Print Transcript
[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, the latest Canadian inflation report has landed.
Re-acceleration consumer prices for July.
We will discuss whether another rate hike is on the table at the Bank of Canada meeting next month. Hafiz Noordin at TD Asset Management joins us. In today's TD education segment, Hiren Amin is going to show you how to customize your dashboard to suit your trading style. Here's how you get hazardous. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
before he gets our guest of the day, let's get you an update on the markets. It is a down session on Bay and Wall Street. We'll start here at home with the TSX Composite Index. We are continuing to get disappointing economic data out of China.
there central bank did cut rates which isn't being received well by the market considering how weak the data has been.
So we got West Texas intermediate, American benchmark crude, down more than 2%. You are seeing pressure on the miners, on the energy names. On the top line number, your down 307 points at this hour, about 1/2%.
Among the most actively traded names on the TSX include Crescent Point energy.
You can see it's down about 2%. At 11 months and $0.12 per share, falling with the price of crude. Weakness in the miners but also in Manulife which recently reported its latest quarterly earnings. At 2552, it's down 1.7% today. South of the border, and let's check in on the S&P 500.
We got a read on the US consumer.
Retail sales came out stronger than expected.
people are getting out in the world, not so much a big ticket items as consumers grapple with inflation. You down 30 points on the S&P 500, a little bit more than half a percent. Check in on the tech heavy NASDAQ, how is it holding up against the broader market. Pretty much in line, down two thirds of a percent.
want to check out Amazon as well, check out some of those big tech names that have rallied this year.
At hundred and 38 bucks, it's down to 1.7%.
And that is your market update.
Canadian headline inflation re-accelerated in July, but will that lead to a Bank of Canada rate hike in September? Joining us now to discuss, Hafiz Noordin, portfolio manager for active fixed income at TD Asset Management.
Hafiz, great to have you back on the program.
we were expecting a re-acceleration from June. We got down below 3%.
A little hotter than expected.
What are you saying that's interesting?
>> The headline number was certainly a bit of a surprise. It was .6% month over month in July, the market was expecting .3.
So that took the year-over-year inflation number 23.3 percent on an annual basis.
The market was expected to about 3%. So, yeah, bit of a headline beat to the upside but when you look at the core level of inflation, it's still running around the sword of 3 1/2 to 3.7% range.
That's basically in line with gains over the last few months.
It didn't really change the narrative a whole lot in terms of inflation having come down from those really high, 5% core inflation rates that we sought late last year.
We are meaningfully below that, but we are still well above the 2% inflation target.
>> We had been warned by the Bank of Canada that the last mile was going to be the hard to smile, they thought we were going to stay around 3% for quite some time. When you get a print like this, just a couple weeks ahead of an expected BOC rate decision, a couple of data points will come in before then, but what do you think they might make of it?
Do think a rate hike is in the offing?
>> You have to put it in perspective with what the broader economy has been doing and so when you look at data other than inflation, you look at growth metrics, the labour market, it's been a little bit more choppy. The labour market in particular, lots of beats to the jobs numbers earlier in the air.
Over the last few months, it's been some beats and some misses.
Even on the inflation data, this is one of the beats of the air, it's been two beats on inflation but three misses to the downside this year when you look at those monthly inflation prints. It's been kind of choppy. I think at the end of the day, for September, the September Bank of Canada meeting, the main data we are going to get before then really just looking at retail sales data so that probably will show consumption is still strong, we are not getting the next jobs data until after the September Bank of Canada meeting.
So there's not necessarily a whole lot I can really move them towards acting on this one inflation data print.
They probably will want to see a little bit more data coming in September and October. So it's the October meeting where there will perhaps be a little bit more of a chance to see whether they move or not.
I think that's where the market is also leaning.
Not a lot praised him for September but may be a bit of a coin toss on whether they hike in October.
>> Let's talk about the market reaction how they sort of responded to this. You use the word choppy before in terms of the data.
Was the reaction of it choppy off that hot print this morning?
> Pretty much.
We saw as a knee-jerk reaction, suddenly a bond yields were up a and nine basis points across the curve. But as other data started coming, we saw bit of a weaker, Empire Manufacturing data in the US, and homebuilding sentiment, so that help to kind of calm down US and Canadian rates back to almost unchanged for the day. And I think that's also because with what we just talked about with inflation in Canada where, yes,it was a headline week but the core inflation trend is still pretty much intact with that we seen over the last few months.
>> You talked about the October meeting that is the one that is perhaps a bit more live if the BOC does feel that all the information they had before that meeting Warren said, one question I get when I talk with people sometimes outside of the banks, some of the media stuff we do, what about these cuts? What about these cuts?
They want to hear about cuts.
Is that even in 2024 story anymore?
> It's still potentially a second half of 2024 for Canada. When you look at where the market has priced in, this 5% policy rate is expected to stay there until next summer.
And I think it's after that that maybe there is the potential for rate cuts really because inflation by then hopefully should have come down closer to target.
Not at target yet but really more convincing on the way there. That would allow the Bank of Canada to start to modestly reduce the policy rate to still be in restrictive territory but not at the same level but it is now.
For the US, I think that's going to be interesting one to watch where it's broadly the same trend in terms of actually declining inflation but a stronger market and strong growth and unlike Canada, the market has priced in for the Fed to start cutting a little bit before next summer. So I think that's going to be an interesting sort of comparison to make between how does the Fed versus the Bank of Canada, broadly speaking, they tend to move together but the market is pricing in a bit of a diversion that perhaps the BOC is on hold longer.
>> When it comes to the United States, they got retail sales numbers come in stronger-than-expected. It was like the post-COVID life coming in. It closed our track pants, have some of those experiences and not look like a slob. Even though the topline number was stronger than affected,, what would the Fed make of all that?
It seems to be holding an, but they don't seem to be buying numbers.
>> I think the service as part of the economy is still holding up pretty well, to your point. But it's the goods part of the economy, buying stuff, it's just not as needed as it was during the COVID days.
So, that's where we are seeing even in the inflation data as well, in goods in corporate, inflation has come down to basically flat now both in Canada and the US and it's the service as part of the economy that still very strong and very much linked to the tightness of the labour market. So I think for central banks, there's probably not enough quite yet to say that they have to do another round of rate hikes beyond where they are now, 5% in 5 1/2 in the US, but I think it may be more of a decision around how long they hold at this very high level of policy rates.
And I think that's where we have to do is keep watching the data and see are there cracks in the labour market or not? And we know that they intentionally need to get unemployment a little bit higher to bring more balance in the economy and get inflation back to target.
>> The fight against this taking lower-than-expected, the reason why we have seen interest rates moving up in recent weeks, when we started the year with a certain assumption, rate started to fall a little bit but then they've been pushing higher lately.
What's going on there?
>> There have certainly been more growth surprises.
Yes, the economy is holding up well, even in the face of higher interest rate. We do know it takes a while though for interest rates to actually feed their way through the economy, make their way into higher borrowing costs based on people refinancing their mortgage or other types of loans or when corporate are refinancing their loans. That process takes a while to actually increase everybody's interest expenses.
So I think, but in the meantime, we have seen growth higher-than-expected.
Particularly in the US are we are seeing near or even above trend growth in Q2 and Q3.
So I think that's been part of it.
But there have been other factors as well.
We seen the Bank of Japan also reducing the amount of yield curve control they are going to have. They are allowing their curves to be in the broader range.
That causes global rates across the globe to take a little higher. And we are also seeing a little bit more of the US treasury issuance out of the government needing to issue a little bit more in the longer end of the curve.
And so there are a number of factors coming into play that are causing rates to go higher, but that's really causing what we call real yields, so nominal yields less inflation expectations, to go up.
There isn't really a higher impulse in yields. The inflation story is still intact.
>> Always great insights and more to come.
We are going to get your questions about fixed income for Hafiz Noordin in just a moment time. And a reminder that you can get touch with us at any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Canadian home sales slowed in July compared to a month earlier, led by a decline in the greater Toronto area. A new numbers from the Canadian realistic Association show that while sales were up in Montréal, Edmonton and Calgary, the weakness in Toronto offset that strength.
The Association also says home sales and price growth are showing signs of further softness this month in the wake of the Bank of Canada's latest rate hike.
Let's talk a little bit more about inflation. Weary consumers dealing with higher costs waiting for big-ticket purchases and that's pressuring sales at Home Depot.
Retail is reporting a 2% slide in sales year-over-year, that as households delay those big projects and purchases.
US retail sales were also released today and the number was higher-than-expected.
Suncor's profit was cut in half compared to the same period last year. The gas major earned $1.88 billion in the second quarter versus the roughly $4 billion last summer when oil prices were substantially higher. While Suncor had a cybersecurity breach in the same quarter, it did not impact its financial results.
let's check in on the markets, starting with the TSX Composite Index.
awesome oil and gas names weighing down the market.
on a 328 point deficit, more than1/2%.
South of the border, the S&P 500, also in negative territory.
36% deficit, down almost a full percent.
We are back down with Hafiz Noordin, take your questions about fixed income.
Are rate hikes making inflation worse?
This is very on point for the day because I think if you do dig into the Stats Can release, you will see mortgage interest costs substantially higher than last year.
>> Yeah, it's about 30% higher.
No surprise given that policy rates went from near zero early 2022 to now 5% and that is fed into mortgage rates and realize mortgage interest cost for Canadians.
So that certainly had an impact. We have to put in a context that mortgage interest costs are about 4% of the CPI basket, so all of the other consumption outside of that, even when it comes to shelter, rent, there is a lot of other components but that one component alone has been a big contributor. 30% higher for a 4% part of the basket, that's about one percentage point out of that 3.
3% year-over-year, is coming just from higher mortgage interest cost. A big contributor for sure.
I think looking ahead, though, the biggest change in interest costs has already happened, so I think the rate of change now from here will be a little bit less, but everybody is going to still be grappling with that higher absolute level mortgage interest costs.
And I think at the end of the day, it is, one could say that it is contributed to higher inflation but the purpose of raising interest rates is to produce everybody's demand for buying other goods and services, so the idea is to incentivize saving and hopefully actually start to reduce inflation in the broader economy.
> An interesting one there. Always pops up on inflation day.
This one about bonds. What is your view on provincial bonds? We talk a lot about this on the program.
> Provincial bonds, lending or money to the government of Ontario or Québec versus the federal government, when you do that, because the provinces have a bit of a lower credit rating than the federal government,you can earn a bit of a higher yield lending to those provinces. Very similar to corporate bonds then Government of Canada bond. I think it's important to remember about provincial bonds is thatyou get this level of income. When you get corporate bonds, the maturities, the duration of provincial bonds is a bit longer. So the average maturity of a provincial bond is more the 10 to 30 year part of the curve. Often corporate bonds are in the bore 5 to 10 year part of the curve.
When you have a longer duration bond, there is more price fluctuation when interest rates are going up or down, so it's one thing to remember when comparing provincial bonds or corporate bonds. It's higher-quality but a bit longer duration.
What I would suggest at this point in the cycle where spreads versus government to Canada bonds are still a little bit tight compared to where they could go if you get into a recession, so the longer end of the curve, you have a bit better risk reward in federal bonds where you don't necessarily have a higher level of income but they are a little bit more insulated from any risk off moves in equities or in bond spreads.
On the shorter end of the curve, you are compensated more for corporatebonds where instead of the extra spread you're getting about double, hundred and 40 basis points of income. The risk reward is a little bit better in corporate bonds on the short end of the curve.
>> You mentioned the possibility of recession.
The recession that perhaps never came were still the customer could be living there right now. I'm not sure.
It depends on the headline I read every day. I think about Provigil so. Obviously, a lot of the provinces including Ontario are carrying a certain amount of debt.
They are making payments on it. What's the risk profile there? They still of the taxation power of government, right?
Bringing in the revenue.
>> He.
So that's one thing to always remember.
With corporations, why they are considered higher quality, it's that ability to raise taxes.
Most provinces have a single a or AA credit rating versus the federal government which has a AAA credit rating so that speaks to the quality difference I talked about.
But at the end of the day, you get a little bit of a lower spread or a lower level of income, incremental income and provincial bonds versus Federal bonds because you know at the end of the day they can pay back, but there is that quality difference compared to the federal government.
>> do long duration bonds have the greatest upside? What is the scenario here for long duration bonds?
>>for long duration bonds, it's two-way.
When you have higher duration, that means higher interest rate risk, that means that the price return of a longer dated bond fluctuates more when interest rates are going up and down. Since so what that has meant over the last year and 1/2 or so is yields have been going up, long bonds are hurt the most in terms of their price return. But looking ahead, if we think about the idea that yield should eventually come back to more normal levels in line with neutral interest rates, then long duration bonds can provide a bigger price return. So just for round numbers, we could say that if yields were 100 basis points lower from where they are today, then to estimate your total return on a long duration bond, the duration of a 30 year bond is about 15, you multiply your 15 times the change in yield, 100 basis points, that gives you a 15% potential price return in that environment where yields are coming down. Compare that to say a 10 year bond that has a duration of call around eight or so, that eight years time, 100 basis point declining yields gives you an 8% price return.
So you get about double the amount of price return in a 30 year bond compared to the 10 year bond, and I think from that perspective, yes, there is more upside when yields come down, but you just have to be mindful that it also goes the other way when yields are going up, you can also get hurt.
>> We talk about that potential upside, eventual upside, we start seeing some rate cuts from central banks.
Is that story perhaps taking longer to play it? I think some people enter this year thinking, okay, this could be 1/2 way through, 2023 story. Maybe by the fall 2023. We've definitely pushed I think that narrative out of it.
> Yes.
I think that's been a bit of a surprise just in terms of the economic out terms versus the beginning of the year. Just alone when you look at the first quarter, in Canada, we were expected to realize may be 0% GDP growth. We end up getting almost 3%.
So we already seen these upside surprises in terms of how resilient consumption and services consumption has been in particular.
So it's been a patient investment but I think if you're thinking longer-term and through the cycle, whenever that cycle turns, you can eventually realize those benefits from being in longer duration bonds. And so it really is about having that patience, thinking about it in the context of a broader portfolio where if we do get this soft landing scenario that everybody's talking about, equities can help to contribute to investment performance, but if we get anything harder than that scenario, longer duration bonds will help. So it's always about looking it was priced into the market. It's pretty Goldilocks scenario, that's was priced in, so having that insurance of long duration will be helpful if it's anything worse than what the consensus expect.
> Always interesting stuff.
As always, make sure you do your own research before making any investment decisions.
will get back to your questions for Hafiz Noordin on fixed income in just a moment time.
A reminder, of course, you can contact us at any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
We are going to take another look at TD's Advanced Dashboard and today segment, this is a platform designed for active traders available through TD Direct Investing.
We are joined by Hiren Amin, Senior client education instructor with TD Direct Investing. Hiren, you're going to show us how you can customize Advanced Dashboard to suit your trading style.
Take it away.
>> Yes I am, great.
Thanks for having me back again.
As I mentioned, advanced dashboard offers tools to help people become proficient and efficient at trading. One of the more key features of this platform is is customizability. I'm going to show you that. I have it up on the screen I went to go through way that you can set up your own view with the trading tools that will help you get through your trading day.
on the platform, you can see that we have a number of tabs going across the top and this is how I navigate to the platform.
I'm going to be able to create my own one.
You can see there is a + at the very end.
If I click on that, it asks me what kind of layout I want to use. You can use a number of these different choices that are available to you. We are going to use the flexsheet to begin with. This one gives you a choice of different kinds of grids that you can use within that space. We are going to use a two column viewer and we are just going to call this market dashboard.
And you can label it however you want as well.
So we went to then click Leo.
And once we do this, we got a blank canvas to work with. And this is where you can add a number of different widgets or trading tools over here. You can see there's a +. This brings up the different categories. What we are going to do is you're going to stick our watchlist over to the left over here. I already have a one created for auto manufacturers. We will get that loaded up. And over to the right, I'm going to go ahead and add a heat map.
I'm gonna show you in a moment why am adding the heat map.
Another thing you can do is well is you can see in this view that I have the stocks and I monitoring in the heat map, but what if I want to keep tabs on the market as well?
We also have a widget trade and if you click on this icon across from the top there, it opens up this widget bar and within here, I then add the markets.
I keep alive view on what the markets are doing at the moment.
And then perhaps I want to see the most active stock and have that constantly in view.
we are going to leave it open for the moment.
I did want to show one other thing over here.
So within this view, water if we perhaps want to add also a chart.
So you can see I've got two columns. You can also create sub tabs within the view.
you can see by my heat map is another +.
Okay, let's throw in a chart as well. So now what I've God is the option to switch between views.
on the right, I can toggle between the chart where the heat map, whichever one I like there. This is one of the customizability is that we have with this.
It really get to the view and the tools that you want to get you going with your trading there.
> All right, Hiren. When it comes that watchlist, is there a way you can set up this columns filled with data for the information that I guess individually we all want to watch different things, what's important to us, can we customize that?
>> Absolutely you can.
One amenity was I'm going to just hide the widget bar for a second to give us more space. The other thing you can do is you can see the watchlist in full view by baking a fullscreen.
That's what we want to focus on. Now you are asking about these data columns.
What if I want to see some particular pieces of information over here? The answer is you certainly can.
So going up to this hamburger menu, we can go to our managed template section here.
Within our template section, I'm going to bring this forward into the Centerview here.
We can create our own custom one over here.
I will now make it off of one we already have started here.
Let me use the basic one here and I will just say duplicate and I'm going to just name it Hiren's view.
Now going to hit save. Now I got a number of different things and when it started with.
Greg, is there any particular things you may want to look at on your watchlist over here that you can see?
>> I was playing on Advanced Dashboard yesterday, I was moving my columns, your daily P&L and total PML.what stocks are making you a bit of money that day and what stocks aren't making use of money that day and then longer-term how it looks. That's what I was like that yesterday.
> Absolute. That is when you can see on your holdings paid for Sir.
What we can do over here on this watchlist, I'm going to throw in a couple for example.
We will go today high and a low over here.
And then perhaps maybe we want to see the dividends is being paid and may be the ex dividend date.
That's important. So got these three things set up.
This is going to be my view that I set up as default.
It automatically saves so you just have to simply ask off of this window.
Now how do we access that be? Up here it says template and needs of the different views that we've got.
We can switch to Hiren's view and you can see we've got all of those columns set up and you can see that we have the high and low that we added, the dividend and ex dividend amount, and then you can drag-and-drop and see the names are out of order, so I'm going to shuffle it and put it next to the ticker symbol so that I have this view. So that is one of the ways you can do this not only for the watchlist but on your holdings, wherever you see your data, you can set up this he was well within your set up.
>> Great stuff as always.
Gave me a few ideas to play with later today. Thanks, Hiren.
> My pleasure.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back to your questions about fixed income for Hafiz Noordin, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right, we are back with Hafiz Noordin, we are taking your questions about fixed income. Here's an interesting one.
How big of an impact might the US debt downgrade have?
>> Yeah, that certainly made the headlines.
And it came in a funny time when there was a number of things causing yields to rise.
We talked about this a little bit around gross surprises, the Bank of Japan policy move, March issue instant needs by the US treasury, this came with that among a number of headlines.
And I would say it's definitely important because it does speak to the longer-term issue around the amount of debt in the US and other developed markets, it speaks to the magnitude of the US time since we've seen this year which has been greater than what was expected, but a percent of GDP right now in terms of the US deficit.
So their fiscal trajectory is not great.
So I think the issue or the concern that came out of that announcement by Finch was what happens now that the US government is really now a AA credit rather than a AAA?
To that cause problems in the financial system?
And I think there were some valid questions that came out of that but at the end of the day, when you look at the problems, are they big institutional investors that would be limited by their ability to invest in the US government because they are not a AAA anymore?
Or are there any issues around the ability to use US government debt as collateral for various types of securitized loans or repos?
those are the things that were concerning.
At the end of the day,we haven't seen that manifest in a way that would cause major stress.
I think a big part of it is, what's the alternative for a lot of these investors and a lot of these loan agreements and repos? The US treasuries are basically part of the largest reserve currency of the world and there is really no match in terms of the depth and quality of the US treasury market. So I don't it's going to cause a major shift thereor impact market significant right now but I think it speaks to that slow-moving train of just the bad physical trajectory in the US.
> I found it interesting to have some of the biggest players in the US investment community, Warren Buffett, Jamie Dimon, they just dismissed it, said it doesn't mean anything.
This is nonsense. They use some pretty strong language. And then Bill Ackman might have been on the other side of that saying, no, this is an event. There wasn't even an agreement amongst the heavyweights in the industry.
>> Yeah, for sure, because you always have to separate what's the immediate financial impact in terms of markets and there is obviously a very large political element to all of this, going into an election year and what that means, the timing of the announcement was a bit curious where there wasn't really a major catalyst.
>> You know the stuff you thought about in the spring that we thought we moved on from?
We are still thinking about it.
>> Yes.
I think it speaks to the government issues, it's an ongoing concern in terms of the US and their ability to come to an agreement on the right investments, the right way to come up with their budgets.
It's definitely gotten a lot messier and harder for investors so I think it's an important message by the rating agency, but it's nothing that new for the financial markets.
>> This question came in in the past couple of minutes. This viewer says, this past winter, I moved to the majority of my RAF into bonds. Good interest rate but the value of bonds, US and Canadianlong-term, has gone sniffing at me. How long do think bonds will take to react to a fall in rates beginning as you say in the second half of 2024?
>> I think that's going to continue to play out. As you continue to see these kind of declininginflation but still kind of well above target, is going to keep on, keep yields in the range of where they have been over the past year. And so I think the bigger picture going into next year is that, number one, you're going to continue to get that attractive level of income. Let's call around 5% depending on the type of bond investment you are in. So that's a more predictable part of your return going forward.
In terms of recouping, then, some of the lost price return we have seen recently, one of two things have to happen. One is that we do get something like what happened in March where you get some crack in the economy that starts to price in more of a harder landing and brings forward the expectation for rate cuts by central banks. If you see that happening, you'll definitely get a much sharper decline in bond yields and you get that price return happening much more quickly.
So nobody can time them. It just about having that in your pocket as an insurance play in your portfolio.
But even if that doesn't happen, we should expect is that you would see a gradual decline in inflation and with that central bank should still start cutting let's say around mid next year.
And I think when they get to the point where they actually do pull the trigger and say they are confident in cutting, I think that will help to reduce bond volatility and that will help the price return to not rapidly it appreciate like a hard landing scenario but it will slowly start to see real yield coming down and you will be gradually recouping the price return and you are paid to wait along the way with a high level of income you are getting from bonds.
>> Let's to another question here. This one about the emerging markets. Can we get an update on the emerging markets? I think back to our first show together last year when the show is brand-new. We talked about how they were hiking first.
and you thought it was going to be a cut first.
>> Fast forward to today, we are seeing some of those cuts in emerging markets.
anywhere from 6 to 12 months before the federal Bank of Canada, number of Latin American and Eastern European emerging markets were hiking interest rates much more aggressively.
They are experienced with high inflation because it's very typical in emerging markets to deal with that even in normal times so they realized they had to get ahead of this. And so you look today, this summer, we seen actually rate cuts in Brazil and Chile. That's a really good example where they took their policy rate to almost 14% and yet inflation now is more in the 4 to 5% range, so their real yield, compared to a 2% real yield in Canada or the US, right now, the real yield in Brazil is closer to eight, 9%. So their compensation for income, even after adjusting for inflation, one of his sting in a Brazilian bond, is still attractive.
Globally, there is the ability of inflation come down. It requires the tighter financial conditionsby a central bank. So I think it helps steal the idea that monetary policy still works. But it takes some time for it to play out.
So I think if anything, it's a helpful leading indicator for developed markets that were a little bit later. We should see a similar trend where inflation starts to come down and rate cuts can gradually start to happen.
>> I think in terms of the context of WebBroker, a retail investor might be looking at investor market debt, might be looking at an ETF. Is it important to stay on top of the fact that this country is done this, this country is done this but we can't paint all with the same brush and there might be a basket of things and that ETF that are not all doing the same thank you Mark >> Absolutely. I mentioned only one example out of many emerging markets where the macro story has been good.
There are many others where it's gone the other way where they relate to hiking and are trying to catch up now or if you look at China, where they can, depending on the ETF or the passive index-based investment vehicle, it can be a very large part of the index and so if you like Brazil or Indonesia, at the end of the day, you might be more exposed to a China or other countries that you are maybe not following is much. China is an example where they had a surprise cut overnight but kind of for the wrong reasons. It wasn't because they were prudent and hiking earlybecause of inflation, it was because demand has really been missing to the downside even after the reopening from COVID. So I think that's a completely different story where, yes, they are cutting rates, their bond yields have come down, but if you are invested in China right now, you are getting more in currency because of their demand issues.
You have to be a little bit more bespoke when thinking about emerging markets and be careful about vehicles that might be putting, allocating or capital across a bunch of countries and you're not really getting the output you're expecting.
>> We will back your 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, of course, 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.
[music] Alright, we are back on Advanced Dashboard, taking a look at the heat map function. Gives you a view of the market movers.
Right now we are taking a look at the TSX 60, screening by priceand screening by volume. If you are seeing a lot of it on the screen, your eyes don't deceive you.
That's kind of day it is. Right now the headline, TSX composite index, we are down more than 300 points.
You can see there aren't really any places to hide today.
In the market, you can take a stab at anything. Energy space, big names like Enbridge, CNQ, SU for Suncor, reported yesterday evening, also the downside. A little bit more downside in the mining stocks.
Got a name like Teck Resources down almost 5%. First Quantum, SM, down more than 5%.
I'm usually an optimistic guy, I want to pull some green on the screen for you here but I'm not seeing it on the TSX 60. We can take a look for other screens as well.
Let's take a look at the S&P 100 right now and see what we are getting there. We do have a bit of green.
It's still a down day on Wall Street but if you are looking for some positive movers the upside for anyone following these names, Nvidia of about 2% at this hour.
J&J also in positive territory.
We do have a fair amount of red on the screen here, whether it's Amazon, AM Z it down about 2% of some of the Wall Street banking names and frankly, the energy names as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Okay, we are back now is Hafiz Noordin from TD Asset Management, talking fixed income, taking your questions.
A viewer wants to know what your outlook is for corporate debt.
>> Corporate bonds have certainly outperformed government bonds this year despite all of the things that happen in the banking sector in March. They've been resilient.
Just as equities have been resilient this year.
And so I think looking ahead, the evaluations right now for corporate bonds, it certainly not as attractive as it used to be.
I think you have to delineate between investment-grade and high-yield now when you look at the a lot.
investment corporate bonds are consistent in companies that I think are strong and generally speaking can weather a recession. So I think they're still definitelya very good role for corporate bonds in a portfolio.
But I think high-yield is where it gets a little trickier where we have already started to see default rates go up and you get a higher level of income, a higher level of spread in high-yield but a lot of that is compensating you for the potential of default.
And when you're at this point of the cycle where default over the past year were not very high but going forward they are starting to trend higher, you have to be a lot more careful.
So to the high-yield bonds is where this a little bit more of a challenge. They also have it needed to refinance a lot this year which has Spreads lower but going into next year and the year after, there's a lot more maturities coming up for high-yield companies that they will have to go back into the market and refinance at higher interest rates, and that's going to start a pressure their margins and, ultimately, that's going to impact their credit quality and that will require then, the market will require a higher spread for those high-yield bonds.
So I think you will, the price return outlook for high-yield is not as great. I think you have to be a little bit more prudent and look at higher quality investment grade in government bonds instead.
>> This question just came in the past couple of seconds.
We always talk about the pressures of rising interest rates.
Sometimes don't talk about the savers.
Savers take a look at different investment products. GIC interest rates, what is the elect! I have seen the move higher recently.
>> Yes, and they generally move with interest rate moves.
And so we did see the Bank of Canada hike recently to 5%. And so naturally that causes short-term interest rates, whether it's in GICs or other short-term fixed income investments to go up as well. I think for sure there is an attractive level of income there were you have an inverted yield curve now, that's very difficult.
And your decision then to go out the curve and add duration to your portfolio versus cash really is a function then of your thinking around is there the potential for a weaker economic outcome the modest price in right now in the market.
And if you think that there is that probability, it makes sense to have some longer bonds in addition to shorter bonds and that just helps to diversify the portfolio for recessionary outcome.
So you to think about, how do you think of the world and what is priced into the market and make sure that you have a bit of risk management.
> Always great insight, Hafiz.
I know the audience and was it too.
Looking forward to next time.
>> Thanks very much.
>> Hafiz Noordin, portfolio manager for active fixed income at TD Asset Management.
Of course at home, do your own research before making investment decisions. Tune in for tomorrow show. Daniel Ghali, Senior commodity strategist for TD Securities will be our guest talking all things about commodities. An interesting space considering what's been happening out there with central bank policy, economic weakness in China.
Lots to talk about. You don't have to wait until the show starts. You can always send in questions during the live show but you can send them in in advance as well, just email moneytalklive@td.com. That's all the time we have to show today. Thanks for watching. We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, the latest Canadian inflation report has landed.
Re-acceleration consumer prices for July.
We will discuss whether another rate hike is on the table at the Bank of Canada meeting next month. Hafiz Noordin at TD Asset Management joins us. In today's TD education segment, Hiren Amin is going to show you how to customize your dashboard to suit your trading style. Here's how you get hazardous. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
before he gets our guest of the day, let's get you an update on the markets. It is a down session on Bay and Wall Street. We'll start here at home with the TSX Composite Index. We are continuing to get disappointing economic data out of China.
there central bank did cut rates which isn't being received well by the market considering how weak the data has been.
So we got West Texas intermediate, American benchmark crude, down more than 2%. You are seeing pressure on the miners, on the energy names. On the top line number, your down 307 points at this hour, about 1/2%.
Among the most actively traded names on the TSX include Crescent Point energy.
You can see it's down about 2%. At 11 months and $0.12 per share, falling with the price of crude. Weakness in the miners but also in Manulife which recently reported its latest quarterly earnings. At 2552, it's down 1.7% today. South of the border, and let's check in on the S&P 500.
We got a read on the US consumer.
Retail sales came out stronger than expected.
people are getting out in the world, not so much a big ticket items as consumers grapple with inflation. You down 30 points on the S&P 500, a little bit more than half a percent. Check in on the tech heavy NASDAQ, how is it holding up against the broader market. Pretty much in line, down two thirds of a percent.
want to check out Amazon as well, check out some of those big tech names that have rallied this year.
At hundred and 38 bucks, it's down to 1.7%.
And that is your market update.
Canadian headline inflation re-accelerated in July, but will that lead to a Bank of Canada rate hike in September? Joining us now to discuss, Hafiz Noordin, portfolio manager for active fixed income at TD Asset Management.
Hafiz, great to have you back on the program.
we were expecting a re-acceleration from June. We got down below 3%.
A little hotter than expected.
What are you saying that's interesting?
>> The headline number was certainly a bit of a surprise. It was .6% month over month in July, the market was expecting .3.
So that took the year-over-year inflation number 23.3 percent on an annual basis.
The market was expected to about 3%. So, yeah, bit of a headline beat to the upside but when you look at the core level of inflation, it's still running around the sword of 3 1/2 to 3.7% range.
That's basically in line with gains over the last few months.
It didn't really change the narrative a whole lot in terms of inflation having come down from those really high, 5% core inflation rates that we sought late last year.
We are meaningfully below that, but we are still well above the 2% inflation target.
>> We had been warned by the Bank of Canada that the last mile was going to be the hard to smile, they thought we were going to stay around 3% for quite some time. When you get a print like this, just a couple weeks ahead of an expected BOC rate decision, a couple of data points will come in before then, but what do you think they might make of it?
Do think a rate hike is in the offing?
>> You have to put it in perspective with what the broader economy has been doing and so when you look at data other than inflation, you look at growth metrics, the labour market, it's been a little bit more choppy. The labour market in particular, lots of beats to the jobs numbers earlier in the air.
Over the last few months, it's been some beats and some misses.
Even on the inflation data, this is one of the beats of the air, it's been two beats on inflation but three misses to the downside this year when you look at those monthly inflation prints. It's been kind of choppy. I think at the end of the day, for September, the September Bank of Canada meeting, the main data we are going to get before then really just looking at retail sales data so that probably will show consumption is still strong, we are not getting the next jobs data until after the September Bank of Canada meeting.
So there's not necessarily a whole lot I can really move them towards acting on this one inflation data print.
They probably will want to see a little bit more data coming in September and October. So it's the October meeting where there will perhaps be a little bit more of a chance to see whether they move or not.
I think that's where the market is also leaning.
Not a lot praised him for September but may be a bit of a coin toss on whether they hike in October.
>> Let's talk about the market reaction how they sort of responded to this. You use the word choppy before in terms of the data.
Was the reaction of it choppy off that hot print this morning?
> Pretty much.
We saw as a knee-jerk reaction, suddenly a bond yields were up a and nine basis points across the curve. But as other data started coming, we saw bit of a weaker, Empire Manufacturing data in the US, and homebuilding sentiment, so that help to kind of calm down US and Canadian rates back to almost unchanged for the day. And I think that's also because with what we just talked about with inflation in Canada where, yes,it was a headline week but the core inflation trend is still pretty much intact with that we seen over the last few months.
>> You talked about the October meeting that is the one that is perhaps a bit more live if the BOC does feel that all the information they had before that meeting Warren said, one question I get when I talk with people sometimes outside of the banks, some of the media stuff we do, what about these cuts? What about these cuts?
They want to hear about cuts.
Is that even in 2024 story anymore?
> It's still potentially a second half of 2024 for Canada. When you look at where the market has priced in, this 5% policy rate is expected to stay there until next summer.
And I think it's after that that maybe there is the potential for rate cuts really because inflation by then hopefully should have come down closer to target.
Not at target yet but really more convincing on the way there. That would allow the Bank of Canada to start to modestly reduce the policy rate to still be in restrictive territory but not at the same level but it is now.
For the US, I think that's going to be interesting one to watch where it's broadly the same trend in terms of actually declining inflation but a stronger market and strong growth and unlike Canada, the market has priced in for the Fed to start cutting a little bit before next summer. So I think that's going to be an interesting sort of comparison to make between how does the Fed versus the Bank of Canada, broadly speaking, they tend to move together but the market is pricing in a bit of a diversion that perhaps the BOC is on hold longer.
>> When it comes to the United States, they got retail sales numbers come in stronger-than-expected. It was like the post-COVID life coming in. It closed our track pants, have some of those experiences and not look like a slob. Even though the topline number was stronger than affected,, what would the Fed make of all that?
It seems to be holding an, but they don't seem to be buying numbers.
>> I think the service as part of the economy is still holding up pretty well, to your point. But it's the goods part of the economy, buying stuff, it's just not as needed as it was during the COVID days.
So, that's where we are seeing even in the inflation data as well, in goods in corporate, inflation has come down to basically flat now both in Canada and the US and it's the service as part of the economy that still very strong and very much linked to the tightness of the labour market. So I think for central banks, there's probably not enough quite yet to say that they have to do another round of rate hikes beyond where they are now, 5% in 5 1/2 in the US, but I think it may be more of a decision around how long they hold at this very high level of policy rates.
And I think that's where we have to do is keep watching the data and see are there cracks in the labour market or not? And we know that they intentionally need to get unemployment a little bit higher to bring more balance in the economy and get inflation back to target.
>> The fight against this taking lower-than-expected, the reason why we have seen interest rates moving up in recent weeks, when we started the year with a certain assumption, rate started to fall a little bit but then they've been pushing higher lately.
What's going on there?
>> There have certainly been more growth surprises.
Yes, the economy is holding up well, even in the face of higher interest rate. We do know it takes a while though for interest rates to actually feed their way through the economy, make their way into higher borrowing costs based on people refinancing their mortgage or other types of loans or when corporate are refinancing their loans. That process takes a while to actually increase everybody's interest expenses.
So I think, but in the meantime, we have seen growth higher-than-expected.
Particularly in the US are we are seeing near or even above trend growth in Q2 and Q3.
So I think that's been part of it.
But there have been other factors as well.
We seen the Bank of Japan also reducing the amount of yield curve control they are going to have. They are allowing their curves to be in the broader range.
That causes global rates across the globe to take a little higher. And we are also seeing a little bit more of the US treasury issuance out of the government needing to issue a little bit more in the longer end of the curve.
And so there are a number of factors coming into play that are causing rates to go higher, but that's really causing what we call real yields, so nominal yields less inflation expectations, to go up.
There isn't really a higher impulse in yields. The inflation story is still intact.
>> Always great insights and more to come.
We are going to get your questions about fixed income for Hafiz Noordin in just a moment time. And a reminder that you can get touch with us at any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Canadian home sales slowed in July compared to a month earlier, led by a decline in the greater Toronto area. A new numbers from the Canadian realistic Association show that while sales were up in Montréal, Edmonton and Calgary, the weakness in Toronto offset that strength.
The Association also says home sales and price growth are showing signs of further softness this month in the wake of the Bank of Canada's latest rate hike.
Let's talk a little bit more about inflation. Weary consumers dealing with higher costs waiting for big-ticket purchases and that's pressuring sales at Home Depot.
Retail is reporting a 2% slide in sales year-over-year, that as households delay those big projects and purchases.
US retail sales were also released today and the number was higher-than-expected.
Suncor's profit was cut in half compared to the same period last year. The gas major earned $1.88 billion in the second quarter versus the roughly $4 billion last summer when oil prices were substantially higher. While Suncor had a cybersecurity breach in the same quarter, it did not impact its financial results.
let's check in on the markets, starting with the TSX Composite Index.
awesome oil and gas names weighing down the market.
on a 328 point deficit, more than1/2%.
South of the border, the S&P 500, also in negative territory.
36% deficit, down almost a full percent.
We are back down with Hafiz Noordin, take your questions about fixed income.
Are rate hikes making inflation worse?
This is very on point for the day because I think if you do dig into the Stats Can release, you will see mortgage interest costs substantially higher than last year.
>> Yeah, it's about 30% higher.
No surprise given that policy rates went from near zero early 2022 to now 5% and that is fed into mortgage rates and realize mortgage interest cost for Canadians.
So that certainly had an impact. We have to put in a context that mortgage interest costs are about 4% of the CPI basket, so all of the other consumption outside of that, even when it comes to shelter, rent, there is a lot of other components but that one component alone has been a big contributor. 30% higher for a 4% part of the basket, that's about one percentage point out of that 3.
3% year-over-year, is coming just from higher mortgage interest cost. A big contributor for sure.
I think looking ahead, though, the biggest change in interest costs has already happened, so I think the rate of change now from here will be a little bit less, but everybody is going to still be grappling with that higher absolute level mortgage interest costs.
And I think at the end of the day, it is, one could say that it is contributed to higher inflation but the purpose of raising interest rates is to produce everybody's demand for buying other goods and services, so the idea is to incentivize saving and hopefully actually start to reduce inflation in the broader economy.
> An interesting one there. Always pops up on inflation day.
This one about bonds. What is your view on provincial bonds? We talk a lot about this on the program.
> Provincial bonds, lending or money to the government of Ontario or Québec versus the federal government, when you do that, because the provinces have a bit of a lower credit rating than the federal government,you can earn a bit of a higher yield lending to those provinces. Very similar to corporate bonds then Government of Canada bond. I think it's important to remember about provincial bonds is thatyou get this level of income. When you get corporate bonds, the maturities, the duration of provincial bonds is a bit longer. So the average maturity of a provincial bond is more the 10 to 30 year part of the curve. Often corporate bonds are in the bore 5 to 10 year part of the curve.
When you have a longer duration bond, there is more price fluctuation when interest rates are going up or down, so it's one thing to remember when comparing provincial bonds or corporate bonds. It's higher-quality but a bit longer duration.
What I would suggest at this point in the cycle where spreads versus government to Canada bonds are still a little bit tight compared to where they could go if you get into a recession, so the longer end of the curve, you have a bit better risk reward in federal bonds where you don't necessarily have a higher level of income but they are a little bit more insulated from any risk off moves in equities or in bond spreads.
On the shorter end of the curve, you are compensated more for corporatebonds where instead of the extra spread you're getting about double, hundred and 40 basis points of income. The risk reward is a little bit better in corporate bonds on the short end of the curve.
>> You mentioned the possibility of recession.
The recession that perhaps never came were still the customer could be living there right now. I'm not sure.
It depends on the headline I read every day. I think about Provigil so. Obviously, a lot of the provinces including Ontario are carrying a certain amount of debt.
They are making payments on it. What's the risk profile there? They still of the taxation power of government, right?
Bringing in the revenue.
>> He.
So that's one thing to always remember.
With corporations, why they are considered higher quality, it's that ability to raise taxes.
Most provinces have a single a or AA credit rating versus the federal government which has a AAA credit rating so that speaks to the quality difference I talked about.
But at the end of the day, you get a little bit of a lower spread or a lower level of income, incremental income and provincial bonds versus Federal bonds because you know at the end of the day they can pay back, but there is that quality difference compared to the federal government.
>> do long duration bonds have the greatest upside? What is the scenario here for long duration bonds?
>>for long duration bonds, it's two-way.
When you have higher duration, that means higher interest rate risk, that means that the price return of a longer dated bond fluctuates more when interest rates are going up and down. Since so what that has meant over the last year and 1/2 or so is yields have been going up, long bonds are hurt the most in terms of their price return. But looking ahead, if we think about the idea that yield should eventually come back to more normal levels in line with neutral interest rates, then long duration bonds can provide a bigger price return. So just for round numbers, we could say that if yields were 100 basis points lower from where they are today, then to estimate your total return on a long duration bond, the duration of a 30 year bond is about 15, you multiply your 15 times the change in yield, 100 basis points, that gives you a 15% potential price return in that environment where yields are coming down. Compare that to say a 10 year bond that has a duration of call around eight or so, that eight years time, 100 basis point declining yields gives you an 8% price return.
So you get about double the amount of price return in a 30 year bond compared to the 10 year bond, and I think from that perspective, yes, there is more upside when yields come down, but you just have to be mindful that it also goes the other way when yields are going up, you can also get hurt.
>> We talk about that potential upside, eventual upside, we start seeing some rate cuts from central banks.
Is that story perhaps taking longer to play it? I think some people enter this year thinking, okay, this could be 1/2 way through, 2023 story. Maybe by the fall 2023. We've definitely pushed I think that narrative out of it.
> Yes.
I think that's been a bit of a surprise just in terms of the economic out terms versus the beginning of the year. Just alone when you look at the first quarter, in Canada, we were expected to realize may be 0% GDP growth. We end up getting almost 3%.
So we already seen these upside surprises in terms of how resilient consumption and services consumption has been in particular.
So it's been a patient investment but I think if you're thinking longer-term and through the cycle, whenever that cycle turns, you can eventually realize those benefits from being in longer duration bonds. And so it really is about having that patience, thinking about it in the context of a broader portfolio where if we do get this soft landing scenario that everybody's talking about, equities can help to contribute to investment performance, but if we get anything harder than that scenario, longer duration bonds will help. So it's always about looking it was priced into the market. It's pretty Goldilocks scenario, that's was priced in, so having that insurance of long duration will be helpful if it's anything worse than what the consensus expect.
> Always interesting stuff.
As always, make sure you do your own research before making any investment decisions.
will get back to your questions for Hafiz Noordin on fixed income in just a moment time.
A reminder, of course, you can contact us at any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
We are going to take another look at TD's Advanced Dashboard and today segment, this is a platform designed for active traders available through TD Direct Investing.
We are joined by Hiren Amin, Senior client education instructor with TD Direct Investing. Hiren, you're going to show us how you can customize Advanced Dashboard to suit your trading style.
Take it away.
>> Yes I am, great.
Thanks for having me back again.
As I mentioned, advanced dashboard offers tools to help people become proficient and efficient at trading. One of the more key features of this platform is is customizability. I'm going to show you that. I have it up on the screen I went to go through way that you can set up your own view with the trading tools that will help you get through your trading day.
on the platform, you can see that we have a number of tabs going across the top and this is how I navigate to the platform.
I'm going to be able to create my own one.
You can see there is a + at the very end.
If I click on that, it asks me what kind of layout I want to use. You can use a number of these different choices that are available to you. We are going to use the flexsheet to begin with. This one gives you a choice of different kinds of grids that you can use within that space. We are going to use a two column viewer and we are just going to call this market dashboard.
And you can label it however you want as well.
So we went to then click Leo.
And once we do this, we got a blank canvas to work with. And this is where you can add a number of different widgets or trading tools over here. You can see there's a +. This brings up the different categories. What we are going to do is you're going to stick our watchlist over to the left over here. I already have a one created for auto manufacturers. We will get that loaded up. And over to the right, I'm going to go ahead and add a heat map.
I'm gonna show you in a moment why am adding the heat map.
Another thing you can do is well is you can see in this view that I have the stocks and I monitoring in the heat map, but what if I want to keep tabs on the market as well?
We also have a widget trade and if you click on this icon across from the top there, it opens up this widget bar and within here, I then add the markets.
I keep alive view on what the markets are doing at the moment.
And then perhaps I want to see the most active stock and have that constantly in view.
we are going to leave it open for the moment.
I did want to show one other thing over here.
So within this view, water if we perhaps want to add also a chart.
So you can see I've got two columns. You can also create sub tabs within the view.
you can see by my heat map is another +.
Okay, let's throw in a chart as well. So now what I've God is the option to switch between views.
on the right, I can toggle between the chart where the heat map, whichever one I like there. This is one of the customizability is that we have with this.
It really get to the view and the tools that you want to get you going with your trading there.
> All right, Hiren. When it comes that watchlist, is there a way you can set up this columns filled with data for the information that I guess individually we all want to watch different things, what's important to us, can we customize that?
>> Absolutely you can.
One amenity was I'm going to just hide the widget bar for a second to give us more space. The other thing you can do is you can see the watchlist in full view by baking a fullscreen.
That's what we want to focus on. Now you are asking about these data columns.
What if I want to see some particular pieces of information over here? The answer is you certainly can.
So going up to this hamburger menu, we can go to our managed template section here.
Within our template section, I'm going to bring this forward into the Centerview here.
We can create our own custom one over here.
I will now make it off of one we already have started here.
Let me use the basic one here and I will just say duplicate and I'm going to just name it Hiren's view.
Now going to hit save. Now I got a number of different things and when it started with.
Greg, is there any particular things you may want to look at on your watchlist over here that you can see?
>> I was playing on Advanced Dashboard yesterday, I was moving my columns, your daily P&L and total PML.what stocks are making you a bit of money that day and what stocks aren't making use of money that day and then longer-term how it looks. That's what I was like that yesterday.
> Absolute. That is when you can see on your holdings paid for Sir.
What we can do over here on this watchlist, I'm going to throw in a couple for example.
We will go today high and a low over here.
And then perhaps maybe we want to see the dividends is being paid and may be the ex dividend date.
That's important. So got these three things set up.
This is going to be my view that I set up as default.
It automatically saves so you just have to simply ask off of this window.
Now how do we access that be? Up here it says template and needs of the different views that we've got.
We can switch to Hiren's view and you can see we've got all of those columns set up and you can see that we have the high and low that we added, the dividend and ex dividend amount, and then you can drag-and-drop and see the names are out of order, so I'm going to shuffle it and put it next to the ticker symbol so that I have this view. So that is one of the ways you can do this not only for the watchlist but on your holdings, wherever you see your data, you can set up this he was well within your set up.
>> Great stuff as always.
Gave me a few ideas to play with later today. Thanks, Hiren.
> My pleasure.
>> Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Now before you get back to your questions about fixed income for Hafiz Noordin, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right, we are back with Hafiz Noordin, we are taking your questions about fixed income. Here's an interesting one.
How big of an impact might the US debt downgrade have?
>> Yeah, that certainly made the headlines.
And it came in a funny time when there was a number of things causing yields to rise.
We talked about this a little bit around gross surprises, the Bank of Japan policy move, March issue instant needs by the US treasury, this came with that among a number of headlines.
And I would say it's definitely important because it does speak to the longer-term issue around the amount of debt in the US and other developed markets, it speaks to the magnitude of the US time since we've seen this year which has been greater than what was expected, but a percent of GDP right now in terms of the US deficit.
So their fiscal trajectory is not great.
So I think the issue or the concern that came out of that announcement by Finch was what happens now that the US government is really now a AA credit rather than a AAA?
To that cause problems in the financial system?
And I think there were some valid questions that came out of that but at the end of the day, when you look at the problems, are they big institutional investors that would be limited by their ability to invest in the US government because they are not a AAA anymore?
Or are there any issues around the ability to use US government debt as collateral for various types of securitized loans or repos?
those are the things that were concerning.
At the end of the day,we haven't seen that manifest in a way that would cause major stress.
I think a big part of it is, what's the alternative for a lot of these investors and a lot of these loan agreements and repos? The US treasuries are basically part of the largest reserve currency of the world and there is really no match in terms of the depth and quality of the US treasury market. So I don't it's going to cause a major shift thereor impact market significant right now but I think it speaks to that slow-moving train of just the bad physical trajectory in the US.
> I found it interesting to have some of the biggest players in the US investment community, Warren Buffett, Jamie Dimon, they just dismissed it, said it doesn't mean anything.
This is nonsense. They use some pretty strong language. And then Bill Ackman might have been on the other side of that saying, no, this is an event. There wasn't even an agreement amongst the heavyweights in the industry.
>> Yeah, for sure, because you always have to separate what's the immediate financial impact in terms of markets and there is obviously a very large political element to all of this, going into an election year and what that means, the timing of the announcement was a bit curious where there wasn't really a major catalyst.
>> You know the stuff you thought about in the spring that we thought we moved on from?
We are still thinking about it.
>> Yes.
I think it speaks to the government issues, it's an ongoing concern in terms of the US and their ability to come to an agreement on the right investments, the right way to come up with their budgets.
It's definitely gotten a lot messier and harder for investors so I think it's an important message by the rating agency, but it's nothing that new for the financial markets.
>> This question came in in the past couple of minutes. This viewer says, this past winter, I moved to the majority of my RAF into bonds. Good interest rate but the value of bonds, US and Canadianlong-term, has gone sniffing at me. How long do think bonds will take to react to a fall in rates beginning as you say in the second half of 2024?
>> I think that's going to continue to play out. As you continue to see these kind of declininginflation but still kind of well above target, is going to keep on, keep yields in the range of where they have been over the past year. And so I think the bigger picture going into next year is that, number one, you're going to continue to get that attractive level of income. Let's call around 5% depending on the type of bond investment you are in. So that's a more predictable part of your return going forward.
In terms of recouping, then, some of the lost price return we have seen recently, one of two things have to happen. One is that we do get something like what happened in March where you get some crack in the economy that starts to price in more of a harder landing and brings forward the expectation for rate cuts by central banks. If you see that happening, you'll definitely get a much sharper decline in bond yields and you get that price return happening much more quickly.
So nobody can time them. It just about having that in your pocket as an insurance play in your portfolio.
But even if that doesn't happen, we should expect is that you would see a gradual decline in inflation and with that central bank should still start cutting let's say around mid next year.
And I think when they get to the point where they actually do pull the trigger and say they are confident in cutting, I think that will help to reduce bond volatility and that will help the price return to not rapidly it appreciate like a hard landing scenario but it will slowly start to see real yield coming down and you will be gradually recouping the price return and you are paid to wait along the way with a high level of income you are getting from bonds.
>> Let's to another question here. This one about the emerging markets. Can we get an update on the emerging markets? I think back to our first show together last year when the show is brand-new. We talked about how they were hiking first.
and you thought it was going to be a cut first.
>> Fast forward to today, we are seeing some of those cuts in emerging markets.
anywhere from 6 to 12 months before the federal Bank of Canada, number of Latin American and Eastern European emerging markets were hiking interest rates much more aggressively.
They are experienced with high inflation because it's very typical in emerging markets to deal with that even in normal times so they realized they had to get ahead of this. And so you look today, this summer, we seen actually rate cuts in Brazil and Chile. That's a really good example where they took their policy rate to almost 14% and yet inflation now is more in the 4 to 5% range, so their real yield, compared to a 2% real yield in Canada or the US, right now, the real yield in Brazil is closer to eight, 9%. So their compensation for income, even after adjusting for inflation, one of his sting in a Brazilian bond, is still attractive.
Globally, there is the ability of inflation come down. It requires the tighter financial conditionsby a central bank. So I think it helps steal the idea that monetary policy still works. But it takes some time for it to play out.
So I think if anything, it's a helpful leading indicator for developed markets that were a little bit later. We should see a similar trend where inflation starts to come down and rate cuts can gradually start to happen.
>> I think in terms of the context of WebBroker, a retail investor might be looking at investor market debt, might be looking at an ETF. Is it important to stay on top of the fact that this country is done this, this country is done this but we can't paint all with the same brush and there might be a basket of things and that ETF that are not all doing the same thank you Mark >> Absolutely. I mentioned only one example out of many emerging markets where the macro story has been good.
There are many others where it's gone the other way where they relate to hiking and are trying to catch up now or if you look at China, where they can, depending on the ETF or the passive index-based investment vehicle, it can be a very large part of the index and so if you like Brazil or Indonesia, at the end of the day, you might be more exposed to a China or other countries that you are maybe not following is much. China is an example where they had a surprise cut overnight but kind of for the wrong reasons. It wasn't because they were prudent and hiking earlybecause of inflation, it was because demand has really been missing to the downside even after the reopening from COVID. So I think that's a completely different story where, yes, they are cutting rates, their bond yields have come down, but if you are invested in China right now, you are getting more in currency because of their demand issues.
You have to be a little bit more bespoke when thinking about emerging markets and be careful about vehicles that might be putting, allocating or capital across a bunch of countries and you're not really getting the output you're expecting.
>> We will back your 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, of course, 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.
[music] Alright, we are back on Advanced Dashboard, taking a look at the heat map function. Gives you a view of the market movers.
Right now we are taking a look at the TSX 60, screening by priceand screening by volume. If you are seeing a lot of it on the screen, your eyes don't deceive you.
That's kind of day it is. Right now the headline, TSX composite index, we are down more than 300 points.
You can see there aren't really any places to hide today.
In the market, you can take a stab at anything. Energy space, big names like Enbridge, CNQ, SU for Suncor, reported yesterday evening, also the downside. A little bit more downside in the mining stocks.
Got a name like Teck Resources down almost 5%. First Quantum, SM, down more than 5%.
I'm usually an optimistic guy, I want to pull some green on the screen for you here but I'm not seeing it on the TSX 60. We can take a look for other screens as well.
Let's take a look at the S&P 100 right now and see what we are getting there. We do have a bit of green.
It's still a down day on Wall Street but if you are looking for some positive movers the upside for anyone following these names, Nvidia of about 2% at this hour.
J&J also in positive territory.
We do have a fair amount of red on the screen here, whether it's Amazon, AM Z it down about 2% of some of the Wall Street banking names and frankly, the energy names as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Okay, we are back now is Hafiz Noordin from TD Asset Management, talking fixed income, taking your questions.
A viewer wants to know what your outlook is for corporate debt.
>> Corporate bonds have certainly outperformed government bonds this year despite all of the things that happen in the banking sector in March. They've been resilient.
Just as equities have been resilient this year.
And so I think looking ahead, the evaluations right now for corporate bonds, it certainly not as attractive as it used to be.
I think you have to delineate between investment-grade and high-yield now when you look at the a lot.
investment corporate bonds are consistent in companies that I think are strong and generally speaking can weather a recession. So I think they're still definitelya very good role for corporate bonds in a portfolio.
But I think high-yield is where it gets a little trickier where we have already started to see default rates go up and you get a higher level of income, a higher level of spread in high-yield but a lot of that is compensating you for the potential of default.
And when you're at this point of the cycle where default over the past year were not very high but going forward they are starting to trend higher, you have to be a lot more careful.
So to the high-yield bonds is where this a little bit more of a challenge. They also have it needed to refinance a lot this year which has Spreads lower but going into next year and the year after, there's a lot more maturities coming up for high-yield companies that they will have to go back into the market and refinance at higher interest rates, and that's going to start a pressure their margins and, ultimately, that's going to impact their credit quality and that will require then, the market will require a higher spread for those high-yield bonds.
So I think you will, the price return outlook for high-yield is not as great. I think you have to be a little bit more prudent and look at higher quality investment grade in government bonds instead.
>> This question just came in the past couple of seconds.
We always talk about the pressures of rising interest rates.
Sometimes don't talk about the savers.
Savers take a look at different investment products. GIC interest rates, what is the elect! I have seen the move higher recently.
>> Yes, and they generally move with interest rate moves.
And so we did see the Bank of Canada hike recently to 5%. And so naturally that causes short-term interest rates, whether it's in GICs or other short-term fixed income investments to go up as well. I think for sure there is an attractive level of income there were you have an inverted yield curve now, that's very difficult.
And your decision then to go out the curve and add duration to your portfolio versus cash really is a function then of your thinking around is there the potential for a weaker economic outcome the modest price in right now in the market.
And if you think that there is that probability, it makes sense to have some longer bonds in addition to shorter bonds and that just helps to diversify the portfolio for recessionary outcome.
So you to think about, how do you think of the world and what is priced into the market and make sure that you have a bit of risk management.
> Always great insight, Hafiz.
I know the audience and was it too.
Looking forward to next time.
>> Thanks very much.
>> Hafiz Noordin, portfolio manager for active fixed income at TD Asset Management.
Of course at home, do your own research before making investment decisions. Tune in for tomorrow show. Daniel Ghali, Senior commodity strategist for TD Securities will be our guest talking all things about commodities. An interesting space considering what's been happening out there with central bank policy, economic weakness in China.
Lots to talk about. You don't have to wait until the show starts. You can always send in questions during the live show but you can send them in in advance as well, just email moneytalklive@td.com. That's all the time we have to show today. Thanks for watching. We will see you tomorrow.
[music]
