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[theme 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 will discuss whether the Fed cuts are on the table for September. TD asset management Hafiz Noordin joins us. We have lots to dig through on that one including some fresh information today. MoneyTalk's Anthony Okolie will give us a preview of what to expect from REITs earnings season.
And in today's web broker education segment, Caitlin Cormier is going to take us through some of the different order types available on the platform.
Here's how you can 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 to all that and our Guest of the day, let's get you an update on the markets.
An interesting shift compared to what we saw yesterday. We are down right now more than 1.5% on the TSX Composite Index, a pullback of 366 points after the big jump we saw in crude oil prices yesterday, crude oil is giving back a little and energy names are giving back a little more. Among those notable movers include Cenovus Energy. We are starting to get a lot more Canadian earnings out right now so we did get earnings from Cenovus. TD Cowen called it a mixed quarter but is more about the broader sector being under pressure today, getting back some of the big gains of yesterday.
Cenovus down about 5.5% on the session.
Lightspeed out with its latest earnings.
It appears to be a revenue beat for the name. Money moving in that direction despite the fact we are seeing a broad-based selloff in tech across the border, they are up about 5%. South of the border, S&P 500, big movements in the market in recent days based on the tech trade. Today giving back a full percent, down 55 points. I want to check on the tech heavy NASDAQ. The deficit is a little deeper there, we are down a little more than 1.5%. Trying to find a bright spot.
It was bright this morning. I want to see if Meta Platforms, the parent company of Facebook, is holding onto its gains. At $504 and change per share, it's up a little more than 6%.
I will give you details later on in the show but basically investors are pleased with the quarter. And that's your market update.
While, the US Federal Reserve has delivered the hinge that investors were waiting for, namely that if inflation remains on trend, a September cut is on the table.
Joining us now discuss is Hafiz Noordin, VP and Dir. of active fixed income portfolio management at TD asset management. Thanks for joining us.
>> It's great to be here.
>> We have the news from yesterday, we got a lot of news today about what's happening in the US economy. I like the intrigue keeps building as the potential for that September cut. Let's start there.
The market was looking for the wink wink, nudge nudge. They got it.
>> They absolutely got it and certainly there was no expectation to make any change in the policy rate yesterday but looking for that change in language in the statement and in the press conference. And the reality was that a rate cut in September was already 100% priced in by the market going and so the Fed did not have to do a lot but essentially it did not push back on that market pricing and when that happens, that's essentially giving the green light to the market to say, you are right, September does make sense.
Powell could not say that out right, but the shift in the language around the statement definitely got a lot more balanced around the risks to inflation versus the risks to employment and so from that perspective, September looks quite likely for that first rate cut.
>> As I was saying today, there is even more information out today. Talking about risks to employment, which the Fed is willing to acknowledge now. We got jobless claims today, some manufacturing information that told us about the labour market. This was not positive news in the market is not taking it positively.
>> No. It's very much a true risk off move in that bond yields have come down to respect the fact that jobless claims are higher-than-expected. That's an important data point, it's weekly and high-frequency and you don't have to wait for those one month nonfarm payroll numbers. We'll get that tomorrow. But ahead of that, we have seen a number of different labour market data point starting to weaken. Even in survey data, the quick rate is now below pre-pandemic levels so not as much confidence for people trying to leave their job to look for better prospects.
All in all, what that means is now maybe bad news is actually, it might mean bad news for equity markets as well so we are seeing that today.
Going back to the Fed, I think they saw this coming. I think it would really take a dramatic shift in the data away from this weakening labour market and weakening inflation to not get that rate cut and so it looks like the market is really looking to get that going.
>> Once we get past this weekend the jobs data and the Fed behind us, August is considered by some accounts to be a bit of a sleepy month, especially for data before that September meeting. What are the chances that by the time they had September, they see substantial weakening, perhaps more than anticipated?
>> I think that could happen. What's really interesting is when we are looking at market pricing for September, like we said before, this week's meeting, 25 basis point cut was already 100% priced in. If we get more weekday to like we saw today, we could be seeing a pricing and of a meaningful probability of 50 B breakup.
Chair Powell was asked about this yesterday because there is a small percentage of that, call it five or 10%, even today it still about 10% chance of a 50 beep rate cut. He was asked about it and pushed back and said no, we have not discussed it.
The market is going to price in with it thinks makes sense. If we see a really we could jobs data tomorrow, there could be many investors thinking, maybe the Fed should have cut this week. We will see.
The data will dominate.
The Fed always says that they are data dependent. We will let that play out and by the end of August, we will have the Jackson Hole meetings and that is going to be an opportunity for Powell to come back and provide more refined guidance on September.
>> So September market is pricing in a fully, a quarter-point, whatever he got in September and if that's the beginning of the rate cut cycle, how do you think it plays on after that?
>> As it stands now with the evolution of some of the data in the past couple of weeks, in November and December, the other two meetings for this year for the Fed also are fully priced and for rate cuts.
Right now, the market is expecting three rate cuts at each of the three, in total, the three meetings this year. Then getting into 2025 and 26, another five rate cuts are priced in. In total, about eight rate cuts priced in over the next couple of years so that would take their policy rate from 5 1/2 to around 3 1/2. That really goes from that restrictive level to what is right now the markets estimate of neutral going forward. So meaningful cuts priced in. But I think what could change that is are we still in a soft landing regime or could it actually get a little worse than what's expected? I think that's now going to be the debate going for it.
>> That's the United States and the Federal Reserve, arguably the most influential central bank on the planet but there are other central banks making news today, including the Bank of England. What are you saying there?
>> The bank of England cut as well, their first cut of the cycle. What was interesting was not so much the rate cut itself but the fact that it was a 54 split in terms of the vote.
I think that was interesting in that inflation expectations have been a little bit more sticky in the UK compared to some other developed markets so I think it was expected that it would not be a clear-cut case and confirmed by their voting but going forward, I think it's still the same broad level trend of softening labour market, softening inflation data. So Europe, UK, Canada, US, kind of all going in that same direction just with timing differences and I think that is being affirmed from what we are seeing at least from the central bank.
>> That's the action we are seeing. What does it mean for the fixed income market, for the bond market? Investors have been waiting I think on the fixed income side for quite some time to see what we are seeing now.
>> Right.
It's been a bit of a patient trade, so to speak, in terms of being expecting a decline in bond yields, but it's definitely playing out and it was already starting with the data itself pointing in that direction where we have seen higher short and yields, to your yields compared to 10 year yields. We have seen an inversion of the yield curve. We are now seeing that steepening trend come into play which tends to happen in this part of the economic cycle when we can more comfortably and confidently expect central banks will be cutting. What's interesting and you mentioned other central banks, there is one exception which is Japan which, this week, actually hiked for the second time this cycle. Rewind to March, they only just exited negative interest-rate policy and this week they did their second rate hike.
So we are seeing in some focus market like that were yields could still go up but it doesn't look like it's going to derail what will happen in the US and Canada. It is not causing contagion of higher bond yields in the US and Canada.
Here, I think we continue to expect that domestic economic data is driving the bus and bonds are definitely helping a diversified portfolio from that perspective.
>> Fascinating stuff and a great start to the program. We will get your questions about fixed income for Hafiz Noordin in just a moment's 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.
Telecom giant DCE is out with its latest earnings report.
There was a modest pullback in operating revenue for the quarter, compared to the same period last year.
BCE did, however, manage to grow earnings-per-share year over year and based on that lowered expenses. BCE is up a little shy of a percent. Here in Canada, Canadian Natural Resources reporting revenue and profit growth for its most recent quarter. Higher crude oil prices and a rise in production output worked in CNQ's favour.
The company says it will continue to return 100% of its free cash flow to its shareholders this year. That's talk down to the tune of about 3%.
As we said, might be a bit of a reaction to what they are saying in the report but also we are seeing crude pullback from the big jump yesterday and a lot of the big energy names that went along with that big jump are giving back a little today. South of the border, let's dig in to Meta Platforms, they are getting a booster down back in earnings be, up 6.5%. The parent company of Facebook saw advertising revenue jumped 22% year-over-year. 3.27 billion daily active users for the quarter. Meda is also providing a revenue forecast about the streets estimates.
Obviously, there is a broader basil of right now including in some of the big tech names.
Meda is currently at $506 and change per share.
Looking at the TSX Composite Index, a pullback in some of the big energy names.
The broad-based pullback has is down 348 points, about 1.5%. South of the border, that concerning economic data has investors now wondering about the future path of the US economy which has been exceptional up to this point. 47 points will call that in the whole, a little shy of a full percent for the S&P 500.
We are back now with Hafiz Noordin taking your questions about fixed income. First one for you here. Now that we've gotten this big hint from the fed, how much BOC said it divergence do you see?
>> I think a couple of months ago we started to feel like, it has felt like the Bank of Canada can cut and the fed, it still felt like it was uncertain so from that perspective, we are seeing may be less of the divergence story persisting but at the end of the day, what we are seeing in terms of market pricing is that a policy rate in Canada of about 75 basis points lower than the US so there is still this divergence but it's kind of expected to be stable. 75 basis points, when you look at historical precedents, it's not really out of the ordinary.
In other cycles, if you go back the last 25 years or so, there were a couple of other times where 75 to 100 basis points lower policy rate in Canada didn't happen so it's not something that feels very new.
Even if you go back to the 90s when we had a deep recession in Canada versus the US, it was in over 200 basis point differential. I don't think, there are concerns here about housing for sure but it doesn't seem like us to that level of the 90s. 75 to 100 basis point is reasonable. I think we have to watch, in terms of wonders to get to a point that it doesn't seem sustainable, is the currency.
The currency, the US dollar has been appreciating versus the Canadian dollar this year, reflecting inflation coming down more quickly in Canada, growth being a lot more tepid here. And so we have, what we have seen is the currency has been appreciating in Canada but kind of in an orderly way and that's fine. If it happens in a gradual way, then the economy, investors, corporations can adjust to that.
And so it's only when it becomes a very disorderly move in the currency that we have to start to think about has the divergence gone too far? And I don't think we're there yet.
>> The Bank of Canada is looking at inflation. They are not supposed to be targeting levels for currency. At what point would become a concern for them? I imagine it's more of a past thing.
>> I think certainly import prices are the main direct thing to watch from the cheaper currency. From that perspective, they have done a lot of work around that and I think at current levels, there has been no indication that input prices are going meaningfully hire to derail the trend in core inflation, and I think at the end of the day, the main metric that I think has been notable from our communications recently is core inflation excluding mortgage interest costs.
I think it's a higher interest costs that have been feeding through to higher input costs for mortgage borrowers and when you strip out that affects which is monetary policy driven, the rest of the core inflation basket is back to 2%.
From that perspective, their job is pretty much quite clear from here to continue with rate cuts.
And now that the Fed is looking like they are going to go ahead, it just gives the green light not only for the Fed but for other central banks to continue on their paths towards cutting.
>> Another audience question. I think we are still on a divergence theme. You see the discount spread between Canada and the USA widening this year on the long end?
>> Right, the thirty-year part of the curve has been interesting because it's partly that same story of differences in monetary policy but what's really notable about the thirty-year part of the yield curve is there is generally less influence for monetary policy because who knows what the policy rates are going to be 30 years from now?
What tends to influence the elongated bond yield rates are long term prospects, we are concerned about productivity in Canada, that has led to lower bond yields, but also differences in physical policy.
So I think it was notable last year was that we saw a historically wide difference in the US thirty-year, 130 basis points higher than the Canada thirty-year in October of last year and that was a historical high, even wider than it was in the 90s when we have that big recession.
Going forward, it has tightened in a bit, it's about 110 basis point differential, still pretty wide.
I think the key thing to watch going back to fiscal policy is the US election, right? There is a lot of uncertainty around fiscal policy but even in Canada, we have likely an election next year so those are things to watch. What is the outlook for the different fiscal policies north and south of the border, what could that mean for borrowing needs and I think that will impact what happens to that difference in the long bond spread.
>> Taking another question now from the audience. Someone once you get your view of a maple blonds. Maybe an explanation of what we are talking about when we talk about maple bonds?
>> Maple bonds are essentially foreign corporations, non-Canadian corporations coming to the Canadian bond market and borrowing money in Canadian dollars.
And they may do that because they may have some amount of businesses here that have need for Canadian dollar funding or they may just swap it back using derivatives back to their home market. But for whatever reason, the Canadian dollar market is one of those markets where you do see particularly US but even some other global corporate bond issuers, usually very high quality ones, so think of banks and insurance companies. We have even seen technology and consumer companies from the US come here and issue Canadian dollars and it just to diversify their funding base.
So for an investor, it is actually mean, I think it's been useful in one sentence in that it adds some diversification to the Canadian corporate bond market which similar to the equity market tends to be more focused on certain sectors like energy and telecom so we get a bit of these technology names and some other banks that are diversified compared to the Canadian market.
The disadvantage of Maple bonds historically though has been generally lower liquidity compared to a domestic Canadian issuers bonds because those global issuers might not come here and issue billions and billions, they might issue 500 million at a time and that's usually a bit lower than an equivalent corporate bond issuer that might do one or 2 billion here. So the liquidity of that bond might be lower. But a development more recently has been that index providers in Canada are now recognizing Maple bonds and are going to start to include Maple bonds and their indices starting next year so that will mean that passive investors will be more active in Maple bonds and that will help the liquidity for that space. I think the outlook for Maple bonds is actually more positive compared to their historical behaviour and the Canadian markets. I think it helps to have that as part of a broad fixed income portfolio.
>> Someone was thinking about maple bonds, there was a great description, what would be the worst experience around it? Is it the fact that the liquidity has been great up to this point?
>> I think that's the main thing.
If you lend to a US bank in Canadian dollars, you can just do the same thing in US dollars.
So you will get a much more liquid bond in the US. When it comes down to really is transaction costs and so at an individual bond investor level, the cost of transacting and those bonds can be high.
The costs do come down a lot more is an institutional investor in a broad portfolio when you have pricing power, but definitely at an individual investor level, that's something to consider.
>> Fascinating stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions 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 our educational segment of the day.
There are, of course, different order types available to investors here on the web broker platform. Caitlin Cormier, Senior client education instructor with TD Direct Investing has this tutorial.
>> Two of the most popular order types with self-directed investors are both market and limit orders.
Today, we are going to break down the differences between these two types of orders and when you might want to use each one. Let's start it with a market order. A market order is essentially an order that you're going to use when you know that you want to purchase the security that you are looking to buy. You are 100% gung ho on that particular security. You definitely want to make sure the purchase goes through or the sale goes through. The prices kind of secondary. You have an idea of what the price is. You can see the bid and the ask price, you have an idea of where it is but you're not really worried about exactly what price at orders going to be filled for, you are okay with it being filled for whatever the best price is at whatever time you execute the trade.
The price is not guaranteed but your fill is almost guaranteed as long as it's a really actively traded security on the market, chances are it's going to be executed almost immediately.
It's the price you are a little uncertain about. If we flip over to the limit order, the limit order, there is not a guarantee that the order is going to be executed.
However, the prices more guaranteed. With a limit order, you are basically saying for a purchase what is the maximum you are willing to pay in order to purchase the security and to sell it, what is minimum you are willing to accept an order to sell the security? Your prices guaranteed to be at least whatever that minimum is or above and the execution is not as guaranteed because of course if the price never hits the price that you have for your limit, your order will not be executed.
Let's take a moment to help over into web broker and see how you can actually execute those trades.
I'm just going to pull up a buy sell ticket here.
I'm gonna put in an actively traded stock.
When we have this order to get up, let's start with the market order. I'm going to look over your on the right-hand side where we can see the bid and ask information about the stock. I have an idea of what the best price is at the moment that I pulled this quote for this particular stock. I can see how many stocks are available under lots here. I can see with the range has been for today and those sorts of things. It gives me an idea of what price I might get with my order is executed. Of course, no guarantee.
Then I will put in the quantity of shares I would like to purchase. My price type I will stick with market for today and I'm going to choose good till day because as we mentioned, chances are this order is going to be filled almost immediately out whatever the current best price is so I don't have to worry about leaving it open past today. Once I am ready, everything is good, I'm comfortable, I can do one last refresh here to see if the bid and ask price has changed, it has, it has gone down a tiny bit, when I am ready I am going to click preview order and submit. I don't know what price I'm going to get to this order when it's executed, I have a general idea but it could be higher or lower than what I choose.
If there is a sudden move in the market and market spike up or down, I have no control over that so I could end up executing this order for a lot more or less than I originally had planned. If instead I were to do a limit order, so everything being the same with the exception of the price type, I'm going to go down here and choose limit instead.
Here, I need to input the price, the maximum price I am willing to pay in order to buy the stock. There are two different ways I could look at it.
I could say, for example, alright, I'm good with the current ask price, I would like to buy this stock for the current ask price and put in one 9168. That gives me a good likelihood that my order might be filled and it kind of keeps it pretty close to where I am now. I have a little bit of a guarantee but also I am likely going to still have my order filled because we are pretty close to the current price. The other option is I could say if the stock drops down to 185, then I would like to purchase it. If we see kind of a decrease in price over time than I would like to go ahead and buy 100 shares of Apple. Either one of these options, I have to choose a good till date. I will choose a period of time that I would like to wait for this order to be filled.
If I choose a price that is really close to the bid and ask, I may be okay with sticking to a short period of time like the current trading day, especially we are pretty early in the day right now.
Otherwise, I can choose and tell good till a specific date or good till cancel and I can also use day plus extended markets if I want to trade outside of regular market hours.
If I were to put good till cancel in this case, it would be open for 180 days which means any time within the next 180 days, if Apple drops down to 185, my order could be partially or fully filled. The only thing to keep in mind that is I did mention partially. If the price drops down one day under 85 and I get 50 shares and then all of a sudden the price goes back up, I will be charged a commission fee on that day and then if it drops again on that future day, I will be charged a commission on that day as well. That's one thing to keep in mind with these orders.
All of that being said, whenever I am ready with this, whatever length of time I choose to put my order in four, I'm going to go ahead and hit preview order and submit and the my order is sent off to the market to be filled, hopefully at the price I have chosen. Hopefully the outline of these two order types help see you when you are making your different order choices within web broker and happy trading.
>> Our thanks to Caitlin Cormier, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on WebBroker or use this QR code to navigate to TD Direct Investing's Instagram page where you will find more informative videos.
We are back with Hafiz Noordin, taking your questions on fixed income. What is the yield curve telling us about the potential for a US recession or hard landing?
Currently, the two years just north of 4%, 10 year US treasury below 4%.
>> Yeah, I think that's really important question because for quite a while now, what felt like too long of a time, was this discussion of observation around the inverted yield curve. Restrictive monetary policy versus longer data bond yields that seemed to still point to lower growth in the future.
That has always been noted as a predictor of recession and I would acknowledge that it's always preceded or intends to proceed a recession but the timing of the yield curve to recession and when it might happen was always very hard to predict from historical precedents but I think what we have seen from our research as being that it's not the inversion itself but it's the re-steepening, what our viewers pointing out here is that going back to similar yields and tenure into your part of the curve in getting back to you a more normal shape to yield curve, there re-steepening of the yield curve has been a warning sign of recession.
When you look at all of the data, it points to generally resilient growth.
Definitely a slowdown in the US and globally but still resilient, still kind of below trend but not negative GDP growth is when we put it all together.
But I think we have to watch comes back to the labour market.
Jobless claims in particular, we talked about them earlier, I think that's a very useful indicator to keep watching every week because that will help to confirm and guide the market on whether we are actually going down somewhat of a harder landing scenario or staying resilient and the reason it's important compared to the unemployment rate, the unemployment rate has been going up a bit but part of it can be explained by higher immigration and the supply of labour increasing in the US. But jobless claims are really more focused on the demand for jobs and if the demand for jobs are declining and they start to accelerate in a more exponential way, than that can definitely turn into a vicious cycle and potentially even lead us towards more of a chance of a recession. So I think that's the main data point to watch but the warning sign from the yield curve is definitely there.
>> The warning signs are there. This next question probably complicates the thesis a little more. How could the US election impact the bond market?
>> Yeah, what a month it's been! To try to digest the probability of trumpet versus now Harris, what looked like a Republican sweep is now looking like a coin toss between the two parties when you look at poles and bedding markets. All that to say it's very uncertain. It has been a wild month but we are still three months out from the actual elections there still a lot that could happen. I think what that means for the bond market right now is that it will probably work off this base case where it's a coin toss, we don't know and so we have to focus on the here and now which is the economy, the labour inflation, everything we are talking about today. So from that perspective, I think more of the key will come from the economic data but as we get closer to November, I think it is going to be more important to understand what will a Harris administration look like in terms of actual policies, what will the Trump administration look like, how do we handicap them a and probability adjust for them?
That's where the budget and tariffs are the two big things for bond markets because we are worried about how much will the U.S. Treasury have to borrow the market, could that cause more of a term premium, more of a pressure on longer data bond yields?
And in the case of tariffs or other protectionist measures, what could that do for long-term inflation expectations?
Those will be the two key issues that can cause more volatility in the bond market but we will need more clarity in terms of actual policy guidance.
>> Very interesting several months ahead of us. Another question from the audience.
Someone want to get your thoughts on the high-yield market?
>> High-yield bonds have done very well this year.
They are of about 5% or so in terms of total returns. It's largely because high-yield bonds have done what they are supposed to, they have high yields on them, they have had about 8% level yields for the most part this year and so even with the volatility in credit spreads which actually hasn't been very high this year, earnings have been resilient.
So those spreads and high-yield bonds have generally tightened in and allowed for that income level to be attained. So going forward now, we have to come back to that question around are we getting into a slowdown? Is the US economy bending or is actually when you break?
And we know that high-yield bonds are often the first to react in terms of repricing credit spreads higher when a recession is looking perhaps more likely.
I think we have to be a little more careful about the high-yield market where the triple CE, the lowest quality a part of the high-yield market before you mark something as defaulted, that part of the market has already been showing signs of investors wanting to reprice higher risk premium for lending to those types of lower quality companies. A couple of months ago was 700 basis points credit spread for triple C's, now it's about 880 a little bit higher today.
While the higher quality part of high-yield, so double be in single berated, those that are a little bit more stable, noninvestment grade but still stable, have been at record low credit spreads of 250, 300 basis points.
I think that divergence within the high-yield market is important. It means that active management is going to be very important in that part of the market to really stay in quality.
>> Fascinating stuff. We'll get back to questions 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 get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Canadian realist a sector generated good results for the first quarter of this year, despite elevated interest rates and economic uncertainty. Now, we are starting to see lower interest rates being priced in over the next year.
Are there opportunities to be found in that rate market? Anthony Okolie joins us now with the TD Cowen review of the courtly results and outlook.
>> To be as he has cut rates already in the focus now is on the pace of future rate cuts from the BOC and the Fed. TD Cowen is looking forward to the second half with increasing optimism. TD Cowen is forecasting for the REIT sector 5.5% adjusted funds from operations per unit growth in the second quarter. If you exclude senior housing sector, it falls to just over 3% average for the second quarter. Similar to recent quarters, TD Cowen expects continued strong fundamentals across most property sectors with some exceptions. TD Cowen's also sees the broader REIT sector continuing to cut debt going forward, maintaining the higher for longer interest rate environment. Of course, earlier this week, we covered housing so we are going to focus on seniors, industrial, retail and diversified's. I will start with seniors where they are forecasting a 38% year-over-year AFF oh per unit growth.
They believe that they see solid industry fundamentals. They will continue to drive retirement home occupancy improvements and higher rents going forward.
Or industrials, the forecast of slightly lower growth for 7% but they expect a re-acceleration of growth on easing interest cost pressures as well as strong net operating income growth from that particular sector.
When it comes to retail and diversified, their expectations are not a strong.
Looking further out, TD Cowen sees growth accelerating in the second half. By the fourth quarter, TD Cowen expects average growth of about 4.9%. If you include seniors, slightly higher, just over 6% aided by the industrial, retail and diversified sector. TD Cowen continues to see strong fundamentals across sectors.
>> What are the risks?
>> When it comes to the REIT sector, slowing rent growth poses a risk, tenant credit risk, new supply coming onto the market are just some of the risks that the sectors face >> Fascinating stuff.
Thank for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's take a look at the heat map function, a nice view of the market movers.
We do have a down session on both they and Wall Street so let's dig into the TSX 60 now, screening by price and volume and see what we are up against. The financial spaces taking points off the table. A member the financial bucket is a big influence on the topline composite index number. A little bit more mixed in the energy space. We have had some earnings coming up what we are seeing a cooldown in that trade. Yesterday there was a big move with the price of crude oil into energy and there is some giveback today. Cenovus is down to the tune of about 6%, I stand in for the group. Cameco, we are talking uranium here, pulling back about 9%. If you are talking about rate sensitive, BC came out with its latest earnings report but you also tell us to the upside of 1%.
That's some green on the screen and perhaps it's just a rate sensitivity yield play.
South of the border, that was a quick reversal, wasn't it, after a really interesting July, we saw a lot of the big tech names particularly the Magnificent Seven selling down, money moving into different parts of the market including the small caps. We saw a big rush back into tech yesterday a.m.
AMD was up 45%, and video was up more than 10%. Whipsaw activity here. It giving it back today. Nvidia is down 4%, and D down more than 6%, Meta is on the upside based on its latest earnings report but it's interesting to see that not only are we seeing pressure across the major markets because of the tech pressure, we are seeing the Russell 2000 down 3%.
We are back now with Hafiz Noordin from TD Asset Management. Next question. Within the corporate debt market in Canada and the US, which sectors do you favour right now?
Here on the program we cannot give investing advice but we talk about what you are seeing.
>> I think from a broad perspective, there is still pretty reasonable valuations in the Canadian investment grade market. We have seen credit spreads tightening this year but there are still some sectors that have leg that rallies so I would say REITs are a good example where they are generally more levered and have been therefore more susceptible of these higher interest rates cutting into their earnings but with interest rates coming down, that could actually help them to catch up a bit with what the rest of the Canadian investment grade corporate market has done. REITs provided an interesting sector to lean into but I think going back to this idea of quality right now in this part of the cycle, it makes a lot of sense. In Canada, the telecom sectors, Rogers, Bell, Telus, the main issue is here in Canada, are in a deleveraging part of their cycles so that looks attractive as well. In the US, with rates coming down, banks, financial generally, look interesting. And then in high yield, thinking of the higher quality part of high-yield but not only just higher quality but also a little bit more defensive in terms of the economic cycle, so we were thinking not to be as exposed to the consumer cyclical types of names and being more defensive, utilities, for instance. I think that's kind of the play were there still a lot of good opportunities but you have to be a little bit more careful about committing to company is that can weather a storm, with that volatility is coming from the economy or the election.
>> We will squeeze in one more question for you here before he let you go. Someone wants to get your take on the emerging markets right now.
>> Yeah, the emerging markets had a really great run last year and in the first half of this year. I think the outlook for emerging markets has gotten more tricky.
Everything that's happening in risk assets, with the US election, and also a slowing China has not really been able to rebound in terms of growth, all of that doesn't really put together a great backdrop for emerging markets and certainly when we look at returns this year versus last year, the darling has been Mexico whose currency was up 30% or so last year is down about 3%. Brazil is another one where the currency is down 10% this year. A lot more of a mixed outlook.
Part of that also has to do with many emerging markets or cutting rates last year. That help their bonds to appreciate in value last year. This year, they have kind of had to slow down or even stop cutting rates while the developed market, as we have been talking about, they are getting going with rate cuts. An allocation of capital by global investors from EM to developed markets has been happening, likely that could continue, with the uncertainties around global trade policy, I think it's going to be a little bit more tricky and a little bit more country specific. Still a modest allocation to EM in a broad portfolio is reasonable.
>> That was the last question. Before let you go, last thought. We are into August now.
The market is pricing in a cut from the Fed in September. What are you watching from here until Lincoln Mark >> Certainly all of the economic data and I think the higher frequency, the better because I think that this is the part of the cycle were the market has been kind of in a fairly stable for a while but it can go parabolic, it can start to move very quickly and I think we have to be nimble around that and so looking at higher frequency alternative data, forward-looking data, other than just the official data that may come up on a monthly basis I think will be important and knowing that in the summertime, it's not necessarily always sleepy, liquidity can be poor, so you have to be ready to act on opportunities as they do,.
>> Always fascinating conversation. Thanks for joining us.
>> Thanks for having me.
>> Our thanks to Hafiz Noordin, VP and Dir. of active fixed income portfolio management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
On a programming note, we are going to be off next week for summer hiatus but before that, we will be back tomorrow with the reaction and analysis of that US jobs report. You will also hear from TD Securities Chris Krueger on the different potential presidential elections areas he is focused on what it could mean for the markets. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow and then we will be off next week. I think I got that right.
[theme music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss whether the Fed cuts are on the table for September. TD asset management Hafiz Noordin joins us. We have lots to dig through on that one including some fresh information today. MoneyTalk's Anthony Okolie will give us a preview of what to expect from REITs earnings season.
And in today's web broker education segment, Caitlin Cormier is going to take us through some of the different order types available on the platform.
Here's how you can 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 to all that and our Guest of the day, let's get you an update on the markets.
An interesting shift compared to what we saw yesterday. We are down right now more than 1.5% on the TSX Composite Index, a pullback of 366 points after the big jump we saw in crude oil prices yesterday, crude oil is giving back a little and energy names are giving back a little more. Among those notable movers include Cenovus Energy. We are starting to get a lot more Canadian earnings out right now so we did get earnings from Cenovus. TD Cowen called it a mixed quarter but is more about the broader sector being under pressure today, getting back some of the big gains of yesterday.
Cenovus down about 5.5% on the session.
Lightspeed out with its latest earnings.
It appears to be a revenue beat for the name. Money moving in that direction despite the fact we are seeing a broad-based selloff in tech across the border, they are up about 5%. South of the border, S&P 500, big movements in the market in recent days based on the tech trade. Today giving back a full percent, down 55 points. I want to check on the tech heavy NASDAQ. The deficit is a little deeper there, we are down a little more than 1.5%. Trying to find a bright spot.
It was bright this morning. I want to see if Meta Platforms, the parent company of Facebook, is holding onto its gains. At $504 and change per share, it's up a little more than 6%.
I will give you details later on in the show but basically investors are pleased with the quarter. And that's your market update.
While, the US Federal Reserve has delivered the hinge that investors were waiting for, namely that if inflation remains on trend, a September cut is on the table.
Joining us now discuss is Hafiz Noordin, VP and Dir. of active fixed income portfolio management at TD asset management. Thanks for joining us.
>> It's great to be here.
>> We have the news from yesterday, we got a lot of news today about what's happening in the US economy. I like the intrigue keeps building as the potential for that September cut. Let's start there.
The market was looking for the wink wink, nudge nudge. They got it.
>> They absolutely got it and certainly there was no expectation to make any change in the policy rate yesterday but looking for that change in language in the statement and in the press conference. And the reality was that a rate cut in September was already 100% priced in by the market going and so the Fed did not have to do a lot but essentially it did not push back on that market pricing and when that happens, that's essentially giving the green light to the market to say, you are right, September does make sense.
Powell could not say that out right, but the shift in the language around the statement definitely got a lot more balanced around the risks to inflation versus the risks to employment and so from that perspective, September looks quite likely for that first rate cut.
>> As I was saying today, there is even more information out today. Talking about risks to employment, which the Fed is willing to acknowledge now. We got jobless claims today, some manufacturing information that told us about the labour market. This was not positive news in the market is not taking it positively.
>> No. It's very much a true risk off move in that bond yields have come down to respect the fact that jobless claims are higher-than-expected. That's an important data point, it's weekly and high-frequency and you don't have to wait for those one month nonfarm payroll numbers. We'll get that tomorrow. But ahead of that, we have seen a number of different labour market data point starting to weaken. Even in survey data, the quick rate is now below pre-pandemic levels so not as much confidence for people trying to leave their job to look for better prospects.
All in all, what that means is now maybe bad news is actually, it might mean bad news for equity markets as well so we are seeing that today.
Going back to the Fed, I think they saw this coming. I think it would really take a dramatic shift in the data away from this weakening labour market and weakening inflation to not get that rate cut and so it looks like the market is really looking to get that going.
>> Once we get past this weekend the jobs data and the Fed behind us, August is considered by some accounts to be a bit of a sleepy month, especially for data before that September meeting. What are the chances that by the time they had September, they see substantial weakening, perhaps more than anticipated?
>> I think that could happen. What's really interesting is when we are looking at market pricing for September, like we said before, this week's meeting, 25 basis point cut was already 100% priced in. If we get more weekday to like we saw today, we could be seeing a pricing and of a meaningful probability of 50 B breakup.
Chair Powell was asked about this yesterday because there is a small percentage of that, call it five or 10%, even today it still about 10% chance of a 50 beep rate cut. He was asked about it and pushed back and said no, we have not discussed it.
The market is going to price in with it thinks makes sense. If we see a really we could jobs data tomorrow, there could be many investors thinking, maybe the Fed should have cut this week. We will see.
The data will dominate.
The Fed always says that they are data dependent. We will let that play out and by the end of August, we will have the Jackson Hole meetings and that is going to be an opportunity for Powell to come back and provide more refined guidance on September.
>> So September market is pricing in a fully, a quarter-point, whatever he got in September and if that's the beginning of the rate cut cycle, how do you think it plays on after that?
>> As it stands now with the evolution of some of the data in the past couple of weeks, in November and December, the other two meetings for this year for the Fed also are fully priced and for rate cuts.
Right now, the market is expecting three rate cuts at each of the three, in total, the three meetings this year. Then getting into 2025 and 26, another five rate cuts are priced in. In total, about eight rate cuts priced in over the next couple of years so that would take their policy rate from 5 1/2 to around 3 1/2. That really goes from that restrictive level to what is right now the markets estimate of neutral going forward. So meaningful cuts priced in. But I think what could change that is are we still in a soft landing regime or could it actually get a little worse than what's expected? I think that's now going to be the debate going for it.
>> That's the United States and the Federal Reserve, arguably the most influential central bank on the planet but there are other central banks making news today, including the Bank of England. What are you saying there?
>> The bank of England cut as well, their first cut of the cycle. What was interesting was not so much the rate cut itself but the fact that it was a 54 split in terms of the vote.
I think that was interesting in that inflation expectations have been a little bit more sticky in the UK compared to some other developed markets so I think it was expected that it would not be a clear-cut case and confirmed by their voting but going forward, I think it's still the same broad level trend of softening labour market, softening inflation data. So Europe, UK, Canada, US, kind of all going in that same direction just with timing differences and I think that is being affirmed from what we are seeing at least from the central bank.
>> That's the action we are seeing. What does it mean for the fixed income market, for the bond market? Investors have been waiting I think on the fixed income side for quite some time to see what we are seeing now.
>> Right.
It's been a bit of a patient trade, so to speak, in terms of being expecting a decline in bond yields, but it's definitely playing out and it was already starting with the data itself pointing in that direction where we have seen higher short and yields, to your yields compared to 10 year yields. We have seen an inversion of the yield curve. We are now seeing that steepening trend come into play which tends to happen in this part of the economic cycle when we can more comfortably and confidently expect central banks will be cutting. What's interesting and you mentioned other central banks, there is one exception which is Japan which, this week, actually hiked for the second time this cycle. Rewind to March, they only just exited negative interest-rate policy and this week they did their second rate hike.
So we are seeing in some focus market like that were yields could still go up but it doesn't look like it's going to derail what will happen in the US and Canada. It is not causing contagion of higher bond yields in the US and Canada.
Here, I think we continue to expect that domestic economic data is driving the bus and bonds are definitely helping a diversified portfolio from that perspective.
>> Fascinating stuff and a great start to the program. We will get your questions about fixed income for Hafiz Noordin in just a moment's 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.
Telecom giant DCE is out with its latest earnings report.
There was a modest pullback in operating revenue for the quarter, compared to the same period last year.
BCE did, however, manage to grow earnings-per-share year over year and based on that lowered expenses. BCE is up a little shy of a percent. Here in Canada, Canadian Natural Resources reporting revenue and profit growth for its most recent quarter. Higher crude oil prices and a rise in production output worked in CNQ's favour.
The company says it will continue to return 100% of its free cash flow to its shareholders this year. That's talk down to the tune of about 3%.
As we said, might be a bit of a reaction to what they are saying in the report but also we are seeing crude pullback from the big jump yesterday and a lot of the big energy names that went along with that big jump are giving back a little today. South of the border, let's dig in to Meta Platforms, they are getting a booster down back in earnings be, up 6.5%. The parent company of Facebook saw advertising revenue jumped 22% year-over-year. 3.27 billion daily active users for the quarter. Meda is also providing a revenue forecast about the streets estimates.
Obviously, there is a broader basil of right now including in some of the big tech names.
Meda is currently at $506 and change per share.
Looking at the TSX Composite Index, a pullback in some of the big energy names.
The broad-based pullback has is down 348 points, about 1.5%. South of the border, that concerning economic data has investors now wondering about the future path of the US economy which has been exceptional up to this point. 47 points will call that in the whole, a little shy of a full percent for the S&P 500.
We are back now with Hafiz Noordin taking your questions about fixed income. First one for you here. Now that we've gotten this big hint from the fed, how much BOC said it divergence do you see?
>> I think a couple of months ago we started to feel like, it has felt like the Bank of Canada can cut and the fed, it still felt like it was uncertain so from that perspective, we are seeing may be less of the divergence story persisting but at the end of the day, what we are seeing in terms of market pricing is that a policy rate in Canada of about 75 basis points lower than the US so there is still this divergence but it's kind of expected to be stable. 75 basis points, when you look at historical precedents, it's not really out of the ordinary.
In other cycles, if you go back the last 25 years or so, there were a couple of other times where 75 to 100 basis points lower policy rate in Canada didn't happen so it's not something that feels very new.
Even if you go back to the 90s when we had a deep recession in Canada versus the US, it was in over 200 basis point differential. I don't think, there are concerns here about housing for sure but it doesn't seem like us to that level of the 90s. 75 to 100 basis point is reasonable. I think we have to watch, in terms of wonders to get to a point that it doesn't seem sustainable, is the currency.
The currency, the US dollar has been appreciating versus the Canadian dollar this year, reflecting inflation coming down more quickly in Canada, growth being a lot more tepid here. And so we have, what we have seen is the currency has been appreciating in Canada but kind of in an orderly way and that's fine. If it happens in a gradual way, then the economy, investors, corporations can adjust to that.
And so it's only when it becomes a very disorderly move in the currency that we have to start to think about has the divergence gone too far? And I don't think we're there yet.
>> The Bank of Canada is looking at inflation. They are not supposed to be targeting levels for currency. At what point would become a concern for them? I imagine it's more of a past thing.
>> I think certainly import prices are the main direct thing to watch from the cheaper currency. From that perspective, they have done a lot of work around that and I think at current levels, there has been no indication that input prices are going meaningfully hire to derail the trend in core inflation, and I think at the end of the day, the main metric that I think has been notable from our communications recently is core inflation excluding mortgage interest costs.
I think it's a higher interest costs that have been feeding through to higher input costs for mortgage borrowers and when you strip out that affects which is monetary policy driven, the rest of the core inflation basket is back to 2%.
From that perspective, their job is pretty much quite clear from here to continue with rate cuts.
And now that the Fed is looking like they are going to go ahead, it just gives the green light not only for the Fed but for other central banks to continue on their paths towards cutting.
>> Another audience question. I think we are still on a divergence theme. You see the discount spread between Canada and the USA widening this year on the long end?
>> Right, the thirty-year part of the curve has been interesting because it's partly that same story of differences in monetary policy but what's really notable about the thirty-year part of the yield curve is there is generally less influence for monetary policy because who knows what the policy rates are going to be 30 years from now?
What tends to influence the elongated bond yield rates are long term prospects, we are concerned about productivity in Canada, that has led to lower bond yields, but also differences in physical policy.
So I think it was notable last year was that we saw a historically wide difference in the US thirty-year, 130 basis points higher than the Canada thirty-year in October of last year and that was a historical high, even wider than it was in the 90s when we have that big recession.
Going forward, it has tightened in a bit, it's about 110 basis point differential, still pretty wide.
I think the key thing to watch going back to fiscal policy is the US election, right? There is a lot of uncertainty around fiscal policy but even in Canada, we have likely an election next year so those are things to watch. What is the outlook for the different fiscal policies north and south of the border, what could that mean for borrowing needs and I think that will impact what happens to that difference in the long bond spread.
>> Taking another question now from the audience. Someone once you get your view of a maple blonds. Maybe an explanation of what we are talking about when we talk about maple bonds?
>> Maple bonds are essentially foreign corporations, non-Canadian corporations coming to the Canadian bond market and borrowing money in Canadian dollars.
And they may do that because they may have some amount of businesses here that have need for Canadian dollar funding or they may just swap it back using derivatives back to their home market. But for whatever reason, the Canadian dollar market is one of those markets where you do see particularly US but even some other global corporate bond issuers, usually very high quality ones, so think of banks and insurance companies. We have even seen technology and consumer companies from the US come here and issue Canadian dollars and it just to diversify their funding base.
So for an investor, it is actually mean, I think it's been useful in one sentence in that it adds some diversification to the Canadian corporate bond market which similar to the equity market tends to be more focused on certain sectors like energy and telecom so we get a bit of these technology names and some other banks that are diversified compared to the Canadian market.
The disadvantage of Maple bonds historically though has been generally lower liquidity compared to a domestic Canadian issuers bonds because those global issuers might not come here and issue billions and billions, they might issue 500 million at a time and that's usually a bit lower than an equivalent corporate bond issuer that might do one or 2 billion here. So the liquidity of that bond might be lower. But a development more recently has been that index providers in Canada are now recognizing Maple bonds and are going to start to include Maple bonds and their indices starting next year so that will mean that passive investors will be more active in Maple bonds and that will help the liquidity for that space. I think the outlook for Maple bonds is actually more positive compared to their historical behaviour and the Canadian markets. I think it helps to have that as part of a broad fixed income portfolio.
>> Someone was thinking about maple bonds, there was a great description, what would be the worst experience around it? Is it the fact that the liquidity has been great up to this point?
>> I think that's the main thing.
If you lend to a US bank in Canadian dollars, you can just do the same thing in US dollars.
So you will get a much more liquid bond in the US. When it comes down to really is transaction costs and so at an individual bond investor level, the cost of transacting and those bonds can be high.
The costs do come down a lot more is an institutional investor in a broad portfolio when you have pricing power, but definitely at an individual investor level, that's something to consider.
>> Fascinating stuff.
As always, make sure you do your own research before making any investment decisions.
we will get back to your questions 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 our educational segment of the day.
There are, of course, different order types available to investors here on the web broker platform. Caitlin Cormier, Senior client education instructor with TD Direct Investing has this tutorial.
>> Two of the most popular order types with self-directed investors are both market and limit orders.
Today, we are going to break down the differences between these two types of orders and when you might want to use each one. Let's start it with a market order. A market order is essentially an order that you're going to use when you know that you want to purchase the security that you are looking to buy. You are 100% gung ho on that particular security. You definitely want to make sure the purchase goes through or the sale goes through. The prices kind of secondary. You have an idea of what the price is. You can see the bid and the ask price, you have an idea of where it is but you're not really worried about exactly what price at orders going to be filled for, you are okay with it being filled for whatever the best price is at whatever time you execute the trade.
The price is not guaranteed but your fill is almost guaranteed as long as it's a really actively traded security on the market, chances are it's going to be executed almost immediately.
It's the price you are a little uncertain about. If we flip over to the limit order, the limit order, there is not a guarantee that the order is going to be executed.
However, the prices more guaranteed. With a limit order, you are basically saying for a purchase what is the maximum you are willing to pay in order to purchase the security and to sell it, what is minimum you are willing to accept an order to sell the security? Your prices guaranteed to be at least whatever that minimum is or above and the execution is not as guaranteed because of course if the price never hits the price that you have for your limit, your order will not be executed.
Let's take a moment to help over into web broker and see how you can actually execute those trades.
I'm just going to pull up a buy sell ticket here.
I'm gonna put in an actively traded stock.
When we have this order to get up, let's start with the market order. I'm going to look over your on the right-hand side where we can see the bid and ask information about the stock. I have an idea of what the best price is at the moment that I pulled this quote for this particular stock. I can see how many stocks are available under lots here. I can see with the range has been for today and those sorts of things. It gives me an idea of what price I might get with my order is executed. Of course, no guarantee.
Then I will put in the quantity of shares I would like to purchase. My price type I will stick with market for today and I'm going to choose good till day because as we mentioned, chances are this order is going to be filled almost immediately out whatever the current best price is so I don't have to worry about leaving it open past today. Once I am ready, everything is good, I'm comfortable, I can do one last refresh here to see if the bid and ask price has changed, it has, it has gone down a tiny bit, when I am ready I am going to click preview order and submit. I don't know what price I'm going to get to this order when it's executed, I have a general idea but it could be higher or lower than what I choose.
If there is a sudden move in the market and market spike up or down, I have no control over that so I could end up executing this order for a lot more or less than I originally had planned. If instead I were to do a limit order, so everything being the same with the exception of the price type, I'm going to go down here and choose limit instead.
Here, I need to input the price, the maximum price I am willing to pay in order to buy the stock. There are two different ways I could look at it.
I could say, for example, alright, I'm good with the current ask price, I would like to buy this stock for the current ask price and put in one 9168. That gives me a good likelihood that my order might be filled and it kind of keeps it pretty close to where I am now. I have a little bit of a guarantee but also I am likely going to still have my order filled because we are pretty close to the current price. The other option is I could say if the stock drops down to 185, then I would like to purchase it. If we see kind of a decrease in price over time than I would like to go ahead and buy 100 shares of Apple. Either one of these options, I have to choose a good till date. I will choose a period of time that I would like to wait for this order to be filled.
If I choose a price that is really close to the bid and ask, I may be okay with sticking to a short period of time like the current trading day, especially we are pretty early in the day right now.
Otherwise, I can choose and tell good till a specific date or good till cancel and I can also use day plus extended markets if I want to trade outside of regular market hours.
If I were to put good till cancel in this case, it would be open for 180 days which means any time within the next 180 days, if Apple drops down to 185, my order could be partially or fully filled. The only thing to keep in mind that is I did mention partially. If the price drops down one day under 85 and I get 50 shares and then all of a sudden the price goes back up, I will be charged a commission fee on that day and then if it drops again on that future day, I will be charged a commission on that day as well. That's one thing to keep in mind with these orders.
All of that being said, whenever I am ready with this, whatever length of time I choose to put my order in four, I'm going to go ahead and hit preview order and submit and the my order is sent off to the market to be filled, hopefully at the price I have chosen. Hopefully the outline of these two order types help see you when you are making your different order choices within web broker and happy trading.
>> Our thanks to Caitlin Cormier, Senior client education instructor at TD Direct Investing. For more educational resources, check out the learning centre on WebBroker or use this QR code to navigate to TD Direct Investing's Instagram page where you will find more informative videos.
We are back with Hafiz Noordin, taking your questions on fixed income. What is the yield curve telling us about the potential for a US recession or hard landing?
Currently, the two years just north of 4%, 10 year US treasury below 4%.
>> Yeah, I think that's really important question because for quite a while now, what felt like too long of a time, was this discussion of observation around the inverted yield curve. Restrictive monetary policy versus longer data bond yields that seemed to still point to lower growth in the future.
That has always been noted as a predictor of recession and I would acknowledge that it's always preceded or intends to proceed a recession but the timing of the yield curve to recession and when it might happen was always very hard to predict from historical precedents but I think what we have seen from our research as being that it's not the inversion itself but it's the re-steepening, what our viewers pointing out here is that going back to similar yields and tenure into your part of the curve in getting back to you a more normal shape to yield curve, there re-steepening of the yield curve has been a warning sign of recession.
When you look at all of the data, it points to generally resilient growth.
Definitely a slowdown in the US and globally but still resilient, still kind of below trend but not negative GDP growth is when we put it all together.
But I think we have to watch comes back to the labour market.
Jobless claims in particular, we talked about them earlier, I think that's a very useful indicator to keep watching every week because that will help to confirm and guide the market on whether we are actually going down somewhat of a harder landing scenario or staying resilient and the reason it's important compared to the unemployment rate, the unemployment rate has been going up a bit but part of it can be explained by higher immigration and the supply of labour increasing in the US. But jobless claims are really more focused on the demand for jobs and if the demand for jobs are declining and they start to accelerate in a more exponential way, than that can definitely turn into a vicious cycle and potentially even lead us towards more of a chance of a recession. So I think that's the main data point to watch but the warning sign from the yield curve is definitely there.
>> The warning signs are there. This next question probably complicates the thesis a little more. How could the US election impact the bond market?
>> Yeah, what a month it's been! To try to digest the probability of trumpet versus now Harris, what looked like a Republican sweep is now looking like a coin toss between the two parties when you look at poles and bedding markets. All that to say it's very uncertain. It has been a wild month but we are still three months out from the actual elections there still a lot that could happen. I think what that means for the bond market right now is that it will probably work off this base case where it's a coin toss, we don't know and so we have to focus on the here and now which is the economy, the labour inflation, everything we are talking about today. So from that perspective, I think more of the key will come from the economic data but as we get closer to November, I think it is going to be more important to understand what will a Harris administration look like in terms of actual policies, what will the Trump administration look like, how do we handicap them a and probability adjust for them?
That's where the budget and tariffs are the two big things for bond markets because we are worried about how much will the U.S. Treasury have to borrow the market, could that cause more of a term premium, more of a pressure on longer data bond yields?
And in the case of tariffs or other protectionist measures, what could that do for long-term inflation expectations?
Those will be the two key issues that can cause more volatility in the bond market but we will need more clarity in terms of actual policy guidance.
>> Very interesting several months ahead of us. Another question from the audience.
Someone want to get your thoughts on the high-yield market?
>> High-yield bonds have done very well this year.
They are of about 5% or so in terms of total returns. It's largely because high-yield bonds have done what they are supposed to, they have high yields on them, they have had about 8% level yields for the most part this year and so even with the volatility in credit spreads which actually hasn't been very high this year, earnings have been resilient.
So those spreads and high-yield bonds have generally tightened in and allowed for that income level to be attained. So going forward now, we have to come back to that question around are we getting into a slowdown? Is the US economy bending or is actually when you break?
And we know that high-yield bonds are often the first to react in terms of repricing credit spreads higher when a recession is looking perhaps more likely.
I think we have to be a little more careful about the high-yield market where the triple CE, the lowest quality a part of the high-yield market before you mark something as defaulted, that part of the market has already been showing signs of investors wanting to reprice higher risk premium for lending to those types of lower quality companies. A couple of months ago was 700 basis points credit spread for triple C's, now it's about 880 a little bit higher today.
While the higher quality part of high-yield, so double be in single berated, those that are a little bit more stable, noninvestment grade but still stable, have been at record low credit spreads of 250, 300 basis points.
I think that divergence within the high-yield market is important. It means that active management is going to be very important in that part of the market to really stay in quality.
>> Fascinating stuff. We'll get back to questions 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.
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Canadian realist a sector generated good results for the first quarter of this year, despite elevated interest rates and economic uncertainty. Now, we are starting to see lower interest rates being priced in over the next year.
Are there opportunities to be found in that rate market? Anthony Okolie joins us now with the TD Cowen review of the courtly results and outlook.
>> To be as he has cut rates already in the focus now is on the pace of future rate cuts from the BOC and the Fed. TD Cowen is looking forward to the second half with increasing optimism. TD Cowen is forecasting for the REIT sector 5.5% adjusted funds from operations per unit growth in the second quarter. If you exclude senior housing sector, it falls to just over 3% average for the second quarter. Similar to recent quarters, TD Cowen expects continued strong fundamentals across most property sectors with some exceptions. TD Cowen's also sees the broader REIT sector continuing to cut debt going forward, maintaining the higher for longer interest rate environment. Of course, earlier this week, we covered housing so we are going to focus on seniors, industrial, retail and diversified's. I will start with seniors where they are forecasting a 38% year-over-year AFF oh per unit growth.
They believe that they see solid industry fundamentals. They will continue to drive retirement home occupancy improvements and higher rents going forward.
Or industrials, the forecast of slightly lower growth for 7% but they expect a re-acceleration of growth on easing interest cost pressures as well as strong net operating income growth from that particular sector.
When it comes to retail and diversified, their expectations are not a strong.
Looking further out, TD Cowen sees growth accelerating in the second half. By the fourth quarter, TD Cowen expects average growth of about 4.9%. If you include seniors, slightly higher, just over 6% aided by the industrial, retail and diversified sector. TD Cowen continues to see strong fundamentals across sectors.
>> What are the risks?
>> When it comes to the REIT sector, slowing rent growth poses a risk, tenant credit risk, new supply coming onto the market are just some of the risks that the sectors face >> Fascinating stuff.
Thank for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
Let's take a look at the heat map function, a nice view of the market movers.
We do have a down session on both they and Wall Street so let's dig into the TSX 60 now, screening by price and volume and see what we are up against. The financial spaces taking points off the table. A member the financial bucket is a big influence on the topline composite index number. A little bit more mixed in the energy space. We have had some earnings coming up what we are seeing a cooldown in that trade. Yesterday there was a big move with the price of crude oil into energy and there is some giveback today. Cenovus is down to the tune of about 6%, I stand in for the group. Cameco, we are talking uranium here, pulling back about 9%. If you are talking about rate sensitive, BC came out with its latest earnings report but you also tell us to the upside of 1%.
That's some green on the screen and perhaps it's just a rate sensitivity yield play.
South of the border, that was a quick reversal, wasn't it, after a really interesting July, we saw a lot of the big tech names particularly the Magnificent Seven selling down, money moving into different parts of the market including the small caps. We saw a big rush back into tech yesterday a.m.
AMD was up 45%, and video was up more than 10%. Whipsaw activity here. It giving it back today. Nvidia is down 4%, and D down more than 6%, Meta is on the upside based on its latest earnings report but it's interesting to see that not only are we seeing pressure across the major markets because of the tech pressure, we are seeing the Russell 2000 down 3%.
We are back now with Hafiz Noordin from TD Asset Management. Next question. Within the corporate debt market in Canada and the US, which sectors do you favour right now?
Here on the program we cannot give investing advice but we talk about what you are seeing.
>> I think from a broad perspective, there is still pretty reasonable valuations in the Canadian investment grade market. We have seen credit spreads tightening this year but there are still some sectors that have leg that rallies so I would say REITs are a good example where they are generally more levered and have been therefore more susceptible of these higher interest rates cutting into their earnings but with interest rates coming down, that could actually help them to catch up a bit with what the rest of the Canadian investment grade corporate market has done. REITs provided an interesting sector to lean into but I think going back to this idea of quality right now in this part of the cycle, it makes a lot of sense. In Canada, the telecom sectors, Rogers, Bell, Telus, the main issue is here in Canada, are in a deleveraging part of their cycles so that looks attractive as well. In the US, with rates coming down, banks, financial generally, look interesting. And then in high yield, thinking of the higher quality part of high-yield but not only just higher quality but also a little bit more defensive in terms of the economic cycle, so we were thinking not to be as exposed to the consumer cyclical types of names and being more defensive, utilities, for instance. I think that's kind of the play were there still a lot of good opportunities but you have to be a little bit more careful about committing to company is that can weather a storm, with that volatility is coming from the economy or the election.
>> We will squeeze in one more question for you here before he let you go. Someone wants to get your take on the emerging markets right now.
>> Yeah, the emerging markets had a really great run last year and in the first half of this year. I think the outlook for emerging markets has gotten more tricky.
Everything that's happening in risk assets, with the US election, and also a slowing China has not really been able to rebound in terms of growth, all of that doesn't really put together a great backdrop for emerging markets and certainly when we look at returns this year versus last year, the darling has been Mexico whose currency was up 30% or so last year is down about 3%. Brazil is another one where the currency is down 10% this year. A lot more of a mixed outlook.
Part of that also has to do with many emerging markets or cutting rates last year. That help their bonds to appreciate in value last year. This year, they have kind of had to slow down or even stop cutting rates while the developed market, as we have been talking about, they are getting going with rate cuts. An allocation of capital by global investors from EM to developed markets has been happening, likely that could continue, with the uncertainties around global trade policy, I think it's going to be a little bit more tricky and a little bit more country specific. Still a modest allocation to EM in a broad portfolio is reasonable.
>> That was the last question. Before let you go, last thought. We are into August now.
The market is pricing in a cut from the Fed in September. What are you watching from here until Lincoln Mark >> Certainly all of the economic data and I think the higher frequency, the better because I think that this is the part of the cycle were the market has been kind of in a fairly stable for a while but it can go parabolic, it can start to move very quickly and I think we have to be nimble around that and so looking at higher frequency alternative data, forward-looking data, other than just the official data that may come up on a monthly basis I think will be important and knowing that in the summertime, it's not necessarily always sleepy, liquidity can be poor, so you have to be ready to act on opportunities as they do,.
>> Always fascinating conversation. Thanks for joining us.
>> Thanks for having me.
>> Our thanks to Hafiz Noordin, VP and Dir. of active fixed income portfolio management at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
On a programming note, we are going to be off next week for summer hiatus but before that, we will be back tomorrow with the reaction and analysis of that US jobs report. You will also hear from TD Securities Chris Krueger on the different potential presidential elections areas he is focused on what it could mean for the markets. That's all the time we have for the show today. Thanks for watching. We will see you tomorrow and then we will be off next week. I think I got that right.
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