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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.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether the record run we have seen in gold it has been a boost to the mining stocks. TD Asset Management Jennifer Nowski joins us.
MoneyTalk's Anthony Okolie is going to have a look at the latest US retail sales report and what it could all mean for borrowing costs and interest rates.
Here's how you can get touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Last time I checked in, we had the price of crude to the upside.
We have 154 points to the downside, a bit of a choppy market session this morning.
We are down more than half a percent. Let's dig into the most actively traded names. Cenovus was a pic I had earlier showing upside strength with the price of crude. It's hanging in there, up about 2%.
Also have my own PCEO, one of the big telecoms. It has been on the downward slide over the past several months.
Today at $46.28, it is down another 2%.
South of the border, we had another readout of inflation, came in higher-than-expected.
At first the market shrugged it off but they don't seem to be shrugging it off right now. A 10 point pullback, one face of a percent on the S&P 500. The tech heavy NASDAQ, I think Nvidia may not be showing up to play today, you are down 20 points or 1/10 of a percent.
Let's check in on Nvidia. Hit new highs recently but it's been a choppy trade over the past couple of sessions.
Today, at $877 and change, pulling back 3 1/2%. And that's your market update.
Another hotter than expected inflation report out of the United States has investors thinking about when the Fed might be ready to start cutting rates.
What could that mean for the recent record-breaking rally we have seen in gold? Joining us now to discuss is Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management. Great to have you back.
>> Good to be here.
>> We get a lot of questions about the forward path.
Let's talk about the run we have recently in gold. It's been record-setting. What's behind it?
>> The rally in gold that we have seen, a key contributor has been a central bank buying.
They have been doing that more recently, trying to diversify their holdings and move away from the US dollar.
On top of that you have rising geopolitical concerns, sanctions and strong buying out of China.
The tricky thing was central bank buying is it's very difficult to say how much they are going to buy in any one year. Now, the offset to this has been the rise in real rates the past couple of years, as well as awaiting investor demand as seen in physical gold ETF outflows.
If you look at the 10 year US real yield, it was at -1% at the end of 2021.
Today, it's not nearly 2%.
This is a big move in real yields and is a headwind in gold because it does not pay a yield.
You can see that move has softened investor demand as illustrated by outflows from physical gold ETF's.
This outlook for rates might be changing.
Inflation has come off it ties and the market is increasingly looking for the Fed to start cutting rates.
This is still debated in the market and as you alluded to do with the inflation print, you can see moves due to expectations of Fed cuts. If we see Fed cuts, that could lower real yields which would be directionally positive for gold and could renew investor interest in the asset class.
>> Lots of interesting things happening there.
What about the gold mining equities?
How have they performed, given what gold is up to?
>> In 2023, gold miners were up call it not quite 5%, whereas the gold price was up 13%. The miners clearly leg. The big headwind for that was on the cost side.
Much like the rest of the economy, miners have been dealing with cost inflation that's been running on the hotter side of the scale, things like labour, fuel at times, other inputs have all been a period in terms of the outlook for costs, judging from the 2024 guidance, costs will still be up in 2024. However, it is unlikely to be as significant as it has been in the past couple of years.
The other thing that could help on the cost side to would be if operations were to run a bit smoother. Last year was not the greatest year for some of the operations for the miners which hurts on the cost side.
If you get a better cost situation and if the gold price were to continue to rally, that would be supportive of the gold mining equities.
When we talk about gold mining equities, there is a wide range in types of minors and risk profiles all the way from explorers which don't have any production to those senior gold producers that have multiple mines and large production bases.
If we look at that senior group of large Gold miners, things have changed for them compared to where they were in the last cycle. Financially, they are in a much better position.
Debt levels are now at the lower end of the scale with net debt to EBITDA the and X is more muted. Add $2000 gold, the senior group has a free cash flow yield of about three to half percent.
>> Interesting break down there, not only the gold itself but the miners taking it out of the ground. What about the energy space? It has been a volatile and choppy trading crude as well.
>> I think the oil price will continue to have this may be perhaps range bound and the key to it is OPEC+ and its discipline in keeping production off the market.
If you look at demand for oil, 2023 was actually a very good year for oil demand largely because China ended its lockdowns and its oil demand rebounded.
It could still be directionally positive but not quite to the magnitude of last year. The supply side is what has been more of a mixed picture. There are some parts of the world like the US, Guyana and Brazil, the offset has been OPEC+.
They have been keeping production off the market to try to maintain that balance and because of that, they are no is sitting on spare capacity.
So what the market needs to see is that discipline at OPEC+ continue in order for the market to remain in balance.
>> As we see the price of the commodity itself, crude oil, bounce around in trade within the range, what does it mean for the equity side of this for oil and gas names?
>> Equities at the end of the day, the stock prices will still take their cues from the oil price but the company fundamentals underlying them are very strong.
So with the strong oil prices we have had the past few years, that has resulted in real improvements to leverage.
Net debt to EBITDA for large cap group is .6 times.
Capital discipline has been the name of the game for the companies and that continues.
We just had guidance for the sector but X is looking flat, production may be up at touch so that discipline continues and any free cash flow that's generated at these oil prices, much of that is being returned to shareholders in the form of dividends and buybacks.
There has been some M&A in the sector but overall, I would not say it has distracted from this focus on capital discipline.
I call it $75 WTI, the large North American producers would call it a high single-digit free cash flow yield which supports good shareholder returns but you will have that exposure to the oil price and changes to share price.
>> We have done gold, we have done the energy space and oil, let's get copper in there as well.
What you're outlook for copper?
>> I am constructive on copper for the next year or so.
Really on the supply side misses that we have seen.
Demand for copper probably is coming in stronger than most people all last year, largely on the back of China. China has really struggled with his property market. The big offset was continued spending on infrastructure, particularly in energy transition areas like renewables and the electrical grid.
The supply side is what's changed.
The guidance for companies in 2024 were later on the copper side.
That has removed some supply out of forecast.
But also due to geopolitical unrest and protest, Cobre Panama has been shut down.
So that also removes supply. The outlook for Cobre Panama is highly uncertain. The market is looking for the main election in the country to perhaps provide some indications of the future of that mind.
In the meantime, the copper balance is low. That is supportive for risks.
>> Interesting stuff in a great start to the show. We are going to get your questions about commodity stocks for Jennifer Nowski in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Home Depot says it's going to build four new big distribution centres, including one in the greater Toronto area, to cater to their pro-customers. The home-improvement chain says contractors and builders need materials in large quantities, makes sense, and they can't always find those quantities and have those orders filled at Home Depot's existing retail locations.
The new Toronto warehouse will be located near Pearson airport, with the other facilities plan for Detroit, Los Angeles and San Antonio.
The parent company of Sobeys and FreshCo grew revenue and earnings in its most recent quarter compared to the same period last year. Empire says growth was driven in part by strength of its discount banners.
The grocers have seen cash-strapped Canadian households seek out less expensive grocery options in the face of the high cost of living.
Right now you got Empire down a little less than 2%.
Former US Treasury Secretary Steve Mnuchin says he's putting together an investor group to make a bid for TikTok.
The US House of Representatives has passed a bill to force China's a ByteDance to divest of TikTok. In a broadcast interview, Mnuchin called TikTok a great business and he's gathering investors. The bill has to go to the Senate and the path there is less clear.
Quick check in on the markets. We will start on Bay Street with the TSX Composite Index. Some selling pressure today. We are 168 points in the whole, about three quarters of a percent.
South of the border, investors trying to figure out what they want to do with that hotter than expected read on wholesale prices out of the state. In the early innings, market shrugged it off, not so much now. You are down 20 points or a little less than half a percent on the S&P 500.
We are back with Jennifer Nowski, taking your questions about commodity socks. Let's get to the first one.
Someone wants to get your Outlook for Franco Nevada, given the issues at Cobre Panama?
We think First Quantum but there are other people in the space.
>> The tie between Franco Nevada and Cobre Panama is that Franco has precious metals stream on Cobre Panama.
The issues with Cobre Panama now as discussed are already well-known. Franco has written down the asset.
The focus is more on the other mindset Franco is bringing, will have coming online in the next couple of years.
To review the difference between royalty streamers versus minors, royalties and streamers to our view generally as less volatile investments compared to the minors because they are not exposed to the challenges of operating costs and, as we talked about before, that's been an issue for the industry the past year.
However, what they are exposed to our changes in precious metal prices and changes in production. So that's where Franco Nevada got caught with Cobre Panama because if that mine isn't producing, which it is not now, they will be receiving those balances.
They have taken it out of their guidance, they have pared down the asset. We will see how the situation with Cobre Panama develops.
In the meantime, Franco does have other mind coming online as well has a very strong financial position with $1.4 billion of net cash that they can redeploy.
>> Depending on the politics of Panama and the coming elections, things could change, we just don't know right now.
>> No, you don't know, and you don't know how quickly or slowly it could enter production. It's highly uncertain.
>> Definitely a story to keep an eye on. Another question from the audience. Someone wants to get your view on agriculture socks like Nutrien?
>> It's been under pressure because fertilizer prices have come off those extreme highs that we saw following the Russian invasion of Ukraine.
However, with where fertilizer prices are now, the market feels like it's kind of finding its footing.
Let's look at the two ones that are important for Nutrien, potash and nitrogen. On the potash side, there is some supply growth but now the channels have been largely destocked, farmer affordability is still okay versus historical standards, and as well, demand could be a bit better as we've had some years where areas have under applied in recent years.
One thing I want longer-term is the development of PHP's and Jansen project.
Phase 1 is going to come online in 2026 or so.
That is a new source of supply. However, by that time, demand will also likely be higher than it is today so that is the offset there.
Turning to nitrogen, Nutrien has an advantageous position with their plants in North America. They get low-cost natural gas to feed those plants.
The nitrogen market could be a bit more balanced as there has been some supply restrictions. Europe is not producing as much as it used to.
Also restricted experts out of China and Russia. So the Nutrien stock has about a 4% dividend yield. Earnings expectations have come down and its multiple now is below its historical average.
>> Interesting stuff there in the Ag space.
I know where this question is coming from. I can't look at a business website recently without hearing about the weakness in the EV market. This viewer is seeing it as well.
So what's the outlook for lithium?
>> Yeah, so lithium, as this viewer correctly pointed out, is the primary driver really is the EV market, that's the main source of demand for lithium, and it's a really strongly growing market.
Now it is challenging to make those long demand forecasts because you have forecast EV penetration rates, sales figures, battery chemistry. There is a wide range of estimates but it's still a market that could grow at 15, 20% per year which is much stronger than other commodities we see.
This is well-known on the supply side. Lithium producers are investing to grow.
They are growth companies. Now, it's challenging bringing a new lithium Ion online as you can have CAPEX overruns or delays so that is the risk.
Now, the lithium price though, if you look at China's lithium carbonate, that's down about 70% year-over-year and really the challenge was a lot of supply coming online and destocking in the channel.
So in order for the market to resume to balance, with lithium prices now digging into marginal cost, you need to see supply cuts and production delays or delays in that new mine supply coming online. Starting to see a little of that but in order for the market to regain this balance, you probably need to see more of that so that something we are watching for very carefully with the lithium market.
>> Interesting thoughts there on lithium.
Another question from the audience. Someone wants to get your opinion on Equinox Gold.
>> Equinoxes at an interesting point in its development because right now, it is building a new mine, the Greenstone mine in Northern Ontario, and that could change the profile of the company. Right now, equinox is a higher cost producer.
It has some financial leverage. That makes it a riskier, more volatile investment relative to gold.
Now with this Greenstone mine, is going to hit first gold in the first half of this year. As that mine ramps up, production will rise. That's good for cash flows, CAPEX is falling off, production costs will start to fall.
That could be an inflection point for the company. The risk of course is that ramp-up is a risky period.
The other important factor is Los Filos mine. They are negotiating with communities around the mine and they really need to do that in order to maintain the economics and future of that mine.
>> Interesting stories after that name as well.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Jennifer Nowski on commodity stocks and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Technical analysis is one method investors can use to examine a potential investment and in today's education segment, Hiren Amin, senior client education instructor with TD Direct Investing is going to walk us through how to use one of those tools, Bollinger Bands.
>> Hello, fellow investors, and welcome to today's education hit.
Today, we are going to be focusing on technical analysis. We are going to open our technical analysis toolbox and give you a new tool to add to it.
Specifically, we are going to be looking at Bollinger Bands. It's a technical indicator developed by its namesake, John Bollinger, and it's used to measure markets volatility you and identify overbought and oversold conditions.
Basically, this little tool tells us when the market is quiet or when the market gets loud.
Bollinger Bands help determine whether prices are high or low on a relative basis. In fact, there are a number of different uses for Bollinger Bands such as the trend following indicator and for monitoring breakouts.
Let's step into a broker and show you how to set up the Bollinger Bands and what strategies can be used with it.
I have the triple Q loaded up, the ETF that follows the NASDAQ index and tracks it. We will use this as our example today.
Let's open the charts. As you can see, I've got a candlestick chart. To add the Bollinger band, it is an upper indicator so it will be found in this category.
It's right at the top over here.
Let's go ahead and select this.
Once you add the Bollinger band, what you will notice is that it has bands. Now, we can adjust the settings on a delicious click over here to adjust it.
Typically, it's on a 20 day simple moving average and using two standard deviations. I'm going to get into that in a moment.
What you can see on this band, we are looking at, is we're looking at a middle band which is our simple moving average, the 20 day, and then we got an upper band and the lower band over here.
Let's move into a higher timeframe, we will go to one year and visually be able to see it better.
Now we mention that it measures volatility which is essentially the price variance of a stock over time.
When traders are looking at this and we are thinking to ourselves, well, standard deviation, and freaking out, I don't really know what standard deviation is, fear not.
Standard deviation simply is that 95% of the prices that have occurred are going to be contained within these two bands and so it's a measure of telling us the range that a stock price will typically stay within.
By that same token, if you have one standard deviation, just mean 60% of the time, the prices that have occurred are within those bands. The default is two standard deviations.
Two common strategies that traders use Bollinger Bands with, the first one is the Bollinger Bands.
This is based on the mean reversion theory that simply means that prices will revert or go back towards the mean, in this case we are talking about this middle line over here which is the simple moving average.
This is best to use when markets are range bound, meaning they are staying within blocks, they are not moving in a trend, and when you do see the markets range bound within these areas over here, Bollinger Bands essentially means that once it bounces off of either the upper limit, a band, this is known as one of the conditions of being oversold, or when it gets to this bottom band, when it goes to the upper band, it's overbought and that's due to bounce back to the mean and similarly if it's on the lower band, it's oversold and we are going to see new buyers step in and push it back towards the mean moving average.
That's one of Bollinger Bands is. The last thing we'll talk about is the Bollinger squeeze.
In the Bollinger squeeze, this is when the prices are usually trending, and in the Bollinger squeeze, you have periods of contraction were the bands narrowing together and then it's usually followed by the bands expanding out and that usually causes an increase in volatility.
Usually, when this happens, we are seeing this big squeeze saying and expansions happen and the prices break out of those bands and that really indicates to a traitor that the prices are going to continue in that direction and the trader would use that as a strategy for an entry signal.
These are some ways you can use Bollinger Bands once you have set up. Traders, go ahead and add it to your charts.
>> Our thanks to Hiren Amin, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before you back to your questions about quality stocks for Jennifer Nowski, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Jennifer Nowski, taking your questions about commodity stocks. Plenty coming into let's get with you.
We have of you are saying stock prices are still nowhere close to following the quantities. What do you think is going on there?
>> As I mentioned before, stock prices take their cues from the commodities.
We find the stock prices, when we look at valuations, tend not to price and extreme highs and they don't fully price and extreme lows.
As I said at the start, one of the challenges that commodities and equities have had, for example in the gold space but it's happened in other spaces as well in mining, is that the cost inflation has been a challenge.
That can cause estimates not to come in as expected.
The other big risk for the companies who are producers is that they miss on production so that operational execution varies between company and that can also contribute to so many times the equity's liking. I would say overall that if you are looking at your equity holdings in commodities, you want to make sure that your holdings are responding to the prices and one way to do that and to reduce that sort of event risk you could have if something goes wrong at one company or another is to hold a few of them.
That way, you are minimizing the event risk.
>> Don't have all your eggs in one basket kind of idea.
Another question.
Someone wants to get your thoughts on price to cash flow multiples on commodity stocks versus commodities historically.
>> I will answer that with the inverse and talk about free cash flow yield. Historically, there really hasn't been a lot of free cash in the industry.
So if you go back to 2012, 14, 15, that was during a big spending cycle and Cycle for both the energy industry and minor so there really wasn't much free cash flow to speak of.
And that's why, historically, we would not have had much of a yield to talk about.
But now we do and that's because of this discipline that on the energy side in particular but also in mining has been imposed.
They want to be sure they are investing in projects with good returns, not growing production that outpaces demand and showing shareholders that they can generate cash. The tricky part whenever you refer to all multiple or free cash flow yield in commodities is that it only looks at one year. When we are analysing the equities, we have to understand what are the Plans for the next few years? Do they have a big mind they are going to build? Do they have a lot of topics they have to spend just to maintain production?
Versus on the top line, what's going on with the commodity price? Are we at highs and oil that are being baked in or what's your view on the long run normal view of the oil price or of the copper price and what would free cash flow look like on that? So there are more moving parts that you have to consider both short-term and longer-term when you are looking at the equities.
>> Fascinating stuff about the process there.
Let's take another question from the audience. Someone wants to know about natural gas and why the price has been so weak.
>> If you look at North American natural gas, I believe it's still below two dollars and that's basically on the back of really warm winter weather. Production kind of outpacing that. If you look at storage levels in the US and Canada, they are running above the five-year average which is a sign that we are more than well supplied. What could change for natural gas? These low prices do need producers, they are showing some discipline, starting to cut production, that could help balance the market.
The other thing to keep in mind though is LNG. So LNG is a source of new demand. There is a new facilities coming online in the states. Much later this year is 2025, LNG Canada, so that is positive.
The challenge though if we think longer run, one thing to watch as the US election. The US recently put a moratorium or pause on new LNG export approvals. This doesn't change your outlook for those new facilities that are coming on near term but it is something to keep in mind as he moved through the election what the tone is towards new LNG in the states.
The other thing and lastly on the supply side is associated gas.
Gas is produced along with oil in the Permian so that associated gas grows more depending on what people are doing in Permian oil drilling, so that can also be a stickier source of supply potentially.
>> Fascinating stuff.
A company specific question. If you want to get your thoughts on Suncor.
>> Suncor. So Suncor, as we talked about for the energy space, it's one of those companies where you are seeing a better financial profile, more free cash and returns to shareholders. The one thing that people are watching the Suncor is their plans for the base mind longer run.
So Suncor, of course, is an integrated energy company, substrate reduction is prominently Canadian oil sands with downstream refining and marketing operations. They got a new CEO last year and he has been focused on cutting costs and improving safety and improving efficiency.
In terms of where they are financially, their next net debt target is about 12 billion and they are progressing closer to that as we go through the year and that will depend on commodity prices and what happens then once they hit that is their free cash flow payout ratio goes from 50% to 75%, so that would be directionally positive and certainly is that. One thing though is that some of the Canadian peers are running a bit ahead of them on that kind of debt paid out projection. The last challenges on base mind. They acquired the rest of Fort Hills last year. Base mine will be completed sometime in the next decade. Still a long ways away but the market is starting to wonder what their plans are to replace it.
>> Interesting things to watch there on Suncor. Another question here, company specific.
Someone wants to get your view on EOG resources. I'm not familiar with this one.
>> EOG is a US oil and gas producer. They are multi-base producer predominantly in the Permian, Williston and Diamondback. The other thing about them is they are more of an explorer. They tend not to do large M&A, they tend to like to explore and find the next play.
One challenge people are looking out for EOG is their growth and gas. Some of the more recent plays have been on the gas year side. The company still skews predominantly towards oil but there oil production growth this year, they are guiding for 3% but total production growth is seven. That implies more natural gas growth into you as we discussed a weak market for gas. Someone looking at those names, which they be aware of in terms of risk?
>> Risk would be commodity price, that's a big one.
They have a strong balance sheet to help them get through that. As well, just execution and those would certainly be the two main ones.
>> There you go. I learned something there to you.
We are going to back to your questions for Jennifer Nowski on commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We got a fresh read on the US consumer. It appears that spending at the retailers south of the border rebounded last month as Americans were shelling out more for gasoline. But retail sales were not as strong as economists were hoping.
Let's get into the details with Anthony Okolie, taking a look at a TD economic report on this.
>> Retail sales in US stores and restaurants rebounded, they gain .6% in February from the prior month and were up from January's revised 1.1% drop, but the headline print came in slightly below the expectations of .8% increase. Today's retail print does show that retail spending has increased in seven of the past 10 months through February. Now when we look at sales across most categories last month, including gas stations, we are up, gas stations sales rise to .9% month over month, largely reflecting an uptick in gas prices.
Meanwhile, trade in the auto sector was also up, boosted by increases in sales at motor vehicle dealers which was partially offset by drops in automotive parts and accessories.
Taking out a volatile oil sector, sales were up 0.3%, that is just to take below the .4% that was expected by economists.
Looking at some of the categories, building material and home-building category were up in notable 2.2% month over month. Meanwhile spending rose at bars and restaurants. The only subcategory in the report.
Americans spent less on purchases of furniture and grocery stores and clothing retailers.
Overall, retail spending was back in positive territory in February after a slow start to the year.
Higher borrowing costs and elevated prices are still challenging for households in the US. Today, we got the US wholesale inflation report which rose .6% in February. That topped expectations with two thirds of the rise in headline PPE coming from a surge in goods prices.
The PPI released after US CPI keep data came in hotter than expected last month. TD Economics believes that as the labour market cools and wage gains ease, spending should moderate and with two months of data in for the quarter, consumer spending is currently tracking a 2.7% quarter over quarter annualized for the first quarter.
The retail sales and latest inflation prints suggest that the Fed's path rate cuts remains fraught with risk as it awaits its next move at its interest rate meeting next week.
>> Fraught with risks! Alright. What does that mean, when does TD Economics think we might get a rate cut?
>> They think near-term headwinds from inflation and spending are likely to keep the Fed on the sidelines for a bit longer as they continue to monitor inflation's progress towards the target 2%. Solid job growth in an economy that continues to exhibit above trend growth supports TD economic expectations that the Fed will hold off until July 2 begin lowering rates.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets. Let's take a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, we went to look at the market movers. We are starting with the TSX 60, by Price and volume.
WTI is up today and that is lifting some big energy names.
Suncor is up more than 2% today, Cenovus is up almost 2% and CNQ was to the upside as well.
If we are talking about rate cut expectations, hotter than expected inflation, let's look at some of the rate sensitives and that would be some of the biggest telecom names. BCE is down 2%, Telus down more than 1% and Rogers, RCI, down 1 1/3%.
South of the border, the Americans trying to figure out with that wholesale report, seem to see some resilience in the market in the early goings but right now we do you have the S&P 500 on the headline down about 1/4 of a percent.
We are going to drill into the S&P 100 to get a clearer picture of some of the bigger names. It's a really mixed one.
Kaslow pulling back almost 4%, Nvidia Down three, but other tech plays including Microsoft and Google showing strength to the upside.
He put it all together and you have some modest weakness for what the NASDAQ and the S&P 500 S. of the border.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with Jennifer Nowski from TD Asset Management, taking another question about commodities.
You expect more consolidation in the US energy sector in 2024, similar to what we saw last year with Exxon as an example?
>> Yeah, there was M&A last year. It's always hard to predict how long that trend could continue but I would say the conditions are still there potentially for deals to happen and that's for a couple of reasons.
Firstly is the oil price. As much as you want buyers to be in the market when the oil price is added to lose, sellers do not want to sell their if they don't have to. With where we are today, around $80, I think that the price the buyers and sellers could agree on.
The second point is that a lot of the companies are in good financial condition.
They have some balance sheet capacity although the deals we have seen thus far, thankfully, not leaning too heavily on the balance sheet, issuing shares, still maintaining the focus on shareholder returns as well so they are trying to have balance.
And then lastly, there some strategic motivations. Some companies big issues are the long-run inventory. There is some desire to bulk up that long-run inventory and that could drive some deals. We might see more M&A, we might not. The premiums are generally built low which is good from a discipline perspective but it comes in waves so there might be a couple of more. We will see.
>> Let's take one more question from the audience while we still have time.
Someone wants to know about the issues in the Red Sea and how they could impact the commodity sector?
>> We see an outbreak of conflict in the region, the big focus for the oil market has been if there would be any impact on either the oil infrastructure or shipping routes.
The Red Sea is one of those shipping routes.
The bigger shipping route from an oil perspective is the Strait of Hormuz. However, the Red Sea is one of them so we have seen cargoes being diverted around.
That does present a challenge and I would say more broadly for the economy in particular the European economy, it can increase their shipping costs.
It is a scenario that we have to monitor from a geopolitical risk perspective and how it is impacting flows.
>> Interesting step. Always great to have you here. I look forward to the next time.
>> Thank you.
>> Our thanks to Jennifer Nowski, VP8 director and portfolio manager with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we didn't have the time to get your questions today, we will get them into future episodes.
Stay tuned. We'll be back tomorrow with an update on the markets, highlights from our best interviews of the week and then on Monday, Derek Burleton will join us, VP and deputy chief economist from TD, take your questions about economy and interest rates.
You can get a headstart. Just email MoneyTalkLive@TD.com. That's all the time we have today. Thanks for watching. We'll see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we are going to discuss whether the record run we have seen in gold it has been a boost to the mining stocks. TD Asset Management Jennifer Nowski joins us.
MoneyTalk's Anthony Okolie is going to have a look at the latest US retail sales report and what it could all mean for borrowing costs and interest rates.
Here's how you can get touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Last time I checked in, we had the price of crude to the upside.
We have 154 points to the downside, a bit of a choppy market session this morning.
We are down more than half a percent. Let's dig into the most actively traded names. Cenovus was a pic I had earlier showing upside strength with the price of crude. It's hanging in there, up about 2%.
Also have my own PCEO, one of the big telecoms. It has been on the downward slide over the past several months.
Today at $46.28, it is down another 2%.
South of the border, we had another readout of inflation, came in higher-than-expected.
At first the market shrugged it off but they don't seem to be shrugging it off right now. A 10 point pullback, one face of a percent on the S&P 500. The tech heavy NASDAQ, I think Nvidia may not be showing up to play today, you are down 20 points or 1/10 of a percent.
Let's check in on Nvidia. Hit new highs recently but it's been a choppy trade over the past couple of sessions.
Today, at $877 and change, pulling back 3 1/2%. And that's your market update.
Another hotter than expected inflation report out of the United States has investors thinking about when the Fed might be ready to start cutting rates.
What could that mean for the recent record-breaking rally we have seen in gold? Joining us now to discuss is Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management. Great to have you back.
>> Good to be here.
>> We get a lot of questions about the forward path.
Let's talk about the run we have recently in gold. It's been record-setting. What's behind it?
>> The rally in gold that we have seen, a key contributor has been a central bank buying.
They have been doing that more recently, trying to diversify their holdings and move away from the US dollar.
On top of that you have rising geopolitical concerns, sanctions and strong buying out of China.
The tricky thing was central bank buying is it's very difficult to say how much they are going to buy in any one year. Now, the offset to this has been the rise in real rates the past couple of years, as well as awaiting investor demand as seen in physical gold ETF outflows.
If you look at the 10 year US real yield, it was at -1% at the end of 2021.
Today, it's not nearly 2%.
This is a big move in real yields and is a headwind in gold because it does not pay a yield.
You can see that move has softened investor demand as illustrated by outflows from physical gold ETF's.
This outlook for rates might be changing.
Inflation has come off it ties and the market is increasingly looking for the Fed to start cutting rates.
This is still debated in the market and as you alluded to do with the inflation print, you can see moves due to expectations of Fed cuts. If we see Fed cuts, that could lower real yields which would be directionally positive for gold and could renew investor interest in the asset class.
>> Lots of interesting things happening there.
What about the gold mining equities?
How have they performed, given what gold is up to?
>> In 2023, gold miners were up call it not quite 5%, whereas the gold price was up 13%. The miners clearly leg. The big headwind for that was on the cost side.
Much like the rest of the economy, miners have been dealing with cost inflation that's been running on the hotter side of the scale, things like labour, fuel at times, other inputs have all been a period in terms of the outlook for costs, judging from the 2024 guidance, costs will still be up in 2024. However, it is unlikely to be as significant as it has been in the past couple of years.
The other thing that could help on the cost side to would be if operations were to run a bit smoother. Last year was not the greatest year for some of the operations for the miners which hurts on the cost side.
If you get a better cost situation and if the gold price were to continue to rally, that would be supportive of the gold mining equities.
When we talk about gold mining equities, there is a wide range in types of minors and risk profiles all the way from explorers which don't have any production to those senior gold producers that have multiple mines and large production bases.
If we look at that senior group of large Gold miners, things have changed for them compared to where they were in the last cycle. Financially, they are in a much better position.
Debt levels are now at the lower end of the scale with net debt to EBITDA the and X is more muted. Add $2000 gold, the senior group has a free cash flow yield of about three to half percent.
>> Interesting break down there, not only the gold itself but the miners taking it out of the ground. What about the energy space? It has been a volatile and choppy trading crude as well.
>> I think the oil price will continue to have this may be perhaps range bound and the key to it is OPEC+ and its discipline in keeping production off the market.
If you look at demand for oil, 2023 was actually a very good year for oil demand largely because China ended its lockdowns and its oil demand rebounded.
It could still be directionally positive but not quite to the magnitude of last year. The supply side is what has been more of a mixed picture. There are some parts of the world like the US, Guyana and Brazil, the offset has been OPEC+.
They have been keeping production off the market to try to maintain that balance and because of that, they are no is sitting on spare capacity.
So what the market needs to see is that discipline at OPEC+ continue in order for the market to remain in balance.
>> As we see the price of the commodity itself, crude oil, bounce around in trade within the range, what does it mean for the equity side of this for oil and gas names?
>> Equities at the end of the day, the stock prices will still take their cues from the oil price but the company fundamentals underlying them are very strong.
So with the strong oil prices we have had the past few years, that has resulted in real improvements to leverage.
Net debt to EBITDA for large cap group is .6 times.
Capital discipline has been the name of the game for the companies and that continues.
We just had guidance for the sector but X is looking flat, production may be up at touch so that discipline continues and any free cash flow that's generated at these oil prices, much of that is being returned to shareholders in the form of dividends and buybacks.
There has been some M&A in the sector but overall, I would not say it has distracted from this focus on capital discipline.
I call it $75 WTI, the large North American producers would call it a high single-digit free cash flow yield which supports good shareholder returns but you will have that exposure to the oil price and changes to share price.
>> We have done gold, we have done the energy space and oil, let's get copper in there as well.
What you're outlook for copper?
>> I am constructive on copper for the next year or so.
Really on the supply side misses that we have seen.
Demand for copper probably is coming in stronger than most people all last year, largely on the back of China. China has really struggled with his property market. The big offset was continued spending on infrastructure, particularly in energy transition areas like renewables and the electrical grid.
The supply side is what's changed.
The guidance for companies in 2024 were later on the copper side.
That has removed some supply out of forecast.
But also due to geopolitical unrest and protest, Cobre Panama has been shut down.
So that also removes supply. The outlook for Cobre Panama is highly uncertain. The market is looking for the main election in the country to perhaps provide some indications of the future of that mind.
In the meantime, the copper balance is low. That is supportive for risks.
>> Interesting stuff in a great start to the show. We are going to get your questions about commodity stocks for Jennifer Nowski in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Home Depot says it's going to build four new big distribution centres, including one in the greater Toronto area, to cater to their pro-customers. The home-improvement chain says contractors and builders need materials in large quantities, makes sense, and they can't always find those quantities and have those orders filled at Home Depot's existing retail locations.
The new Toronto warehouse will be located near Pearson airport, with the other facilities plan for Detroit, Los Angeles and San Antonio.
The parent company of Sobeys and FreshCo grew revenue and earnings in its most recent quarter compared to the same period last year. Empire says growth was driven in part by strength of its discount banners.
The grocers have seen cash-strapped Canadian households seek out less expensive grocery options in the face of the high cost of living.
Right now you got Empire down a little less than 2%.
Former US Treasury Secretary Steve Mnuchin says he's putting together an investor group to make a bid for TikTok.
The US House of Representatives has passed a bill to force China's a ByteDance to divest of TikTok. In a broadcast interview, Mnuchin called TikTok a great business and he's gathering investors. The bill has to go to the Senate and the path there is less clear.
Quick check in on the markets. We will start on Bay Street with the TSX Composite Index. Some selling pressure today. We are 168 points in the whole, about three quarters of a percent.
South of the border, investors trying to figure out what they want to do with that hotter than expected read on wholesale prices out of the state. In the early innings, market shrugged it off, not so much now. You are down 20 points or a little less than half a percent on the S&P 500.
We are back with Jennifer Nowski, taking your questions about commodity socks. Let's get to the first one.
Someone wants to get your Outlook for Franco Nevada, given the issues at Cobre Panama?
We think First Quantum but there are other people in the space.
>> The tie between Franco Nevada and Cobre Panama is that Franco has precious metals stream on Cobre Panama.
The issues with Cobre Panama now as discussed are already well-known. Franco has written down the asset.
The focus is more on the other mindset Franco is bringing, will have coming online in the next couple of years.
To review the difference between royalty streamers versus minors, royalties and streamers to our view generally as less volatile investments compared to the minors because they are not exposed to the challenges of operating costs and, as we talked about before, that's been an issue for the industry the past year.
However, what they are exposed to our changes in precious metal prices and changes in production. So that's where Franco Nevada got caught with Cobre Panama because if that mine isn't producing, which it is not now, they will be receiving those balances.
They have taken it out of their guidance, they have pared down the asset. We will see how the situation with Cobre Panama develops.
In the meantime, Franco does have other mind coming online as well has a very strong financial position with $1.4 billion of net cash that they can redeploy.
>> Depending on the politics of Panama and the coming elections, things could change, we just don't know right now.
>> No, you don't know, and you don't know how quickly or slowly it could enter production. It's highly uncertain.
>> Definitely a story to keep an eye on. Another question from the audience. Someone wants to get your view on agriculture socks like Nutrien?
>> It's been under pressure because fertilizer prices have come off those extreme highs that we saw following the Russian invasion of Ukraine.
However, with where fertilizer prices are now, the market feels like it's kind of finding its footing.
Let's look at the two ones that are important for Nutrien, potash and nitrogen. On the potash side, there is some supply growth but now the channels have been largely destocked, farmer affordability is still okay versus historical standards, and as well, demand could be a bit better as we've had some years where areas have under applied in recent years.
One thing I want longer-term is the development of PHP's and Jansen project.
Phase 1 is going to come online in 2026 or so.
That is a new source of supply. However, by that time, demand will also likely be higher than it is today so that is the offset there.
Turning to nitrogen, Nutrien has an advantageous position with their plants in North America. They get low-cost natural gas to feed those plants.
The nitrogen market could be a bit more balanced as there has been some supply restrictions. Europe is not producing as much as it used to.
Also restricted experts out of China and Russia. So the Nutrien stock has about a 4% dividend yield. Earnings expectations have come down and its multiple now is below its historical average.
>> Interesting stuff there in the Ag space.
I know where this question is coming from. I can't look at a business website recently without hearing about the weakness in the EV market. This viewer is seeing it as well.
So what's the outlook for lithium?
>> Yeah, so lithium, as this viewer correctly pointed out, is the primary driver really is the EV market, that's the main source of demand for lithium, and it's a really strongly growing market.
Now it is challenging to make those long demand forecasts because you have forecast EV penetration rates, sales figures, battery chemistry. There is a wide range of estimates but it's still a market that could grow at 15, 20% per year which is much stronger than other commodities we see.
This is well-known on the supply side. Lithium producers are investing to grow.
They are growth companies. Now, it's challenging bringing a new lithium Ion online as you can have CAPEX overruns or delays so that is the risk.
Now, the lithium price though, if you look at China's lithium carbonate, that's down about 70% year-over-year and really the challenge was a lot of supply coming online and destocking in the channel.
So in order for the market to resume to balance, with lithium prices now digging into marginal cost, you need to see supply cuts and production delays or delays in that new mine supply coming online. Starting to see a little of that but in order for the market to regain this balance, you probably need to see more of that so that something we are watching for very carefully with the lithium market.
>> Interesting thoughts there on lithium.
Another question from the audience. Someone wants to get your opinion on Equinox Gold.
>> Equinoxes at an interesting point in its development because right now, it is building a new mine, the Greenstone mine in Northern Ontario, and that could change the profile of the company. Right now, equinox is a higher cost producer.
It has some financial leverage. That makes it a riskier, more volatile investment relative to gold.
Now with this Greenstone mine, is going to hit first gold in the first half of this year. As that mine ramps up, production will rise. That's good for cash flows, CAPEX is falling off, production costs will start to fall.
That could be an inflection point for the company. The risk of course is that ramp-up is a risky period.
The other important factor is Los Filos mine. They are negotiating with communities around the mine and they really need to do that in order to maintain the economics and future of that mine.
>> Interesting stories after that name as well.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Jennifer Nowski on commodity stocks and just moments time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get our educational segment of the day.
Technical analysis is one method investors can use to examine a potential investment and in today's education segment, Hiren Amin, senior client education instructor with TD Direct Investing is going to walk us through how to use one of those tools, Bollinger Bands.
>> Hello, fellow investors, and welcome to today's education hit.
Today, we are going to be focusing on technical analysis. We are going to open our technical analysis toolbox and give you a new tool to add to it.
Specifically, we are going to be looking at Bollinger Bands. It's a technical indicator developed by its namesake, John Bollinger, and it's used to measure markets volatility you and identify overbought and oversold conditions.
Basically, this little tool tells us when the market is quiet or when the market gets loud.
Bollinger Bands help determine whether prices are high or low on a relative basis. In fact, there are a number of different uses for Bollinger Bands such as the trend following indicator and for monitoring breakouts.
Let's step into a broker and show you how to set up the Bollinger Bands and what strategies can be used with it.
I have the triple Q loaded up, the ETF that follows the NASDAQ index and tracks it. We will use this as our example today.
Let's open the charts. As you can see, I've got a candlestick chart. To add the Bollinger band, it is an upper indicator so it will be found in this category.
It's right at the top over here.
Let's go ahead and select this.
Once you add the Bollinger band, what you will notice is that it has bands. Now, we can adjust the settings on a delicious click over here to adjust it.
Typically, it's on a 20 day simple moving average and using two standard deviations. I'm going to get into that in a moment.
What you can see on this band, we are looking at, is we're looking at a middle band which is our simple moving average, the 20 day, and then we got an upper band and the lower band over here.
Let's move into a higher timeframe, we will go to one year and visually be able to see it better.
Now we mention that it measures volatility which is essentially the price variance of a stock over time.
When traders are looking at this and we are thinking to ourselves, well, standard deviation, and freaking out, I don't really know what standard deviation is, fear not.
Standard deviation simply is that 95% of the prices that have occurred are going to be contained within these two bands and so it's a measure of telling us the range that a stock price will typically stay within.
By that same token, if you have one standard deviation, just mean 60% of the time, the prices that have occurred are within those bands. The default is two standard deviations.
Two common strategies that traders use Bollinger Bands with, the first one is the Bollinger Bands.
This is based on the mean reversion theory that simply means that prices will revert or go back towards the mean, in this case we are talking about this middle line over here which is the simple moving average.
This is best to use when markets are range bound, meaning they are staying within blocks, they are not moving in a trend, and when you do see the markets range bound within these areas over here, Bollinger Bands essentially means that once it bounces off of either the upper limit, a band, this is known as one of the conditions of being oversold, or when it gets to this bottom band, when it goes to the upper band, it's overbought and that's due to bounce back to the mean and similarly if it's on the lower band, it's oversold and we are going to see new buyers step in and push it back towards the mean moving average.
That's one of Bollinger Bands is. The last thing we'll talk about is the Bollinger squeeze.
In the Bollinger squeeze, this is when the prices are usually trending, and in the Bollinger squeeze, you have periods of contraction were the bands narrowing together and then it's usually followed by the bands expanding out and that usually causes an increase in volatility.
Usually, when this happens, we are seeing this big squeeze saying and expansions happen and the prices break out of those bands and that really indicates to a traitor that the prices are going to continue in that direction and the trader would use that as a strategy for an entry signal.
These are some ways you can use Bollinger Bands once you have set up. Traders, go ahead and add it to your charts.
>> Our thanks to Hiren Amin, Senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before you back to your questions about quality stocks for Jennifer Nowski, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
Okay, we are back with Jennifer Nowski, taking your questions about commodity stocks. Plenty coming into let's get with you.
We have of you are saying stock prices are still nowhere close to following the quantities. What do you think is going on there?
>> As I mentioned before, stock prices take their cues from the commodities.
We find the stock prices, when we look at valuations, tend not to price and extreme highs and they don't fully price and extreme lows.
As I said at the start, one of the challenges that commodities and equities have had, for example in the gold space but it's happened in other spaces as well in mining, is that the cost inflation has been a challenge.
That can cause estimates not to come in as expected.
The other big risk for the companies who are producers is that they miss on production so that operational execution varies between company and that can also contribute to so many times the equity's liking. I would say overall that if you are looking at your equity holdings in commodities, you want to make sure that your holdings are responding to the prices and one way to do that and to reduce that sort of event risk you could have if something goes wrong at one company or another is to hold a few of them.
That way, you are minimizing the event risk.
>> Don't have all your eggs in one basket kind of idea.
Another question.
Someone wants to get your thoughts on price to cash flow multiples on commodity stocks versus commodities historically.
>> I will answer that with the inverse and talk about free cash flow yield. Historically, there really hasn't been a lot of free cash in the industry.
So if you go back to 2012, 14, 15, that was during a big spending cycle and Cycle for both the energy industry and minor so there really wasn't much free cash flow to speak of.
And that's why, historically, we would not have had much of a yield to talk about.
But now we do and that's because of this discipline that on the energy side in particular but also in mining has been imposed.
They want to be sure they are investing in projects with good returns, not growing production that outpaces demand and showing shareholders that they can generate cash. The tricky part whenever you refer to all multiple or free cash flow yield in commodities is that it only looks at one year. When we are analysing the equities, we have to understand what are the Plans for the next few years? Do they have a big mind they are going to build? Do they have a lot of topics they have to spend just to maintain production?
Versus on the top line, what's going on with the commodity price? Are we at highs and oil that are being baked in or what's your view on the long run normal view of the oil price or of the copper price and what would free cash flow look like on that? So there are more moving parts that you have to consider both short-term and longer-term when you are looking at the equities.
>> Fascinating stuff about the process there.
Let's take another question from the audience. Someone wants to know about natural gas and why the price has been so weak.
>> If you look at North American natural gas, I believe it's still below two dollars and that's basically on the back of really warm winter weather. Production kind of outpacing that. If you look at storage levels in the US and Canada, they are running above the five-year average which is a sign that we are more than well supplied. What could change for natural gas? These low prices do need producers, they are showing some discipline, starting to cut production, that could help balance the market.
The other thing to keep in mind though is LNG. So LNG is a source of new demand. There is a new facilities coming online in the states. Much later this year is 2025, LNG Canada, so that is positive.
The challenge though if we think longer run, one thing to watch as the US election. The US recently put a moratorium or pause on new LNG export approvals. This doesn't change your outlook for those new facilities that are coming on near term but it is something to keep in mind as he moved through the election what the tone is towards new LNG in the states.
The other thing and lastly on the supply side is associated gas.
Gas is produced along with oil in the Permian so that associated gas grows more depending on what people are doing in Permian oil drilling, so that can also be a stickier source of supply potentially.
>> Fascinating stuff.
A company specific question. If you want to get your thoughts on Suncor.
>> Suncor. So Suncor, as we talked about for the energy space, it's one of those companies where you are seeing a better financial profile, more free cash and returns to shareholders. The one thing that people are watching the Suncor is their plans for the base mind longer run.
So Suncor, of course, is an integrated energy company, substrate reduction is prominently Canadian oil sands with downstream refining and marketing operations. They got a new CEO last year and he has been focused on cutting costs and improving safety and improving efficiency.
In terms of where they are financially, their next net debt target is about 12 billion and they are progressing closer to that as we go through the year and that will depend on commodity prices and what happens then once they hit that is their free cash flow payout ratio goes from 50% to 75%, so that would be directionally positive and certainly is that. One thing though is that some of the Canadian peers are running a bit ahead of them on that kind of debt paid out projection. The last challenges on base mind. They acquired the rest of Fort Hills last year. Base mine will be completed sometime in the next decade. Still a long ways away but the market is starting to wonder what their plans are to replace it.
>> Interesting things to watch there on Suncor. Another question here, company specific.
Someone wants to get your view on EOG resources. I'm not familiar with this one.
>> EOG is a US oil and gas producer. They are multi-base producer predominantly in the Permian, Williston and Diamondback. The other thing about them is they are more of an explorer. They tend not to do large M&A, they tend to like to explore and find the next play.
One challenge people are looking out for EOG is their growth and gas. Some of the more recent plays have been on the gas year side. The company still skews predominantly towards oil but there oil production growth this year, they are guiding for 3% but total production growth is seven. That implies more natural gas growth into you as we discussed a weak market for gas. Someone looking at those names, which they be aware of in terms of risk?
>> Risk would be commodity price, that's a big one.
They have a strong balance sheet to help them get through that. As well, just execution and those would certainly be the two main ones.
>> There you go. I learned something there to you.
We are going to back to your questions for Jennifer Nowski on commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We got a fresh read on the US consumer. It appears that spending at the retailers south of the border rebounded last month as Americans were shelling out more for gasoline. But retail sales were not as strong as economists were hoping.
Let's get into the details with Anthony Okolie, taking a look at a TD economic report on this.
>> Retail sales in US stores and restaurants rebounded, they gain .6% in February from the prior month and were up from January's revised 1.1% drop, but the headline print came in slightly below the expectations of .8% increase. Today's retail print does show that retail spending has increased in seven of the past 10 months through February. Now when we look at sales across most categories last month, including gas stations, we are up, gas stations sales rise to .9% month over month, largely reflecting an uptick in gas prices.
Meanwhile, trade in the auto sector was also up, boosted by increases in sales at motor vehicle dealers which was partially offset by drops in automotive parts and accessories.
Taking out a volatile oil sector, sales were up 0.3%, that is just to take below the .4% that was expected by economists.
Looking at some of the categories, building material and home-building category were up in notable 2.2% month over month. Meanwhile spending rose at bars and restaurants. The only subcategory in the report.
Americans spent less on purchases of furniture and grocery stores and clothing retailers.
Overall, retail spending was back in positive territory in February after a slow start to the year.
Higher borrowing costs and elevated prices are still challenging for households in the US. Today, we got the US wholesale inflation report which rose .6% in February. That topped expectations with two thirds of the rise in headline PPE coming from a surge in goods prices.
The PPI released after US CPI keep data came in hotter than expected last month. TD Economics believes that as the labour market cools and wage gains ease, spending should moderate and with two months of data in for the quarter, consumer spending is currently tracking a 2.7% quarter over quarter annualized for the first quarter.
The retail sales and latest inflation prints suggest that the Fed's path rate cuts remains fraught with risk as it awaits its next move at its interest rate meeting next week.
>> Fraught with risks! Alright. What does that mean, when does TD Economics think we might get a rate cut?
>> They think near-term headwinds from inflation and spending are likely to keep the Fed on the sidelines for a bit longer as they continue to monitor inflation's progress towards the target 2%. Solid job growth in an economy that continues to exhibit above trend growth supports TD economic expectations that the Fed will hold off until July 2 begin lowering rates.
>> Thanks for that.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets. Let's take a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, we went to look at the market movers. We are starting with the TSX 60, by Price and volume.
WTI is up today and that is lifting some big energy names.
Suncor is up more than 2% today, Cenovus is up almost 2% and CNQ was to the upside as well.
If we are talking about rate cut expectations, hotter than expected inflation, let's look at some of the rate sensitives and that would be some of the biggest telecom names. BCE is down 2%, Telus down more than 1% and Rogers, RCI, down 1 1/3%.
South of the border, the Americans trying to figure out with that wholesale report, seem to see some resilience in the market in the early goings but right now we do you have the S&P 500 on the headline down about 1/4 of a percent.
We are going to drill into the S&P 100 to get a clearer picture of some of the bigger names. It's a really mixed one.
Kaslow pulling back almost 4%, Nvidia Down three, but other tech plays including Microsoft and Google showing strength to the upside.
He put it all together and you have some modest weakness for what the NASDAQ and the S&P 500 S. of the border.
You can find more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard.
We are back with Jennifer Nowski from TD Asset Management, taking another question about commodities.
You expect more consolidation in the US energy sector in 2024, similar to what we saw last year with Exxon as an example?
>> Yeah, there was M&A last year. It's always hard to predict how long that trend could continue but I would say the conditions are still there potentially for deals to happen and that's for a couple of reasons.
Firstly is the oil price. As much as you want buyers to be in the market when the oil price is added to lose, sellers do not want to sell their if they don't have to. With where we are today, around $80, I think that the price the buyers and sellers could agree on.
The second point is that a lot of the companies are in good financial condition.
They have some balance sheet capacity although the deals we have seen thus far, thankfully, not leaning too heavily on the balance sheet, issuing shares, still maintaining the focus on shareholder returns as well so they are trying to have balance.
And then lastly, there some strategic motivations. Some companies big issues are the long-run inventory. There is some desire to bulk up that long-run inventory and that could drive some deals. We might see more M&A, we might not. The premiums are generally built low which is good from a discipline perspective but it comes in waves so there might be a couple of more. We will see.
>> Let's take one more question from the audience while we still have time.
Someone wants to know about the issues in the Red Sea and how they could impact the commodity sector?
>> We see an outbreak of conflict in the region, the big focus for the oil market has been if there would be any impact on either the oil infrastructure or shipping routes.
The Red Sea is one of those shipping routes.
The bigger shipping route from an oil perspective is the Strait of Hormuz. However, the Red Sea is one of them so we have seen cargoes being diverted around.
That does present a challenge and I would say more broadly for the economy in particular the European economy, it can increase their shipping costs.
It is a scenario that we have to monitor from a geopolitical risk perspective and how it is impacting flows.
>> Interesting step. Always great to have you here. I look forward to the next time.
>> Thank you.
>> Our thanks to Jennifer Nowski, VP8 director and portfolio manager with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we didn't have the time to get your questions today, we will get them into future episodes.
Stay tuned. We'll be back tomorrow with an update on the markets, highlights from our best interviews of the week and then on Monday, Derek Burleton will join us, VP and deputy chief economist from TD, take your questions about economy and interest rates.
You can get a headstart. Just email MoneyTalkLive@TD.com. That's all the time we have today. Thanks for watching. We'll see you tomorrow.
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