Hussein Allidina – 08/03/2022

[music] >> Hello, I am Anthony Okolie and for Greg Bonnell and welcome to MoneyTalk Live, which is brought to you by TD Direct Investing. Coming up on today show, we'll discuss whether high prices are here to stay in the natural gas market amid a tight supply and a cold winter with Hussein Allidina, head of commodities at TD Asset Management. On today's WebBroker education segment, we will explore the differences between the primary market and the secondary market and how you can get access to it on the platform. And 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 our guest today,Let's get you an update on the markets. While currently, the TSX is trading up about 27 points, that's up by .14%. Let's take a look at some of the stocks that are moving the markets. Shopify's at more than 8% today. The stock has been under pressure recently, for some time. The company just recently announced that it's making $100 million investment in email marketing start up Clay at VO. Let's move south of the border, the broad-based S&P 500 is up about 53 points and change, 1.31%. Let's look at the NASDAQ, it's up 253 points, about 2%. We'll take a look at some of the stocks that are moving right now. PayPal holdings is up more than 9%. This is a company that just reported a 9% year-over-year rise in its second quarterly revenue. Now the company also reported it has entered and in so sharing agreement with activist hedge fund manager Elliott Management. Another one moving today's AMD, advanced micro devices, down 3%. It reported solid second quarter results but lowered expected third-quarter guidance and that is weighing on the stock today. And that is your market update. natural gas has recently been trading around levels last seen in 2008. According to our featured guest today, higher prices may be here to stay amid tight supply and increasing concerns about a cold winter ahead. Joining us now for more is Hussein Allidina, head of commodities at TD Asset Management. Hussain, let's start with the supply dynamics right now. Why supply so tight? >> Anthony, thanks for having me. I think the gas markets in Europe and North America, Europe relies heavily on supply imports from Russia. The situation in Russia particularly as it relates to Nordstrom one, the pipeline that brings our supply, volumes have been quite low. Europe started the summer with a relatively tight level of supply on the heels of the cold winter last year. Year over year, it has been divesting from producing natural gas domestically, very dependent on imports from Russia and those volumes have been lower. And all of that is obviously being exacerbated now by materially warmer than normal weather which is stroking the demand for natural gas at a time when frankly, the timing is horrible. >> Yeah, we have certainly seen the news about the heat waves in England and the rest of the country. Walk us through just how integral of the natural gas prices are to the European market. >> Natural gas is important globally. It's very important in Europe primarily because it is a cleaner fuel relative to oil relative to coal, so Europe has moved away from those dirtier oil, coal etc. towards gas, but the gas is obviously coming or not coming from Russia today. You have seen over the course of the last several months industrial shutdowns announced, whether it's fertilizer, smelters, aluminum smelters and the like because the input cost is so high and ultimately, at today's prices, I think are going to continue to see European industry come under pressure because the mass simply doesn't work with these elevated levels. It's very important. >> It's much more costly to produce this. >> Is costly for the producers or for industry to operate for sure, and it's also quite painful and challenging for the consumer as well because remember, natural gas is a feedstock for power generation and part of the reason why you have record high, never before seen prices for power in Germany and France is because of what's happening to the input natural gas. >> The risk of natural gas running out to as we head into the winter is potential. Why do you think that might play out? >> Yeah, the highest period of demand for natural gas is the winter because of increased heating loads, increase power generation demand, and we always worry that we are not going to have sufficient supply during the winter. Today, if I look at the US as an example, if we have normal weather, we should be fine. But the risk is, if you are a utility, if you are a power stream providing power to my house, they have to be able to deliver power when I call for it. So obviously, they are very concerned about cold weather and when they do their modelling on how much they need to have for the winter, they assume weather is not normal, they assume it's going to be much colder. And depending on how many standard deviations colder than normal we have, there is potential you run out. This is why think you're seeing prices not only in Europe but in the US move higher in an effort to ration demand, to avoid that sort of outcome. >> What is the situation in Europe mean for us here in Canada and the United States? >> Yeah, so today, the US is exporting about 12… A day. To the US market is. . . [video buffering] And we are still exporting 12, 13, 14… To Europe, we move it into issues with our balance. What the market is try to figure out is where do I… [video buffering] Anthony where we need to stop LNG from going to Europe. We are talking about prices well north of $20 and BTU because Europe is already trading north of those levels now. If I want to close that orb, I have to just incentivize the cargoes from going, and it's not eight dollars and BTU that does it, it's well north of 20. >> Industrial gas prices will remain elevated for some time, this suggests. What has to happen for to ease? >> I think prices will remain elevated because underlying inventories in North America and Europe are tight. If we end up having a mild start to the winter or if production, you know, we've been waiting for US production to respond. I think a lot of folks in the US production in the US today would be a 97 but we are only at 95. There is still an expectation that as the rig count increases and as companies look to expand the production that production will grow. [video buffering] Bearish for natural gas, as would an improvement in production and/or of this report LNG facility which went off-line stays off-line for longer than expected, it's expected to come back October, November, if it stays off longer, then that's more supply that stays to mystically. So those are the bearish factors that I see in the near term. But the medium-term is still one that I think is challenged because we have to invest. The demand for the stuff continues to grow. We have talked about this before. Particularly as people are moving away from oil and coal,, gas needs to see a investment. > Great start to the conversation. We will get back to your questions on commodities for Hussein Allidina in just a moment. Just a reminder, you get in touch with us anytime. Email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker. Now here's a look at thebiggest stories today and how the markets are trading. OPEC and its allies have agreed to raise output by 1000 barrels a day starting in September. That's less than the US and other Western nations were hoping for. Increase does put its output target above its pre-pandemic level on paper. The alliance has been under pressure to raise production to help bring prices down. US Crude Futures and Brent Crude, the global benchmark, both rose modestly after the announcement. Turning to earnings news, Aaron be swung to a profit in the second quarter. The home rental company earned $379 million and what was its most profitable second quarter and its history. Meanwhile, its revenue topped $2 billion as more people shook off the pandemic worries and took to travelling again. However, the stock is under pressure today after a weaker than expected Outlook on future bookings. [video buffering] Took a hit from a nearly $500 million write-down for expired or near expired vaccines. The company plans to buyback $3 billion of its stock and delivered $21 billion worth of COVID 1910 boosters this year. And here's how the main benchmark index in Canada is trading right now. The S&P 500… The S&P TSX is up .14%. In the US, the S&P 500 is up about 52 points. And the tech heavy NASDAQ is still up just over 2%. All right, we are back with Hussein Allidinafrom TD Asset Management, take your questions about commodities. The first question is on OPEC and oil. We just mentioned the slight output hike from OPEC. The viewer asks, what your outlook for oil after today's OPEC decision? >> Sure. I think the decision to increase output by 100 thousand barrels today it is interesting, and OPEC talked about this in their press conference, hundred thousand barrels a day is the smallest increase that we have seen in a while, and they underscored the concern around spare capacity and ultimately the forward balance. We have talked about how there has been a material lack of investment on the supply side. The upstream in particular the course of the past 10 years. they are ringing the alarm bell in saying that when we look at forward supply 2023 and onwards, there are concerns. Their decision to increase production by 100,000 barrels a day… There are two sides to it. Maybe they are concerned that demand is weakening and they don't want over supply the market. A lot of folks are looking at inventories building now in 2023 depending on how weak growth gets. It also might be a symptom of the fact that they can to do more. If we look at the countries that comprise kind of the cartel, outside of Saudi Arabia and the UAE, everyone has been producing under the quota. So if you are going to see this incremental increase in production, it probably comes from Saudi Arabia and UAE, but an increase in production means I have less spare capacity. They talked about this as well. They are worried about the amount of cover or the safety net that we have globally. Oil demand is close to hundred million barrels a day. We had spare capacity of 2 million barrels a day. It's not a comfortable position particularly when inventories globally are sitting at such tight levels. >> The 100,000 barrels per day, it's the smallest increase they've had. Is it a significant amount? What are your thoughts on it? >> There are folks joking that may be president Biden might have burned more oil taking a jet to meet with the Saudi's then they achieved. The issue is they can't come out and grow production by 500,000 or 700,000 barrels a day because they don't have it. Back in 2007, 2008, when OPEC and Saudi Arabia started to increase their production, we saw oil prices moving higher because folks were concerned about the amount of spare capacity we were left with. I think we are in a market that is not to do similar from a spare capacity point of view relative to where we were in 08. > Great insights. Let's get to the next question. Next question: can we get your guest's view on agricultural commodities given the shortages we've seen in some countries? >> Agricultural commodities have come under material pressure under the course of the last six weeks. The broad-based agriculture index is down about 20% which I think is more macro related than micro related. Adjusted for demand moves to critically tight levels. Ultimately, if we end up having good weather, you won't see inventories drop meaningfully but your inventory position is already to begin with. So the risk reward is, right now, skewed to the upside and, obviously, food prices and the impact that has, particularly in the emerging market, is a concern because emerging-market disposable income is spent primarily on food, so it's an area to watch and the balance is tight and we are very dependent over the course of the next couple of weeks on good weather. >> It's amazing how much weather is impacting commodities and oil, it something will have to heave our ion going forward. >> For sure. >> As always, make sure you do your own research before making any investment decisions and we will get back to your questions for Hussein Allidina on commodities in just a moment. And reminder that you can get in touch with us anytime. Just email moneytalklive@td.com. Now let's get to today's educational segment. Stock exchanges focus both buyers and sellers, but some sellers might not be aware that there are two types of markets when it comes to purchasing investments, primary and secondary. Here to tell us what the differences are and how investors can access both in WebBroker, it's Nugwa Haruna, Senior client education instructor at TD Direct Investing. Things very much for joining us. >> Thank you for having me, Anthony. >> So what is the difference between a primary and a secondary market? >> So originally, you have talked a few times about the markets being up-to-date, the markets being down today, so that is based on the major indices, and these are based on securities that are trading on these exchanges. So a stock exchange is an example of a secondary market. The secondary market is actually a place where securities that have already been issued are being traded between investors. So in this case, the original companies that issued these securities are not necessarily involved in these trades. On the other hand, there is something called the primary market. So in companies and governments are looking to raise capital be it for business operations or for new projects, they actually will create new securities and they will issue these using something called an initial public offering. So this gives investors an opportunity to go ahead and purchase the securities directly from the Corporation or the government. It could be things like stocks, it could be things like bonds when governments or corporations are looking to generate debt capital. Once this happens, the investors and become owners. I will mention that companies do go through a very rigourous regulatory process in order to list their securities for the first time. And within Canada, the US and international companies don't necessarily tend to file documentation to make these new issues available to Canadian residents, so most of them are not available to Canadian residents by Canadian residents do have access to Canadian initial public offerings. I also do want to mention something else about initial public offerings which is that investors can decide to use these either because they may notice that once these securities hit the stock market, the prices may increase significantly. But the opposite could be true. Once the securities hit the stock market, they could seea serious decline in the price. >>how can investors access a primary market in WebBroker? >> Right. Investors are able to access new issues within WebBroker and I want to mention something that is very important for investors who are looking for initial public offerings within WebBroker. So while all initial public offerings are new issues, not all new issues are initial public offerings. So for instance, within WebBroker, an investor can find things like newly issued, common shares, preferred shares, income trust, but investors may also come across something called treasury offerings. So just to give a quick explanation of what that is, when companies are first authorized to sell their shares, they may actually keep some shares back just in case they need to raise capital in the future. And when they do decide to sell those shares at a later time, they will do this using treasury offerings. So once in WebBroker, and investors able to find all these kinds of offerings, be it initial public offerings or just new issues by clicking on the trading tab. So once I click on trading, I'm able to click on new issues and ones here, and investors able to see information about the current offerings that are available within TD Direct Investing and if an investor finds a new issue they are interested in, they can place an expression of interest. So just to explain what an expression of interest is, it is a firm offer to make a purchase of that specific security. So the investor would put in the quantity they are looking to purchase and, once they do that, TD Direct Investing fill these orders on a first-come, first-served basis. So it's possible that an investor would get all of their order filled, it's possible they may get a partial fill, or they might actually not get any fill at all. Now finally, an investor, if you are trying to stay on track with any new issues in WebBroker, and investors able to do that by actually clicking on the update profile within WebBroker. Once here, an investor could put in their email address, scroll down and actually selected the kind of new issue you want to be alerted when so if investors are interested in things like common shares, fixed income, structured notes, private placements, they can do that an update the profile, and they will receive an email to let them know when there is a new initial available for them to express interest on. >> Nugwa, thank you very much for that information. >> Thank for having me, Anthony. >> Are welcome. That was Nugwa Haruna, Senior client education instructor at TD Direct Investing. Make sure to check out the learning centre in WebBroker for more educational videos, live interactive master classes and upcoming webinars. Now before you back to your questions about commodities for Hussein Allidina, a reminder on 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 will see if one of our guests can get you the answer right here, at MoneyTalk Live. >> We are back with Hussein Allidina taking your questions about commodities. The next question off the platform is about will. Why is gold going down when inflation is so high? I'm sure you've heard this question quite a bit. What are your thoughts here? >> Yeah. when I think about gold, there is really three things I think are important in determining the price of gold. What is real rates. Real rates had been increasing pretty meaningfully and I think that put pressure on gold, notwithstanding the fact that inflation, nominal inflation, is elevated. The second and very important is the US dollar. Gold is priced in dollars. Most commodities, as the dollar increases, anything priced in dollars comes under pressure and I think that has played a material role in the weakness we have seen in gold prices of late. And the third, because gold is a safe haven, typically we see that when volatility or performance of equities, for example, comes into question or equity suffer, gold tends to benefit. Actually, over the course of the last six weeks, equities have done definitely better than they did in the sort of early summer period. So I think those three factors have all, frankly, acted as a headwind towards gold. I don't have a tactical view on where gold is going to be trading in two weeks or three months, frankly, but I do think gold should be part of your portfolio construction because of the role that gold place in your portfolio and in that environment where you do have that tail risk or doubts about efficacy of the strength of the central banks, gold tends to perform in those environments. You want to have gold in your portfolio, but as to where it will go in the next weeks, I'm at a loss. >> Regardless of the fact that we are in a high interest rate environment, we are seeing central banks increased interest rates. You still think that gold is something that people should continue to? What's your outlook for base metals and will EV, electric vehicle, demand continue to be a boost to the sector? >> If we take a look at the EV space generally, whether it's batteries or the need to build out power generation capacity and that infrastructure to get power from the source to your home, there is a tremendous amount of metals used in the process. Again, whether it's the battery or the transmission. Aluminum, copper, nickel, lithium, cobalt, these are all materials that are integral for this energy transition and I think become a material part of the demand side, particularly as we move through time. Today, the amount of copper that is used in the EV space is materially smaller than what is going to be in five or 10 years if projections hold. So to answer your question, Anthony, that the demand four metals from the EV transition will grow. Today it is small but it will get materially larger and we really need to see an increase in the investment side of copper, aluminum, cobalt, etc. to have that material to meet that EV demand. In the very short term, obviously ChinaAnd the growth or lack thereof is going to be important for metals. So what property does in China is important because China is a material consumer of these things today. That all being said, if you look at underlying balances, and this is a theme across commodity markets, if you look at the copper and aluminum balances, the amount of material available when exchange is concerningly low so do you anticipatecontraction and growth? I think metals on a 5 to 10 year view will perform very well because of the EV story. >> So the EV story continues to be a big story going forward. We will get back your questions for Hussein Allidina on commodities in just a moment. As always, make sure you do your own research before making any investment decision. 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 any time@moneytalklive@td.com, or you can use the question box right below the screen here on WebBroker. Just writing your question and hit send. We will see if one of your guests can get you your answer right here at MoneyTalk Live. >> Okay, let's get you an update on the markets and what's happening right now. We will start with the TSX. The TSX is still relatively flat, just up about .15%. Let's take a look at the S&P 500 index. It is up 52 points and change. And the NASDAQ index as well, it is still up roughly 2% at this time. And we are back now with Hussein Allidina from TD Asset Management with another viewer question. This one on carbon. Canada recently proposed a carbon pricing system for the oil and gas industry. What are you seeing with the price of carbon? >> Yeah, so I think carbon, putting a price on carbon is going to be integral for us to be able to transition away from where we are today to where we want to go to reach our Paris obligations, etc. ItEurope is had a cap and trade program in place for years now it's working well to encourage industry to move away from dirtier forms of output to clear forms. I am probably more of a note that sort of market-based mechanism versus the government setting a sort of… A nominal price on carbon. But I think it's important. We are going to temper our emissions and move to something cleaner, which I do think we need to do, as evidenced by… You know, climate over the course of the past several years, you need to have a price. So I think it's a good thing. And I do think that, in the case of Europe in particular, or frankly in the case of carbon pricing broadly, where we are trading right now relative to where we need to trade based on the work that academics have done, carbon prices need to move higher still from where we are today in order to dissuade incremental omissions, to force industry to move away from the dirty towards the clean, you have to tax it. Historically, it's been an externality, it's free, you can do whatever you want. Now that I internalized the choices that I may, industry is going to be different. >> What are your thoughts on commodities overall? >> That's a tough one, Anthony. Look, I think the market has been caught up. There are really two stories. On one hand, the macro has been challenged. We are worried about rate hikes, we are worried about growth, the Fed is saying that so long as inflation is elevated, we have to continue to slow the economy effectively. That's not good for commodity demand. And if there isn't commodity demand, then the supply constraints that we have talked about multiple times don't really matter. Now when I look at the other side of the coin and I look at the micro, the micro is actually still pretty robust. Inventories, we had the DOE's this morning, inventories are still drawing, demand is still relatively firm. There are some signs of weakness. But the micro is quite tight. I knew the next three, four, five months are going to be challenging. I think it's going to be hard to read the tea leaves and see where growth is going. Over the course of the medium-term, when I look at sort of 12 to 24 to 36 months, I worry that we don't have, and we talked about this, we just don't have the supply to meet the demand and we are still demanding. And that dichotomy is an issue and it's being presented via lower inventories, higher volatility and higher price. And I don't think we move away from that until we move away from consuming these commodities the way we do. And I don't think that happens the next two, three, four years. >> Do you think supply and demand will continue to play a role in commodities going forward? >> I hope we don't have prices at hundred and $50 or $200 a barrel, but I do think prices are going to be elevated relative to what we are used to, and I think see back at gradation, which I think reflect the tightness of the markets, and is particularly important for commodity investors, will remain present at a degree that is more pronounced than we have seen historically. >> Hussein, thank you very much for joining us. >> Thanks for having me. >> That's all the time we have for you today. Our thanks to Hussein Allidina, head of commodities at TD Asset Management. Stay tuned on Thursday, Thomas Feltmate will be our guest taking questions about the US economy and automotive sector. And just a reminder that you can get a head start. Email MoneyTalkLive@td.com if you have any questions for our guests. That's all we have today. Take care. We will see you back here tomorrow. [music]