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[music] >> Hello I'm Greg Bonnell and 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 will only see here.
We we'll take you through it's moving the markets and answer your questions about investing.
Coming up on today show, will discuss whether commodities continue their move higher they've made so far this year with Hussein Allidina.
Our Anthony Okolie will give us a preview of what to expect from today's US Federal Reserve decision. And in today's WebBroker education segment, Nugwa Haruna will show us some of the different tools on the platform to analyse stock charts. So here's how you can get in touch with us.
Just email MoneyTalk Live@td.com, or fill out that viewer response box under the video player. Now let's get you an update on the markets.
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the auto parts space, names interesting lately in positive territory with 70 bucks and $0.49 a share. We will call that 3 3/4 of a percent.
South of the border of course the big event the S&P 500. Down a modest 17 points, a little less than half a percent.
the NASDAQ down pretty modest and ahead of the Fed, what Jerome Powell has to say are hinted at the path forward… Some concern about Intel last week about the demand and indeed, earnings beat has a pretty solid forecast for investors in the market. Those shares almost up 18%.
And that's your market update.
Commodities have had a good start to the year, along with other risk assets. But will that path continue?
Amid the risk of higher slower global growth? Joining us now for Maurice Hussein Allidina, Head of Commodities a TD Asset Management.
Always good to have you. Always great to have you.
So January, commodity plays, a getting a bit as well.
We will say everything will be great for the rest of the year. There are things we need to worry about.
>> Yes there are always things we need to worry about.
I do think the 2023, 2024 and 2025 will be good years because the lack of investment that we've seen.
Obviously, >> Hussain, I'm going to stop you on that thought because your Mike seems to have fallen down your jacket.
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now we can hear you.
>> I think any outlook is positive primarily because of the lack of investment that we've seen on the supply side.
Clearly, you need to have demand. I think part of the reason why commodities and other risk assets have performed well in 2023 is because expectations of improved demand an activity in China is lifting expectations of the forward balance and how tight things will be.
But of course, you know, demand and the variability is a concern.
The tightness on the supply side is still very prevalent. We look at imagery balances that they have built, if I look at oil balances, they are softer today than they were three months ago primarily because we had bad weather. Doesn't feel so much of that way this morning but we haven't had weather anywhere near normal and I think that has resulted in some softness. When you take this more medium-term view and you look Chinese demand up 800,000, 600,000 barrels a day, compared to last year with 5000 500,000 barrels a day rather.
The S&P 500,000 barrels a day likely in the market and that likely doesn't happen this year.
Russian production was very resilient this year.
All those factors together with somewhat robust demand growth makes for tighter balance.
>> Tighter balance in the near teBritish Petroleum, one of the global players coming out actually talking about where they see demand in the years ahead.
I think you pay pretty close attention to that early in the week. What did you get from it?
>> I've confirmed almost as long as I've been doing commodities and I won't date myself but I had hair when I started.
Demand form peeking, energy renewals acceptable etc.
BP is relatively optimistic on how quickly we will move away from conventional energy. They still in their base case, see energy demand growing over the next 10 years.
So, again, they are bearish relative to the other players like Exxon that forecast in the longer term. If there can it continue to have, you know, growing demand for steady demand, you have to address the supply side.
if you look at the Back companies, you are not seeing the Backs you need to be able to facilitate that supply to meet the demand.
>> Let's talk about that because the trend seems to be not toward investing in future production capacity and investing in the future of oil. It seems to be "let's reward shareholders with special dividends and not really invest in the business." What's going on? Cannot be sustained long-term?
>> There's this monument in shift. Going back to that BP report, they had a wonderful chart in there that shows the amount of investment needed per year. They bake they break it down by region. In order to be able to reach these, sort of, estimates that they have on kind of the global energy. In all of the geographies around the world, the amount of investment needed on the renewable front is higher than we ever done before.
So you need, with the exception of China, China had a year that was elevated, but on average, the amount of investment you need on the renewal site to meet those optimistic forecasts, I would say, are well above we are right now.
Even still, I think we have to remember that the growth, though good, is not meaningful enough to offset the magnitude of demand on the conventional front that we have today.
We will consume 100 million barrels a day of oil this year. To put that into context, 10 years ago we started talking about having to transition and substitution.
We will can we were consuming 9 million barrels a day.
The global economy leaves the GD growth is something that is expected in the future. GDP is energy and unfortunately, that energy today, unfortunately or fortunately, depending on your perspective, that energy today is still oil and gas and… >> There would've been a time where as investors, thinking about the TSX. Energy was a pretty big focus.
We still have some major names. What's the situation they are in terms of foreign investment dollars looking to Canada as an opportunity? What's the state of our hundred our industry here domestically?
>> I think if you look at the last 10 years, a lot of US share production because it was shorter cycle, the regulatory environment. The US was more favourable than it was in Canada. I think that the productive resource in the US is not as meaningful as it was, because we've gone through a lot of the sort of best days that we had. Canada is pretty interesting particularly if we figure out our pipeline and regulatory constraints.
Canada has a relatively, I would say, clean resource.
We have reasonable rule of law.
Again, if you look elsewhere, US shell is not what it is doing. The economics are not as favourable as we thought they were 10 years ago. I think Canada looks super interesting.
>> We take that altogether and think of the year we had last year when energy was the clear winner and a very tough year for everybody.
All that was the first half of the year. How does this year play out?
If you're an investor just looking at the energy space, whether it's Canadian stocks are global stocks, what kind of performance can we expect?
Outsize or something decent?
>> I would say on the commodity front, I anticipate that we will see further upside in oil prices.
Oil is trading at eight dollars a barrel. I think as the year progresses, and we have some more certainty on how we demand is going to be and we can kind of get some conviction on what happened to the Russian production, you know, I think almost regardless of how you cut it, the year probably ends tighter than where we started and I think that is a positive for energy.
Energy equities, Greg, I think, you know now that energy represents 5% of the S&P, folks have to look at it.
I think when folks look at it, which is something they have not had to do in the last 10 years, once they start looking at the balance, I think it will come to very similar conclusions the people who are looking at the balance… "Hey we are still using a tremendous amount of oil to generate energy but we forgot about the supply side, the investment side".
Part of that is the fact that we've been in a bear market for 10 or 15 years.
There hasn't been an incentive to invest. Today we are telling you you should invest but there isn't necessarily the follow-through partially because the concerns are in a transition period >> Fascinating stuff.
We'll get your questions with Hussein Allidina about commodities and just a moment's time. Including his outlook for gold, natural gas and water recession could meet in the space. A reminder of course that you can get in touch of a seat any time by emailing moneytalklive@td.
com or fill out that viewer response box right here on WebBroker. Right now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Strong growth in grain shipments help to boost revenue at CP Rail in its most recent quarter. The railway is reporting a 21% increase in sales, although its adjusted operating ratio, a key industry metric where a lower number is better did increase by 160 basis points.
When it comes to the proposed merger with Kansas City Southern, CP Chief Executive Keith Creel says they put US regulators to make a decision later this quarter. TC energy is raising cost estimates for its coastal gas link project.
By more than 30%.
Citing labour shortages and tough weather conditions, the company says the project is now expected to cost $14.5 billion Canadian.
It's not the first time TC energy has raised its cost forecast for coastal gas link. Social media company SNAP is warning investors of a tough environment for ad sales. The parent company of Snapchat expects sales to fall as much is 10% this quarter compared to the same period last year.
The results coming ahead of earnings announcements from the heavyweight such as Meta and Alphabet which are also relying heavily on digital ad revenue.
And let's take a look at how the markets are trading.
In Toronto, three quant three quarters of a percent and south of the border, let's check on the broader region of the American market, the S&P 500, also a bit of weeklies weakness here. A little more than half a percent.
We are back now with Hussein Allidina taking your questions about commodities.
Let's get to them.
What's your outlook for gold?
This is an interesting one. Wondering where it might be headed.
>> I think gold has had a pretty… To start the year and end last year.
The improved sort of macro outlook and what that's meant for the dollar. I think the other sort of fun and mental factors in the market is a tremendous amount of gold buying on the part of central banks particularly.
I think that is potentially out of the dollar. In favour of gold.
Tactically, I think we've had a reasonable move. I think that there is a bit of risk around gold at these levels.
Given what the sort of outlook for rates might look like. Structurally, I think gold plays a very, very important role in your portfolio.
You think about portfolio construction, I think you want have an allocation to gold, two or 3% given how it performs relative to the other assets that you hold and those tail events.
>> We talked about oil off the top of the show.
You can get a clearer picture of what global demand might look like for oil. Based on our economies and how we use oil.
When it comes to gold, is it harder to peg down and demand?
You said the central banks started buying gold. Is it a bit more of a tough one?
>> I think you look at gold and you look at the other commodities, the other commodities, I think, are primarily driven by supply and demand.
So if you take time with the supply sign in the demand side you see what imageries might look like.
You see a reasonable relationship between imageries and prices and imageries in the shape of the curve. Gold has some of those characteristics but gold is also somewhat of quasi-effect. So I think you have to keep that in mind as well.
If you look at the sort of major goal demand, jewelry is a big one, investment demand, whether you characterize central banks holding gold as investment demand or individuals buying ETF's to participate in gold, those are kind of your big sources on the demand side. Not to bore you, but if you look at the supply side, like all the other commodities, the incentive has not been there to invest on the supply side. So you don't have as much mind production. As gold prices go up you see secondary supply increase, your wife's necklace and a certain price etc.
>> I'd start with my own before I go at that.
>> But ultimately I think the fundamentals for gold are important.
Gold is also the anti-paper currency and part of the strength we see in gold this year and late last year, is a function of concerns around the dollar end of the agenda.
>> I should clarify. I don't have gold necklaces.
Just in case viewers are wondering what I look like on my off time.
>> Fears about the war in Europe driving natural gas higher past?
>> I think fear around European natural gas prices has passed for now.
We started, we talked with the lack of weather and what that's meant for the oil balance.
Last Summer, Europe had to ensure that they had as much gas in storage as possible.
Over the course of the winter, if you're not getting flows from Russia, which are not getting anymore because North Korea has its issue, you have to try and build as much inventory as possible. But at the same time you try to ration it. The market spiked higher to ration demand and to attract cargoes, LNG cargoes for the rest of central.
Then was blessed by this really warm weather.
Imageries are relatively elevated in Europe right now.
Go through the Summer, we will be read building rebuilding depending on how warm the Summer is. But if you look at next winter, next year, you still don't have the storage alone enough gas to meet your demand.
So you're going to have to attract foes rather flows.
They will not be pipeline flows they will have to be LNG. China was not in the market for LNG this year.
They had an economy that was closed and a generation of cola increase to meet that power and demand. Next winter might be a very different story.
They will still be doing their call but they'll still be competing with that LNG and again, if we look at sort of our global LNG picture, we were fortunate that some liquefaction projects started in the US. There is now a dearth of projects until late 2024.
So I don't think were through the woods on a tactical short-term basis, Europe is okay. I think fast forward into the Summer, and we will see, kind of that worry around next winter's gas again.
>> Does that mean that the Canadian LNG is still alive?
So many things we hear about in terms of infrastructure projects. You talk about it and talk about in years pass and the conversations which is to "are we acting on an opportunity or missed an opportunity?" >> Have we missed an opportunity no. I think Canada has a phenomenal opportunity to help not only address the energy security issues in Europe, but more importantly, to address climate change by exporting more gas.
Gas you note 10 years ago, gas was a clean transition fuel. At some point that narrative got lost in gas got lumped in with cold. It's not the same.
Particularly the Canadian gas. We don't flare the gaslight to do the same.
I already knew that if we were exporting, if we had the ability to export more LNG today, we be exporting that to China and China would be burning cold. Energy cargo that we don't export to Asia is replaced by something far dirtier.
So I think there's an opportunity, a massive opportunity. I don't think that the political sort of, wherewithal is there unfortunately.
>> Is the corporate well there? I wanted to ask you that question.
>> I think the corporate will is there that it gets contained and mitigated by the inability to do anything because of the regulatory part.
>> Fascinating stuff.
One viewer wants to know if we do get a recession, and the odds are changing every day, but we are waiting for commodities?
Or does that mean for commodities?
>> Lower GDP means lower oil demand.
This a pretty amazing relationship between Jeep.
It's very commodity intensive.
Even though our intensity has decreased in 2030 years ago, in order to have GDP you have to have.
Lower GDP means less commodity demand but I think it's important to appreciate how weak were talking about were talking about weaker GDP. In the case of oil, we had four instances since 1970 were well demand has decreased.
When the world stopped around the pandemic, during the financial crisis when you couldn't get a letter of credit to move a cargo in the 1974, 1975 embargo prices spiked, 79 to 82, the Iranian revolution and the start of the Iran, Iraq war will be lost oil supply. During the Asian financial crisis, where GDP came under pressure and we were in a recession, oil demands tend to increase.
Oil demand increases by million barrels a day every year. So yes, a recession would be bad for commodity but in order to replenish the very tight imageries we'd have across the commodity space, you need to see a material contraction in GDP and I don't think that's in the cards at the moment.
> What about gold?
We talked about the dynamics different because of the role it can play in a recession.
Typically what we expect?
>> If we go into a recession, let's say it's a meaningful recession, then presumably, JP is going to cut rates. Jerome Powell will cut rates. Lower rates would equal constructive for gold because the opportunity cost than of putting your cash in a T-bill relative to putting your cash in gold would be favourable.
And ultimately, if you do believe there will be additional rate cuts, I think at some point the sort of uncertainty again starts to boil up again and potentially benefits gold as well.
>> All right. As always make sure you do your own research before making investment decisions.
We will get back to your questions with Hussein Allidina about commodities in just a moment's time. A reminder that you can email us anytime at moneytalklive@td.com. Now our educational segment of the day.
If you're looking to do an analysis on a company's stock there are some tools to help you.
Joining us now is Nugwa Haruna.
Always a pleasure to be here.
… We can use the charting tool where the charting tool is very important as a technical help for analysts. You can look at historical price trends to help them identify potential entry positions. So by signals as well as exit positions that will be sale signals.
But, I will mention that the charting tool is also able to provide information to fundamental analysts. The charting tool within WebBroker, information such as dividend payments, historical as well as historical earnings and outs. So let's hop into WebBroker take a look at the charting tool there.
Once in WebBroker, click on "research".
Under "investments", click on stocks and stick with today's theme of commodities. We have barren gold rather Barrick Gold on screen here. I will click on charts. Once I do that, this will show me the charting tool within WebBroker. I will just keep it to a three-year chart here. I do want to highlight a few things on screen.
So for investors who are practising things like technical analysis, they may be able to add what we call "upper indicators".
These would be things that provide trends to the price chart right now.
And these are superimposed into the body of the charts.
So I will click on upper indicators and pull up a very popular one which would be the simple average.
As you can see now I have a green light on here.
That is based on the last 15 days of trade.
Now, if I want to look at a lower indicator, that's essentially a trend or indicator that will show me information but it is creative at the lower. So underneath my price chart. I will click on the lower indicator here and I will click on a popular one.
The strength index.
When I click on that, you will notice that this appears underneath the body of the charts and it's something that the RSI index will show investors information such as when a stock is overbought.
So when the price is overinflated, or when it's under box or oversold.
When the price maybe underappreciated at that point. As I mentioned, there's information for fundamental analysts as well.
If I want to see information such as historical dividend payments, I can click here and drop down.
I will click on dividends.
Once I do that, you will see we have some things here.
I can also look at historical earnings announcements and that I also have ease on the screen. I can hover over each of these. To see if there are any earnings from time to time. So once again, something for everyone.
>> Once people get into this realm, there is no shortage of indicators and technicians. I have hope I have posted more shows than I can count with technicians.
I get a little confused myself. So where can someone start if they're going down this path? How can they learn more?
>> I completely agree Greg. It can seem a little overwhelming because you start to say "are these signals actually accurate?" When it comes to technical announce analysis and indicators, one thing you want to consider is that one indicator may give you a full signal. So a combination of indicators may be a more successful way for you to identify entry and exit positions. In WebBroker, investors can use the technicals tab. Let's take a look at that. If I have my stock pulled up, I can go to the tab that is called technicals. Here. Once I click on here, this will show me a collection of patterns identified by different indicators. So I don't have to pull these up individually. So once again, I will scroll down a little bit. I will notice on the left side of my screen, I can see any bullish events which will indicate a potential increase in the price that security as well as bearish events.
All of these are listed here. If I want to get more of a graphical representation, I could just click on the six squares here.
When I do that, I will see each of these indicators and they are indicating a potential bullish and/or bearish event. Now, I may not have the time to come in here every day and take a look at this. So if I want, I can actually set alerts to inform you when there is a bullish and/or bearish event for a specific stock.
To do that I just click on the little bell here.
Once I do that, I can select these specific technical advents that I want to receive notifications for. When I click on here, I see different either candlestick patterns, I will see different indicators, different oscillators and I can select what I want, name that specific alert and then always be informed if there is a potential entry and/or exit position that I can take.
>> Great stuff is always Nugwa, thanks for that.
>> Thank for having me.
>> Nugwa Haruna, Senior Client Education Instructor at TD Direct Investing. Make sure to check out the learning centre WebBroker for more master classes and upcoming webinars. Now before we get back to questions about commodities for the four guest Hussein Allidina, a reminder of how you can get in touch with us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type 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 now with Hussein Allidina taking your questions about commodities.
Someone talking about carbon.
As the market for carbon still an interesting area? I feel like I don't hear about it as much.
>> I think it's timely. Europeans are trading with 94 €95 a ton. I think part of the reason you're seeing carbon prices move higher is a reflection of the fact that the weather has been milder which has actually reduced energy prices and increased expectations around potential growth in Europe. As growth increases, carbon emissions increase and the EU, ETS program in Europe, has a limited amount of credits that gets issued every year. If your demand is higher and your credits are decreasing, one of the reasons we like carbon on a multiyear view is because of the design of the EU and other sort of cap and trade systems were by design, they are trying to push carbon prices higher in order to temper carbon emissions and to encourage substitution away from dirtier forms of energy for example.
Into cleaner forms. You are seeing it today, notwithstanding the weakness in the European economy for broadly speaking, carbon prices are moving higher.
>> The price of carbon makes me think of the perfect intersection between corporate will and political will pillory how is it evolving in North America? Well in Canada, we have a federal carbon tax which increases every year.
In the US, you have a couple of different programs. In California, you have a very similar program similar to the program in Europe. You have another program in the northeast of the US. The Reggie market which is a couple of states in the Northeast. Similar programs right? The government sets a cap on how much carbon can be admitted every year, as a participant in industries.
So Craig International will get an allocation of carbon credits.
If you exceed your allocation then you need to go to someone else on the market and buy a credit from them.
Ultimately, these programs are all designed to see the number of credits decrease over time in an effort to reduce our carbon footprint.
As growth accelerates, the out put of carbon increases and ultimately why you see prices, I think, moving higher.
>> Fascinating stuff. Let's get one of the question now.
90 minutes away, I'm your personal countdown clock.
Just call me at my desk and I'll keep giving you time counts.
Will the end of the rate hiking cycle have an impact on commodities?
>> So that's a very good question. If we look at the last 10, 20, 30 years, the decrease in rates has made the investment decision a little bit easier.
I've argued that the revolution we saw in the US probably wouldn't not have happened if the companies that were out there doing the exploration of production had to pay.
The fact that rates were close to zero, aloud, I think a tremendous amount of investment to take place and the fact that rates have increased now, I think is kind of the required rate to return them a hurdle for folks who made the investment. Should rates come lower, it makes the investment decision a little easier.
But I don't believe rates are coming back down to where they were. Especially given where inflation is today and likely where inflation and views on commodity is right. So I think higher rates, higher rate of return, required to make that investment and ultimately, I think that presents more challenges.
>> That does sound like it feeds into that opportunity, I guess as some of us looking at the market, having regulatory concerns, the future of crude and the demand there.
>> Yeah and if you look at the investment in commodities relative to investment and other asset classes, those portfolios are short inflation. Their long equities and implicitly short inflation.
You need to have, I believe, commodity allocation as part of your overall portfolio with banks.
Not only because the micro fundamentals of commodities are really good but the macro of short commodities and when we talk institutions in larger investors, looking at commodities to build out their portfolios.
>> Another question now, this one focused on the energy space.
What are the implications from Chevron's big share buyback?
I think as a commodity guy, when I see companies doing that, it increases my conviction on the concerns around the supply side. Chevron could have taken that money and said "look, we will reinvested in the shell of the Gulf of Mexico.
". But management right now is incentivized to return cash to shareholders partially because of the investor climate right?
A number of investors don't want companies growing their carbon footprint.
I think there's a disconnect.
Because again, GDP is energy.
I don't bore you but there is a disconnect.
Chevron returning money to shareholders means that Chevron is putting less money into the ground to produce the oil, gas that you and I need to get to work, to heat our homes, to put clothes on our backs.
> Never boring my friend.
It all interesting. That's what I would say if someone asked what Hussein's all about. We will get back to your questions in just a moment's time.
As always a reminder you can get in touch with us at any time.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
Quarter of a point, 25 basis points, that is the expectation we hear from the US Federal Reserve at 2 PM Eastern time. But, we want a lot more than just the number. Anthony Okolie is giving us a preview of the expectations that we will get with the fed, particularly a press conference Anthony.
>> That's right. Of course as you mentioned 25 basis points is expected as a market consensus of course again. That would take the target range between 4 1/2 to 4.75%.
The expectations that the Fed will continue to suggest that inflation remains too high. TD Securities is also forecasting in their numbers at least 5 to 5 1/4% versus market expectations of around 4.9% which translates to a range of 4.75 to 5%. Now, TD Securities expects that the market price of the terminal rate will be higher as inflation become sticky on the way down.
The labour markets remain resilient.
At the press conference, after the rate decision, TD Securities expects the community to acknowledge recent progress on inflation front. Now, of course, there have been some signs for example, this week that US labour costs rose at the slowest pace in one year in the fourth quarter.
Now, TD Securities also expects the community to reiterate that.
It will continue to reduce its holdings, agency debt and agency mortgage-backed security's. They don't anticipate that any Fed official will descend against the community's decision to hike by 25 basis points.
This being today. Finally, it TD Securities expects Chairman Powell to devote a large part of his press conference emphasizing that the Fed is not done yet when it comes to further hikes and that he will likely single more hikes to come.
Jerome Powell likely hits his terminal rate projection of five and five in a court percent rate a key question being is if it is sufficient enough to bring inflation down to the Fed's 2% target. Now, given course services have been, TD Securities believes of the risks around 5 1/4% terminal rate projection is viewed towards a higher term terminal rate.
Now, of course I will be interviewing James, Senior Economist with James with TD Bank group James Marple that is Senior Economist with T decrypt for his reaction.
>> Always fascinating to to watch the market reaction with the decision.
Watch the market reaction while you hear from Jerome Powell. But I think what I'm most interested in, is that disconnect we've had between what we heard from the Fed and some of the governors about how firm they will be and how far they need to go with the bond market is saying. In terms of where they end up and when they start cutting.
Very interesting disconnect for me.
>> From Fed officials, some of them are asking for the Fed to be a bit more aggressive. Some a little bit more dovish.
So today's announcement will hopefully square that with investors and market players.
>> The big one. Thanks Anthony.
>> My pleasure.
>> MoneyTalk Live's Anthony Okolie. Let's check it on the market ahead of the Fed decision.
We do have some weakness out there.
Hundred 73 points on the TSX. Sort of drifting ahead of this.
A little shy of a percent to the downside. The weak spots including TC energy, they will show us raising and the cost forecast yet again.
The market doesn't seem to be enjoying that piece of information.
A little more than 7%.
Sent Tara gold, we want to take a look at this one making some names. Not everything is down in Toronto right now.
You have sent Tara up a little more than 3%.
South of the border, the S&P 500, 23 point deficit from yesterday's close, a little more than half percent.
Of course, be on the Fed pretty big week for earnings including some tech heavy names, let's check in on the NASDAQ to see how it's faring right now. 50 points, a little less than half a percent.
And Peloton, remember this, being a big winner in the early innings of the pandemic. Home exercise equipment.
Then that story change direction in a pretty dramatic way.
Last year, they came out and they said they are starting to see some growth again.*Stock popping to the tune of 18%, high off far off from its highs a couple years back.
We are back now with Hussein Allidina from TD Asset Management talking commodities.
Let's get back to questions.
This one about opportunities. Do you see any in the solar sector?
>> If we go back to the BP report that we referenced earlier, both wind and solar are a material part of that renewable power expansion power generation expansion expected to take force the next 10 years. I think with interesting, as it relates to both wind and solar, those are not intermittent sources of power. If it's not windy, if it's not sunny, yellow problem.
I cannot today because my inability to store power.
I can't rejig the grid away from baseload call natural gas nuclear into solar and wind alone.
Because again, if it's not windy or not sunny, I'm not enough power. I need to have power on demand at all times. I think the opportunity that wind, solar and renewable is actually on the nuclear, the Iranian side, if we look at how baseload power generation is delivered today, cold, gas, Hydro in Ontario, nuclear plays a bit of a role. But I think if we are moving away from the dirty coals, dirty gases… Nuclear plays a role because they can't do it all with solar and wind unless I can store which I can do today.
>> It does feel like in the past year or so that the sentiment is changing around nuclear. Understandably more than a decade ago with Hiroshima, there was a lot of governance backing out of Germany,… Pretty large industrial appetite for energy. Do you think that mind shift is taking hold further and will keep moving in that direction and companies will start embracing nuclear again?
>> Absolutely.
It's a shift of necessity.
It's occurring because people are looking at the balances.
It's easy for you and I to say that carbon is bad and everything should be clean. Of course. Everyone wants that. Why we do not want to have power that is not dirty.
But the reality is, again, if you look at how the world has been built over the course of the last 200 years, very much dependent on these traditional forms of energy. Now, if I look at nuclear and a comparative coal or oil, yes there have been some horrible instances but not related to nuclear itself.
The Fukushima issue was an issue of inappropriate safety around the reactors.
So I think when you do the full psychoanalysis of nuclear and you compared to any other option, it's beautiful. It's amazing.
Ultimately, I think it's because of necessity and because folks are now looking at these balances which they haven't had to look at for the last 10 or 15 years because we were in this situation of gross oversupply that is kind of changing the sentiment and I think, to answer your question I think it continues to improve as we look in the future.
>> Well we are out of time with fewer questions but we would like a final thought for you for the year ahead.
Including some commodity plays… How does it play for the rest of the year?
>> I would say right now we are long energy relative to benchmark, less so, we have taken some gains there because we think the market is moved a lot. We are long carbon.
In aggregate, I think our allocations to commodities will increase throughout the year.
Because again, the micro S&P for many of these commodities, so long as we have some GDP growth, the IMF revises higher their GDP forecast yesterday for the first time in four terms.
As long as we have positive GDP growth, the supply constraints have not been addressed or are not being addressed and ultimately that points to tighter imageries, higher prices, more backwardation all for good for the quantity investor.
>> I was a pleasure to get your insights Hussein.
> A pleasure.
>> Hussein Allidina, Head of Commodities a TD Asset Management.
Stay tuned for tomorrow show, Chris Wheelan, Senior Canada Rates Strategist at TD Securities talking about what we will get from the Fed. Of course a reminder that you can always get a head start by emailing us your questions, moneytalklive@td.com. That's all we have time for the show today thanks for watching and we will see you tomorrow.
[music]
Every day I'll be joined by guests from across TD, many of whom you will only see here.
We we'll take you through it's moving the markets and answer your questions about investing.
Coming up on today show, will discuss whether commodities continue their move higher they've made so far this year with Hussein Allidina.
Our Anthony Okolie will give us a preview of what to expect from today's US Federal Reserve decision. And in today's WebBroker education segment, Nugwa Haruna will show us some of the different tools on the platform to analyse stock charts. So here's how you can get in touch with us.
Just email MoneyTalk Live@td.com, or fill out that viewer response box under the video player. Now let's get you an update on the markets.
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the auto parts space, names interesting lately in positive territory with 70 bucks and $0.49 a share. We will call that 3 3/4 of a percent.
South of the border of course the big event the S&P 500. Down a modest 17 points, a little less than half a percent.
the NASDAQ down pretty modest and ahead of the Fed, what Jerome Powell has to say are hinted at the path forward… Some concern about Intel last week about the demand and indeed, earnings beat has a pretty solid forecast for investors in the market. Those shares almost up 18%.
And that's your market update.
Commodities have had a good start to the year, along with other risk assets. But will that path continue?
Amid the risk of higher slower global growth? Joining us now for Maurice Hussein Allidina, Head of Commodities a TD Asset Management.
Always good to have you. Always great to have you.
So January, commodity plays, a getting a bit as well.
We will say everything will be great for the rest of the year. There are things we need to worry about.
>> Yes there are always things we need to worry about.
I do think the 2023, 2024 and 2025 will be good years because the lack of investment that we've seen.
Obviously, >> Hussain, I'm going to stop you on that thought because your Mike seems to have fallen down your jacket.
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now we can hear you.
>> I think any outlook is positive primarily because of the lack of investment that we've seen on the supply side.
Clearly, you need to have demand. I think part of the reason why commodities and other risk assets have performed well in 2023 is because expectations of improved demand an activity in China is lifting expectations of the forward balance and how tight things will be.
But of course, you know, demand and the variability is a concern.
The tightness on the supply side is still very prevalent. We look at imagery balances that they have built, if I look at oil balances, they are softer today than they were three months ago primarily because we had bad weather. Doesn't feel so much of that way this morning but we haven't had weather anywhere near normal and I think that has resulted in some softness. When you take this more medium-term view and you look Chinese demand up 800,000, 600,000 barrels a day, compared to last year with 5000 500,000 barrels a day rather.
The S&P 500,000 barrels a day likely in the market and that likely doesn't happen this year.
Russian production was very resilient this year.
All those factors together with somewhat robust demand growth makes for tighter balance.
>> Tighter balance in the near teBritish Petroleum, one of the global players coming out actually talking about where they see demand in the years ahead.
I think you pay pretty close attention to that early in the week. What did you get from it?
>> I've confirmed almost as long as I've been doing commodities and I won't date myself but I had hair when I started.
Demand form peeking, energy renewals acceptable etc.
BP is relatively optimistic on how quickly we will move away from conventional energy. They still in their base case, see energy demand growing over the next 10 years.
So, again, they are bearish relative to the other players like Exxon that forecast in the longer term. If there can it continue to have, you know, growing demand for steady demand, you have to address the supply side.
if you look at the Back companies, you are not seeing the Backs you need to be able to facilitate that supply to meet the demand.
>> Let's talk about that because the trend seems to be not toward investing in future production capacity and investing in the future of oil. It seems to be "let's reward shareholders with special dividends and not really invest in the business." What's going on? Cannot be sustained long-term?
>> There's this monument in shift. Going back to that BP report, they had a wonderful chart in there that shows the amount of investment needed per year. They bake they break it down by region. In order to be able to reach these, sort of, estimates that they have on kind of the global energy. In all of the geographies around the world, the amount of investment needed on the renewable front is higher than we ever done before.
So you need, with the exception of China, China had a year that was elevated, but on average, the amount of investment you need on the renewal site to meet those optimistic forecasts, I would say, are well above we are right now.
Even still, I think we have to remember that the growth, though good, is not meaningful enough to offset the magnitude of demand on the conventional front that we have today.
We will consume 100 million barrels a day of oil this year. To put that into context, 10 years ago we started talking about having to transition and substitution.
We will can we were consuming 9 million barrels a day.
The global economy leaves the GD growth is something that is expected in the future. GDP is energy and unfortunately, that energy today, unfortunately or fortunately, depending on your perspective, that energy today is still oil and gas and… >> There would've been a time where as investors, thinking about the TSX. Energy was a pretty big focus.
We still have some major names. What's the situation they are in terms of foreign investment dollars looking to Canada as an opportunity? What's the state of our hundred our industry here domestically?
>> I think if you look at the last 10 years, a lot of US share production because it was shorter cycle, the regulatory environment. The US was more favourable than it was in Canada. I think that the productive resource in the US is not as meaningful as it was, because we've gone through a lot of the sort of best days that we had. Canada is pretty interesting particularly if we figure out our pipeline and regulatory constraints.
Canada has a relatively, I would say, clean resource.
We have reasonable rule of law.
Again, if you look elsewhere, US shell is not what it is doing. The economics are not as favourable as we thought they were 10 years ago. I think Canada looks super interesting.
>> We take that altogether and think of the year we had last year when energy was the clear winner and a very tough year for everybody.
All that was the first half of the year. How does this year play out?
If you're an investor just looking at the energy space, whether it's Canadian stocks are global stocks, what kind of performance can we expect?
Outsize or something decent?
>> I would say on the commodity front, I anticipate that we will see further upside in oil prices.
Oil is trading at eight dollars a barrel. I think as the year progresses, and we have some more certainty on how we demand is going to be and we can kind of get some conviction on what happened to the Russian production, you know, I think almost regardless of how you cut it, the year probably ends tighter than where we started and I think that is a positive for energy.
Energy equities, Greg, I think, you know now that energy represents 5% of the S&P, folks have to look at it.
I think when folks look at it, which is something they have not had to do in the last 10 years, once they start looking at the balance, I think it will come to very similar conclusions the people who are looking at the balance… "Hey we are still using a tremendous amount of oil to generate energy but we forgot about the supply side, the investment side".
Part of that is the fact that we've been in a bear market for 10 or 15 years.
There hasn't been an incentive to invest. Today we are telling you you should invest but there isn't necessarily the follow-through partially because the concerns are in a transition period >> Fascinating stuff.
We'll get your questions with Hussein Allidina about commodities and just a moment's time. Including his outlook for gold, natural gas and water recession could meet in the space. A reminder of course that you can get in touch of a seat any time by emailing moneytalklive@td.
com or fill out that viewer response box right here on WebBroker. Right now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Strong growth in grain shipments help to boost revenue at CP Rail in its most recent quarter. The railway is reporting a 21% increase in sales, although its adjusted operating ratio, a key industry metric where a lower number is better did increase by 160 basis points.
When it comes to the proposed merger with Kansas City Southern, CP Chief Executive Keith Creel says they put US regulators to make a decision later this quarter. TC energy is raising cost estimates for its coastal gas link project.
By more than 30%.
Citing labour shortages and tough weather conditions, the company says the project is now expected to cost $14.5 billion Canadian.
It's not the first time TC energy has raised its cost forecast for coastal gas link. Social media company SNAP is warning investors of a tough environment for ad sales. The parent company of Snapchat expects sales to fall as much is 10% this quarter compared to the same period last year.
The results coming ahead of earnings announcements from the heavyweight such as Meta and Alphabet which are also relying heavily on digital ad revenue.
And let's take a look at how the markets are trading.
In Toronto, three quant three quarters of a percent and south of the border, let's check on the broader region of the American market, the S&P 500, also a bit of weeklies weakness here. A little more than half a percent.
We are back now with Hussein Allidina taking your questions about commodities.
Let's get to them.
What's your outlook for gold?
This is an interesting one. Wondering where it might be headed.
>> I think gold has had a pretty… To start the year and end last year.
The improved sort of macro outlook and what that's meant for the dollar. I think the other sort of fun and mental factors in the market is a tremendous amount of gold buying on the part of central banks particularly.
I think that is potentially out of the dollar. In favour of gold.
Tactically, I think we've had a reasonable move. I think that there is a bit of risk around gold at these levels.
Given what the sort of outlook for rates might look like. Structurally, I think gold plays a very, very important role in your portfolio.
You think about portfolio construction, I think you want have an allocation to gold, two or 3% given how it performs relative to the other assets that you hold and those tail events.
>> We talked about oil off the top of the show.
You can get a clearer picture of what global demand might look like for oil. Based on our economies and how we use oil.
When it comes to gold, is it harder to peg down and demand?
You said the central banks started buying gold. Is it a bit more of a tough one?
>> I think you look at gold and you look at the other commodities, the other commodities, I think, are primarily driven by supply and demand.
So if you take time with the supply sign in the demand side you see what imageries might look like.
You see a reasonable relationship between imageries and prices and imageries in the shape of the curve. Gold has some of those characteristics but gold is also somewhat of quasi-effect. So I think you have to keep that in mind as well.
If you look at the sort of major goal demand, jewelry is a big one, investment demand, whether you characterize central banks holding gold as investment demand or individuals buying ETF's to participate in gold, those are kind of your big sources on the demand side. Not to bore you, but if you look at the supply side, like all the other commodities, the incentive has not been there to invest on the supply side. So you don't have as much mind production. As gold prices go up you see secondary supply increase, your wife's necklace and a certain price etc.
>> I'd start with my own before I go at that.
>> But ultimately I think the fundamentals for gold are important.
Gold is also the anti-paper currency and part of the strength we see in gold this year and late last year, is a function of concerns around the dollar end of the agenda.
>> I should clarify. I don't have gold necklaces.
Just in case viewers are wondering what I look like on my off time.
>> Fears about the war in Europe driving natural gas higher past?
>> I think fear around European natural gas prices has passed for now.
We started, we talked with the lack of weather and what that's meant for the oil balance.
Last Summer, Europe had to ensure that they had as much gas in storage as possible.
Over the course of the winter, if you're not getting flows from Russia, which are not getting anymore because North Korea has its issue, you have to try and build as much inventory as possible. But at the same time you try to ration it. The market spiked higher to ration demand and to attract cargoes, LNG cargoes for the rest of central.
Then was blessed by this really warm weather.
Imageries are relatively elevated in Europe right now.
Go through the Summer, we will be read building rebuilding depending on how warm the Summer is. But if you look at next winter, next year, you still don't have the storage alone enough gas to meet your demand.
So you're going to have to attract foes rather flows.
They will not be pipeline flows they will have to be LNG. China was not in the market for LNG this year.
They had an economy that was closed and a generation of cola increase to meet that power and demand. Next winter might be a very different story.
They will still be doing their call but they'll still be competing with that LNG and again, if we look at sort of our global LNG picture, we were fortunate that some liquefaction projects started in the US. There is now a dearth of projects until late 2024.
So I don't think were through the woods on a tactical short-term basis, Europe is okay. I think fast forward into the Summer, and we will see, kind of that worry around next winter's gas again.
>> Does that mean that the Canadian LNG is still alive?
So many things we hear about in terms of infrastructure projects. You talk about it and talk about in years pass and the conversations which is to "are we acting on an opportunity or missed an opportunity?" >> Have we missed an opportunity no. I think Canada has a phenomenal opportunity to help not only address the energy security issues in Europe, but more importantly, to address climate change by exporting more gas.
Gas you note 10 years ago, gas was a clean transition fuel. At some point that narrative got lost in gas got lumped in with cold. It's not the same.
Particularly the Canadian gas. We don't flare the gaslight to do the same.
I already knew that if we were exporting, if we had the ability to export more LNG today, we be exporting that to China and China would be burning cold. Energy cargo that we don't export to Asia is replaced by something far dirtier.
So I think there's an opportunity, a massive opportunity. I don't think that the political sort of, wherewithal is there unfortunately.
>> Is the corporate well there? I wanted to ask you that question.
>> I think the corporate will is there that it gets contained and mitigated by the inability to do anything because of the regulatory part.
>> Fascinating stuff.
One viewer wants to know if we do get a recession, and the odds are changing every day, but we are waiting for commodities?
Or does that mean for commodities?
>> Lower GDP means lower oil demand.
This a pretty amazing relationship between Jeep.
It's very commodity intensive.
Even though our intensity has decreased in 2030 years ago, in order to have GDP you have to have.
Lower GDP means less commodity demand but I think it's important to appreciate how weak were talking about were talking about weaker GDP. In the case of oil, we had four instances since 1970 were well demand has decreased.
When the world stopped around the pandemic, during the financial crisis when you couldn't get a letter of credit to move a cargo in the 1974, 1975 embargo prices spiked, 79 to 82, the Iranian revolution and the start of the Iran, Iraq war will be lost oil supply. During the Asian financial crisis, where GDP came under pressure and we were in a recession, oil demands tend to increase.
Oil demand increases by million barrels a day every year. So yes, a recession would be bad for commodity but in order to replenish the very tight imageries we'd have across the commodity space, you need to see a material contraction in GDP and I don't think that's in the cards at the moment.
> What about gold?
We talked about the dynamics different because of the role it can play in a recession.
Typically what we expect?
>> If we go into a recession, let's say it's a meaningful recession, then presumably, JP is going to cut rates. Jerome Powell will cut rates. Lower rates would equal constructive for gold because the opportunity cost than of putting your cash in a T-bill relative to putting your cash in gold would be favourable.
And ultimately, if you do believe there will be additional rate cuts, I think at some point the sort of uncertainty again starts to boil up again and potentially benefits gold as well.
>> All right. As always make sure you do your own research before making investment decisions.
We will get back to your questions with Hussein Allidina about commodities in just a moment's time. A reminder that you can email us anytime at moneytalklive@td.com. Now our educational segment of the day.
If you're looking to do an analysis on a company's stock there are some tools to help you.
Joining us now is Nugwa Haruna.
Always a pleasure to be here.
… We can use the charting tool where the charting tool is very important as a technical help for analysts. You can look at historical price trends to help them identify potential entry positions. So by signals as well as exit positions that will be sale signals.
But, I will mention that the charting tool is also able to provide information to fundamental analysts. The charting tool within WebBroker, information such as dividend payments, historical as well as historical earnings and outs. So let's hop into WebBroker take a look at the charting tool there.
Once in WebBroker, click on "research".
Under "investments", click on stocks and stick with today's theme of commodities. We have barren gold rather Barrick Gold on screen here. I will click on charts. Once I do that, this will show me the charting tool within WebBroker. I will just keep it to a three-year chart here. I do want to highlight a few things on screen.
So for investors who are practising things like technical analysis, they may be able to add what we call "upper indicators".
These would be things that provide trends to the price chart right now.
And these are superimposed into the body of the charts.
So I will click on upper indicators and pull up a very popular one which would be the simple average.
As you can see now I have a green light on here.
That is based on the last 15 days of trade.
Now, if I want to look at a lower indicator, that's essentially a trend or indicator that will show me information but it is creative at the lower. So underneath my price chart. I will click on the lower indicator here and I will click on a popular one.
The strength index.
When I click on that, you will notice that this appears underneath the body of the charts and it's something that the RSI index will show investors information such as when a stock is overbought.
So when the price is overinflated, or when it's under box or oversold.
When the price maybe underappreciated at that point. As I mentioned, there's information for fundamental analysts as well.
If I want to see information such as historical dividend payments, I can click here and drop down.
I will click on dividends.
Once I do that, you will see we have some things here.
I can also look at historical earnings announcements and that I also have ease on the screen. I can hover over each of these. To see if there are any earnings from time to time. So once again, something for everyone.
>> Once people get into this realm, there is no shortage of indicators and technicians. I have hope I have posted more shows than I can count with technicians.
I get a little confused myself. So where can someone start if they're going down this path? How can they learn more?
>> I completely agree Greg. It can seem a little overwhelming because you start to say "are these signals actually accurate?" When it comes to technical announce analysis and indicators, one thing you want to consider is that one indicator may give you a full signal. So a combination of indicators may be a more successful way for you to identify entry and exit positions. In WebBroker, investors can use the technicals tab. Let's take a look at that. If I have my stock pulled up, I can go to the tab that is called technicals. Here. Once I click on here, this will show me a collection of patterns identified by different indicators. So I don't have to pull these up individually. So once again, I will scroll down a little bit. I will notice on the left side of my screen, I can see any bullish events which will indicate a potential increase in the price that security as well as bearish events.
All of these are listed here. If I want to get more of a graphical representation, I could just click on the six squares here.
When I do that, I will see each of these indicators and they are indicating a potential bullish and/or bearish event. Now, I may not have the time to come in here every day and take a look at this. So if I want, I can actually set alerts to inform you when there is a bullish and/or bearish event for a specific stock.
To do that I just click on the little bell here.
Once I do that, I can select these specific technical advents that I want to receive notifications for. When I click on here, I see different either candlestick patterns, I will see different indicators, different oscillators and I can select what I want, name that specific alert and then always be informed if there is a potential entry and/or exit position that I can take.
>> Great stuff is always Nugwa, thanks for that.
>> Thank for having me.
>> Nugwa Haruna, Senior Client Education Instructor at TD Direct Investing. Make sure to check out the learning centre WebBroker for more master classes and upcoming webinars. Now before we get back to questions about commodities for the four guest Hussein Allidina, a reminder of how you can get in touch with us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type 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 now with Hussein Allidina taking your questions about commodities.
Someone talking about carbon.
As the market for carbon still an interesting area? I feel like I don't hear about it as much.
>> I think it's timely. Europeans are trading with 94 €95 a ton. I think part of the reason you're seeing carbon prices move higher is a reflection of the fact that the weather has been milder which has actually reduced energy prices and increased expectations around potential growth in Europe. As growth increases, carbon emissions increase and the EU, ETS program in Europe, has a limited amount of credits that gets issued every year. If your demand is higher and your credits are decreasing, one of the reasons we like carbon on a multiyear view is because of the design of the EU and other sort of cap and trade systems were by design, they are trying to push carbon prices higher in order to temper carbon emissions and to encourage substitution away from dirtier forms of energy for example.
Into cleaner forms. You are seeing it today, notwithstanding the weakness in the European economy for broadly speaking, carbon prices are moving higher.
>> The price of carbon makes me think of the perfect intersection between corporate will and political will pillory how is it evolving in North America? Well in Canada, we have a federal carbon tax which increases every year.
In the US, you have a couple of different programs. In California, you have a very similar program similar to the program in Europe. You have another program in the northeast of the US. The Reggie market which is a couple of states in the Northeast. Similar programs right? The government sets a cap on how much carbon can be admitted every year, as a participant in industries.
So Craig International will get an allocation of carbon credits.
If you exceed your allocation then you need to go to someone else on the market and buy a credit from them.
Ultimately, these programs are all designed to see the number of credits decrease over time in an effort to reduce our carbon footprint.
As growth accelerates, the out put of carbon increases and ultimately why you see prices, I think, moving higher.
>> Fascinating stuff. Let's get one of the question now.
90 minutes away, I'm your personal countdown clock.
Just call me at my desk and I'll keep giving you time counts.
Will the end of the rate hiking cycle have an impact on commodities?
>> So that's a very good question. If we look at the last 10, 20, 30 years, the decrease in rates has made the investment decision a little bit easier.
I've argued that the revolution we saw in the US probably wouldn't not have happened if the companies that were out there doing the exploration of production had to pay.
The fact that rates were close to zero, aloud, I think a tremendous amount of investment to take place and the fact that rates have increased now, I think is kind of the required rate to return them a hurdle for folks who made the investment. Should rates come lower, it makes the investment decision a little easier.
But I don't believe rates are coming back down to where they were. Especially given where inflation is today and likely where inflation and views on commodity is right. So I think higher rates, higher rate of return, required to make that investment and ultimately, I think that presents more challenges.
>> That does sound like it feeds into that opportunity, I guess as some of us looking at the market, having regulatory concerns, the future of crude and the demand there.
>> Yeah and if you look at the investment in commodities relative to investment and other asset classes, those portfolios are short inflation. Their long equities and implicitly short inflation.
You need to have, I believe, commodity allocation as part of your overall portfolio with banks.
Not only because the micro fundamentals of commodities are really good but the macro of short commodities and when we talk institutions in larger investors, looking at commodities to build out their portfolios.
>> Another question now, this one focused on the energy space.
What are the implications from Chevron's big share buyback?
I think as a commodity guy, when I see companies doing that, it increases my conviction on the concerns around the supply side. Chevron could have taken that money and said "look, we will reinvested in the shell of the Gulf of Mexico.
". But management right now is incentivized to return cash to shareholders partially because of the investor climate right?
A number of investors don't want companies growing their carbon footprint.
I think there's a disconnect.
Because again, GDP is energy.
I don't bore you but there is a disconnect.
Chevron returning money to shareholders means that Chevron is putting less money into the ground to produce the oil, gas that you and I need to get to work, to heat our homes, to put clothes on our backs.
> Never boring my friend.
It all interesting. That's what I would say if someone asked what Hussein's all about. We will get back to your questions in just a moment's time.
As always a reminder you can get in touch with us at any time.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
Quarter of a point, 25 basis points, that is the expectation we hear from the US Federal Reserve at 2 PM Eastern time. But, we want a lot more than just the number. Anthony Okolie is giving us a preview of the expectations that we will get with the fed, particularly a press conference Anthony.
>> That's right. Of course as you mentioned 25 basis points is expected as a market consensus of course again. That would take the target range between 4 1/2 to 4.75%.
The expectations that the Fed will continue to suggest that inflation remains too high. TD Securities is also forecasting in their numbers at least 5 to 5 1/4% versus market expectations of around 4.9% which translates to a range of 4.75 to 5%. Now, TD Securities expects that the market price of the terminal rate will be higher as inflation become sticky on the way down.
The labour markets remain resilient.
At the press conference, after the rate decision, TD Securities expects the community to acknowledge recent progress on inflation front. Now, of course, there have been some signs for example, this week that US labour costs rose at the slowest pace in one year in the fourth quarter.
Now, TD Securities also expects the community to reiterate that.
It will continue to reduce its holdings, agency debt and agency mortgage-backed security's. They don't anticipate that any Fed official will descend against the community's decision to hike by 25 basis points.
This being today. Finally, it TD Securities expects Chairman Powell to devote a large part of his press conference emphasizing that the Fed is not done yet when it comes to further hikes and that he will likely single more hikes to come.
Jerome Powell likely hits his terminal rate projection of five and five in a court percent rate a key question being is if it is sufficient enough to bring inflation down to the Fed's 2% target. Now, given course services have been, TD Securities believes of the risks around 5 1/4% terminal rate projection is viewed towards a higher term terminal rate.
Now, of course I will be interviewing James, Senior Economist with James with TD Bank group James Marple that is Senior Economist with T decrypt for his reaction.
>> Always fascinating to to watch the market reaction with the decision.
Watch the market reaction while you hear from Jerome Powell. But I think what I'm most interested in, is that disconnect we've had between what we heard from the Fed and some of the governors about how firm they will be and how far they need to go with the bond market is saying. In terms of where they end up and when they start cutting.
Very interesting disconnect for me.
>> From Fed officials, some of them are asking for the Fed to be a bit more aggressive. Some a little bit more dovish.
So today's announcement will hopefully square that with investors and market players.
>> The big one. Thanks Anthony.
>> My pleasure.
>> MoneyTalk Live's Anthony Okolie. Let's check it on the market ahead of the Fed decision.
We do have some weakness out there.
Hundred 73 points on the TSX. Sort of drifting ahead of this.
A little shy of a percent to the downside. The weak spots including TC energy, they will show us raising and the cost forecast yet again.
The market doesn't seem to be enjoying that piece of information.
A little more than 7%.
Sent Tara gold, we want to take a look at this one making some names. Not everything is down in Toronto right now.
You have sent Tara up a little more than 3%.
South of the border, the S&P 500, 23 point deficit from yesterday's close, a little more than half percent.
Of course, be on the Fed pretty big week for earnings including some tech heavy names, let's check in on the NASDAQ to see how it's faring right now. 50 points, a little less than half a percent.
And Peloton, remember this, being a big winner in the early innings of the pandemic. Home exercise equipment.
Then that story change direction in a pretty dramatic way.
Last year, they came out and they said they are starting to see some growth again.*Stock popping to the tune of 18%, high off far off from its highs a couple years back.
We are back now with Hussein Allidina from TD Asset Management talking commodities.
Let's get back to questions.
This one about opportunities. Do you see any in the solar sector?
>> If we go back to the BP report that we referenced earlier, both wind and solar are a material part of that renewable power expansion power generation expansion expected to take force the next 10 years. I think with interesting, as it relates to both wind and solar, those are not intermittent sources of power. If it's not windy, if it's not sunny, yellow problem.
I cannot today because my inability to store power.
I can't rejig the grid away from baseload call natural gas nuclear into solar and wind alone.
Because again, if it's not windy or not sunny, I'm not enough power. I need to have power on demand at all times. I think the opportunity that wind, solar and renewable is actually on the nuclear, the Iranian side, if we look at how baseload power generation is delivered today, cold, gas, Hydro in Ontario, nuclear plays a bit of a role. But I think if we are moving away from the dirty coals, dirty gases… Nuclear plays a role because they can't do it all with solar and wind unless I can store which I can do today.
>> It does feel like in the past year or so that the sentiment is changing around nuclear. Understandably more than a decade ago with Hiroshima, there was a lot of governance backing out of Germany,… Pretty large industrial appetite for energy. Do you think that mind shift is taking hold further and will keep moving in that direction and companies will start embracing nuclear again?
>> Absolutely.
It's a shift of necessity.
It's occurring because people are looking at the balances.
It's easy for you and I to say that carbon is bad and everything should be clean. Of course. Everyone wants that. Why we do not want to have power that is not dirty.
But the reality is, again, if you look at how the world has been built over the course of the last 200 years, very much dependent on these traditional forms of energy. Now, if I look at nuclear and a comparative coal or oil, yes there have been some horrible instances but not related to nuclear itself.
The Fukushima issue was an issue of inappropriate safety around the reactors.
So I think when you do the full psychoanalysis of nuclear and you compared to any other option, it's beautiful. It's amazing.
Ultimately, I think it's because of necessity and because folks are now looking at these balances which they haven't had to look at for the last 10 or 15 years because we were in this situation of gross oversupply that is kind of changing the sentiment and I think, to answer your question I think it continues to improve as we look in the future.
>> Well we are out of time with fewer questions but we would like a final thought for you for the year ahead.
Including some commodity plays… How does it play for the rest of the year?
>> I would say right now we are long energy relative to benchmark, less so, we have taken some gains there because we think the market is moved a lot. We are long carbon.
In aggregate, I think our allocations to commodities will increase throughout the year.
Because again, the micro S&P for many of these commodities, so long as we have some GDP growth, the IMF revises higher their GDP forecast yesterday for the first time in four terms.
As long as we have positive GDP growth, the supply constraints have not been addressed or are not being addressed and ultimately that points to tighter imageries, higher prices, more backwardation all for good for the quantity investor.
>> I was a pleasure to get your insights Hussein.
> A pleasure.
>> Hussein Allidina, Head of Commodities a TD Asset Management.
Stay tuned for tomorrow show, Chris Wheelan, Senior Canada Rates Strategist at TD Securities talking about what we will get from the Fed. Of course a reminder that you can always get a head start by emailing us your questions, moneytalklive@td.com. That's all we have time for the show today thanks for watching and we will see you tomorrow.
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