Economic Outlook

[music] Hello, I'm Greg Bonnell and welcome to MoneyTalk Live, which is brought to you by TD Direct Investing. Every day I'm joined by guests from across TD, many of whom you'll only see here. We'll take you through what's moving the markets, and with it being Friday, we're bringing you some of the best commentary of the week. Coming up on today's show: to pivot or not to pivot. It's a question for the fed, but it's the markets that are looking for answers. We'll look at whether there's still a chance the fed may move away from super-sized rate hikes with TD securities' Chris Weelan. Inflation is certainly a theme for commodities. And we'll bring you our conversation with Jennifer Nowski from TD Asset Management about th tug-of-war between tight supply and demand. Plus, in today's WebBroker education segment will take a look at how you can find the company's financial statements on the WebBroker platform. Nugwa Haruna, Senior client education and investing will tell us all about that. And we always want to hear from you the audience. Here's a get in touch with us. Just email MoneyTalk Live, MoneyTalkLive@td. com or Phil at the viewer response box here in WebBroker. Let's get you an update on the markets. We had a pretty rough run. Wall Street was able to bring a losing streak and now taking part in Bay Street as well. The TSX Composite Index up a bit. We are seeing the big three: energy, materials and financials currently in positive territory. Obviously a rough trading week for crude and some of the big energy names. Suncor, 42, 15. More than 3%. And the Miners, let's check on Kinross. Let's take a look south of the border. The S&P 500, that broader read of the American market. Shot up right at 8:30 AM Eastern time on that report. We have the S&P 500 right now of more than 4%. Let's check on the tech heavy NASDAQ. It was doing quite as well earlier in the session as it was early in the session rather. Almost a full. Bank of America, one of those big Wall Street heavyweights, let's see how it's bearing on a day like this. Broad-based, 34, 43 up almost 3% on Bank of America shares. And that's the market update. Let's talk more about that US jobs report. Joining us now is money talks Kim Parlee. So what we see? >> A note this morning talking but the fact that this was a Goldilocks report. but I will take a look at it from a couple of perspectives. There is something here and in some ways the glass is half empty and half-full. The US economy added about 315,000 jobs which was about the consensus. The consensus was 300,000. It's interesting too. When you look at the sectors that rebounded at the same time, we saw professional business services up by 16,000. Healthcare up by 16,000, retail trade… It's almost a continuation of the COVID rule down. People are coming back to normal life. Happen faster in the states in here. But still nicer to see. You are starting to see some layoffs in sectors like motor vehicle parts. Obviously automakers coming out and announcing at the same time. The unemployment rate is up by 3.7%. Interesting, this is we have to dig in a little more. Part of the reason it went up is because participation rate, the surging right now, as people come back into the workforce. So that is interesting as well. We've seen 5.8 million jobs created this year. That's a big number. Employment now, is I think 240,000 higher than pre-pandemic. Which again, notable. Interesting when you look at gender, men, women are still about thousands off of where they were. That's position on the market, your positioning is and what you like to see, a lot of people will say "this is obviously a backward -looking number." We have heard news of many more layoffs coming in the next little while. We are also seeing a surge in people holding two full-time jobs. Which is not optimal. >> Two full-time jobs? >> Yes not too part-time, two full-time jobs. Although apparently that number is not as high as it was before. So I think, you know there's always lots of revisions and I should mention of course the June number was revised down as well. It's an interesting number. It's fascinating, this market right now, because it is so data dependent. You have people who are thinking maybe the market is priced in way too much downside. Commentary starting this morning, saying maybe we won't see 75 basis points next time from the Fed. This might help them move towards a 50. Still better than a 50% chance according to the market, we will see 75 basis points next time. These are just really interesting numbers. I was speaking with Tony earlier today talking about "is the market right? Or is the data right? I think that constant back and forth is why we are seeing wild bounces in the markets. >> That first jobs reports, the all-important thing in inflation didn't really do anything forever but now you have these inflation reports coming out of the market. Before the Fed decides again before its next rate hike meeting, it's not about the hike on the table, it's the size. We will get that inflation report, I think Pres. Biden actually took to television this morning just to say "hey, " sort of tell what he saw. He is a lease being told by his advisors that some signs of inflation is easing. >> When you look at the wage growth number hereto, I'm going to try and pull it up as I have it here. I think it will, it was about five and change. That's again, when wages grow up, that drives inflation. People have more money to spend on those things. The other thing really interesting, midterms are coming up. This is the time you want to get out there and tout that you are creating jobs and things are going well. This politically matters at this point too. Such is the Fed. As you going to midterms, people do not want to have news about high inflation. They don't want news about unemployment. So is there is the trickle effect happens on that front. So there can never be a more interesting time to be watching markets. Unfortunately, our portfolios and how it feels… But it was a really interesting set of numbers. And I think people will be watching the data very closely in the next two months. > Cam, great to have you with us. As always. >> Congratulations on the great show. >> You might have something to do with that ha ha. and now a look at how the markets are trading. Home prices in Canada's largest real estate market stabilized last month. The Toronto Regional Real Estate Association says the average selling price of a home was about $1.8 million. Slightly above July's average. That after a slide in home prices throughout the spring and early Summer as a higher route borrowing cost put a chill on home sales across Canada. Shares of Lululemon are in the spotlight today. After that athletic apparel maker raised its full-year sales forecast as new products appear to be attracting customers into its stores. And while inventory levels are up, Lululemon says that leaves and well positioned to meet consumer demand in the coming months. The price of crude oil is steadying following a week of selling pressure. It appears a potential nuclear deal with Iran suffering some setbacks. And traitors are also looking ahead to next week. When OPEC and its allies will meet to discuss production levels. The key OPEC member, Saudi Arabia, has indicated it would consider production cuts to balance the needs of the market. A quick check and now on Bay Street and Wall Street. Starting here at home, we have some green on the screen. The US market, I can tell you right now. Both are pretty firmly in positive territory. The question were talking earlier with Kam about job numbers and the implications for the Fed. There's been some debate about the Federal Reserve strategy and whether it will stay the course or pivot away from aggressive rate hikes. I spoke earlier with Chris Wheelan, Senior Canada Rates Strategist at TD Securities of the recent comments from Fed Chairman Jerome Powell and how that was being perceived by the bond market. >> The media market is still digesting. I think it is an aggressive hawkish tone that came out of there. I think the bond market is telling us that whether or not the central banks are going to come out with strong hawkish position, I think that is obvious now posted Jackson Hole, this pain isn't going to last that long or something will change in the economy because the bonding market, we are around 3.1% on US tenure. The highs around 3 1/2%. We are hanging in there. The bond market has an immediate reaction posted Jackson Hole. I think with the bond markets telling you the pain does enough to last for as long as we think or the economy is going to roll over or the data will soften, inflation will soften. I think, even though the general consumer might be reading into that Jackson Hole as a scary moment, I think we don't know what we are bracing for. But I think they are not going to be able to maintain that hawkish tone for long. >> Does not give us enough information to spring the word "pivot" back into the discussion or is that were becoming transitory as well? Not useful anymore to discussion of what is happening in the market? >> I think the pivot has evolved to when they are done. So the pivot is over now. They're not going to pivot. Now we are talking about when they are done and what it will look like on a forward basis. So I think the inflation, the bond market is telling us that inflation is going to start softening and I think we are all sort of hoping for the best scenario on the soft landing. But it's difficult to say whether the bond market pricing a hard landing is inflation or what we are pricing in there. But we are definitely pricing in, the pivot is gone and it is more about when we end. I think the bond market is saying the cycle is ending soon or possibly before the spring of next year. >> A fascinating thing with central banks when they take action on rates here as they have aggressively to the upside recently or to the downside with the pandemic. We are supposed to have a bit of time before it actually makes its way and is felt. We had some jumbo sized, I don't even know what words to use anymore, huge basis points in this country. That's going to take some time isn't it? At some point to central banks wonder and see how things will continue for the economy? >> I think we are already starting to see the signs of the impacts starting to be felt. I think the built up inventories, I think today we had Canadian GDP. The flash estimate shows 0.1% contraction in the coming month. I think the data is starting to soften overall. And I think that's when the bond market is getting its and extrapolating forward. That we, these hikes are working. They are bringing inflation expectations down and they are contributing to slowing in overall consumer activity in general. >> Of course, Jerome Powell saying that it is going to be a likely lengthy fight to bring inflation back down to where they would like it to be. The sweet spot being 2%. How tough a fight is that? Other people have said we might see inflation cool over the next little while. But that last mile might be the hardest mile. >>we expect that inflation has peaked around 8.7% in Canada. … We still have inflation at an uncomfortable level for central banks above the 2% Target while we should have clear signs of growth deterioration. So I think the first quarter is that uncomfortable moment. That is a difficult moment. The difference of 5% versus 2% is why rates stayed around 3 1/2, 3.75% level in the US… They had that throughout the first quarter the second quarter. We think those cuts come to play in the third and fourth quarter of next year. >> Holding onto the pivot narrative, that seems to be the moment that will test the resolve of central bankers. When you were looking at, as he set a slowing economy. Perhaps you start to see the jobless number starting to rise in labour market starting to weaken. Can they hold the resolve? Can they look in the face of that and say: "we just looked at pain but we have to continue to let you feel that pain on this mission to bring down inflation." Question mark >> Yes. Unfortunately I think it's easier to say "pain" and then to feel pain. We will see how that feels in the first quarter of next year. I think, to your point, the pivot, anyone holding onto the notion that the central banks were done hiking, that is gone. I think in Canada, we have a market consensus that we have 75 basis points ahead. The next two meetings in the US… I think both cases, you have about 100 beeps of hikes at least in Canada and the US in the coming months. So I think that pivot notion of ending soon is over. 100 beeps is not small. Like you said, these are big hikes. So that pivot notion is gone. We will talk about will be due at 100 beeps from now. > Longer-term but I feel like we have had a decade or more since the financial crisis of central banks always been front and centre with monetary policy. Can we get to a point where we have a normalized regime of interest rates? Do you even know what normal is anymore when it comes to that? >> I remember being in university thinking "wow, we have monetary policy figured out now." Then we have 2008. That certainly wasn't the case. I think we are very much still stuck in the boom and bust cycles. It would be really nice if we got a soft landing this time but we really hit the pedal full on during COVID because we saw that 2008 ask scare of the great recession. Then we realized that it was a bit too hard and we didn't know at the time. Now we have to hike to a degree of interest rates that we have not seen in a long time. We were just getting used to zero. We all thought zero was the norm. And we were just stuck at zero. We'll never have to pay for money again. Money is free. It's hard. When we are talking about hikes, the higher you hike, the shorter the distance would be between the time you cut. I think for now the bond market has been extremely volatile and that's been a phenomenon we've been dealing with over the last, since COVID emerged. So that bond market volatility is kind of telling you that it might be a way and time before we understand Palma interest rates. So I think we still have to deal with cycles for a good amount of time. >> That was Chris Wheelan, Senior Canada Rates Strategist at TD Securities. Now let's get to our educational segment of the day. If you're an investor looking to do research on the country when you're interested in, how do you find them on WebBroker? We have today Nugwa Haruna, Senior Client Education Instructor at TD Direct Investing. >> It's always a pleasure being here Greg. By law, companies are providing their financial statements. At the end of the quarter in the end there fiscal year. There are three major financial statements that investors can find in WebBroker. The balance sheet, the income statement as well as the cash flow statement. Let's talk about what each of these show in WebBroker. An investor is able to click on "research". Then just click on "stocks". Once you realize the stockyard have on screen here, we're going to click on "fundamentals". Once we do that, we are going to click on "financial statements." Let's talk about each of these financial statements. Starting off with the income statement, this is also known as the… Statement with this shows investors with a total revenue of the company is, total expenses and what the net profits of the company is. So it gives investors an idea of the financial performance of the company over a particular period. There is the balance sheet. What that is also known as is what the net worth of the company is over a specific period of time. A short-term or long-term assets… What the company owns. It shows investors things like the short-term and long-term liabilities as well as the shareholder equities. So the amount of equity invested by shareholders. Finally there is the cash flow statement. This gives investors an idea of just how well the company is managing its cash position. Is it able to pay his debt obligations on time? Is it able to fund its expenses? Investors are able to see this information in WebBroker. Finally, investors can see this information based on an annual basis. You can see information for the last five years. Or investors interested in seeing more of a quarterly update, they are able to do that by clicking on "interim" and switching over to the last 5/4 for information. > Nugwa, U of S to the place on WebBroker to find this information. Let's talk about the relevance of how to use that information. As investors. >> In school, my balance sheets almost never balanced. So this information can be quite overwhelming for investors. You are looking at all these numbers and you say "how do I put this into practice?" That's where the idea of financial ratios come into play. Investors are able to use financial ratios because it gives investors an idea, using data from the financial statements just how profitable, how liquid, how solvent these companies are. What the operational efficiency is… Let's give an idea of where people can find these ratios within WebBroker. We can click on "industry comparisons" or you can click on peer comparisons. Once in "industry comparisons", I can scroll down and look at "current ratio" what that shows investors is the company's ability to pay off its short-term obligations. Using its short-term assets. So if the company has to liquidate all the assets to turn into cash within a year, is it able to pay off all the debt that it needs to pay within a year? This information would give investors an idea of the company's financial health. Will the company be in distress if it needs to pay back its obligation? And how investors can gauge if the company is financially healthy or not as they always compare the companies current ratio to what the average is. If the company is on par, that could be acceptable. But if the current ratio the company is much lower, then it could be a sign of company distress. If investors want to practice a little more conservative measures to see how liquid the company is, they could also consider the quick ratio. It's the same idea where investors are trying to figure out if the company can fulfil its short-term obligations. It goes a step further. Out of the short-term assets it actually removes the company's inventory. That's because some companies may not have the ability to sell their inventory within a year. They may actually not be able to pay off their debts. The quick ratio removes the idea of the inventory and says "can the company still pay off its short-term debts?" Investors should compare this information to the industry average and see how well the company does compared to the industry average. If the number is much lower, it can indicate a sign that there might be a financial distress or a company could default on its short-term payments. >> Great stuff is always Nugwa. Thanks for that. > Thanks for having me. >> Nugwa Haruna, Senior Client Education Instructor at TD Direct Investing. And here is what we have coming up. When we talk about inflation, the price of oil and gas are usually at the top of the list. As investors weigh the risk of a possible recession, the commodities market have been in a tug-of-war between worries about slowing concerns versus tight supply for oil and metals. I spoke earlier with Jennifer Nowski Portfolio Manager at TD Asset Management and asked her to show how things are playing out. >> They do remain very finely balanced. There has been years of underinvestment. So near term supply growth in many areas is very limited. We still have risks and uncertainties associated with exports out of Russia. Inventories are very low. More recently, the very high power prices of natural gas prices have resulted in some production being taken off-line. The supply side was certainly the focus in the first part of the year. That's part of the reason that many commodities started hitting highs that we have not seen in nearly a decade. Now, to your point, prices have backed off a bit and part of that is due to growing concerns over demand and slowing macroeconomic growth. >> So a lot of concerns about inflation. Another theme for investors so far this year. What is that mean for companies and their commodity space? >> Part of the reason we are having high inflation right now is because commodity prices have been strong. That's good for producer revenue however, like everyone else there feeling the impact on a cost basis. For the past couple of quarters we have seen operating expenses. Producer start to rise in higher commodity prices also meet higher royalty payments potentially higher cash taxes, as we also look at's inflation also creeping into CapX having an effect as well. The producers are in a very strong financial condition right now. The producer spent the past few years with commodity prices being lower, they have really cut spending,, cutting CAPx and deleveraging. That is left them in a good financial state. Free cash flow yields are very high. It varies by company. But amongst energy producers you can see free cash flow yield in the high teens at current prices. Diversified miners also in double digits… >> You mentioned the oil and gas industry. Let's get into some of the specific commodities you cover. Let's talk about what is happening with oil. This is been a bumpy ride from day-to-day. >> The oil market is fairly finely balanced. Some of the price volatility we've seen in recent months has been to that growing concern about demand and weakening up the economic growth. However supplies fairly limited. If you love at old pack and what they can easily bring to market, that is that at low levels. Now the US has been going there production. Demand has been robust and up to absorb it but we have had disruptions elsewhere. Libya for example due to geopolitical events there and also Russia. As we go into the end of the year, the EU is expected to do reports of Russian oil and it will remain to be seen if Russia can continue to place the amount of barrels and has been placing into the market. Now one of the bigger terms has been the rekindling of the Iranian negotiations. It's still very uncertain what the outcome of this will be but there has been signs of OPEC that they would be willing to adjust their production to accommodate Iranian barrels back. >> The fascinating thing about commodities, they can tell us so much about geopolitics and outlooks and fears about an economic slowdown. We've talked about slowing growth. What does that mean for copper? >> Copper is one of the commodities used in so many different industrial manufacturing applications. Electrical transmission infrastructure. Because it is so broad-based it has a proxy on global economic growth. So it's price has been weakening as well. One area to watch for copper is China. China is a massive consumer of metals, roughly half of copper demand. As we go through the rest of the year, you go and look at their COVID policies in China how they are handling the property situation… Whether some of the stimulus messages there will have a positive impact in epic economic growth. Turning to the supply side copper, there is some supply growth this year. Some expansion. This is at times, offset by disruptions. We sometimes have strikes. But if we look at the longer term for copper and that's when it could become more interesting. Longer-term copper has one of the stronger demand profiles and that's because of the demand for electrification. So it's used in transmission infrastructure TVs, EV charging station renewables and all growth areas. As well, if you look at a few more years, the new sources of copper supply become less clear. >> What fascinates me, there was a time where I thought perhaps I understood work I thought gold would do in these conditions : what is the outlook of gold? >> Gold is a bit different. It is both a commodity and a financial asset. So it's price is driven by three things. Real yields, US dollar and safe haven demand. Gold has been range bound in the past few years. Because the outlook for these three factors has been more mixed. Starting with the tailwind that it has seen and that is all thi uncertainty. Geopolitical uncertainty as well as uncertainty to really high inflation and what the Fed's next move will be. That promotes some demand for gold as safe haven or hedge. I think we've seen some of that this year. The second point on the US dollar, the US dollar and gold are actually negatively correlated most of the time. However, during times of stress they both get that flight to safety bit. We saw this immediately around the Russian invasion. However, lately, the US dollar has remained very strong and the gold price has been kind of lacklustre. I think it's been more of a headwind. Now, the third is real yields. The reason this is important is because gold pays no income. The opportunity cost holding gold… The US tenure real yield was about -1% of the beginning of the year. It's now about 56 basis points. +56 basis points. That is a big move for fixed income. In this headwind for gold. Some of the uncertainty in the world, if it were to subsided, and we could focus on the real yield, that can be of further head for the gold price. >> That was Jennifer Nowski, Portfolio Manager at TD Asset Management. And now let's check in on the markets. Halfway through the lunchtime trading session. The big three, the financials, energies and material reporting to the upsides. It is a pretty good day for some of those energy companies that have had a bit of a rough ride this week. we are seeing a bit of money come back and some of these energy names. Under some pressure earlier this week. Some of the miners getting a bit of movement today as well. South of the border, let's check on the S&P 500. That brought a read of the American market. Kim Parlee join us at the top of the show and said it was not too hot, not too cold. A bit of a Goldilocks report. You probably found what you wanted to. We are a bit off of the holidays. Fading from some of the strength even from the beginning of the show. Still though, the S&P 500 of 21 prunes and now it's check on the tech heavy NASDAQ, still holding it a little firmer right now. Holding onto that bid… The NASDAQ up almost 1% at this hour. Let's check on Newmont. . . >> Staying with the market, it's been of course a bit of a roller coaster year for equities, especially the mega Tech names. But how much is based on general market sentiment versus company fundamentals? I spoke earlier with Vitali Mossounov, Global Technology Analyst and Portfolio Manager at TD Asset Management about the health of the tech sector. Here's that conversation. >> Mixed results that were okay but not necessarily great. Investors are very much questioning the way forward for technology stocks at this juncture. Will it be more of the same choppiness or can things get better? >> Do we have a read? Now that we are two thirds through this quarter of some of the fundamental health of these companies? Some pronounced observations? >> I think they are doing good but they are not doing great. We are definitely seeing weakness and some headwinds merging. Longer deal cycles with some of these companies. Just having trouble selling their products a lot of the time. So it is headwinds but I would say they are not catastrophic. It's just the market, at this juncture, really takes everything and amplifies those fears. It makes it the end of the world for just about anything that happens. That is not really the case right now. >> The big debate obviously, through the Summer, is the rally we were enjoying? What is it a bear market bouncer was at the start of something else? A lot of questions are hanging. This has been a rough couple of sessions. What you think about the rally? >> It was a sharp rally coming out of the quarter. Then things just started getting back all those gains. You've been seeing… Companies coming in reporting better-than-expected results. That fear coming off the table, but now, again, in between reporting periods, people just don't know right? What is happened? There is different economic data coming out every signal day. Things are just in flux without any hard data points. So investors are going into panic mode. >> Let's talk with the longer term then. If we take a look at historically, the performance of some of these names. What can we expect, not in the next several days but even maybe the next several weeks? > This is the big question. Tech may outperform. We had a chart up illustrating this very phenomenon. 2017, 2018, 2019… Tech stocks were in the driver's seat. Doing much better than the rest of the market. Somewhere around mid-2020, you began to have a tug-of-war between the rest of the other sectors. You can see that. When that chart is going up, tech is outperforming. When it's going sideways, you've really got this phenomenon of some days tech underperforming and some days outperforming. So longer term, is that line to go back to that positive slope again? That's the question. >> What about fundamentals, at the very basis of things we invest in companies because we like their earnings potential going forward and we want to take part in that success. I think you have another chart for this but what can we get from that? >> Yeah. We invest in the long term and that chart is a positive slope. Something outperform something else when earnings growth is better. Ultimately that's were looking for. That's why the second chart is so critical. What you see in the second chart is, going back, the line for year-over-year growth in technology stocks, that line that is the orange line on your screen, it starts to be higher than the rate of growth for the rest of the market. So no surprise that it's technology stocks that have outperformed that earnings growth, that share price growth. But what you see upon your screen they are, as we came out of the pandemic, it's the rest of the market that began to shine. The blue line over the orange line. Now a big part of that is because those non-tech companies get so rather they did so poorly during the pandemic. But still, better than the rest of the market and so other non-tech stocks are being rewarded. Million-dollar question: can that orange line regain, can technology stocks show that structural growth that they are known for and give investors that comfort… Welcoming them back into investing in technology? >> Obviously investors, when they saw that massive rise in technology stocks earlier in the pandemic, it sort of got spoiled by some of those gains. By some of those real high flyers. Of course you get things outside like gains and we see a pullback in that space. People talk about bubbles and crashes… If you're gonna have perspective on the longer term, what is the space look like? Are those terms a little too alarmist? >> There was greed in 2020. You saw that with stocks, a lot of highflying tech stocks. Now they are reversing those gains and the narrative continues to be "influx" still this year. You have people saying that there is a big crash company, you have others saying that you're going to have a sharp rebound, all-time highs in a matter of months. There are people in both camps. As I look at these businesses and read through the fundamentals and think about 2023, 2024, I really don't see either of those scenarios. We have solid businesses like Microsoft and Apple. A lot of good things going for them. Like any other business, they have headwinds to face as well. But there is sector is still full of pretty solid companies that should be able to deliver that earnings growth in the long run. >> When I think about the sector as a whole, these are technologies that we have learned to live with. And although people are very excited in those early beginnings the pandemic, it's hard to see us saying "I don't need that technology anymore." > It's not hard to figure out what products we use. I have some in my pocket right now. We are surrounded. >> We are surrounded. >> That might be a conversation about privacy but that's another conversation for another day. There is something unique about technology and it doesn't have anything to do with the economy. So as a result, they expect these stocks and these earnings to grow and grow and grow. This year is just a reminder that when you were that big and that, as you said, pervasive in people's lives, guess what? As the economy slows, these businesses slow as well. >> That was Vitali Mossounov, Global Technology Analyst and Portfolio Manager at TD Asset Management. Well that's our show for this Friday, September 2. Stay tuned, Monday is of course a holiday but on Tuesday we will have Daniel Ghali, Senior Commodity Strategist at TD Securities, taking all your questions about commodities. You can get a head start by sending us your questions now by emailing us, MoneyTalkLive@td.com. That's all the time we have for today. Have a great long weekend and we will see you next week. [music]