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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing. Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we discuss what's ahead for the bond market after it wrapped up its best month of performance and close to 40 years.
TD Asset Management's Hafiz Noordin joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the health of Ontario's housing market.
In today's education segment, Nugwa Haruna's which shows how you can make trades using the Advanced Dashboard platform. So here's how you get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. A new trading week on our hands.
We are fully into December now. A bit of a get back. Let's start with the TSX Composite Index. It was a good week for bonds and equities in November.
Down a very modest 16 points, a little less than 1/10 of a percent.
Some of the energy and mining names getting hit today. Let's take a look at some of the most actively traded names at this hour, including Baytex energy at four bucks and $0.96 per share, down about 3 1/2%. Got West Texas crude, it's been a wild ride lately, it's back below $74 per barrel.
Gold though after hitting new highs in recent days is pulling back a bit today.
It's weighing a little bit on the mining names. At 793, it's a bit of give back after a nice run for some of these names including Ken Ross, seven bucks and $0.93 per share, down a little more than 1%.
South of the border, let's check in on the S&P 500. A lot of the big tech names under pressure today.
It is pulling back the broader market. At 4563 we will call back, you're down 3132 points, little more than half a percent.
The tech heavy NASDAQ, you're seeing a lot of that pain at the moment in terms of the broader market. It is down 1 1/3% or 196 points. One name, Uber Technologies, they are getting added to the S&P 500. Usually that get to a bump on the news. Indeed, 60 bucks and $0.29, who brews up a little more than 5%.
And that's your market update.
The bond market wrapped up its best month of performance and close to 40 Years in November. Of course, that came after a big run up in yields throughout the fall. So in 2024 shaping up to be the year that fixed income investors were hoping for in 2023? 20 us now to discuss, Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management.
Great to have you back.
>> It's great to be here.
>> It was an impressive month in November.
What's taking shape in the bond market now? Why are we seeing this wild shift in yields?
>> Like you said, we had the strongest month for bond returns in almost 40 years.
That came on the back of several weak months for bonds so there was some get back there.
And that is allowing for bonds to you, right now, track for a positive year in terms of total returns.
I think what we saw in terms of what caused the shift in November was first of all, the economic data.
So we saw inflation Prince missing to the downside across a number of economies.
That provided some more conviction that this disinflation or a trend that started to take hold in the second half of the year really can sustainably happen going into next year. And other growth data as well as labour market data starting to look still solid but not like recessionary levels but starting to look a little bit weaker than what we saw at the beginning or through most of 2023. When you have that kind of environment, that is generally good for bonds.
Cisco concerns as well from the US that was causing a lot of volatility in September and October largely got priced in.
So for the most part, it's a better starting point for bonds and that's why we saw those strong returns in November.
>> When investors see a run like this in a short period of time, they think they… I'm not talking magnitude. The 10 year bond on my screen right now is at 4.28%. We were about five several weeks ago. This is a big move in a short period of time. So I will ask for those investors, did they miss the run or is the run just beginning?
>> I think the way to think about it is that you first of all look at the short end of the curve. Look at those who year yelled. It's a little over 4 1/2% in the US. You compare that to where the Federal Reserve is expected to take interest rates over the long run. It's basically looking at the long-term dots. And if we use that as a guide of kind of neutral level of rates over the next few years, the neutral level is around 2 1/2%. So there's called around over 200 basis points of adjustments in yields that can happen down towards that neutral level, assuming that inflation comes back to target.
And that could happen quicker if we actually have a recession. They will have to cut more quickly.
But even in a scenario where we don't have a recession, it's just nice, gradual, slowing growth and inflation, they will eventually get to that policy rate. As that happens, the 10 year yield and the rest of the curve would start getting pulled down as well. I think arguably there's still a lot of room to go in terms of where the 10 year yield can go. Even if we are getting to somewhere in the 3 to 4% range from a total returns perspective, there is still a lot to catch up on for bond returns.
>> So it does have the feel of perhaps the early innings of the turnaround. Does that set us up for 2024 that now that we are in December and started almost closing the door on this year, we still have a few weeks to live through, does that set us up for next year delivering the kind of year in fixed income we thought we were perhaps going to have this year?
>> Yeah, I think that's an interesting way of putting it. At the beginning of 2023, the expectation and consensus economic forecast refer fairly low economic growth, call 1/2 a percent to 0% growth in Canada or the US. In the US in particular, that surprised meaningfully to the upside. We got growth of more like 2 1/2% is what we are tracking for this year. Similarly for next year, we are seeing tepid economic growth expectations but I think there is probably more of a reason to believe that that can be met, even if we don't cut to a recession, low growth with the removal of love the fiscal stimulus we saw this year, with the labour market starting to look still strong but not as strong as it was before, consumption maybe won't be as resilient as it was this year. So I think conviction in the economic outcome of low growth is probably a little bit stronger now than it was say a year ago.
And so what that means is that the starting point for bond yields being still fairly high, I think there is definitely some good asymmetry in bond returns that in a low growth scenario, you can still get this high coupon level of 4 to 5% depending on the type of fixed income product you are in, and if we do get a recession outcome, you could see 100 basis points lower say in the US 10 year which could boost your total return by 5 to 10% above the coupon level.
>> Now in recent days, we've seen a lot of economic data coming out of this country.
South of the border, when it comes to the PCE, which is the Fed's preferred gauge, with all that pouring in, what you find most interesting? What is it all telling us?
>> Yeah, so a lot of data. I will get into individual ones but I think the key themes to get out of that are first of all that growth is indeed slowing.
And a good way to reflect on this was the ISM a manufacturing that came out on Friday which showed another Miss to the downside, so well below the 50 level which would be consistent with trend like GDP growth. It was kind of in the 46 to 47 range.
So convincingly and a slowing growth territory.
We will see and ISM services PMI this week which will be looking closely to see if the larger service as part of the economy Is showing us the same kind of message.
The overall labour market, it's been resilient. Still adding jobs every month.
We are seeing that in Canada and the US.
The Canada print came out on Friday.
But at the end of the day, we are starting to see is a gradual increase in the unappointed rate.
Whether that really starts to go parabolic and really is in a more recessionary type of signal, I think that is still yet to be seen. We are at least not seeing the kind of strength in the labour market that was causing concerns around run away wage growth which would then cause inflation to start to get a little bit more dislocated.
Then there's the inflation data itself.
You mention PCE and the other forward-looking indicators for inflation, and it definitely shows on the goods side of the market, really in a distant inflationary environment. We are closer to 0% momentum on goods growth. And services inflation also kind of coming down in a gradual way.
So I think Al Qaeda point to this environment where we are seeing a cooling-off in the economy, just enough that bonds can be supported and equities can be supported. That's kind of this Goldilocks environment we are in right now.
>> If we take you back to central banks and everything they are watching right now, the short form of what I've been reading is you bring in all these different reports is the Bank of Canada is done seems to be the accepted wisdom, fed maybe one more. Is that how the situation looks right now?
>> It kind of looks like both are done, and especially with some of the data I mention, that really shifted the scales towards a pause by the Fed for next week.
The markets really now caught onto this narrative of cuts getting priced in, potentially as early as the end of Q1, but more likely no I think the base case is more that that's a cute two-story for next year that we could start seeing initial rate cuts. Not necessarily because there is a forecast for a big downturn in growth but just because with inflation coming down… >> The works been done.
>> The works been done. You can start to recalibrate from this really restricted policy rate to something less restrictive.
It will still be about the so-called neutral rate for banks but a little bit less off that peak level and same idea for Bank of Canada wherefore Q2 next year, that's when rate cuts are starting to pricing.
>> Interesting times indeed. We are going to get your questions about fixed income for Hafiz Noordin adjuster once time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Uber Technologies in the spotlight today. The right healing company is being added to the S&P 500. That will be effective December 18 at the open of trading that day. Now, inclusion in an index generally leads to a bump in the stock. The funds that track the S&P 500 need to add that name to their holdings.
It seems to be playing out for over today.
Got a bit of a downdraft and tech names in the overall market but at 60 bucks and change, we've got it were up almost 5%.
Let's take a look at spot five. Says it's going to cut its workforce by 17% in the face of slowing growth. The music streaming business as it grew too rapidly during the pandemic and now it needs to right size its operations. The market seems to like the sound of it. 195 almost 6 bucks per share, you're up more than 8% on spot five. Richard Branson says he will be investing any more money in Virgin Galactic. In an interview with the financial times, the British billionaire said the space tourism company should have the funds and needs to continue on its own, adding his pockets aren't as deep as they once were.
Still a billionaire though. It Virgin Galactic down 14 1/2%. Quick check on the market, we will start here at home on Bay Street with the TSX Composite Index.
Right now still in negative territory. The price of gold pulling back a bit, the price of oil pulling back a bit but nothing too dramatic, 10 points, five takes.
South of the border, the S&P 500, tech stocks seem to be weighing on the trade today. Down 30 points, a little more than half percent.
All right, we are back with Hafiz Noordin, take your questions about fixed income.
Let's get to them.
What will you be watching for from Wednesday's Bank of Canada rate decision?
>> Well, it's actually be a pretty straightforward meeting. We are not getting any kind of monetary policy report update, no new forecast by the Bank of Canada.
And the market has essentially priced and no movement. So our expectation is that the bank would deliver on that, no change TD 5% policy rate. But what we should likely see in the statement that comes out is a balance between acknowledging that some of the recent economic data has come in a little bit weaker, both on the growth and inflation sides, but they will have to still sound balanced in terms of how they react to the data.
They will have to make sure they are showing their credibility around getting inflation back down to target because the momentum has definitely is shifted but the level of the inflation rate is still well above the 2%.
So I think they have to show the job not yet done and that they looking forward to January, they will probably have to revise down their core inflation forecast.
So I think they will basically stay that they are saying ready to hike if inflation starts to show that it's more firm but do acknowledge that the outlook has improved a little bit in terms of the inflation outcome.
>> The háka's messaging we get, even though they haven't moved on rate since the summer, reminds me of being a kid.
I'll turn the car around, will go back home. It scared you when you were younger because you thought your parents were serious. But the moment you don't think they're serious anymore, the threat disappears. Just thinking in terms of how the housing market reacted. They didn't say they were done, they said they were going to take a pause in the ring and see how things progressed. There was a big pot. Are they afraid of that happening again?
>> Yeah.
That's part of how they have to handle policy. It's not just about setting an interest rate or policy, it's really about the signalling effect because the market, whether it's financial markets or other behaviour in the economy, really reacts on expectation.
So if they do acknowledge that it looks like inflation is coming down and our job is done, if they get a little bit too dovish around that and vindicate these market moves, these really rapid market moves, the economy will adjust to this expectation that rate cuts are coming and let's start loading up on more debt and consuming more which could cause inflation to go back up again. So yeah, they really have to manage their messaging well, sound balanced and show that they are ready to stand, that they stand ready to increase the policy if that were necessary even if the probability is low at this time.
>> A question now, this time on the other side of the aisle. We are talking monetary and fiscal policy. Is there anything in the fall economic statement that could impact the bond market?
>> Yeah, so that was an important release.
It showed a couple of things. First of all is that the amount of deficits that we are going to see at the federal government level over the next four years got revise meaningfully higher compared to what was expected in the 2023 budget released earlier in the year so if you think of the next four years, the average annual increase in the deficit is about $10 million.
That is net new funding that will be needed by the government to cover more spending programs, higher interest costs and to cover slightly lower revenue.
So what that means for the fixed income markets is that the curve, the yield curve has to adjust for this higher borrowing needs, this higher supply of government bonds and I'm trying to understand as they demand their to buy bonds at the current price. The other piece that came out of it is that more of that borrowing were relatively more of that borrowing will come out at the longer end of the curve and so what we have seen up till now is a real flattening of the yield curve. We seen longer-term bond yields not rising as much as state shorter-term bond yields.
What we might start to see is that longer-term bond yields in Canada might actually rise a little bit more compared to the short range so that is what we call a steepening of the curve. And I think that something that in Canada that might be a bit unique in that you compare it to the US, Canada 30 year bond is about 120 basis points lower than the US and that's at a historically wide level and that has allowed Canada bonds to outperform this year compared to US bonds.
Going forward, because of what we are seeing from the fall economic statement, there is a potential Canadian bonds actually underperform compared to the US.
>> I want to ask you that as a follow-up in terms of what we saw in the fall economic statement.
Was there enough there to change your investment thesis? It sounds like there was.
>> I think what it speaks to you is having a fixed income portfolio that is a little bit more flexible than maybe what you needed this past year. Canadian bonds are pretty solid this year, especially after the November returns but net around 4% total return this year has increased government bonds given all the volatility we have seen and that growth surprise to the upside. The part of that was the idea that there isn't a big fiscal risk in Canadian bonds in the same way that we saw in the US. That narrative could reverse going us next year if there is more attention paid to the numbers we saw in the fall economic statement. Depending on what Lisa Lee out of the US with their election, hopefully for their sake they come out with an outcome in which they will get a little bit more fiscal discipline compared to what we have seen recently and that could allow US bonds to have a bit more juice left in them compared to Canadian bonds.
>> Interesting. A nice lead into the next question. Gone of you are wondering, is the amount of treasury issuance a concern right now?
There is been different parts of the people have been saying watch what's going on south of the border.
>> Yeah, and it's going to ebb and flow. I think we had this near-term issue where the deficit for this year in the US was expected to be 5 to 6% and it ended up being around 7% of GDP which was a big surprise. It not only boosted consumption and cause growth to be higher but it also raised these concerns are on the amount of borrowing the US government would have to do. Earlier in November, we had the quarterly funding announcement by the U.S.
Treasury would end up not being as bad as expected and I think it kind of indicated that the bond market has largely already priced in these increases in issuance that would be needed. So I think that's going to be, continue to be watched every quarter is what's the next update in terms of issuance, where along the curve, that will always been a net new data point. And then sort of on a more frequent basis, there's auctions in the market and anywhere along the curve and the performance of those options, how many buyers are coming in to meet the supply that the US government needs, that's always going to be highly scrutinized.
But I think for the most part, a lot of that is in the price at this point. What's going to be more important for bond yields in the US at least will be the growth and inflation data that we have talked about because I think that's now more, proven to be more the dominant driver of yields at least in the near term.
>> When those yields were on a pretty steep upward path throughout September and into October, I think Michael Craig was on the program. I asked what was going on and he said it was a bit of a buyers strike.
You talked about those auction. He said the buyer just wasn't showing up. Has that sort of sorted itself out?
>> Is a bit more balanced than it was during that peak fear in September and October. A lot of the auctions were doing poorly. I think some are doing well and some aren't right now and its work on balanced enough that even on a day where we actually had a poor auction, I think it was last week or so, because of the big shifts in the inflation data and the gross data, the market was able to kind of just blow past that bad auction and still bonds rallied that day.
I think that speaks this idea that, yes, the concern can be there but it may already be in the price and I think it's those types of outcomes where even if you see a bad auction and bonds can still rally, you can gain more conviction that we are at an appropriate level of bond yields that the market can still meet the supply that the U.S. Treasury has.
>> Interesting stuff. We'll get back to your question for Hafiz Noordin on fixed income in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get to our educational segment of the day.
In today's segment, we are going to take a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Nugwa Haruna from TD Direct Investing joins us now.
New, you're going to take us through how we can make a trade on the platform. Show us how.
>> Yes, great. It's always a pleasure being here. As you mentioned, Advanced Dashboard is tailored to active traders.
When you're placing a trade within web broker, you are able to do that seamlessly and effortlessly.
But with Advanced Dashboard, there some additional steps that have been taken to make your trades more efficient.
If you are looking to get in and out of positions really quickly, you are able to do that using Advanced Dashboard. I'm going to take us into the platform there.
Sharing my screen right now. Just to give us a walk-through with your web broker, he can pull up your Advanced Dashboard basically going to one of these links here. Once you go there, you just click on the web version, it pops up as another browser.
I already open that up for us.
What I have on screen it right now as I simply have my watchlist on the left side.
And I have my quote detail on the right side. I've linked to these components so that anytime I click on any security on the left side, it automatically pops up on the right. In this case, let's say we are looking to potentially purchase Bank of Nova Scotia stock.
All you need to do is simply click on the left side in my watchlist and that information pops up on the right. You are going to notice at the top you that I have the opportunity to place an order.
You will see the specific security there.
You can change it to a stock or an option or strategy, anything you are interested in.
We are going to get this action as a buy and then you will notice that I do have a default quantity.
This is the difference between Advanced Dashboard and my brokers that you have an opportunity to set default if you want to get in and out of positions really quickly. So I set a default quantity of 100 and anytime I click on the +, my default will always go up or down by 50.
If you don't like any of these numbers, you can simply type in their, maybe I want to buy 60, you still have the ability to do that. My default order type is also a limit order.
You still have access to the different kinds of order types there, but to make my traits more efficient, I've set a limit order on here and now in this instance, let's say as an investor looking to purchase the security and you want to purchase it using a limit order, Sue potentially looking at paying less than what the current prices.
In this instance, I'm going to put $55 because I see right now that stock is trading for just over $60.
Because it is a limit order, I do have to be willing to wait for a little while.
My default wait time is good till cancel which for Canadian securities is 90 calendar days.
Now, you are able to do this in place order but what if I am interested in potential profit and/or loss exits for myself?
You're able to do that using the same order ticket. You simply check off words has attached profit and loss exits. And once you do that, you are going to notice right off the bat, I now have two tickets that will always be opposite to the original tickets. These are sell tickets.
If I wanted, I could also just check off the attached profit taker and set a sell order for the stocks I'm buying, I could use a limit order here and say look at the price of the stock drops to 55, and then I want to sell it at a profit, I can set my limit price at let's say 65, potentially looking to make $10 in profit after I purchased the stock. Alternatively, I can decide to attach a stop loss to protect myself in case the price of a stock drops after I get the 55. The same logic applies here. I will actually be setting a stop limit order where I can set my trigger price may be at $50 and I can then set a limit price for that trigger price because you know the trigger price is not the end the price you end up getting but it's the price that your grade is activated at so it might be 48. If the price drops below 48 and hold the stock until potentially recoveries. This is the way investors able to place an order all in one ticket and you might recognize some of these as the one cancels other and one triggers another order types.
>> I remember your previous lessons on those on, Nugwa. At one point you mentioned order defaults. How can an investor set those up?
>> Yeah, so for efficiency, what you are able to do is back in the platform, you will notice at the top right-hand corner of the quote detail is a little gearbox.
I'm just going to click on that gearbox.
When you do that, it pulls up the settings. Once you do that, it pulls up your order default settings. Sticking with stocks, you can see where I set my order default quantity.
You can change it to whatever quantity you like.
This is where I have my order increment where every time I click on the plus sign, it went up or down by 50, you can also set price increments as well. Finally, you also get the chance to choose what the default order type is. You will notice when I pull up the screen at the limit order. You can change whatever that looks like. If you want a market order, a trailing stop order, whatever you choose to do, just a way to make your trades more efficient.
>> Nugwa, always great stuff. Pleasure having you with us again.
>> It's always a pleasure being here.
>> Our thanks to Nugwa Haruna from TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Okay, we are back with Hafiz Noordin, taking your questions about fixed income.
Let's get back to them. This one coming in in the past couple of moments.
What are your predictions for the Canadian US dollar and 2024? In December, the crystal ball has to come out. Everyone wants production.
>> Yeah, especially the Canadian dollar versus the US. It's one that everybody thinks through when they think about hedging the US assets are not.
So I think first of all, at a broad level for the US dollar, versus the Canadian dollar but also versus other world currencies like the euro and the end, when we are in this environment where US yields have gone quite high and have gone meaningfully higher relative to the rest the world but are on this path potentially to be declining versus the rest of the world, that's typically historically meant that US dollar also declines during that time.
And it really follows this general rule of thumb that when you have a decline in different interest rate differentials between two countries, then the currency of the higher-yielding country tends to come down. So I think that's what we will likely see at a certain macro level for the US. I pointed out that for Canada and the US, we have seen this big widening again of US yields because of the fiscal concerns, that 30 are part of the curve for its about 120 basis points difference between US and Canadian yields.
In this environment where the US is coming from a strong growth year until one in which its growth is more tepid and if Canadian growth is kind of seeing where it is, low but still above zero, that should mean that the US dollar versus the Canadian dollar should actually come down.
Now, the thing is, interest rate differentials are not the only thing that matters for the Canadian dollar. It's a currency. The other two main factors are oil and the markets. The Canadian dollar is kind of a risk on currency. When equity markets are doing well, the Canadian dollar does well, same goes for oil. I think when we put all that together, generally speaking, given the starting point, we would expect modest Canadian dollar appreciation but I think it will be limited by how much equity markets rally.
They had a really good run this year.
If they are kind of a little bit more modest in terms of returns next year, the Canadian dollar has maybe low single digits upside versus the US dollar.
>> Interesting stuff to watch for in 2024.
Another question from the audience.
The viewer wants to know what your thoughts are on emerging-market bonds and which ones are looking interesting?
>> Yeah, so right now, given the environment we talked about, emerging-market bonds across the spectrum are doing very well.
When you have declining US yields, you have the declining US dollar and strong equity markets, that's the right set of ingredients for emerging markets fixed income to do quite well and the ones that are outperforming and have been for a while this year the ones that where the central banks in this countries were early to hike and were well ahead of the Fed and DOC and were the old buffer was very high, so you were earning high single digits you low teens in the yields and I provided a lot of income in the investment to buffer any volatility. I think that sort of game plan for emerging-market fixed income can continue to work. But I think as you get into next year, there will probably be more of a differentiation in EM around quality.
Unlike this year where you had Brazil and Colombia, more high-yield rated EM is doing really well, there might be a little bit more scope for say the investment-grade rate in the emerging markets to do a bit better. I think Mexico is probably one of the more enticing ideas because you still have very high yields in Mexico, call at 9 to 10% of the 10 year bond, so almost 600 basis points higher than the Canadian 10 year. But the trip will be rated country and their economy has been very stable with the reshoring theme that's been happening in the US, so a lot of supply chains moving from the rest of the world to Mexico, that has really supported currency inflows and generally speaking, the central bank has got a lot of credit ability around fighting inflation. It coordinates a lot with the US. So I think there's a lot to like out of the country. I think that the examples of that coming out are here but I think at the end of the day these are tactical opportunities.
You can get into them but you have to watch how the currency is doing. If we start to see perhaps a rebound in the US dollar, that's usually a good time to be hedging those EM exposures or just exiting them completely. So really more tactical opportunities after the returns we have seen this year, less so buy-and-hold for longer periods.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
another question here from the audience.
Someone wants to get your opinion on extendable notes offered by the large banks? This person knows their notes.
>> Yes.
That's definitely getting into the weeds and the Canadian fixed income market. So I would say and I structured to have or a framework is there are multiple ways you can lend to a bank here in Canada. So the one that most of us do is you put your deposit with the bank and you will earn basically nothing but that's the highest-quality way of lending to the bank or its insured. The next one, what we are doing is going down the capital structure.
The next one down the capital structure is a senior banknote where you will earn may be a 6% return.
There is more likelihood that you will get your principal back. When we are thinking about extendable notes, we are really talking about further down the capital chart, what we call the subordinated and the junior subordinated part of the capital structure so in a scenario where a bank goes under, you are more at risk of losing your capital but in return, you are earning a higher yield along the way.
One more recent structure that's extendable is something called a limited resource capital note which is basically a preferred share in a bond wrapper.
So say you're buying a bond, but at its core it is a preferred share.
That's a really simple way to think about that. The way they are structured is that when you buy that note, it will have a very long maturity, call it… But every five years the bank and call that note which is what makes it extendable. It's in effect a five year note but at the bank's discretion, they could extend that note another five years each time.
So that's another part of a risk that you are taking as a noteholder is you are writing this kind of option to the bank.
What's interesting those at the valuations on those kinds of notes have really gotten very attractive. Some of the highest yielding ones are north of 15%. So it speaks to I think just the volatility in interest rates that is filtered into the options price and within those notes and so it can play a role in a very diversified portfolio. On its own, I think you have to be aware of being in the lower part of the capital structure so it's lower quality, but options pricing can be really volatile as we've seen over the past couple of years.
So I think like with any investment, it's about how to size it right in a more diversified portfolio. But it definitely is an interesting option.
>> Interesting indeed. We will get back to your question for Hafiz Noordin on fixed income in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can contact us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Let's talk housing. Here in Ontario, market conditions have declined to the lowest level since the 2008 2009 financial crisis. Of course, higher interest rates continue just to hurt demand. Anthony Okolie is joining us now with a new TD Economics report that explores why Ontario home prices may face some further weakness in the coming months.
>> The new report by TD Economics tallied some worrisome trends in Ontario's housing market. A key metric that they illustrate is Ontario sales to new listings ratio. It dropped to its lowest level since the worst of the global financial crisis in 2008 2009. Of course, this measure measures supply demand in housing market and that is a key predictor of future price changes. This measure fell to this level without a deep recession which was the situation in previous cycles. TD Economics predict that this ratio could fall further in the near term amid elevated rates, which will keep pressure on demand and upward pressure on supply.
Home sales are also running at Lowe's reached well into the 90s cycle.
Looking ahead, TD Economics expects flat economic growth for the province of Ontario but no deep recession. They do see a mild drop in employment and jobs here in Ontario. With interest rates sitting at 22 year highs at 5%, TD Economics things that the Bank of Canada is done rate hikes. Of course, we have the meeting coming up this week.
They are forecasting that the Bank of Canada will start cutting rates by the second quarter of next year.
Now course, population growth does also have an impact on housing. TD Economics also look demographics they noted that in the late 80s and 90s, demographics in Canada would've pointed to robust demand for housing ownership with about one third of Canadian population between the ages of 25 and 39. This is the age cohort were demand for this type of housing has historically risen the most and TD Economics notes that these demographics played a role in the 90s downturn with demographically driven demand for housing creating the fuel that was necessary to drive speculative activity that took place. But TD Economics believes that the Ontario housing shortage could get worse in the next few years if the population growth continues to be strong.
Now, in the coming months, TD Economics is there is a risk that Ontario housing market conditions could worsen the levels of the prolonged 90s housing downturn, but several factors make that outcome unlikely.
They point to a couple of them. One of them is the likelihood that Ontario avoids a steep recession. Secondly, favourable path for interest rates.
They are pointing to potential rate cuts next year.
And third, housing shortage comes amid a robust population boom here in Canada.
Now, even though the 90s outcome is unlikely, TD Economics is in Ontario home prices are likely to have further downside in the coming months and could fall as much is 10% from the third quarter of this year through to the first half of 2024.
Additionally, they believe that homeowners will face continued pressure through at least 2025 2026, when those who got mortgages at ultracheap rates face a significant payment shock.
>> So there's a lot in there, obviously.
You talked about demand and sometimes what is called a dearth of housing supply. Does the report say anything about completed or unsold inventory? We know that homes are still getting built.
>> We know the higher interest rates have heard the preconstruction market during the cycle by making it more difficult for buyers to close on properties that they previously purchased. The data for new home markets address at the level of uncompleted and unsold inventories here in Ontario is no loop where near as high as it was during the 90s housing downturn.
Now the relatively low level of this measure offers some comfort against the notion of a sustained weakness in the Ontario housing market according to TD Economics. They also note that the data can be understating the difficulties in the preconstruction space because it counts presold units as absorbed and these are precisely the types of units which are facing some difficulties right now.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
Okay, we are back into Advanced Dashboard, taking a look at the heat map function. A nice picture of the market movers. We will start with the TSX 60 by price and volume.
It's not a great day and material space.
Boggled continuing to press to new highs, bit of giveback today. Some stocks on the move higher recently but with the price of gold today, it's giving back a bit. Take a look at the energy space, it's been a mixed bag. Well has had a be right.
We have the delayed OPEC meeting next week. There were voluntary cuts. Questions in the market, if you make it voluntary, will some of those producers actually make us to support prices? Bit of a mixed picture on that. Still noticing the telcos, BCE, Telus and Rogers making some gains in a lower bond yield environment which helps. Last week, budget analysts came out with reports on the latest spectrum auction, usually those spectrum auctions are not that interesting but they found that the big telcos were demonstrating fiscal discipline. South of the border, I want to take a look at the S&P 100. The sore point today seems to be technology.
Whether it's chipmakers like Intel, AMD or Nvidia or some of the big names in the space, Apple, Microsoft, Google, all under pressure today.
He can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Okay, we are back now With Hafiz Noordin from TD Asset Management, taking your questions about fixed income. Your Outlook for corporate bonds right now?
>> They have had a great year. Similar to equities having a strong year with Strong corporate fundamentals, earnings coming in pretty solid. And I would say that you have to look at investment grade, so triple B, rated triple B and higher and in that part of the market, they are in a good spot for next year where their growth and earnings have been very good in their borrowing needs are not exorbitantly high.
They are basically in line with historical levels, even a bit lower than normal. So investment grade borrowers, I think they're fairly comfortable lending to those types of companies. For the high-yield part of the market, it did perform very well in this recent rally with spreads of colour and 400 basis points for government bonds, that's around average compared to historical levels so you are still getting decent compensation in high-yield.
I think going into next year, the market will start to be looking ahead towards the end of 2024 and early 2025 where borrowing needs really start to ramp up. It's going to be this balancing act of how fast does inflation come down and how fast do you yield come down and will these lower rated companies need to borrow to finance maturities a raise capital? That's going to be this exercise that we will have to go through for rating high-yield companies. At the end of the day, I think there's a little bit more risk around high-yield or default rates are still trending higher and so I think that having a bit more of a modest allocation from our perspective to high-yield, still being invested in the market but leaving some room to add more to that part of the corporate market if we do see wider spreads with higher default rates.
>> Always a pleasure to have you here.
Fixed income is not the easiest investment space to talk about. You always make it so clear and straightforward.
Appreciated. Appreciated.
>> Our thanks to Hafiz Noordin, VP and Dir. for active fixed income portly management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show.
Michael O'Brien, managing Dir. and head of core Canadian equity team at TD Asset Management will be our guest. He wants to take your questions about Canadian stocks.
I know you have them so get them to a set of time. Just email moneytalklive@td.com.
That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
[music]
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we discuss what's ahead for the bond market after it wrapped up its best month of performance and close to 40 years.
TD Asset Management's Hafiz Noordin joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the health of Ontario's housing market.
In today's education segment, Nugwa Haruna's which shows how you can make trades using the Advanced Dashboard platform. So here's how you get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. A new trading week on our hands.
We are fully into December now. A bit of a get back. Let's start with the TSX Composite Index. It was a good week for bonds and equities in November.
Down a very modest 16 points, a little less than 1/10 of a percent.
Some of the energy and mining names getting hit today. Let's take a look at some of the most actively traded names at this hour, including Baytex energy at four bucks and $0.96 per share, down about 3 1/2%. Got West Texas crude, it's been a wild ride lately, it's back below $74 per barrel.
Gold though after hitting new highs in recent days is pulling back a bit today.
It's weighing a little bit on the mining names. At 793, it's a bit of give back after a nice run for some of these names including Ken Ross, seven bucks and $0.93 per share, down a little more than 1%.
South of the border, let's check in on the S&P 500. A lot of the big tech names under pressure today.
It is pulling back the broader market. At 4563 we will call back, you're down 3132 points, little more than half a percent.
The tech heavy NASDAQ, you're seeing a lot of that pain at the moment in terms of the broader market. It is down 1 1/3% or 196 points. One name, Uber Technologies, they are getting added to the S&P 500. Usually that get to a bump on the news. Indeed, 60 bucks and $0.29, who brews up a little more than 5%.
And that's your market update.
The bond market wrapped up its best month of performance and close to 40 Years in November. Of course, that came after a big run up in yields throughout the fall. So in 2024 shaping up to be the year that fixed income investors were hoping for in 2023? 20 us now to discuss, Hafiz Noordin, VP and Dir. for active fixed income portfolio management at TD Asset Management.
Great to have you back.
>> It's great to be here.
>> It was an impressive month in November.
What's taking shape in the bond market now? Why are we seeing this wild shift in yields?
>> Like you said, we had the strongest month for bond returns in almost 40 years.
That came on the back of several weak months for bonds so there was some get back there.
And that is allowing for bonds to you, right now, track for a positive year in terms of total returns.
I think what we saw in terms of what caused the shift in November was first of all, the economic data.
So we saw inflation Prince missing to the downside across a number of economies.
That provided some more conviction that this disinflation or a trend that started to take hold in the second half of the year really can sustainably happen going into next year. And other growth data as well as labour market data starting to look still solid but not like recessionary levels but starting to look a little bit weaker than what we saw at the beginning or through most of 2023. When you have that kind of environment, that is generally good for bonds.
Cisco concerns as well from the US that was causing a lot of volatility in September and October largely got priced in.
So for the most part, it's a better starting point for bonds and that's why we saw those strong returns in November.
>> When investors see a run like this in a short period of time, they think they… I'm not talking magnitude. The 10 year bond on my screen right now is at 4.28%. We were about five several weeks ago. This is a big move in a short period of time. So I will ask for those investors, did they miss the run or is the run just beginning?
>> I think the way to think about it is that you first of all look at the short end of the curve. Look at those who year yelled. It's a little over 4 1/2% in the US. You compare that to where the Federal Reserve is expected to take interest rates over the long run. It's basically looking at the long-term dots. And if we use that as a guide of kind of neutral level of rates over the next few years, the neutral level is around 2 1/2%. So there's called around over 200 basis points of adjustments in yields that can happen down towards that neutral level, assuming that inflation comes back to target.
And that could happen quicker if we actually have a recession. They will have to cut more quickly.
But even in a scenario where we don't have a recession, it's just nice, gradual, slowing growth and inflation, they will eventually get to that policy rate. As that happens, the 10 year yield and the rest of the curve would start getting pulled down as well. I think arguably there's still a lot of room to go in terms of where the 10 year yield can go. Even if we are getting to somewhere in the 3 to 4% range from a total returns perspective, there is still a lot to catch up on for bond returns.
>> So it does have the feel of perhaps the early innings of the turnaround. Does that set us up for 2024 that now that we are in December and started almost closing the door on this year, we still have a few weeks to live through, does that set us up for next year delivering the kind of year in fixed income we thought we were perhaps going to have this year?
>> Yeah, I think that's an interesting way of putting it. At the beginning of 2023, the expectation and consensus economic forecast refer fairly low economic growth, call 1/2 a percent to 0% growth in Canada or the US. In the US in particular, that surprised meaningfully to the upside. We got growth of more like 2 1/2% is what we are tracking for this year. Similarly for next year, we are seeing tepid economic growth expectations but I think there is probably more of a reason to believe that that can be met, even if we don't cut to a recession, low growth with the removal of love the fiscal stimulus we saw this year, with the labour market starting to look still strong but not as strong as it was before, consumption maybe won't be as resilient as it was this year. So I think conviction in the economic outcome of low growth is probably a little bit stronger now than it was say a year ago.
And so what that means is that the starting point for bond yields being still fairly high, I think there is definitely some good asymmetry in bond returns that in a low growth scenario, you can still get this high coupon level of 4 to 5% depending on the type of fixed income product you are in, and if we do get a recession outcome, you could see 100 basis points lower say in the US 10 year which could boost your total return by 5 to 10% above the coupon level.
>> Now in recent days, we've seen a lot of economic data coming out of this country.
South of the border, when it comes to the PCE, which is the Fed's preferred gauge, with all that pouring in, what you find most interesting? What is it all telling us?
>> Yeah, so a lot of data. I will get into individual ones but I think the key themes to get out of that are first of all that growth is indeed slowing.
And a good way to reflect on this was the ISM a manufacturing that came out on Friday which showed another Miss to the downside, so well below the 50 level which would be consistent with trend like GDP growth. It was kind of in the 46 to 47 range.
So convincingly and a slowing growth territory.
We will see and ISM services PMI this week which will be looking closely to see if the larger service as part of the economy Is showing us the same kind of message.
The overall labour market, it's been resilient. Still adding jobs every month.
We are seeing that in Canada and the US.
The Canada print came out on Friday.
But at the end of the day, we are starting to see is a gradual increase in the unappointed rate.
Whether that really starts to go parabolic and really is in a more recessionary type of signal, I think that is still yet to be seen. We are at least not seeing the kind of strength in the labour market that was causing concerns around run away wage growth which would then cause inflation to start to get a little bit more dislocated.
Then there's the inflation data itself.
You mention PCE and the other forward-looking indicators for inflation, and it definitely shows on the goods side of the market, really in a distant inflationary environment. We are closer to 0% momentum on goods growth. And services inflation also kind of coming down in a gradual way.
So I think Al Qaeda point to this environment where we are seeing a cooling-off in the economy, just enough that bonds can be supported and equities can be supported. That's kind of this Goldilocks environment we are in right now.
>> If we take you back to central banks and everything they are watching right now, the short form of what I've been reading is you bring in all these different reports is the Bank of Canada is done seems to be the accepted wisdom, fed maybe one more. Is that how the situation looks right now?
>> It kind of looks like both are done, and especially with some of the data I mention, that really shifted the scales towards a pause by the Fed for next week.
The markets really now caught onto this narrative of cuts getting priced in, potentially as early as the end of Q1, but more likely no I think the base case is more that that's a cute two-story for next year that we could start seeing initial rate cuts. Not necessarily because there is a forecast for a big downturn in growth but just because with inflation coming down… >> The works been done.
>> The works been done. You can start to recalibrate from this really restricted policy rate to something less restrictive.
It will still be about the so-called neutral rate for banks but a little bit less off that peak level and same idea for Bank of Canada wherefore Q2 next year, that's when rate cuts are starting to pricing.
>> Interesting times indeed. We are going to get your questions about fixed income for Hafiz Noordin adjuster once time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
We have shares of Uber Technologies in the spotlight today. The right healing company is being added to the S&P 500. That will be effective December 18 at the open of trading that day. Now, inclusion in an index generally leads to a bump in the stock. The funds that track the S&P 500 need to add that name to their holdings.
It seems to be playing out for over today.
Got a bit of a downdraft and tech names in the overall market but at 60 bucks and change, we've got it were up almost 5%.
Let's take a look at spot five. Says it's going to cut its workforce by 17% in the face of slowing growth. The music streaming business as it grew too rapidly during the pandemic and now it needs to right size its operations. The market seems to like the sound of it. 195 almost 6 bucks per share, you're up more than 8% on spot five. Richard Branson says he will be investing any more money in Virgin Galactic. In an interview with the financial times, the British billionaire said the space tourism company should have the funds and needs to continue on its own, adding his pockets aren't as deep as they once were.
Still a billionaire though. It Virgin Galactic down 14 1/2%. Quick check on the market, we will start here at home on Bay Street with the TSX Composite Index.
Right now still in negative territory. The price of gold pulling back a bit, the price of oil pulling back a bit but nothing too dramatic, 10 points, five takes.
South of the border, the S&P 500, tech stocks seem to be weighing on the trade today. Down 30 points, a little more than half percent.
All right, we are back with Hafiz Noordin, take your questions about fixed income.
Let's get to them.
What will you be watching for from Wednesday's Bank of Canada rate decision?
>> Well, it's actually be a pretty straightforward meeting. We are not getting any kind of monetary policy report update, no new forecast by the Bank of Canada.
And the market has essentially priced and no movement. So our expectation is that the bank would deliver on that, no change TD 5% policy rate. But what we should likely see in the statement that comes out is a balance between acknowledging that some of the recent economic data has come in a little bit weaker, both on the growth and inflation sides, but they will have to still sound balanced in terms of how they react to the data.
They will have to make sure they are showing their credibility around getting inflation back down to target because the momentum has definitely is shifted but the level of the inflation rate is still well above the 2%.
So I think they have to show the job not yet done and that they looking forward to January, they will probably have to revise down their core inflation forecast.
So I think they will basically stay that they are saying ready to hike if inflation starts to show that it's more firm but do acknowledge that the outlook has improved a little bit in terms of the inflation outcome.
>> The háka's messaging we get, even though they haven't moved on rate since the summer, reminds me of being a kid.
I'll turn the car around, will go back home. It scared you when you were younger because you thought your parents were serious. But the moment you don't think they're serious anymore, the threat disappears. Just thinking in terms of how the housing market reacted. They didn't say they were done, they said they were going to take a pause in the ring and see how things progressed. There was a big pot. Are they afraid of that happening again?
>> Yeah.
That's part of how they have to handle policy. It's not just about setting an interest rate or policy, it's really about the signalling effect because the market, whether it's financial markets or other behaviour in the economy, really reacts on expectation.
So if they do acknowledge that it looks like inflation is coming down and our job is done, if they get a little bit too dovish around that and vindicate these market moves, these really rapid market moves, the economy will adjust to this expectation that rate cuts are coming and let's start loading up on more debt and consuming more which could cause inflation to go back up again. So yeah, they really have to manage their messaging well, sound balanced and show that they are ready to stand, that they stand ready to increase the policy if that were necessary even if the probability is low at this time.
>> A question now, this time on the other side of the aisle. We are talking monetary and fiscal policy. Is there anything in the fall economic statement that could impact the bond market?
>> Yeah, so that was an important release.
It showed a couple of things. First of all is that the amount of deficits that we are going to see at the federal government level over the next four years got revise meaningfully higher compared to what was expected in the 2023 budget released earlier in the year so if you think of the next four years, the average annual increase in the deficit is about $10 million.
That is net new funding that will be needed by the government to cover more spending programs, higher interest costs and to cover slightly lower revenue.
So what that means for the fixed income markets is that the curve, the yield curve has to adjust for this higher borrowing needs, this higher supply of government bonds and I'm trying to understand as they demand their to buy bonds at the current price. The other piece that came out of it is that more of that borrowing were relatively more of that borrowing will come out at the longer end of the curve and so what we have seen up till now is a real flattening of the yield curve. We seen longer-term bond yields not rising as much as state shorter-term bond yields.
What we might start to see is that longer-term bond yields in Canada might actually rise a little bit more compared to the short range so that is what we call a steepening of the curve. And I think that something that in Canada that might be a bit unique in that you compare it to the US, Canada 30 year bond is about 120 basis points lower than the US and that's at a historically wide level and that has allowed Canada bonds to outperform this year compared to US bonds.
Going forward, because of what we are seeing from the fall economic statement, there is a potential Canadian bonds actually underperform compared to the US.
>> I want to ask you that as a follow-up in terms of what we saw in the fall economic statement.
Was there enough there to change your investment thesis? It sounds like there was.
>> I think what it speaks to you is having a fixed income portfolio that is a little bit more flexible than maybe what you needed this past year. Canadian bonds are pretty solid this year, especially after the November returns but net around 4% total return this year has increased government bonds given all the volatility we have seen and that growth surprise to the upside. The part of that was the idea that there isn't a big fiscal risk in Canadian bonds in the same way that we saw in the US. That narrative could reverse going us next year if there is more attention paid to the numbers we saw in the fall economic statement. Depending on what Lisa Lee out of the US with their election, hopefully for their sake they come out with an outcome in which they will get a little bit more fiscal discipline compared to what we have seen recently and that could allow US bonds to have a bit more juice left in them compared to Canadian bonds.
>> Interesting. A nice lead into the next question. Gone of you are wondering, is the amount of treasury issuance a concern right now?
There is been different parts of the people have been saying watch what's going on south of the border.
>> Yeah, and it's going to ebb and flow. I think we had this near-term issue where the deficit for this year in the US was expected to be 5 to 6% and it ended up being around 7% of GDP which was a big surprise. It not only boosted consumption and cause growth to be higher but it also raised these concerns are on the amount of borrowing the US government would have to do. Earlier in November, we had the quarterly funding announcement by the U.S.
Treasury would end up not being as bad as expected and I think it kind of indicated that the bond market has largely already priced in these increases in issuance that would be needed. So I think that's going to be, continue to be watched every quarter is what's the next update in terms of issuance, where along the curve, that will always been a net new data point. And then sort of on a more frequent basis, there's auctions in the market and anywhere along the curve and the performance of those options, how many buyers are coming in to meet the supply that the US government needs, that's always going to be highly scrutinized.
But I think for the most part, a lot of that is in the price at this point. What's going to be more important for bond yields in the US at least will be the growth and inflation data that we have talked about because I think that's now more, proven to be more the dominant driver of yields at least in the near term.
>> When those yields were on a pretty steep upward path throughout September and into October, I think Michael Craig was on the program. I asked what was going on and he said it was a bit of a buyers strike.
You talked about those auction. He said the buyer just wasn't showing up. Has that sort of sorted itself out?
>> Is a bit more balanced than it was during that peak fear in September and October. A lot of the auctions were doing poorly. I think some are doing well and some aren't right now and its work on balanced enough that even on a day where we actually had a poor auction, I think it was last week or so, because of the big shifts in the inflation data and the gross data, the market was able to kind of just blow past that bad auction and still bonds rallied that day.
I think that speaks this idea that, yes, the concern can be there but it may already be in the price and I think it's those types of outcomes where even if you see a bad auction and bonds can still rally, you can gain more conviction that we are at an appropriate level of bond yields that the market can still meet the supply that the U.S. Treasury has.
>> Interesting stuff. We'll get back to your question for Hafiz Noordin on fixed income in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get to our educational segment of the day.
In today's segment, we are going to take a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Nugwa Haruna from TD Direct Investing joins us now.
New, you're going to take us through how we can make a trade on the platform. Show us how.
>> Yes, great. It's always a pleasure being here. As you mentioned, Advanced Dashboard is tailored to active traders.
When you're placing a trade within web broker, you are able to do that seamlessly and effortlessly.
But with Advanced Dashboard, there some additional steps that have been taken to make your trades more efficient.
If you are looking to get in and out of positions really quickly, you are able to do that using Advanced Dashboard. I'm going to take us into the platform there.
Sharing my screen right now. Just to give us a walk-through with your web broker, he can pull up your Advanced Dashboard basically going to one of these links here. Once you go there, you just click on the web version, it pops up as another browser.
I already open that up for us.
What I have on screen it right now as I simply have my watchlist on the left side.
And I have my quote detail on the right side. I've linked to these components so that anytime I click on any security on the left side, it automatically pops up on the right. In this case, let's say we are looking to potentially purchase Bank of Nova Scotia stock.
All you need to do is simply click on the left side in my watchlist and that information pops up on the right. You are going to notice at the top you that I have the opportunity to place an order.
You will see the specific security there.
You can change it to a stock or an option or strategy, anything you are interested in.
We are going to get this action as a buy and then you will notice that I do have a default quantity.
This is the difference between Advanced Dashboard and my brokers that you have an opportunity to set default if you want to get in and out of positions really quickly. So I set a default quantity of 100 and anytime I click on the +, my default will always go up or down by 50.
If you don't like any of these numbers, you can simply type in their, maybe I want to buy 60, you still have the ability to do that. My default order type is also a limit order.
You still have access to the different kinds of order types there, but to make my traits more efficient, I've set a limit order on here and now in this instance, let's say as an investor looking to purchase the security and you want to purchase it using a limit order, Sue potentially looking at paying less than what the current prices.
In this instance, I'm going to put $55 because I see right now that stock is trading for just over $60.
Because it is a limit order, I do have to be willing to wait for a little while.
My default wait time is good till cancel which for Canadian securities is 90 calendar days.
Now, you are able to do this in place order but what if I am interested in potential profit and/or loss exits for myself?
You're able to do that using the same order ticket. You simply check off words has attached profit and loss exits. And once you do that, you are going to notice right off the bat, I now have two tickets that will always be opposite to the original tickets. These are sell tickets.
If I wanted, I could also just check off the attached profit taker and set a sell order for the stocks I'm buying, I could use a limit order here and say look at the price of the stock drops to 55, and then I want to sell it at a profit, I can set my limit price at let's say 65, potentially looking to make $10 in profit after I purchased the stock. Alternatively, I can decide to attach a stop loss to protect myself in case the price of a stock drops after I get the 55. The same logic applies here. I will actually be setting a stop limit order where I can set my trigger price may be at $50 and I can then set a limit price for that trigger price because you know the trigger price is not the end the price you end up getting but it's the price that your grade is activated at so it might be 48. If the price drops below 48 and hold the stock until potentially recoveries. This is the way investors able to place an order all in one ticket and you might recognize some of these as the one cancels other and one triggers another order types.
>> I remember your previous lessons on those on, Nugwa. At one point you mentioned order defaults. How can an investor set those up?
>> Yeah, so for efficiency, what you are able to do is back in the platform, you will notice at the top right-hand corner of the quote detail is a little gearbox.
I'm just going to click on that gearbox.
When you do that, it pulls up the settings. Once you do that, it pulls up your order default settings. Sticking with stocks, you can see where I set my order default quantity.
You can change it to whatever quantity you like.
This is where I have my order increment where every time I click on the plus sign, it went up or down by 50, you can also set price increments as well. Finally, you also get the chance to choose what the default order type is. You will notice when I pull up the screen at the limit order. You can change whatever that looks like. If you want a market order, a trailing stop order, whatever you choose to do, just a way to make your trades more efficient.
>> Nugwa, always great stuff. Pleasure having you with us again.
>> It's always a pleasure being here.
>> Our thanks to Nugwa Haruna from TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Okay, we are back with Hafiz Noordin, taking your questions about fixed income.
Let's get back to them. This one coming in in the past couple of moments.
What are your predictions for the Canadian US dollar and 2024? In December, the crystal ball has to come out. Everyone wants production.
>> Yeah, especially the Canadian dollar versus the US. It's one that everybody thinks through when they think about hedging the US assets are not.
So I think first of all, at a broad level for the US dollar, versus the Canadian dollar but also versus other world currencies like the euro and the end, when we are in this environment where US yields have gone quite high and have gone meaningfully higher relative to the rest the world but are on this path potentially to be declining versus the rest of the world, that's typically historically meant that US dollar also declines during that time.
And it really follows this general rule of thumb that when you have a decline in different interest rate differentials between two countries, then the currency of the higher-yielding country tends to come down. So I think that's what we will likely see at a certain macro level for the US. I pointed out that for Canada and the US, we have seen this big widening again of US yields because of the fiscal concerns, that 30 are part of the curve for its about 120 basis points difference between US and Canadian yields.
In this environment where the US is coming from a strong growth year until one in which its growth is more tepid and if Canadian growth is kind of seeing where it is, low but still above zero, that should mean that the US dollar versus the Canadian dollar should actually come down.
Now, the thing is, interest rate differentials are not the only thing that matters for the Canadian dollar. It's a currency. The other two main factors are oil and the markets. The Canadian dollar is kind of a risk on currency. When equity markets are doing well, the Canadian dollar does well, same goes for oil. I think when we put all that together, generally speaking, given the starting point, we would expect modest Canadian dollar appreciation but I think it will be limited by how much equity markets rally.
They had a really good run this year.
If they are kind of a little bit more modest in terms of returns next year, the Canadian dollar has maybe low single digits upside versus the US dollar.
>> Interesting stuff to watch for in 2024.
Another question from the audience.
The viewer wants to know what your thoughts are on emerging-market bonds and which ones are looking interesting?
>> Yeah, so right now, given the environment we talked about, emerging-market bonds across the spectrum are doing very well.
When you have declining US yields, you have the declining US dollar and strong equity markets, that's the right set of ingredients for emerging markets fixed income to do quite well and the ones that are outperforming and have been for a while this year the ones that where the central banks in this countries were early to hike and were well ahead of the Fed and DOC and were the old buffer was very high, so you were earning high single digits you low teens in the yields and I provided a lot of income in the investment to buffer any volatility. I think that sort of game plan for emerging-market fixed income can continue to work. But I think as you get into next year, there will probably be more of a differentiation in EM around quality.
Unlike this year where you had Brazil and Colombia, more high-yield rated EM is doing really well, there might be a little bit more scope for say the investment-grade rate in the emerging markets to do a bit better. I think Mexico is probably one of the more enticing ideas because you still have very high yields in Mexico, call at 9 to 10% of the 10 year bond, so almost 600 basis points higher than the Canadian 10 year. But the trip will be rated country and their economy has been very stable with the reshoring theme that's been happening in the US, so a lot of supply chains moving from the rest of the world to Mexico, that has really supported currency inflows and generally speaking, the central bank has got a lot of credit ability around fighting inflation. It coordinates a lot with the US. So I think there's a lot to like out of the country. I think that the examples of that coming out are here but I think at the end of the day these are tactical opportunities.
You can get into them but you have to watch how the currency is doing. If we start to see perhaps a rebound in the US dollar, that's usually a good time to be hedging those EM exposures or just exiting them completely. So really more tactical opportunities after the returns we have seen this year, less so buy-and-hold for longer periods.
>> Interesting stuff.
As always, make sure you do your own research before making any investment decisions.
another question here from the audience.
Someone wants to get your opinion on extendable notes offered by the large banks? This person knows their notes.
>> Yes.
That's definitely getting into the weeds and the Canadian fixed income market. So I would say and I structured to have or a framework is there are multiple ways you can lend to a bank here in Canada. So the one that most of us do is you put your deposit with the bank and you will earn basically nothing but that's the highest-quality way of lending to the bank or its insured. The next one, what we are doing is going down the capital structure.
The next one down the capital structure is a senior banknote where you will earn may be a 6% return.
There is more likelihood that you will get your principal back. When we are thinking about extendable notes, we are really talking about further down the capital chart, what we call the subordinated and the junior subordinated part of the capital structure so in a scenario where a bank goes under, you are more at risk of losing your capital but in return, you are earning a higher yield along the way.
One more recent structure that's extendable is something called a limited resource capital note which is basically a preferred share in a bond wrapper.
So say you're buying a bond, but at its core it is a preferred share.
That's a really simple way to think about that. The way they are structured is that when you buy that note, it will have a very long maturity, call it… But every five years the bank and call that note which is what makes it extendable. It's in effect a five year note but at the bank's discretion, they could extend that note another five years each time.
So that's another part of a risk that you are taking as a noteholder is you are writing this kind of option to the bank.
What's interesting those at the valuations on those kinds of notes have really gotten very attractive. Some of the highest yielding ones are north of 15%. So it speaks to I think just the volatility in interest rates that is filtered into the options price and within those notes and so it can play a role in a very diversified portfolio. On its own, I think you have to be aware of being in the lower part of the capital structure so it's lower quality, but options pricing can be really volatile as we've seen over the past couple of years.
So I think like with any investment, it's about how to size it right in a more diversified portfolio. But it definitely is an interesting option.
>> Interesting indeed. We will get back to your question for Hafiz Noordin on fixed income in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can contact us at any time.
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Let's talk housing. Here in Ontario, market conditions have declined to the lowest level since the 2008 2009 financial crisis. Of course, higher interest rates continue just to hurt demand. Anthony Okolie is joining us now with a new TD Economics report that explores why Ontario home prices may face some further weakness in the coming months.
>> The new report by TD Economics tallied some worrisome trends in Ontario's housing market. A key metric that they illustrate is Ontario sales to new listings ratio. It dropped to its lowest level since the worst of the global financial crisis in 2008 2009. Of course, this measure measures supply demand in housing market and that is a key predictor of future price changes. This measure fell to this level without a deep recession which was the situation in previous cycles. TD Economics predict that this ratio could fall further in the near term amid elevated rates, which will keep pressure on demand and upward pressure on supply.
Home sales are also running at Lowe's reached well into the 90s cycle.
Looking ahead, TD Economics expects flat economic growth for the province of Ontario but no deep recession. They do see a mild drop in employment and jobs here in Ontario. With interest rates sitting at 22 year highs at 5%, TD Economics things that the Bank of Canada is done rate hikes. Of course, we have the meeting coming up this week.
They are forecasting that the Bank of Canada will start cutting rates by the second quarter of next year.
Now course, population growth does also have an impact on housing. TD Economics also look demographics they noted that in the late 80s and 90s, demographics in Canada would've pointed to robust demand for housing ownership with about one third of Canadian population between the ages of 25 and 39. This is the age cohort were demand for this type of housing has historically risen the most and TD Economics notes that these demographics played a role in the 90s downturn with demographically driven demand for housing creating the fuel that was necessary to drive speculative activity that took place. But TD Economics believes that the Ontario housing shortage could get worse in the next few years if the population growth continues to be strong.
Now, in the coming months, TD Economics is there is a risk that Ontario housing market conditions could worsen the levels of the prolonged 90s housing downturn, but several factors make that outcome unlikely.
They point to a couple of them. One of them is the likelihood that Ontario avoids a steep recession. Secondly, favourable path for interest rates.
They are pointing to potential rate cuts next year.
And third, housing shortage comes amid a robust population boom here in Canada.
Now, even though the 90s outcome is unlikely, TD Economics is in Ontario home prices are likely to have further downside in the coming months and could fall as much is 10% from the third quarter of this year through to the first half of 2024.
Additionally, they believe that homeowners will face continued pressure through at least 2025 2026, when those who got mortgages at ultracheap rates face a significant payment shock.
>> So there's a lot in there, obviously.
You talked about demand and sometimes what is called a dearth of housing supply. Does the report say anything about completed or unsold inventory? We know that homes are still getting built.
>> We know the higher interest rates have heard the preconstruction market during the cycle by making it more difficult for buyers to close on properties that they previously purchased. The data for new home markets address at the level of uncompleted and unsold inventories here in Ontario is no loop where near as high as it was during the 90s housing downturn.
Now the relatively low level of this measure offers some comfort against the notion of a sustained weakness in the Ontario housing market according to TD Economics. They also note that the data can be understating the difficulties in the preconstruction space because it counts presold units as absorbed and these are precisely the types of units which are facing some difficulties right now.
>> Interesting stuff. Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
Okay, we are back into Advanced Dashboard, taking a look at the heat map function. A nice picture of the market movers. We will start with the TSX 60 by price and volume.
It's not a great day and material space.
Boggled continuing to press to new highs, bit of giveback today. Some stocks on the move higher recently but with the price of gold today, it's giving back a bit. Take a look at the energy space, it's been a mixed bag. Well has had a be right.
We have the delayed OPEC meeting next week. There were voluntary cuts. Questions in the market, if you make it voluntary, will some of those producers actually make us to support prices? Bit of a mixed picture on that. Still noticing the telcos, BCE, Telus and Rogers making some gains in a lower bond yield environment which helps. Last week, budget analysts came out with reports on the latest spectrum auction, usually those spectrum auctions are not that interesting but they found that the big telcos were demonstrating fiscal discipline. South of the border, I want to take a look at the S&P 100. The sore point today seems to be technology.
Whether it's chipmakers like Intel, AMD or Nvidia or some of the big names in the space, Apple, Microsoft, Google, all under pressure today.
He can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Okay, we are back now With Hafiz Noordin from TD Asset Management, taking your questions about fixed income. Your Outlook for corporate bonds right now?
>> They have had a great year. Similar to equities having a strong year with Strong corporate fundamentals, earnings coming in pretty solid. And I would say that you have to look at investment grade, so triple B, rated triple B and higher and in that part of the market, they are in a good spot for next year where their growth and earnings have been very good in their borrowing needs are not exorbitantly high.
They are basically in line with historical levels, even a bit lower than normal. So investment grade borrowers, I think they're fairly comfortable lending to those types of companies. For the high-yield part of the market, it did perform very well in this recent rally with spreads of colour and 400 basis points for government bonds, that's around average compared to historical levels so you are still getting decent compensation in high-yield.
I think going into next year, the market will start to be looking ahead towards the end of 2024 and early 2025 where borrowing needs really start to ramp up. It's going to be this balancing act of how fast does inflation come down and how fast do you yield come down and will these lower rated companies need to borrow to finance maturities a raise capital? That's going to be this exercise that we will have to go through for rating high-yield companies. At the end of the day, I think there's a little bit more risk around high-yield or default rates are still trending higher and so I think that having a bit more of a modest allocation from our perspective to high-yield, still being invested in the market but leaving some room to add more to that part of the corporate market if we do see wider spreads with higher default rates.
>> Always a pleasure to have you here.
Fixed income is not the easiest investment space to talk about. You always make it so clear and straightforward.
Appreciated. Appreciated.
>> Our thanks to Hafiz Noordin, VP and Dir. for active fixed income portly management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show.
Michael O'Brien, managing Dir. and head of core Canadian equity team at TD Asset Management will be our guest. He wants to take your questions about Canadian stocks.
I know you have them so get them to a set of time. Just email moneytalklive@td.com.
That's all the time we have the show today. Thanks for watching. We will see you tomorrow.
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