps looking at a dark shipping fleet to try to avoid the sanctions, does not open the door for Canadian oil to be more competitive in terms of their export capacity to Asia, for instance? Those are the types of pieces of the puzzle that we want to consider.
>> Fascinating staff, geopolitics a big part of all of this. Another question here, this one about gasoline prices, something we've all felt this year.
What's the outlook for gasoline prices? It seems like the prices stay high even when crude goes down.
What's the matter here?
>> Yeah, certainly I can understand how that can get frustrating for a lot of people.
The reality of the equation is when you're looking at gasoline prices, you also have to consider refining capacity and refining utilization across the entire world.
In the US in particular, you had refinery capacity start to or I should say utilization start to come online again and that's a positive for prices.
But you also had huge shutdowns in Europe, two of Europe's largest refineries were shut down, one because of labour issues, the other because of an operational issue.
So Europe is again looking at the US as their source for these fuels and so that's actually constraining the US's availability of gasoline and in turn the prices of gasoline.
>> I know sometimes someone is looking at this and what they feel is the disconnect between the two.
They say, if it's about refineries and particularly domestically, why can't they build more? But they are pretty expensive proposition.
>> Does our expensive propositions and I think it's quite unlikely. You have some refineries that are off-line today and even with the high price environment, you haven't seen much of a push to reopen them. It's an expensive proposition and also likely to take a long time before that happens.
>> Interesting stuff there. Another question.
Got a lot of questions coming in fast and furious.
Let's try to get them to the mall. It was Daniel's outlook for natural gas?
>>when you think about natural gas, you have to think about where in the world is that natural gas price?
When you are thinking about what's been really popular as a narrative out there is the European gas prices, Europeans have actually done a tremendous amount of work to shore up their inventories for the winter season and actually so far the winter season has been pretty mild and that has helped suppress prices.
But when you look forward to 2023 and start thinking about how gas prices might evolve there, you have to consider the fact that China has been essentially completely out of the LNG market that Europe is not relying on to offset the losses from Russian gas.
A big part of that story is China's COVID zero policy that has constrained their own consumption.
If you do see a gradual reopening in China, perhaps even a faster paced reopening in China, then they are going to be back in the LNG market that's going to make a lot harder for Europe to secure the supplies without competing on price.
>> People will be looking for LNG in that scenario.
What can Canada provide the world in terms of LNG?
We've talked about LNG for a long time in this country.
Are we making headway in actually getting our products out to the world?
>> Not much headway because we don't have a lot of export capacity as well.
Longer-term, it's still something that Canada should potentially consider.
The reality is that, you know, LNG markets are still overwhelmingly dominated by long-term contracts where some consumers look to secure their supply for the next five years or more, longer periods like that. And it appears that for some of the popular export markets like Japan for instance, all shipments to 2026 are already sold out. What that tells you is that these tremendous opportunity on the more volatile market where Canada can actually fill the gap there.
>> Fascinating stuff. Next one back to the metals. One of our viewers wants to get your take on platinum.
>> Sure. Platinum is one of the more niche precious metals markets.
It's typically used in auto catalysts and particularly so in diesel engines. So it's been in a bear market for quite some time as a result of the world using less and less in diesel engines and part of that story is electrification but also that diesel engines were primarily consumed in Europe where the world has really shifted in terms of their preferences for types of vehicles that they consume.
Now for this year in particular, you've had a massive mining disruption in South Africa.
One smelter alone that produces platinum, about 12% of the world platinum, has been off-line.
That's related to rebuild and then some faulty materials that prolong the period of time it would really make off-line.
But that's actually, the guidance suggests that it's going to come online as soon as the end of this year so you really don't have much time left where platinum markets are as tight as they are today and in fact we expect them to loosen up the next three months.
> Beyond platinum's role, as you said, as a catalyst and mostly in diesel, is there much other industrial use for it?
Or is that sort of the primary pieces behind it?
>> That is absolutely one of the primary pieces of the puzzle when it comes to industrial uses for platinum.
but as a precious metal which also tends to be very heavily consumed by the investor community.
So this year, investors have actually it massively liquidated platinum and it's been the physical side of the equation that is tightened markets, supporting prices and kept prices from falling off a cliff.
Looking into next year, you still have, as we discussed for gold, a difficult investment thesis. So you would inspect investors to still shy away from platinum into next year and so that's one of the pieces of the puzzle that they won't be able to rely on. I will say this, however. Platinum and platinum metals in general are one of the most interesting ESG plays out there.
They actually benefit tremendously from structure admissions control regulations across the world.
This is something that's already happening in China and in India that supports the amount of platinum consumed per vehicle. So as you go forth through time and these older cars come out of the market, newer cars that require more platinum content come in, that's a positive story in the longer term.
>> Fascinating stuff there and platinum. We're going to back your questions for Daniel Ghali on commodities in just a moment time.
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As we await Jerome Powell's latest words about an hour away, we did get another read on the strength of the US economy this morning. A second reading on the third quarter.
And it turns out the economy is stronger than previous I thought. Our Anthony Okolie has been digging in and joins us now for more.
>> Thanks very much. Yes, the US economy in the third quarter actually grew 2.9% annually, that's a slight upgrade from the 2.6% in the last months advance estimate and just above the 2.7% forecasted. As the chart shows that I brought along, Realty did rebound from two consecutive declines in the first half, both in Q1 and Q2, but we are still seeing some recession fears which are continuing to linger. The second read again shows that the US economy grew despite the slowdown that we saw in consumer spending over the summer.
And the US economy and main engine, again, which is consumer spending was revised slightly higher but again still down from the 2% that we saw in the first, in the second quarter rather. This suggests that the impact of the drop in household net worth after the second quarter pull back in stock markets combined with higher interest rates, red-hot inflation, has been a big drag on consumer spending in the third quarter.
Now, when you look within the numbers, all the gains in consumer spending were actually driven by services, things like accommodation, spending in restaurants, travel, spending on goods across durables and nondurables in the sector, the estimate was still down as well.
Now, of course, this was driven by the shift that we saw in spending habits by consumers that were coming out of the pandemic.
When we look at nonresidential investing, it was again lower in the second reading but the decline was much smaller versus the advanced estimates.
Let's switch over to residential investing. The revision was slightly lower but again, home construction did slow in the third quarter and that's sharp pullback that we saw in housing activity resulted in residential investing suffering the largest quarterly drag on economic growth since late 2007.
And finally, we look at the chief source of GDP rebound, it's really shrinking trade deficit. We did see exports, there was a modest upgradein the second estimate. Greg?
> Here's where we take it back to the big show today, Jerome Powell, less than an hour away.
People are waiting to hear what he's going to say.
What did they think over a TD Economics about fourth quarter growth, the growth of the US economy in 2023?
Ultimately it all comes back to the cost of borrowing.
>> Looking at the fourth quarter, TD Economics expects that it will show some resilience. When you look at things like consumer spending and business investment, they are holding up reasonably well heading into the fourth quarter. So they expect the US GDP to expand about 2%. Again, not quite as robust as we saw in the third quarter but still respectable. But as a rapid rate hikes continue to weigh on the broader economy, they expect growth to fall to in your stall speed when we head into 2023.
As for rate policy, again, third quarter GDP is a backward -looking indicator, so it's unlikely to impact Jerome Powell's speech or the Fed decision going forward. TD Economics expects 50 basis point rate hike.
They think that's likely at the December 14 meeting followed by 25% increment in early 2023 as needed. They think this will allow the Fed time enough to pause and wash with the impact of the past interest rate hikes have on economic data going forward.
>> Fascinating stuff. Definitely the big question of the year hanging over us. Thanks.
>> My pleasure.
>> Money talks Anthony Okolie. Let's check in on those markets now. Jerome Powell about an hour away.
With markets, there's a bit of weight and see it,right now with the CSX, pretty firm on the price of crude, sort of drifting lower through the session. Down hundred 30 points now, little more than half a percent.
We see this firm price for crude but it isn't really playing into equity strength when it comes to some of the biggest energy names. We have Cenovus at 26 bucks and $0.96 per share, down a lot bit more than 2 1/2%.
West Fraser Timber seems like some of the lumber plays are under pressure today.
Nothing too dramatic. About 105 bucks and change, down a little bit more than 2% on the same. South of the border, let's check in on the S&P 500 and see how it is setting up ahead of Jerome Powell.
It's been drifting a bit lower through the lunchtime session will we've been having our discussion with Dana. It's down 16 points right now, a little less than half a percent.
The tech heavy NASDAQ, how does it stack up against the broader market?
It was positive at the top of the show and its drifted modestly into negative territory now, we've seen some weakness in the big Wall Street banks, J.P. Morgan, Bank of America. Let's check in on that one now and see how it's faring.
Bank sector on both sides of the border showing a bit of weakness today.
It's pretty modest, 36 bucks and change, Bank of America down 1 1/3%.
We are back now with Daniel Ghali from TD Securities, we are talking about commodity silica to the next question.
Our commodities the place to be over the next five years with inflation where it's at?
>> Yeah, I mean, if you think about commodities in the longer term, there is a huge amount of evidence that we are entering into what you would call a supercycle where demand is going to outpace supply growth for the foreseeable future. That is true for industrial metals, for energy markets.
You could also argue for a supercycle where demand is going to slow it a slower pace than supply.
both of these things argue for a higher inflation for a longer period of time as well, and commodities are one of the ways to protect yourself against that higher inflation.
> If you do get that higher inflation, you get the central banks refusing to ease off and they continue the battle, and shorter terms, is that the big question right now for the quadrant means, that we end up in a recessionary environment next year and perhaps it's deeper and longer than we were hoping?
Everyone hopes that if we get a recession that they will barely notice but that's not a done deal.
>> It certainly looks like we're moving towards a recession.
It's something that might last on the structural outlook. It's like that might last 10 years or longer than that.
Perhaps on the one your outlook, yes, the bank is going to slow the fast pace but there are the supply issues that will linger for the next decade.
The Fed can try all at once to slow energy driven inflation, but the reality is that they really don't have much control over that.
Commodities are real assets and monetary policy is really tough to, it's hard to print commodities.
>> Let's take another question right now, this one we touched on a little earlier in the show.
China's zero COVID policy, how much of a risk is it to wider commodity demand?
>> It indicates for quite a long time. When we think about trying to zero COVID policy, it had an impact both on the demand side of the equation, especially in the earlier stages of the pandemic, but it's also had increasingly an impact on the supply side.
China is also a massive… They can similar commodities but they also produce large quantities as well.
Especially in their final stages.
For industrial metals, it's had a sort of balancing effect. It lowers demand but also lower supply in terms of lockdowns.
But for energy markets, it's actually been a huge driver of lower demand, both for crude oil and petroleum products but also for gas and LNG markets.
>> We can squeeze one more question in here before you run out of time.
This viewer taking note of recent comments our Prime Minister Trudeau said to the German Chancellor that there is no business case for an LNG port on the East Coast. Do you agree with that take?
>> I think in the longer term, there is a business case for LNG terminals.
Again, when you think about the energy transition, natural gas and LNG are going to play a role for the foreseeable future.
The European gas crisis, so far, it does look like year up is is safe for this winter. But again, we spoke about this earlier, very few European companies want to takelong-term commitments that would be able to finance new LNG terminals.
They are going to be using it, but they don't want to commit for the next 15 years.
What they would prefer is a commitment for the next five years.
But that's not going to get an LNG terminal built.
So this is an opportunity for Canadian LNG to play a role in this market. It's more volatile piece of the equation but it's a piece that tends to come at a premium.
so I do think there is a role to play there.
>> Daniel, was great to have you. Always such an insightful conversation. I look forward to next one.
>> Thanks for having me.
>> Thanks to Daniel Ghali, Senior commodity strategist at TD Securities.
Stay tuned. When tomorrow show, Jason Hnatyk, client education instructor at TD Direct Investing, will be our guest taking your questions on how to better utilize this WebBroker platform.
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