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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
Will take you through its moving the market and answer your questions about investing.
Coming up on today show, we're going to discuss the big takeaways from commodities earnings season with TD Asset Management Jennifer Nowski.
And in today's WebBroker education segment, Caitlin Cormier is going to show us how you can research a specific sector and out of pure watchlist. Here's how to get in touch with us.
Just email moneytalklive@td.com or fellow that your response box right under the video player here on WebBroker.
Before we get to our guest today, let's get you an update on the market. Of course, the Americans are off on their think sitting holiday but we are still trading here on Bay Street. Let's check in on the TSX Composite Index.
fairly decent gain of 93 point, about half a percent to the upside.
Some of the names that are moving to the upside include Shopify. Let's check in on that tech name.
At 4971, Shopify up 1% right now. With Americans off, trading volumes are not huge. Alimentation Couche-Tard, let's check in on that name.
The announcer earnings a few days ago. Now that they are at 5970, down a modest $0.40, a little more than half a percent. Since we have this opportunity to take a broader look, let's check out at the energy sector's ear today. It's been a bit of a choppy ride and a bit of a holding pattern there in the past couple of weeks trading in that range.
The financials, course we are going to get bank earnings next week which rounds out the season for Canada.
The US banks seem to started and in Canada we seem to finish it all off. In financials, you see a bit of a downward slope this year but we are starting to make some gains here from the middle of October.
And that's your market update.
Higher oil prices lifted many energy firms through this year, but as we get to the end of theLatest earnings season, what are we hearing from companies about the outlook going forward?
Joining us now with more is Jennifer Nowski, portfolio manager at TD Asset Management peered welcome back to the program, Jennifer.
>> Thank you for having me.
>> Let's talk about the key takeaways from the earnings season when it comes to oil company.
>> Earnings for the oil companies came in largely is expected this past quarter. The real highlight has been the year-over-yearbig increase in profits as oil and gas prices have been generally rising over the past year and this has far outweighed any small increases and operating costs we've seen, particularly in the US.
If you look across the value chain for energy, there was a lot of big gains in profits here year-over-year for the upstream and refining situations.
This was due to a higher energy feedstock costs, and weaker demands. Sector has been reducing debts, the leverages on the low and now and they continue to be very disciplined about returning cash to shareholders.
We had a number of dividend increases, special dividends, more buybacks.
And when you think about how much cash flow the sector is used to, today's oil price is roughly, the sector has a free cash flow yield of about 10% into the teens and much of that is coming back to shareholders.
>> Interesting stuff. A good rundown of the court behind. Going forward, what are you looking for from these energy companies?
>> The big thing in the next few months is the energy company's are going to come out with their 2020 3X manager budgets.
In 2022, Has gone up and we seen some inflation in the Figures throughout the year.
For 2023, the expectation, I say, is that CAPEX will be higher again, partly due to inflation and we'll see how much will be allocated to growth. In general, when companies talk about, especially the large caps, talk about their plans, it's usually at the low end of the scale, zero.
>> Investors this year have been so attuned to every headline, depending on the asset class, when it comes to oil, no different.
A lot of sort of handwringing and journalism out there about supply and demand dynamics.
How closely should investors be watching those dynamics right now?
>> You absolutely should be watching them very closely.
So it's been happening is on the demand side, there has been growing concerns about, you know, the impact of the slowing global economy on demand as well as shine which is stuck in COVID lockdowns.
That's a headwind for demand.
You have a very disciplined OPEC with limited spare capacity at OPEC and the US is nearing the end of its plan releases from the strategic petroleum reserve.
This week, one of the more debated items as the upcoming ban on Russian oil imports to the EU. You know, there is debate about how much oil from Russia this could displace in the market. The offset, though, that's also being debated as the implantation of a price That will keep Russian oil trading at the discount that it is trading at but allow it to flow to other buyers.
>> A lot of things to watch in that space. That's a great rundown about oil and gas.
What we saw, what to expect going forward, we need to keep our eye on.
What about the mining companies, how are they faring during earnings season?
> In general they have had a tougher year this year, particularly on the call side.
They have seen their profit squeezed in Q3 as if you look at key metals like gold or copper, those are down year-over-year. And then the miners have really been battling cost inflation. Diesel is a big one, that's an energy headwind. Sometime supply chain challenges still earlier this year, transportation was higher.
So all headwinds to cost.
The other thing to do, mining is a very difficult business, some have missed on the production targets and this is for a variety of reasons, some due to continuing to work through COVID challenges, others, talking about whether or operational issues.
The problem, of course, is when you are late on production.
That can be another challenge. So the big thing going into 2023 for the mining companies will be that outlook for costs.
Energy is going to… Labour costs might be secure or higher, maybe we will see some reliever flattening on transportation or consumers.
>> All right, you're talking about supply and demand dynamics and how that drives the price of crude.
The same thing for a lot of these metals.
Let's talk about the metal space right now and what we are seeing there.
I think of demand, I think of China, some of the constraints there, the possibility of a recession. How is all play out?
>> Yeah, so metals prices, and we will talk copper because it's kind of the bellwether, it's been weaker since about the middle of this year. Again, concerns about slowing demand from China. The copper price has perked up the past few weeks and there are sort of three reasons for it. The first is the weaker US dollar.
So metals are priced in US dollars, weaker US dollar makes it more affordable to the rest the world.
The second is China. They came out some announcements to transport his property sector, which would be positive for metals because that's a key consumer. And the third, although, like I said, China's battling some COVID outbreaks right now, sometimes investors start to look forward into the next year and wonder if we may be into a period where China could relax or really some of these COVID restrictions. That remains to be seen but it puts him off Ms.
Mintz the copper price.
Turning to the supply side for copper, the story is still that we've had a few minds come online this year, but as we went through Q3 more recently, you do see existing mine production struggling, particularly… We had to bring down its production. So that provides some loss to the supply. If we think longer term, the long-term demand for copper tends to be brighter.
If exposed to the electrification and then a couple years that it becomes less clear where the supply will come from to meet this man.
> A lot of things happening there, a lot of fascinating things to go through. A great start to the program. We are going to get your questions about stocks for Denver now seen just a moment time. A reminder, of course, you get in touch with us anytime. Just email moneytalklive@td.com or fellows of your response walks right into the video player here on WebBroker.
Now, let's get you update on some of the top stories in the world of business and take a look at how the markets are trading.
The Bank of Canada says any government measures to ease inflationary pressures for households should be targeted and temporary.
appearing before the house Finance committee in Ottawa, Gov. Tiff Macklem said any inflation relief measures need to be tailored to help the most notable Canadian.
while supersized rate hikes have squeezed household budgets this year, Macklem says more hikes are needed to tame inflation.
North American retailers are hoping Black Friday sales will entice shoppers to spend big despite all these inflationary pressures.
The unofficial start to the holiday shopping season comes at a challenging time as consumers have been shifting their spending habits in the face of high food and fuel prices.
Some recent surveys suggest that Canadians may be a little more careful with their dollars this holiday season.
The world's second-largest economy is recording a record high number of COVID cases, casting a shadow over its growth prospects.
China is imposing local lockdowns as cases assured, and those measures of course it hit the manufacturing segment of the country as well. Investors have been carefully watching for signs that China might ease it zero COVID policies, but the recent spike in cases is casting some doubt on such a move anytime in the short term. Let's check out the main net index benchmark in Canada. The Americans are off of the thanks giving holiday. There is green on the screen for the TSX Composite Index. It's up 95 points, a little shy of half a percent. We are back now with Jennifer Nowski, we are taking your questions about the commodity space.
Let's get to them. The first question we have. Energy has been the hottest sector this year.
Is it too late to get into the space?
>> Yeah, so energy has certainly been on quite a run this year today, but you have to bear in mind this was coming out of a very dark place a couple of years ago when oil was at about 20 bucks.
How to think about the energy space going forward? You know, at the end of the day, the oil prices going to drive the direction of the stock. So if we are in an environment where the oil price remains high or even better start going up, then energy stocks will respond positively to that.
When we think about valuations, though, I'd say despite the run up we've had in the energy stocks, there is nothing unusual about the valuation. When you look at P nabs or what oil prices are being implied in the stocks, is well in line with what we are seeing in the forward and small markets forecast. The other factor to look at when evaluating energy stocks is those cash returns that we are seeing to shareholders. Now, those policies as I described, their variable parts to it, like the different dividends and buy back levels, and in a lower oil price environment, those who get cut.
But something to bear in mind, if we look at the corporate breakeven for the larger Names, they are in the 40s. You know, oil is just a bit below $80 right now.
So there is a lot of room there for these countries to generate healthy free cash flow.
And the potential is there for them to continue to return cash to shareholders at a rate that is above the average S&P 500 company.
>> If there were risks to consider, what would they be in the space?
>> Certainly, number one, is the price of the commodity in the second, of course, is operational execution.
Being able to meet production targets and then, thirdly and similarly, the cost side of the equation.
> Excellent.
We will look there at some of the opportunities and risks among the entertainments in Canada.
Next question.
With the outlook for smaller Canadian names versus the larger caps?
>> The smaller caps versus the large have seen the benefits of higher commodity prices, growing leverage, generous free cash flow rate in. When looking at valuations for small caps, historically,they have traded at a discount.
The discount can widen and narrow at times, but it will likely remain.
The second is that a smaller Name is more concentrated.
They might have exposure to just one or two bases. You have to be more mindful of what's going on regionally with transportation constraints, with what hub specifically they are selling to.
>> Interesting stuff there between the Canadian names, large versus small. This is a question about the value of Canadian oil.
How can Canadian oil is valued less than US or European counterpart?
>> Yeah, certainly, the key Canadian oil benchmark at Western Canadian select is often compared to USW TI which is light barrel.
There are three reasons why there is a differential.
These reasons determine how wide that differential is.
The first is quality. Heavy oil trades at a discount to light because it is more costly to refine. The second is transportation. This is been the real big challenge.
Looking back a few years, when short pipeline capacity in Western Canada, we had to ship off rail, real is more expensive so that is when you start to get those water differentials. However, right now, differentials have a wide in the game. But the transportation situation appears relatively stable.
Rail volumes are actually fairly low.
And if you think out… Are going to get better with the transmountain expansion coming online hopefully later this year. The third reason, though, is what appears to be driving the wider spreads right now and that is local supply and demand conditions. So a lot of our oil is still shipped to the states.
Past month or so, we saw spreads widen as US refineries were on maintenance, so there's less demand.
There was also a fire at the Toledo refinery, so it's been off-line.
And if you think a bit more macro, the USS PR releases have put a lot of sour barrels on the market, which creates more competition.
And globally, with Russian barrels that being redirected to China, that's pushing some heavy oil back into the Gulf of Mexico market.
Some of these factors are transitory.
The WTI, etc.
>> Interesting stuff. Got a question now that has come from one of our viewers, they want to run down on Canadian Natural Resources.
>> Yeah, sure. So C and Q is one of the largest oil and gas producers in Canada.
Similar to others, they have a big oil sands base and that offers them a large, long life, low decline asset and they do operate at costs that are lower than their Canadian peers. One interesting thing about C and Q is they are a very large gas producer in Canada and in that scenario they've actually been investing, they made some acquisitions as well, they were to be some more drilling this quarter.
In Q3, the natural gas production is actually up about 25% year-over-year.
So clearly, they see some value there.
They've also, like other companies, been returning more cash to shareholders and their dividend, they did a special dividend this summer.
> That is C and Q. Someone has a question about shale players, specifically talking about EOG. I don't know a lot about this name. What's happening here?
>> Yeah, so EOG is a US shale player with most of its production in the US and they are spread across multiple basins including the Permian, Eagle furred, Wilson, etc.
EOG is a very efficient company.
They are at the lower end of the cost curve and they are very financially disciplined in terms of targeting the wells within their massive inventory that have the higher returns.
The other unique thing about EOG is they tend to focus more on expiration, developing, building up land positions, developing new place.
They introduce one a couple of years ago called the Dorado gas play. This last quarter, they highlighted another play they've developed which is in the Ohio Utica.
And again, similar to others, strong balance sheet right now. It has been consistently paying a base dividend and has committed to returning at least a percent of free cash flow to shareholders.
>> So what are some of the risks?
Normally for this name to anyone else in shale.
>> No, shale, certainly, with the Permian being very active, paying attention to the costs, people in higher oil price environment wonder how long these companies can keep their capital discipline in place in terms of low production growth versus returning cash to shareholders.
And then, I can't say it enough times, but the oil price will really drive this.
>> As always, make sure you do your own research before you make any investment decisions. We are going to get back your questions for your Jennifer Nowski on commodity stocks and just moments time.
Our liner, of course, you get in touch with us anytime.
Just email moneytalklive@td.
com.
Now, let's get our educational segment of the day.
If you are interested in doing research on a specific sector, WebBroker has tools that can help you.
Caitlin Cormier, client education instructor at TD Direct Investing joins us now with more. Great to see you again.
Walk us through how we can explore certain sectors or industries using this platform.
>> Absolutely. Let's jump right in.
So a lot of investors might want to be looking at a specific sector as far as investing goes. They might want to be looking at a particular area. So there is a very easy way for us to do that. We are going to click on the research button and we are going to go all the way down to sectors and industries. Once they get to this page, we have the option to choose which particular sector we might want to do a little bit further research in. So there's quite a lot available here, just for today's topic, let's go ahead and jump into energy as our option for today. So once we get in here, we have a ton of information on the sector. There is energy report, there is a little bit of a comparison here, towards the bottom you can get into a specific industry. If the sake of today, since we found many stocks in this industry, let us take a little moment to actually create a watchlist.
So the watchlist is actually one of our tools that we have within WebBroker that allows you to do additional research on individual companies, keep track of them, kind of keep a close eye on them and see if they might be something you are interested in investing in.
And here, we actually have under company strategies, you can actually separate different companies within this particular sector into specific strategies. So we can have high dividend or share growth or price discount to book value.
In this scenario, I selected high dividend so we can see here these are the top five high paying dividends within the sector.
So for the sake of today, let's add these to a watchlist.
What are going to DO is I'm going to click on the company ticker, I will bring up a little quick view of this company and I will go right over here to the right where it says add to watchlist, the little star. And I'm going to choose list number seven there. We are going to exit out, I'm going to go back in, choose the next one to watchlist and click on the list there and exit out. So I could continue to do that for up to 10 securities on that watchlist.
So it's just kind of an easy way for us to put some stocks together into a particular category and, you know, this is the area where we can find some stocks that might be specific to the category we will be looking for.
>> Okay, now we have a good grounding in that. Once the securities are added to that watchlist, we want to go back and actually, you know, enjoy the fruits of our labour.
How do we do that?
>> Absolutely. So again, we are going to hop right in and we are going to click on the little star up in the top right-hand corner of our screen. And that is just kind of a hot button for our watchlist is so we are going to click there and I'm actually going to click on my list for here and that's when you have those five different securities you are looking at a moment ago on the list. So this particular list, it gives us a ton of information here about the securities kinder from a high level, so we got some information on how it's trading today, we can drop down, we can see a little price chart here, we can choose the frequency we like, we can even go back here and see how the particular security has performed. Again, we've got quote information and trading volume. We've also got fundamental information so information about that dividend.
You may also notice on the screen that I've actually added and indices so you can actually add an index to your watchlist just by clicking on this drop-down.
Click on indices and put in the symbol. So here, I am actually adding the as a P and X energy is tab. That's my way of comparison there so I have that index and I can kind of look at my securities that I have on my watchlist versus that index I can kind of get a perspective on how they are moving versus the index.
So we have quote information and fundamental information all here.
Of course, I can always rename my watchlist if I can type properly here.
And I can save that had come back at any point in time.
I can always click on that star in the top right-hand corner of my screen and check in and see how that little list of mine is doing. And of course, if you ever want to get more information on one particular stock, just write down here we can click on overview, news charts are an option to get information about that specific security more detail.
>> Great stuff as always.
Thanks that.
>> Thank you.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. Make sure to check out the Learning Center in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Now before you back to your questions about commodity stocks for Jennifer Nowski, a reminder of how you can get in touch with us.
To the question about investing or was driving the market?
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 writing your question and hit send. We will see if one of our guest can get you your answer right here at MoneyTalk Live.
Just a quick update on the market. The Americans are often the thanks giving holiday. We will start here at home on Bay Street with the TSX Composite Index. There was some green on the screen and we are holding onto it.
Just shy of the triple digit gain at about half of a percent. Although the Americans are not trading today, let's take a look at your data at the S&P 500, that broader read of the American market.
Obviously it was a tough ride to the first several months of the year, regaining some of that ground and, of course, a lot of it just hinges on what the Fed is up to you.
There were the Fed minutes yesterday and there was this addition that the discussion around the table was about easing off the pace of rate hikes at some point.
Not stopping, but at least easing up a little bit and that put a little money into the market yesterday afternoon. The numbers you are seeing on the screen there, 4027, was yesterday's close and the Americans will be back for half a day tomorrow. We are back now is Jennifer Nowski, taking your questions about commodity stocks.
Let's get back to them.
Here's one that just came in a couple of moments ago. A prophet seemed to be going back to investors versus being reinvested.
Good for investors, but isn't as bad long-term for the energy space?
>> Yeah, so investors have appreciated the discipline that the usecash flow practices have imposed on producers.
In the medium term, is positive for the energy space.
It keeps production at growth lower. A few years ago, shale was growing at a rapid clip.
He was adding a lot of supply in the market and that pressured prices. Now the growth is much more modest, it creates a more supply constrained market which is supportive of the commodity.
> Okay, interesting set. Let's talk about gas now, natural gas. European gas prices have fallen dramatically.
The viewer wants to know why?
>> Yeah, so European gas prices have been very high and volatile this year as the continent has been working to replace Russian imports of gas.
At one point, the European TTS benchmark hit over €300 and one hour. It has since fallen back to about the 120 area, and that still very elevated compared to where it was prior to 2021, most the time trading at €20 or below. The reason we've had this bit of a reprieve in the European natural gas prices that they have been able to fill up their storage levels ahead of the critical winter heating season.
How did they do that? Partially on the demand side.
With high natural gas prices, some industrial users just had to shut down and could no longer run so demand is down. You've also had more imports from Norway, a lot of LNG has been importing into the continent as well, and prior to the past couple of weeks, the weather was a bit more mild.
As we look into 2023, the EU, we are still going to have this high volatile likely price environment.
Barring some political resolution, they are going to have to refill storage after this winter. The question will be how much they have to refill and that will depend on what they use this winter in terms of what the weather is going to be like, how much power is generated from alternative sources whether it's renewables or if the French nuclear continues to underperform and we need that gas. So it will continue to be a very challenging situation.
> We've got a question from the viewer, almost a follow question, not sure if we got many more here. What has been the response of the European Union, the government there, these high gas prices?
>> So the EU's overarching principle is a still want to move their power generation and consumption away from fossil fuels towards more renewable sources.
However, in the short term, they also want to soften the blow that consumers are experiencing so you've seen them spending billions of dollars on subsidies to consumers, there is more talk, proposals around price caps, around some of the renewable generation or price Natural Gas Being Discussed.
The Other Thing to Is a Windfall Taxes.
We Have Seen Proposals for When Fall Taxes on Gas and Oil Producers in Europe. The Completed Thing with All These Proposals, Particularly the Tax and Price, Is You Discourage Investment and I Think People Want to Ensure That the EU Remains Focused on Solving the Fundamental Supply Demand Imbalance That They Are Facing.
>> There Was More to That Question so I Think That Viewer Because It Serves As a Good Follow Question.
Another Question Now. How Have North American Natural Gas Prices Performed? We Talked A Lot about the European Situation This Year.
What Is the North American Situation Look like?
>> Yeah, If You Look Back A Few Years, We Were Not a Very Well Supplied Market.
Since 21, 22, It Has since Rallied Quite Significantly, Hitting Eight, Nine Dollars Earlier This Year, Now down to Six, Seven, so Still Elevated.
What's Changed Has Beaten LNG. We've Had a Number of LNG Plants Come Online in the US in the past Few Years.
This Is a New Source of Demand for the Continent.
As Well This Year, Those LNG Facilities Have Been Running at Peak Capacity and Power Demand for Gas and Power Generation Has Been up to. On the Supply Side of Things, in the States during COVID When Oil Production Was down, Natural Gas Production Also Dipped As Well Because There Was Less Associated Gas.
Since Then, Production Has Grown but the Pace Has Been a Bit Slower Than Demand Partially Due to Some of the Capital Discipline in the Industry Also at Times Take Away.
Now, Looking Forward to Next Year Though, Right Now, US Storage Levels Are at the Five-Year Average so They Are Healthy.
There Is Supply Growth and the Other Headwind Is That the Free More LNG Facilities Off-Line so That Is Keeping Gas under Wraps As Well.
The Canadian Gas Price at Times Has Traded at a Very Wide Discount, Tannery Hub Has Occasionally Been Lower.
When It Widens out, It Tends to Be Because of Maintenance Being Done on the Pipeline System in the Province.
Because It's Been a Rather Persistent Issue, We've Seen Canadian Gas Players Diversify Their Marketing and Points to Get Higher Prices.
The Other Thing That Will Be a Big Change for the Canadian Market Is When the LNG Canada Facility Comes Online in the Middle Part of the Decade, Which Will Create New Export for Our Gas.
>> Sometimes When People Talk with Natural Gas, They Talk about the Weather. As Canadians, We Love to Talk about the Weather. Anecdotally, I Will Say the Last Weekend and Got Really Cold in the GTA. We Had Our Natural Gas Fireplace on.
Do People Read Too Much into the Weather Conditions Are Those That Influential?
>> Whether Does Influence Gas. With the EU Situation, It Will Be a Determining Factor.
In North America, How We Exit the Winter Will Certainly Be Determined by How the Weather Is.
You've Seen It Reflected in the Price at Times.
>> It's Been Warmer This Week the Last Week We Worked Pretty Hard. We'll Back Your Questions for Jennifer Nowski on Commodity Stocks in Just a Moment's Time.
As Always, Make Sure You Do Your Own Research before You Make Any Investment Decisions and Reminder You Can Get in Touch with Us at Any Time.
Do You Have a Question about Investing or Was Driving the Market?
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@moneytalklive@td.com.
Or you can use the question box right below the screen here on WebBroker.
Just write in your question and hit send. We'll see if one of our guest can get you your answer right here at MoneyTalk Live.
if you didn't have your eye on the calendar, this is a reminder.
A Black Friday sales are probably on your phone try to get you to buy. The pretty critical time of yearfor small business so we have the November small business survey out. But what is it telling us about their outlook for their near out term? Anthony Okolie has been looking into TD Economics take on it all.
>> Small business confidence in Canada took a nosedive in the month of November leading up to the critical holiday shopping season and beyond it.
The latest Canadian Federation of Independent Business barometer optimism index for three months actually fell 2 1/2 points to about 44 index points. Again, that's below the 50 index level since September. And what that implies is that more firms are expecting their businesses to actually deteriorate over the next three months then improve, and when we look at their outlook over the next 12 months, that fell 1.4 points to 50.
Again, barely in expansionary territory.
That registered the lowest recorded level since 2009.
That's outside, of course, the 2000 age, 2009 and 2020 recessions. When we look at what's hurting small business sentiment, cost pressures are one of the big ones. Even though we've seen a big pullback in gasoline prices lately, but 71% of respondents, nearly 3/4 of respondents, said that the cost of fuel and energy was causing difficulties for their businesses. Anything of small businesses, these are companies that have vendors and suppliers that must deliver goods and services that are critical to the daily operation.
So when fuel costs increase, that puts these companies under a lot of pressure to cut costs and overhead are actually a pass on those price increases to their customers. So again, fuel is a big one for many of the small businesses. Another one, of course, is rising interest rates. That also add to the cost pressures. We know that the Bank of Canada has been hiking interest rates, have hiked interest rates this year. We have another one coming up in December and the expectation is they will hike again. So there we saw a sharp increase in the number of businesses worried about borrowing costs, 35%, just over one third of respondents.
That's an all time high for Canadian small businesses.
So certainly interest rates are a big factor as well.
Another big worry on the minds of small business is the tight labour market. We have heard a lot about this all year.
The barometer index showed that there are no signs that hiring challenges are easing for many Canadian small businesses.
Given the tight labour market, rise in wages is also on the list of worries for small businesses and the expectation that average wages will rise the next three months actually ticked up in November. However, some good news. Plans for price hikes of the next 12 months did ease.
But again, as TD Economics noted, there are no surprises here in that small businesses are feeling downbeat because they are facing the triple headwinds and cost pressures, rising wages and borrowing costs and certainly all of that is weighing on optimism and into the critical holiday season.
>> I believe is when the CFIB does a survey, they also break it down by the different sectors. Which one is sort of feeling the least optimistic ending to this holiday season?
>> I think the retail sector is one of the ones with some of the lowest optimism heading into the critical holiday shopping season. There are couple of reasons why. I will highlight some key ones. One of them of course is staffing.
Hiring temporary holiday staff is more expensive and more challenging for a lot of the small businesses this year.
When we look at stats Canada's latest inflation report, they showed that average hourly wages were up 5.6% in October. That actually accelerated from month over month from September.
Another big factor, competition. All of small businesses are facing tighter competition as they try to battle for shoppers wallets. Small businesses are facing challenges from big-box stores and online giants that are offering steeper discounts on some products as early as October.
Finally, holiday spending. Recent polls indicate that Canadians, Canadian consumers are less likely to spend more on holiday shopping this year and will shop around for deals and that will put pressure on profit margins which is critical for small businesses.
>> Thanks.
>> My pleasure.
>> MoneyTalk Anthony Okolie peerless check-in on the markets.
Of course, the Americans are enjoying their thanks giving holiday but we are trading stocks here on Bay Street. The TSX Composite Index up a fairly decent 90 points on the day when we get lower volume when Americans aren't taking part, up a little shy of half a percent.
Names moving to the upside including Brookfield infrastructure partners.
As we saw earlier, lightspeedwas up up about 1 1/3%.
The technology sector year to date in Toronto has been an interesting one and it's obviously been an interesting space and a challenging space along with the broader market. You are seeing from the highs of earlier this year it's been a bit of a rough ride and a bit of a choppy one but a little bit to the upside in recent weeks.
And the material space, we are talking commodity sales, let's take a look at the TSX material sector your today.
Obviously the broader market down from ties of earlier this year, it's trying to regain some territory in recent weeks. We are back now is Jennifer Nowski from TD Asset Management.
We are talking commodity.
Let's get into a bit of a different area for the commodity place.
What is the outlook for the Nutrien?
>> Nutrien is a bit topical lately as stock sold off after its Q3 results where it missed expectations and had to lower its guidance predominantly on core products and lower sales volumes.
Management attribute this to a shorter spring application window as well as, which contributed to channel inventories building up as buyers got a bit more cautious. This kind of serves as a reminder that weather and seasonality can have an impact on fertilizer demand as well as some of the discretion farmers have in how much potash, for example, they choose to apply.
However, looking forward for Nutrien, the potash supply-side remains constrained. You have Russian potash under sanctions still.
There is still uncertainty about how much supply Russia will be able to continue to export. And former economics with these price points are still healthy.
>> That's potash. What about the pressures from metal?
Jennifer's thoughts on gold?
>>the prices are up.
That's largely attributed to the move in the US dollar.
A weaker US dollar results in a higher gold price.
That's been part of it.
When we look at the other two factors we follow closely, which are demand in real yields, on the demand side it's been a decent year.
We've seen good demand out of India and China. Central banks have been generally net buyers of gold for the last decade or so and they continue to do so this year at a clip as they try to move away from the US dollar.
The headwind, though, has been the physical ETF gold flows. To those caught a bit of an inflow, certainly, after the Russian invasion. However, since then, we've seen outflows which has been a headwind. Another key factor is real rates. So real rates, we had a big move this year. They went from -1% at the start of the year.
They are now at about +1.4%.
That is a headwind for gold and with the Fed committed to bringing down inflation, they could stay there for some time. However, we started to get hints of the Fed pivoting, that could bring down the real yield which would be more positive for gold. It remains to be seen but it certainly feels like they are in inflation fighting motive for some time.
>> Interesting dynamics at play there. We had a good follow from when are viewers wanting to talk about the gold miners and compare them to the streamers in environments like this?
>> Yeah, so the streaming model is different.
What streamers do is they provide financing upfront to help build a mine and in return they get a piece of the production of the mine each year. So a streamer is exposed to variations in mind production and the gold price. However, they are not exposed to the operating costs of the mine.
As you talk that at the beginning, cost inflation has been a very big headwind for the gold miners this year.
So it's been a more favourable environment, a tougher environment for minors but more favourable for streamers who have higher margins and are not exposed to the costs. Conversely, if these operating costs were to stabilize or fall or the gold price were to really rally, the miners have that higher operating leverage exposure to gold.
>> Great breakdown between the two. Been a shift to a different commodity now, lumber. It's been a roller coaster this year.
What caused this latest price drop for lumber?
> Yeah, so lumber certainly has had some huge price swings.
If you think back to the last couple of years. Lumber's key use is in residential housing starts and remodels.
Commas are very tied to the housing market.
If you think back to the start of the pandemic, the industry closing capacity but housing has been a remarkably resilient. It bounced back really fast. The industry was prepared for that.
There have been some spikes driven by labour shortages on the supply side heading into what is still a very robust housing market.
Now, the challenge that's being faced by a lot of them right now and what's attributing to the price falling significantly has been the housing starts have started to dip these days and they've dipped below the level at which the capacity of the lumber industry was targeting. So basically we are starting to create some excess capacity in lumber. And thinking forward, with the higher Fed rates, the higher mortgage rates in the states, there is concern about what thatalso for remodelling houses.
>> For 2023 which metal are you most bullish of for electric vehicle demand?
>> EVs are an area of secular growth.
they are very metals intensive.
I mentioned Koppers at the beginning, they are involved in EVs. A lot of people focus on battery metals, cobalt, nickel and lithium. I think the challenge when you look at battery metals is we have to look with the country's going to be in their different chemistries for different electric vehicles, but also something like nickel, the demand for the commodity right now is still mainly in the stainless steel market so you have to be mindful of that.
Now lithium, for example, that industry is changing rapidly because of EVs. There is a big demand for lithium. The price of quite elevated right nowtwo new supply and there is willingness to build new supply. We do have minds coming online.
The problem is, they tend to be late.
So that creates uncertainty and can create some volatility in price, as well, one of the more interesting aspects is auto OEMs trying to secure lithium supplies.
So you have seen more contracting or investments made by auto OEMs and lithium miners to support supply growth as they want to ensure they can execute their plans.
So a lot going on in the EV market but it can be volatile.
>> Fascinating stuff and a great conversation.
I really appreciate you joining us today.
> Thank you.
>> How are things to Jennifer Nowski, Portillo manager at TD Asset Management. Stay tuned for Monday show.
Alfred Li, portly manager at TD Asset Management is going to be our guest taking your questions about China's markets and economy. You don't have to wait until the shows error or until we go to air.
Send your questions in. Just email moneytalklive@td.com.
That's all the time we have 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'll only see here.
Will take you through its moving the market and answer your questions about investing.
Coming up on today show, we're going to discuss the big takeaways from commodities earnings season with TD Asset Management Jennifer Nowski.
And in today's WebBroker education segment, Caitlin Cormier is going to show us how you can research a specific sector and out of pure watchlist. Here's how to get in touch with us.
Just email moneytalklive@td.com or fellow that your response box right under the video player here on WebBroker.
Before we get to our guest today, let's get you an update on the market. Of course, the Americans are off on their think sitting holiday but we are still trading here on Bay Street. Let's check in on the TSX Composite Index.
fairly decent gain of 93 point, about half a percent to the upside.
Some of the names that are moving to the upside include Shopify. Let's check in on that tech name.
At 4971, Shopify up 1% right now. With Americans off, trading volumes are not huge. Alimentation Couche-Tard, let's check in on that name.
The announcer earnings a few days ago. Now that they are at 5970, down a modest $0.40, a little more than half a percent. Since we have this opportunity to take a broader look, let's check out at the energy sector's ear today. It's been a bit of a choppy ride and a bit of a holding pattern there in the past couple of weeks trading in that range.
The financials, course we are going to get bank earnings next week which rounds out the season for Canada.
The US banks seem to started and in Canada we seem to finish it all off. In financials, you see a bit of a downward slope this year but we are starting to make some gains here from the middle of October.
And that's your market update.
Higher oil prices lifted many energy firms through this year, but as we get to the end of theLatest earnings season, what are we hearing from companies about the outlook going forward?
Joining us now with more is Jennifer Nowski, portfolio manager at TD Asset Management peered welcome back to the program, Jennifer.
>> Thank you for having me.
>> Let's talk about the key takeaways from the earnings season when it comes to oil company.
>> Earnings for the oil companies came in largely is expected this past quarter. The real highlight has been the year-over-yearbig increase in profits as oil and gas prices have been generally rising over the past year and this has far outweighed any small increases and operating costs we've seen, particularly in the US.
If you look across the value chain for energy, there was a lot of big gains in profits here year-over-year for the upstream and refining situations.
This was due to a higher energy feedstock costs, and weaker demands. Sector has been reducing debts, the leverages on the low and now and they continue to be very disciplined about returning cash to shareholders.
We had a number of dividend increases, special dividends, more buybacks.
And when you think about how much cash flow the sector is used to, today's oil price is roughly, the sector has a free cash flow yield of about 10% into the teens and much of that is coming back to shareholders.
>> Interesting stuff. A good rundown of the court behind. Going forward, what are you looking for from these energy companies?
>> The big thing in the next few months is the energy company's are going to come out with their 2020 3X manager budgets.
In 2022, Has gone up and we seen some inflation in the Figures throughout the year.
For 2023, the expectation, I say, is that CAPEX will be higher again, partly due to inflation and we'll see how much will be allocated to growth. In general, when companies talk about, especially the large caps, talk about their plans, it's usually at the low end of the scale, zero.
>> Investors this year have been so attuned to every headline, depending on the asset class, when it comes to oil, no different.
A lot of sort of handwringing and journalism out there about supply and demand dynamics.
How closely should investors be watching those dynamics right now?
>> You absolutely should be watching them very closely.
So it's been happening is on the demand side, there has been growing concerns about, you know, the impact of the slowing global economy on demand as well as shine which is stuck in COVID lockdowns.
That's a headwind for demand.
You have a very disciplined OPEC with limited spare capacity at OPEC and the US is nearing the end of its plan releases from the strategic petroleum reserve.
This week, one of the more debated items as the upcoming ban on Russian oil imports to the EU. You know, there is debate about how much oil from Russia this could displace in the market. The offset, though, that's also being debated as the implantation of a price That will keep Russian oil trading at the discount that it is trading at but allow it to flow to other buyers.
>> A lot of things to watch in that space. That's a great rundown about oil and gas.
What we saw, what to expect going forward, we need to keep our eye on.
What about the mining companies, how are they faring during earnings season?
> In general they have had a tougher year this year, particularly on the call side.
They have seen their profit squeezed in Q3 as if you look at key metals like gold or copper, those are down year-over-year. And then the miners have really been battling cost inflation. Diesel is a big one, that's an energy headwind. Sometime supply chain challenges still earlier this year, transportation was higher.
So all headwinds to cost.
The other thing to do, mining is a very difficult business, some have missed on the production targets and this is for a variety of reasons, some due to continuing to work through COVID challenges, others, talking about whether or operational issues.
The problem, of course, is when you are late on production.
That can be another challenge. So the big thing going into 2023 for the mining companies will be that outlook for costs.
Energy is going to… Labour costs might be secure or higher, maybe we will see some reliever flattening on transportation or consumers.
>> All right, you're talking about supply and demand dynamics and how that drives the price of crude.
The same thing for a lot of these metals.
Let's talk about the metal space right now and what we are seeing there.
I think of demand, I think of China, some of the constraints there, the possibility of a recession. How is all play out?
>> Yeah, so metals prices, and we will talk copper because it's kind of the bellwether, it's been weaker since about the middle of this year. Again, concerns about slowing demand from China. The copper price has perked up the past few weeks and there are sort of three reasons for it. The first is the weaker US dollar.
So metals are priced in US dollars, weaker US dollar makes it more affordable to the rest the world.
The second is China. They came out some announcements to transport his property sector, which would be positive for metals because that's a key consumer. And the third, although, like I said, China's battling some COVID outbreaks right now, sometimes investors start to look forward into the next year and wonder if we may be into a period where China could relax or really some of these COVID restrictions. That remains to be seen but it puts him off Ms.
Mintz the copper price.
Turning to the supply side for copper, the story is still that we've had a few minds come online this year, but as we went through Q3 more recently, you do see existing mine production struggling, particularly… We had to bring down its production. So that provides some loss to the supply. If we think longer term, the long-term demand for copper tends to be brighter.
If exposed to the electrification and then a couple years that it becomes less clear where the supply will come from to meet this man.
> A lot of things happening there, a lot of fascinating things to go through. A great start to the program. We are going to get your questions about stocks for Denver now seen just a moment time. A reminder, of course, you get in touch with us anytime. Just email moneytalklive@td.com or fellows of your response walks right into the video player here on WebBroker.
Now, let's get you update on some of the top stories in the world of business and take a look at how the markets are trading.
The Bank of Canada says any government measures to ease inflationary pressures for households should be targeted and temporary.
appearing before the house Finance committee in Ottawa, Gov. Tiff Macklem said any inflation relief measures need to be tailored to help the most notable Canadian.
while supersized rate hikes have squeezed household budgets this year, Macklem says more hikes are needed to tame inflation.
North American retailers are hoping Black Friday sales will entice shoppers to spend big despite all these inflationary pressures.
The unofficial start to the holiday shopping season comes at a challenging time as consumers have been shifting their spending habits in the face of high food and fuel prices.
Some recent surveys suggest that Canadians may be a little more careful with their dollars this holiday season.
The world's second-largest economy is recording a record high number of COVID cases, casting a shadow over its growth prospects.
China is imposing local lockdowns as cases assured, and those measures of course it hit the manufacturing segment of the country as well. Investors have been carefully watching for signs that China might ease it zero COVID policies, but the recent spike in cases is casting some doubt on such a move anytime in the short term. Let's check out the main net index benchmark in Canada. The Americans are off of the thanks giving holiday. There is green on the screen for the TSX Composite Index. It's up 95 points, a little shy of half a percent. We are back now with Jennifer Nowski, we are taking your questions about the commodity space.
Let's get to them. The first question we have. Energy has been the hottest sector this year.
Is it too late to get into the space?
>> Yeah, so energy has certainly been on quite a run this year today, but you have to bear in mind this was coming out of a very dark place a couple of years ago when oil was at about 20 bucks.
How to think about the energy space going forward? You know, at the end of the day, the oil prices going to drive the direction of the stock. So if we are in an environment where the oil price remains high or even better start going up, then energy stocks will respond positively to that.
When we think about valuations, though, I'd say despite the run up we've had in the energy stocks, there is nothing unusual about the valuation. When you look at P nabs or what oil prices are being implied in the stocks, is well in line with what we are seeing in the forward and small markets forecast. The other factor to look at when evaluating energy stocks is those cash returns that we are seeing to shareholders. Now, those policies as I described, their variable parts to it, like the different dividends and buy back levels, and in a lower oil price environment, those who get cut.
But something to bear in mind, if we look at the corporate breakeven for the larger Names, they are in the 40s. You know, oil is just a bit below $80 right now.
So there is a lot of room there for these countries to generate healthy free cash flow.
And the potential is there for them to continue to return cash to shareholders at a rate that is above the average S&P 500 company.
>> If there were risks to consider, what would they be in the space?
>> Certainly, number one, is the price of the commodity in the second, of course, is operational execution.
Being able to meet production targets and then, thirdly and similarly, the cost side of the equation.
> Excellent.
We will look there at some of the opportunities and risks among the entertainments in Canada.
Next question.
With the outlook for smaller Canadian names versus the larger caps?
>> The smaller caps versus the large have seen the benefits of higher commodity prices, growing leverage, generous free cash flow rate in. When looking at valuations for small caps, historically,they have traded at a discount.
The discount can widen and narrow at times, but it will likely remain.
The second is that a smaller Name is more concentrated.
They might have exposure to just one or two bases. You have to be more mindful of what's going on regionally with transportation constraints, with what hub specifically they are selling to.
>> Interesting stuff there between the Canadian names, large versus small. This is a question about the value of Canadian oil.
How can Canadian oil is valued less than US or European counterpart?
>> Yeah, certainly, the key Canadian oil benchmark at Western Canadian select is often compared to USW TI which is light barrel.
There are three reasons why there is a differential.
These reasons determine how wide that differential is.
The first is quality. Heavy oil trades at a discount to light because it is more costly to refine. The second is transportation. This is been the real big challenge.
Looking back a few years, when short pipeline capacity in Western Canada, we had to ship off rail, real is more expensive so that is when you start to get those water differentials. However, right now, differentials have a wide in the game. But the transportation situation appears relatively stable.
Rail volumes are actually fairly low.
And if you think out… Are going to get better with the transmountain expansion coming online hopefully later this year. The third reason, though, is what appears to be driving the wider spreads right now and that is local supply and demand conditions. So a lot of our oil is still shipped to the states.
Past month or so, we saw spreads widen as US refineries were on maintenance, so there's less demand.
There was also a fire at the Toledo refinery, so it's been off-line.
And if you think a bit more macro, the USS PR releases have put a lot of sour barrels on the market, which creates more competition.
And globally, with Russian barrels that being redirected to China, that's pushing some heavy oil back into the Gulf of Mexico market.
Some of these factors are transitory.
The WTI, etc.
>> Interesting stuff. Got a question now that has come from one of our viewers, they want to run down on Canadian Natural Resources.
>> Yeah, sure. So C and Q is one of the largest oil and gas producers in Canada.
Similar to others, they have a big oil sands base and that offers them a large, long life, low decline asset and they do operate at costs that are lower than their Canadian peers. One interesting thing about C and Q is they are a very large gas producer in Canada and in that scenario they've actually been investing, they made some acquisitions as well, they were to be some more drilling this quarter.
In Q3, the natural gas production is actually up about 25% year-over-year.
So clearly, they see some value there.
They've also, like other companies, been returning more cash to shareholders and their dividend, they did a special dividend this summer.
> That is C and Q. Someone has a question about shale players, specifically talking about EOG. I don't know a lot about this name. What's happening here?
>> Yeah, so EOG is a US shale player with most of its production in the US and they are spread across multiple basins including the Permian, Eagle furred, Wilson, etc.
EOG is a very efficient company.
They are at the lower end of the cost curve and they are very financially disciplined in terms of targeting the wells within their massive inventory that have the higher returns.
The other unique thing about EOG is they tend to focus more on expiration, developing, building up land positions, developing new place.
They introduce one a couple of years ago called the Dorado gas play. This last quarter, they highlighted another play they've developed which is in the Ohio Utica.
And again, similar to others, strong balance sheet right now. It has been consistently paying a base dividend and has committed to returning at least a percent of free cash flow to shareholders.
>> So what are some of the risks?
Normally for this name to anyone else in shale.
>> No, shale, certainly, with the Permian being very active, paying attention to the costs, people in higher oil price environment wonder how long these companies can keep their capital discipline in place in terms of low production growth versus returning cash to shareholders.
And then, I can't say it enough times, but the oil price will really drive this.
>> As always, make sure you do your own research before you make any investment decisions. We are going to get back your questions for your Jennifer Nowski on commodity stocks and just moments time.
Our liner, of course, you get in touch with us anytime.
Just email moneytalklive@td.
com.
Now, let's get our educational segment of the day.
If you are interested in doing research on a specific sector, WebBroker has tools that can help you.
Caitlin Cormier, client education instructor at TD Direct Investing joins us now with more. Great to see you again.
Walk us through how we can explore certain sectors or industries using this platform.
>> Absolutely. Let's jump right in.
So a lot of investors might want to be looking at a specific sector as far as investing goes. They might want to be looking at a particular area. So there is a very easy way for us to do that. We are going to click on the research button and we are going to go all the way down to sectors and industries. Once they get to this page, we have the option to choose which particular sector we might want to do a little bit further research in. So there's quite a lot available here, just for today's topic, let's go ahead and jump into energy as our option for today. So once we get in here, we have a ton of information on the sector. There is energy report, there is a little bit of a comparison here, towards the bottom you can get into a specific industry. If the sake of today, since we found many stocks in this industry, let us take a little moment to actually create a watchlist.
So the watchlist is actually one of our tools that we have within WebBroker that allows you to do additional research on individual companies, keep track of them, kind of keep a close eye on them and see if they might be something you are interested in investing in.
And here, we actually have under company strategies, you can actually separate different companies within this particular sector into specific strategies. So we can have high dividend or share growth or price discount to book value.
In this scenario, I selected high dividend so we can see here these are the top five high paying dividends within the sector.
So for the sake of today, let's add these to a watchlist.
What are going to DO is I'm going to click on the company ticker, I will bring up a little quick view of this company and I will go right over here to the right where it says add to watchlist, the little star. And I'm going to choose list number seven there. We are going to exit out, I'm going to go back in, choose the next one to watchlist and click on the list there and exit out. So I could continue to do that for up to 10 securities on that watchlist.
So it's just kind of an easy way for us to put some stocks together into a particular category and, you know, this is the area where we can find some stocks that might be specific to the category we will be looking for.
>> Okay, now we have a good grounding in that. Once the securities are added to that watchlist, we want to go back and actually, you know, enjoy the fruits of our labour.
How do we do that?
>> Absolutely. So again, we are going to hop right in and we are going to click on the little star up in the top right-hand corner of our screen. And that is just kind of a hot button for our watchlist is so we are going to click there and I'm actually going to click on my list for here and that's when you have those five different securities you are looking at a moment ago on the list. So this particular list, it gives us a ton of information here about the securities kinder from a high level, so we got some information on how it's trading today, we can drop down, we can see a little price chart here, we can choose the frequency we like, we can even go back here and see how the particular security has performed. Again, we've got quote information and trading volume. We've also got fundamental information so information about that dividend.
You may also notice on the screen that I've actually added and indices so you can actually add an index to your watchlist just by clicking on this drop-down.
Click on indices and put in the symbol. So here, I am actually adding the as a P and X energy is tab. That's my way of comparison there so I have that index and I can kind of look at my securities that I have on my watchlist versus that index I can kind of get a perspective on how they are moving versus the index.
So we have quote information and fundamental information all here.
Of course, I can always rename my watchlist if I can type properly here.
And I can save that had come back at any point in time.
I can always click on that star in the top right-hand corner of my screen and check in and see how that little list of mine is doing. And of course, if you ever want to get more information on one particular stock, just write down here we can click on overview, news charts are an option to get information about that specific security more detail.
>> Great stuff as always.
Thanks that.
>> Thank you.
>> Our thanks to Caitlin Cormier, client education instructor at TD Direct Investing. Make sure to check out the Learning Center in WebBroker for more educational videos, live interactive master classes and upcoming webinars.
Now before you back to your questions about commodity stocks for Jennifer Nowski, a reminder of how you can get in touch with us.
To the question about investing or was driving the market?
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 writing your question and hit send. We will see if one of our guest can get you your answer right here at MoneyTalk Live.
Just a quick update on the market. The Americans are often the thanks giving holiday. We will start here at home on Bay Street with the TSX Composite Index. There was some green on the screen and we are holding onto it.
Just shy of the triple digit gain at about half of a percent. Although the Americans are not trading today, let's take a look at your data at the S&P 500, that broader read of the American market.
Obviously it was a tough ride to the first several months of the year, regaining some of that ground and, of course, a lot of it just hinges on what the Fed is up to you.
There were the Fed minutes yesterday and there was this addition that the discussion around the table was about easing off the pace of rate hikes at some point.
Not stopping, but at least easing up a little bit and that put a little money into the market yesterday afternoon. The numbers you are seeing on the screen there, 4027, was yesterday's close and the Americans will be back for half a day tomorrow. We are back now is Jennifer Nowski, taking your questions about commodity stocks.
Let's get back to them.
Here's one that just came in a couple of moments ago. A prophet seemed to be going back to investors versus being reinvested.
Good for investors, but isn't as bad long-term for the energy space?
>> Yeah, so investors have appreciated the discipline that the usecash flow practices have imposed on producers.
In the medium term, is positive for the energy space.
It keeps production at growth lower. A few years ago, shale was growing at a rapid clip.
He was adding a lot of supply in the market and that pressured prices. Now the growth is much more modest, it creates a more supply constrained market which is supportive of the commodity.
> Okay, interesting set. Let's talk about gas now, natural gas. European gas prices have fallen dramatically.
The viewer wants to know why?
>> Yeah, so European gas prices have been very high and volatile this year as the continent has been working to replace Russian imports of gas.
At one point, the European TTS benchmark hit over €300 and one hour. It has since fallen back to about the 120 area, and that still very elevated compared to where it was prior to 2021, most the time trading at €20 or below. The reason we've had this bit of a reprieve in the European natural gas prices that they have been able to fill up their storage levels ahead of the critical winter heating season.
How did they do that? Partially on the demand side.
With high natural gas prices, some industrial users just had to shut down and could no longer run so demand is down. You've also had more imports from Norway, a lot of LNG has been importing into the continent as well, and prior to the past couple of weeks, the weather was a bit more mild.
As we look into 2023, the EU, we are still going to have this high volatile likely price environment.
Barring some political resolution, they are going to have to refill storage after this winter. The question will be how much they have to refill and that will depend on what they use this winter in terms of what the weather is going to be like, how much power is generated from alternative sources whether it's renewables or if the French nuclear continues to underperform and we need that gas. So it will continue to be a very challenging situation.
> We've got a question from the viewer, almost a follow question, not sure if we got many more here. What has been the response of the European Union, the government there, these high gas prices?
>> So the EU's overarching principle is a still want to move their power generation and consumption away from fossil fuels towards more renewable sources.
However, in the short term, they also want to soften the blow that consumers are experiencing so you've seen them spending billions of dollars on subsidies to consumers, there is more talk, proposals around price caps, around some of the renewable generation or price Natural Gas Being Discussed.
The Other Thing to Is a Windfall Taxes.
We Have Seen Proposals for When Fall Taxes on Gas and Oil Producers in Europe. The Completed Thing with All These Proposals, Particularly the Tax and Price, Is You Discourage Investment and I Think People Want to Ensure That the EU Remains Focused on Solving the Fundamental Supply Demand Imbalance That They Are Facing.
>> There Was More to That Question so I Think That Viewer Because It Serves As a Good Follow Question.
Another Question Now. How Have North American Natural Gas Prices Performed? We Talked A Lot about the European Situation This Year.
What Is the North American Situation Look like?
>> Yeah, If You Look Back A Few Years, We Were Not a Very Well Supplied Market.
Since 21, 22, It Has since Rallied Quite Significantly, Hitting Eight, Nine Dollars Earlier This Year, Now down to Six, Seven, so Still Elevated.
What's Changed Has Beaten LNG. We've Had a Number of LNG Plants Come Online in the US in the past Few Years.
This Is a New Source of Demand for the Continent.
As Well This Year, Those LNG Facilities Have Been Running at Peak Capacity and Power Demand for Gas and Power Generation Has Been up to. On the Supply Side of Things, in the States during COVID When Oil Production Was down, Natural Gas Production Also Dipped As Well Because There Was Less Associated Gas.
Since Then, Production Has Grown but the Pace Has Been a Bit Slower Than Demand Partially Due to Some of the Capital Discipline in the Industry Also at Times Take Away.
Now, Looking Forward to Next Year Though, Right Now, US Storage Levels Are at the Five-Year Average so They Are Healthy.
There Is Supply Growth and the Other Headwind Is That the Free More LNG Facilities Off-Line so That Is Keeping Gas under Wraps As Well.
The Canadian Gas Price at Times Has Traded at a Very Wide Discount, Tannery Hub Has Occasionally Been Lower.
When It Widens out, It Tends to Be Because of Maintenance Being Done on the Pipeline System in the Province.
Because It's Been a Rather Persistent Issue, We've Seen Canadian Gas Players Diversify Their Marketing and Points to Get Higher Prices.
The Other Thing That Will Be a Big Change for the Canadian Market Is When the LNG Canada Facility Comes Online in the Middle Part of the Decade, Which Will Create New Export for Our Gas.
>> Sometimes When People Talk with Natural Gas, They Talk about the Weather. As Canadians, We Love to Talk about the Weather. Anecdotally, I Will Say the Last Weekend and Got Really Cold in the GTA. We Had Our Natural Gas Fireplace on.
Do People Read Too Much into the Weather Conditions Are Those That Influential?
>> Whether Does Influence Gas. With the EU Situation, It Will Be a Determining Factor.
In North America, How We Exit the Winter Will Certainly Be Determined by How the Weather Is.
You've Seen It Reflected in the Price at Times.
>> It's Been Warmer This Week the Last Week We Worked Pretty Hard. We'll Back Your Questions for Jennifer Nowski on Commodity Stocks in Just a Moment's Time.
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if you didn't have your eye on the calendar, this is a reminder.
A Black Friday sales are probably on your phone try to get you to buy. The pretty critical time of yearfor small business so we have the November small business survey out. But what is it telling us about their outlook for their near out term? Anthony Okolie has been looking into TD Economics take on it all.
>> Small business confidence in Canada took a nosedive in the month of November leading up to the critical holiday shopping season and beyond it.
The latest Canadian Federation of Independent Business barometer optimism index for three months actually fell 2 1/2 points to about 44 index points. Again, that's below the 50 index level since September. And what that implies is that more firms are expecting their businesses to actually deteriorate over the next three months then improve, and when we look at their outlook over the next 12 months, that fell 1.4 points to 50.
Again, barely in expansionary territory.
That registered the lowest recorded level since 2009.
That's outside, of course, the 2000 age, 2009 and 2020 recessions. When we look at what's hurting small business sentiment, cost pressures are one of the big ones. Even though we've seen a big pullback in gasoline prices lately, but 71% of respondents, nearly 3/4 of respondents, said that the cost of fuel and energy was causing difficulties for their businesses. Anything of small businesses, these are companies that have vendors and suppliers that must deliver goods and services that are critical to the daily operation.
So when fuel costs increase, that puts these companies under a lot of pressure to cut costs and overhead are actually a pass on those price increases to their customers. So again, fuel is a big one for many of the small businesses. Another one, of course, is rising interest rates. That also add to the cost pressures. We know that the Bank of Canada has been hiking interest rates, have hiked interest rates this year. We have another one coming up in December and the expectation is they will hike again. So there we saw a sharp increase in the number of businesses worried about borrowing costs, 35%, just over one third of respondents.
That's an all time high for Canadian small businesses.
So certainly interest rates are a big factor as well.
Another big worry on the minds of small business is the tight labour market. We have heard a lot about this all year.
The barometer index showed that there are no signs that hiring challenges are easing for many Canadian small businesses.
Given the tight labour market, rise in wages is also on the list of worries for small businesses and the expectation that average wages will rise the next three months actually ticked up in November. However, some good news. Plans for price hikes of the next 12 months did ease.
But again, as TD Economics noted, there are no surprises here in that small businesses are feeling downbeat because they are facing the triple headwinds and cost pressures, rising wages and borrowing costs and certainly all of that is weighing on optimism and into the critical holiday season.
>> I believe is when the CFIB does a survey, they also break it down by the different sectors. Which one is sort of feeling the least optimistic ending to this holiday season?
>> I think the retail sector is one of the ones with some of the lowest optimism heading into the critical holiday shopping season. There are couple of reasons why. I will highlight some key ones. One of them of course is staffing.
Hiring temporary holiday staff is more expensive and more challenging for a lot of the small businesses this year.
When we look at stats Canada's latest inflation report, they showed that average hourly wages were up 5.6% in October. That actually accelerated from month over month from September.
Another big factor, competition. All of small businesses are facing tighter competition as they try to battle for shoppers wallets. Small businesses are facing challenges from big-box stores and online giants that are offering steeper discounts on some products as early as October.
Finally, holiday spending. Recent polls indicate that Canadians, Canadian consumers are less likely to spend more on holiday shopping this year and will shop around for deals and that will put pressure on profit margins which is critical for small businesses.
>> Thanks.
>> My pleasure.
>> MoneyTalk Anthony Okolie peerless check-in on the markets.
Of course, the Americans are enjoying their thanks giving holiday but we are trading stocks here on Bay Street. The TSX Composite Index up a fairly decent 90 points on the day when we get lower volume when Americans aren't taking part, up a little shy of half a percent.
Names moving to the upside including Brookfield infrastructure partners.
As we saw earlier, lightspeedwas up up about 1 1/3%.
The technology sector year to date in Toronto has been an interesting one and it's obviously been an interesting space and a challenging space along with the broader market. You are seeing from the highs of earlier this year it's been a bit of a rough ride and a bit of a choppy one but a little bit to the upside in recent weeks.
And the material space, we are talking commodity sales, let's take a look at the TSX material sector your today.
Obviously the broader market down from ties of earlier this year, it's trying to regain some territory in recent weeks. We are back now is Jennifer Nowski from TD Asset Management.
We are talking commodity.
Let's get into a bit of a different area for the commodity place.
What is the outlook for the Nutrien?
>> Nutrien is a bit topical lately as stock sold off after its Q3 results where it missed expectations and had to lower its guidance predominantly on core products and lower sales volumes.
Management attribute this to a shorter spring application window as well as, which contributed to channel inventories building up as buyers got a bit more cautious. This kind of serves as a reminder that weather and seasonality can have an impact on fertilizer demand as well as some of the discretion farmers have in how much potash, for example, they choose to apply.
However, looking forward for Nutrien, the potash supply-side remains constrained. You have Russian potash under sanctions still.
There is still uncertainty about how much supply Russia will be able to continue to export. And former economics with these price points are still healthy.
>> That's potash. What about the pressures from metal?
Jennifer's thoughts on gold?
>>the prices are up.
That's largely attributed to the move in the US dollar.
A weaker US dollar results in a higher gold price.
That's been part of it.
When we look at the other two factors we follow closely, which are demand in real yields, on the demand side it's been a decent year.
We've seen good demand out of India and China. Central banks have been generally net buyers of gold for the last decade or so and they continue to do so this year at a clip as they try to move away from the US dollar.
The headwind, though, has been the physical ETF gold flows. To those caught a bit of an inflow, certainly, after the Russian invasion. However, since then, we've seen outflows which has been a headwind. Another key factor is real rates. So real rates, we had a big move this year. They went from -1% at the start of the year.
They are now at about +1.4%.
That is a headwind for gold and with the Fed committed to bringing down inflation, they could stay there for some time. However, we started to get hints of the Fed pivoting, that could bring down the real yield which would be more positive for gold. It remains to be seen but it certainly feels like they are in inflation fighting motive for some time.
>> Interesting dynamics at play there. We had a good follow from when are viewers wanting to talk about the gold miners and compare them to the streamers in environments like this?
>> Yeah, so the streaming model is different.
What streamers do is they provide financing upfront to help build a mine and in return they get a piece of the production of the mine each year. So a streamer is exposed to variations in mind production and the gold price. However, they are not exposed to the operating costs of the mine.
As you talk that at the beginning, cost inflation has been a very big headwind for the gold miners this year.
So it's been a more favourable environment, a tougher environment for minors but more favourable for streamers who have higher margins and are not exposed to the costs. Conversely, if these operating costs were to stabilize or fall or the gold price were to really rally, the miners have that higher operating leverage exposure to gold.
>> Great breakdown between the two. Been a shift to a different commodity now, lumber. It's been a roller coaster this year.
What caused this latest price drop for lumber?
> Yeah, so lumber certainly has had some huge price swings.
If you think back to the last couple of years. Lumber's key use is in residential housing starts and remodels.
Commas are very tied to the housing market.
If you think back to the start of the pandemic, the industry closing capacity but housing has been a remarkably resilient. It bounced back really fast. The industry was prepared for that.
There have been some spikes driven by labour shortages on the supply side heading into what is still a very robust housing market.
Now, the challenge that's being faced by a lot of them right now and what's attributing to the price falling significantly has been the housing starts have started to dip these days and they've dipped below the level at which the capacity of the lumber industry was targeting. So basically we are starting to create some excess capacity in lumber. And thinking forward, with the higher Fed rates, the higher mortgage rates in the states, there is concern about what thatalso for remodelling houses.
>> For 2023 which metal are you most bullish of for electric vehicle demand?
>> EVs are an area of secular growth.
they are very metals intensive.
I mentioned Koppers at the beginning, they are involved in EVs. A lot of people focus on battery metals, cobalt, nickel and lithium. I think the challenge when you look at battery metals is we have to look with the country's going to be in their different chemistries for different electric vehicles, but also something like nickel, the demand for the commodity right now is still mainly in the stainless steel market so you have to be mindful of that.
Now lithium, for example, that industry is changing rapidly because of EVs. There is a big demand for lithium. The price of quite elevated right nowtwo new supply and there is willingness to build new supply. We do have minds coming online.
The problem is, they tend to be late.
So that creates uncertainty and can create some volatility in price, as well, one of the more interesting aspects is auto OEMs trying to secure lithium supplies.
So you have seen more contracting or investments made by auto OEMs and lithium miners to support supply growth as they want to ensure they can execute their plans.
So a lot going on in the EV market but it can be volatile.
>> Fascinating stuff and a great conversation.
I really appreciate you joining us today.
> Thank you.
>> How are things to Jennifer Nowski, Portillo manager at TD Asset Management. Stay tuned for Monday show.
Alfred Li, portly manager at TD Asset Management is going to be our guest taking your questions about China's markets and economy. You don't have to wait until the shows error or until we go to air.
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