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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 some of the big questions that are facing investors this year but there are high hopes in the market for rate cuts. We are going to be joined by TD Asset Management's Jing Roy.
MoneyTalk's Anthony Okolie is going to take us to the latest Canadian inflation report.
And in today's WebBroker education segment, Caitlin Cormier is going to shows how you can find crypto current ETFs using the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets. You'll start her at home with the TSX Composite Index. Let's look at the top line number.
We are in negative territory. A little more than half percent, 119 point deficit.
Among most actively traded names on TSX at this hour include First Quantum.
We have been telling the story of First Quantum for several months now. That pulled back in October, with us the suspension of the Cobre Panama mine. They are down 2.6%. Want to check in on Denison Mines.
Nothing too dramatic.
Down about 1%. South of the border, let's check in on the S&P 500. The Americans are off of their a holiday Monday, Martin Luther King Day observed yesterday.
They are back to trading. Modest downside, 14 points, 1/3 of a percent. A bond yields on the 10 year it just above 4%.
Let's check out the NASDAQ. Right now seeing some of the chipmakers get a bid, that's keeping the NASDAQ just slightly in positive territory, up a little more than five points. Among those names, I'm going to show you Advanced Micro Devices.
AMD putting on a big push today. At 158 bucks and change, it's up almost 8% on the session. And that's your market update.
There are plenty of questions facing investors this year from whether we get rate cuts from central bank to the chances of a recession.
Joining us now to discuss how things may play out his Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management. Great to have you back.
>> Thank you very much. Glad to be here.
>> We entered the year with some high hopes about where the economy could be headed, what the central banks might get up to. We will start with the dreaded our word, recession.
>> There is a market debate, how we get there, whether we get there. The consensus that we are going to have a soft landing and economic growth in both the US and Canada will be about half as fast as we experienced last year.
So given what we are seeing, cracks and consumer credit as well as the labour market, it's much easier to see a path for a slower growth going forward rather than a rapid recovery. It's especially the case in Canada where we have higher household debt and we are experiencing a higher debt servicing costs so that will put a bigger dent in Canadian households as well as growth.
>> When we talk about the recession debate, is there still part of that debate where people are saying we are going to get perhaps a hard landing? The story was about to get a soft landing, no landing.
The consensus in the market seems to be that things will slow but not precipitously to the point where we are going to be in trouble.
Our people still throwing around the trouble scenario?
>> Not really. The consensus really coalesced around the soft landing scenario and what we have seen in the past few months where the equity market and the bond market collectively returned double-digit returns in the last two months just because the consensus expectation shifted to a soft landing scenario and people become more aggressive in terms of rate cut expectations. As a result of that, it was very conducive for risk appetite as well as upside.
>> The central banks have indicated they will be cutting this year. In a soft landing scenario, do the central banks have to be aggressive to the downside?
>> Right now, the market is pricing in about 6 to 7 cuts in the US starting in March. In Canada, it's about 5 Cuts Starting in April. Right now, the modus operandi for the central bank is to cut rates commensurate with falling inflation.
If there is any sign of we are hitting a recession, and the central banks will be more aggressive in cutting the rates. And it's counterintuitive.
When central banks cut rates more aggressively, it is can susu for risk appetite. What we have is a situation is assets that can throw off very stable cash flows in that scenario. Case in point would be long bonds.
Because if there was a constant coupon.
For equities companies with very stable cash flow and have secular tailwind behind them, the technology and healthcare sectors, they will benefit as well.
>> We have set the table for a soft landing, for rate cuts from the central banks, hours and from the Fed. Let's talk about the surprises we might be facing this year. We are only two weeks in. We think it's going to go in this direction.
What do we need to be watching?
>> I think it's very important to understand where inflation is headed.
That will become a Northstar for understanding where the central bank policy might pivot towards.
As a result of that, you have to position the portfolio with a core view of what could happen. If the consensus estimate of a soft landing and a rate cut excitation come to pass, then I think the return expectation for assets, bonds and equity will be single digit territory. But we really need a surprise for that to deviate from our base case scenario.
So the biggest surprise, I think, if we experience growth a tad softer than what the market is expecting, then actually that would be bullish for markets and in a very strange twist of logic, revenue companies can benefit from that because they don't have revenues to contend with but they are disproportionately be benefiting from a more fund-raising market which are the result of lower interest rate and more liquidity in the system.
>> One of the stories in the past 12 months, and perhaps people had an expected heading into last year, was how will the American markets would do, how well the Magnificent Seven would do, the excitement around AI. Is there a chance that this year US markets will not outperform like they have?
>> That's an interesting question because for investors leaning towards those stronger growth scenarios, there is a higher probability that the US market will lag behind Canada and Europe. There are a few reasons for that. Number one, if growth in the US and inflation in the US surprise on the upside, then investors will have to recalibrate their aggressive rate cut excitation. As a result of that, financial conditions will tighten. Because of that done, US long bonds, government bonds, G6 economies because an investor wants higher returns and the price adjusts downwards to accommodate that and also for growth stocks, when growth becomes abundant, there will be a D rating for growth stocks because the premium for growth scarcity will no longer be there.
As a result of that, the US market is over index to equities. There is a strong likelihood that the US stock market will underperform Canada and Europe. But then, there's one saving grace, which is a strong dollar because of the hawkish Fed.
Of course, we have a couple of wildcards this year.
We have a potential policy shift after the US presidential election in November as well as the ongoing inflation shocks in the Middle East due to the regional conflict.
>> I feel like some of the uncertainty that's been in the market for a while and will continue into this year with some of those issues because a lot of investors to despite the fact that we saw US stocks rally so strongly last year to stay in cash. If you bring it back to asset allocation, we know there was a story, perhaps some people felt as they stayed in cash, they missed the market rally. Let's talk about diversification this year.
>> Because we don't know what's going to happen to the market, it's nice to know if we are working in a recessionary or a recovery scenario but sometimes the best of us to come to a lack of imagination, let's put it that way.
So I think it's very helpful to focus on income growth and stability when you are trying to navigate the uncertainty in the market right now.
So for portfolio that's well constructed, I would look for three attributes. First of all, it has to secure a base level of income over the medium term.
Secondly, it has to generate capital appreciation from equities or any other assets and finally it has to generate a source of returns from uncorrelated asset classes. You have different levers in play when we go through this uncertain path.
>> Interesting stuff and a great start to the program. We are going to get your questions about asset allocation for Jing Roy 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.
More earnings are coming in from some of the big Wall Street heavyweights.
Strengthen the investment banking business helps Morgan Stanley top quarterly revenue estimates. However, new CEO Ted Paek did Warren on the call the two major downside risks for this year, geopolitics in the US economy, McLeod things.
Meantime, Goldman Sachs delivered stronger than affected revenue from its asset and wealth management business. Shares of Barrick Gold under pressure today.
Investors are reacting to the mining companies pulmonary gold production of us for the fourth quarter. The stock is down almost 7% now.
What do we see? In a note to clients, TD Cowen says there was an improvement in production but Barrick's cost came in higher-than-expected for the quarter.
Restaurant Brands International is buying the largest franchisee of Burger King's in the United States.
The parent company of Tim Hortons will pay roughly $1 billion in cash to acquire carols, which operates more than 1000 Burger King's and 60 Popeyes restaurants in the United States.
Restaurant Brands International more than 2%. A quick check on the market, we will start with Bay Street, with the TSX Composite Index. We have a down day to the tune of 147 points, almost 3/4 of a percent to the downside.
South of the border, the S&P 500, that broader read of the US market, they are coming off a holiday weekend, they were not trading yesterday for the Martin Luther King holiday. They are 22 points to the downside, a little shy of half a percent.
We are back with that Jing Roy from TD Asset Management, taking your questions about asset allocation. First one here for you. Could the shipping issues in the Red Sea reignite inflation? This is an interesting question because you go back to the beginning of the inflation story a couple of years ago and shipping was at the core of it.
>> Right. I think the inflation story is the centre or epicenter of how we decide for the policy path for the central banks.
So we are seeing a bottleneck from the Red Sea because of the conflict in the region.
But this time around, the inflation impact will be quite muted because, first of all, we are in a synchronized global slowdown so the demand for goods is less strong.
And secondly, I think we have to put in perspective how the inflation will kind of transmit through the system. There are two transmission challenges. First is the higher freight cost. The freight cost tripled since November 4 ship sailing from Asia to Europe.
But that pales in comparison of what we experienced during COVID, that was a 10 X increase. Secondly, because now you have to sail around the Horn of Africa, that adds about 10 days to your trip. As a result of that, there will be supply chain disruptions, so companies will have to adjust their inventory levels and capital assumptions and pricing to accommodate the longer shipping time. So those two transmission mechanisms will put pressure on inflation but the overall inflation picture will be quite muted, unless one of the ceilings for oil, sea or oil trade, is blocked and then that will become a major issue for D inflation expectations.
>> When you talk about the transmission of these inflationary pressures, you wonder after everything we've been through, with inflation taking off halfway through COVID, if the consumer has the appetite.
You can get these transmissions, it's more for those suppliers, shippers, companies, they charge us more.
Don't know how much more we could take, the consumer. They might just say, listen, I'm tapped out.
>> Especially in the US we are seeing the COVID savings being drawn down and in Canada the situation is a little bit different. In Canada, in fact, our household debt is highest of G6 economies and about 50% of mortgages taken on before the rate hiking cycle will go through a renewal process this year at a higher rate. As a result of that, you can see on average that households will experiences a 30% increase in mortgage and servicing costs on a monthly basis. As a result of that, you will see a slower growth in consumer consumption and people will work towards more deleveraging and paring back nonessential spending which put a cap on economic growth in Canada.
But as long as the savings, Canadians actually have been sitting on COVID savings, but $100 million. As long as employment stays strong in a soft landing scenario, I think the Canadian economy should be able to weather it was a bit of turbulence.
>> Actually, we had a viewer question about our household debt levels and what it can mean. This viewer is saying how worried should we be about the impact of upcoming mortgage renewals?
>> Well, it really depends on how your cash flow management has been and how you have been planning your daily or monthly cash flow. As a result of that, we are seeing a lot of investors trying to put cash in the short-term savings product to make sure they can deliver when the time comes. As a result, you are seeing the GIC kind of, GIC purchase rate is still high because people are saving for rainy days.
>> Even though the GIC rates have come down pretty dramatically since we peeked out of 5% on the 10 year back in the fall.
>> Has been a very good diversify her for portfolio when we are going through a rate hike cycle but right now if you put cash in GIC today, you will very likely experienced the lower rate investment returns when it matures 12 months from now. As a result of that, you really have to look at what you should invest to lock in the high yield over the next 5 to 7 years instead of taking advantage of the GIC rate now.
As a matter of fact, the yield from bonds are at the highest rate in a generation.
It would be a terrible mistake for investors to not lock into that attractive rate and put a floor under their income in the next 5 to 7 years.
>> One viewer is wondering about duration.
What duration should we be looking at in fixed income? We are looking at yields now but haven't been at this level in bonds for quite some time.
>> Yeah, so when we construct a fixed income portfolio, we want to stay defensive which means we want a combination of government bonds and high-quality credit. So this portfolio will give you a high yield of 5 to 6% which is a high yield in terms of a 10 year span. But at the same time, if the economy hits a softer spot, it will have a diverse vacation benefit from government long bonds because their value will depreciate and give you some portfolio insurance without having to pay for it. So as a result of that, it's a good combination. To have when you look at generating income for the next 5 to 7 years.
>> Timeframe, I wanted to ask you about timeframe. People have gotten used to quick moves in the market. Maybe the central banks won't cut as quickly as we think and inflation takes longer to come down. Thinking about fixed income in the long term and they yield the people are getting now, is that the idea? You are not making a one-day decision but a multiyear decision.
>> Absolutely, because it's very important for you to have a core portfolio which satisfies the need for income growth and stability and right now, I think it's much more important to keep your eyes on the prize and focus on long-term perspective because over the long term, equity goes up about 80% of the time and we can expect single-digit return from equities. If we have stronger earnings growth or any of… Faster than we expected, such as with AI for productivity growth, you can see more upside than expected.
>> As always, make sure you do your own research before making any investment decisions.
we will be back with your questions for Jing Roy on asset allocation in just a moment's 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.
Regular viewers of the show will remember that last week, we took you through how a new bitcoin ETFs that launched in the United States work. In today's education segment, we will look at how you can screen for them on WebBroker. Joining us to discuss, Caitlin Cormier, client education instructor at TD Direct Investing.
All this conversation around approval of spot ETFs and deals with the Queen out of the US, what tools we have on WebBroker to find these ETFs?
>> Yeah, absolutely. So last week on Thursday I was able to go through some of the information that we have on WebBroker, it created a watchlist with these different ETFs but we've had update since then as of the end of last week on Friday, so really excited to show the viewers additional research that we have available so you can filter down further. Let's hop into a broker and do a screen for these ETFs.
We are going to click on research. We are going to go over to screeners and then we are going to click on the ETFs screen, and we are going to go ahead and create a custom screen. And in this case, we are going to choose fund category. If we're talking specifically about the US, then what I will do is I will actually add fund category and I'm going to choose digital assets. I'm going to scroll down, it's all of political here, so I'm going to click United States digital assets.
That's going to have the spot bitcoin ETFs that we had approval for last week.
I am also though, Canada also has some of these ETFs as well. We've had approval for quite a while for these ETFs. Within Canada, they are under this category here, alternative other.
I deselected mutual funds and we are just going to look at ETFs today. Of course, you can add anything else that you would like to see.
I will talk in the management expense ratio to understand the cost a little bit and also I'm going to add my fund inspection, these ETFs were released in the last week or so, so this is a way to filter for them.
If I click to see my screen result, I actually see the majority of the new ETFs right here at the top of my list because it showing here the funded section as of last week. So we are seeing a lot of those already showing up here and I think they discussed last week that some of them had promotional rates and stuff like that.
So really that's why we are seeing the lack of in our MER there. But there is additional information about these funds you can click through, see some summary information and understand a bit how they've been trading so far. Not really a whole lot of history on these particular funds.
If we are looking specifically for the brand-new one, we can go ahead and filter by fund inspection and that will throw them to the top of the list.
Once we have gone through when we want to do any sort of additional screening or additional research on these funds, we can always click on the symbol and add to watchlist. If you want to do that, we can go into a buy sell ticket or we can click on the ones we are interested in and click compare.
Keeping in mind, there's a lot of information available because they have only been trading for a short time so we have to be aware of that.
As time goes on, we will have more and more performance information but for now there is not a whole lot that we are able to pull up on those funds.
>> Okay, so we are able to pull them up in terms of seeing the listings of them. As you say, they are very new, not a lot of history. If a client wants to get more information about crypto current ETFs, where would they look?
>> We have some resources available through TD Direct Investing.
Through TD, we have an entire website that is devoted to these crypto current see ETFs or information. There is both an English and French immersion. There are videos and explanations about crypto current he as well as TD Direct Investing's YouTube channel.
We've got lots of information, all of our new videos are going to be released on that channel.
Great channel if you are looking for our latest educational information on this topic and lots of others.
>> Thanks for that.
>> Thanks so much.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
As always, make sure you do your own research before making any investment decisions.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before get back to your questions about asset allocation for Jing Roy, 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're back with Jing Roy, taking your questions about asset allocation.
This one just coming in.
What is your forecast for emerging market countries for 2024?
>> Emerging market countries are, there is a lot of difference across the countries so we have to take them separately.
If we think that the Fed is going to enter a rate cuts cycle, as a result of that, it's very conducive for emerging markets.
They typically perform well when the US enters a rate cuts cycle because this time, they actually can't cut rates without worrying about capital flights.
Thus you can have a stimulus to the economy. Across the emerging markets, I think we need to focus on the bigger trends.
If we take a look at the trends in semi, it's important.
It's kind of oil.
>> Semiconductors are the new oil.
>> As a result of that, in Korea and Taiwan, with their huge chip industry and kind of exposure to the equity of chip companies, those are interesting to look at.
Moving on to China, the outlook for China is a bit foggy because the government has been very hesitant in unleashing large-scale stimulus.
Recently, it has basically initiated a program for catering towards investments into caring for the elderly. This is going to be a $4 trillion program over 10 years so it is sizable. As a result of that, there is a prospect for improving consumer spending because people don't have to save as much for their retirement and the social safety net will be important for economic recovery in consumer spending. It is also being weighed down by the real estate sector that is undergoing structural issues so that cannot be resolved overnight.
As a result of that, the view on China is a bit foggy. We really need stimulus from the government to become more supportive.
>> Is there a sense of why? That's a longer-term play.
Create a social safety net and help people as they move into their old years and are perhaps not working anymore. A long-term societal good but I think a lot of people have been waiting for China to do something in the here and now, whether it's in the property market, provides a quick stimulus, they seem hesitant.
>> It's very hard to get government money from China because there is the premium the market is requiring for policy uncertainty.
There is the policy reversal on the gaming industry which spooked investors and also the longer term implications of an other Trump administration if trump becomes the new Pres.
As a result of that, the results on the geopolitical landscape, it makes it difficult to get a lock on the Chinese market.
>> Interesting stuff indeed. US banks now.
If you are is wondering your thoughts on US banks.
They kicked off the earnings season, it's a bit of a mixed bag.
>> It has been.
US banks, especially the large money centres, will perform well if we achieve a soft landing and with the subsequent re-acceleration of economic growth for several reasons. First, bank stocks priced in a normalization of the credit cycle. If the credit cycle turns out to be better than people feared, then there's upside from the re-rating. Second, the balance sheet has been extremely strong for global G6 banks. There are two things coming out.
The capital increase requirement is likely to be walked back. That's a plus.
And if there is a policy shift after the presidential election, that would be most likely be friendly to the banking centre.
Lastly, the valuation, the way you look at it, it's basically at 15 year low historically so the stock is setting up pretty well if you have a longer-term perspective. Especially if you're being compensated from the dividend as well as the share repurchase.
>> What could get in the way of that thesis of the banks perhaps having their time to shine after having a pretty rough year last year? You named a few things that go in their favour, perhaps those things will come to pass.
>> That's why you have to focus on quality banks. I would caution against reaching above the quality curve into regional banks. I think there still a bit of a stress on the balance sheet coming from the market to market laws from the bond portfolio they own, the commercial real estate and if the deposit becomes more flighty.
>> Sticking with the US here, we have of you are wondering what your thoughts are on US healthcare, particularly the big pharmaceutical names in 2024?
>> Big pharmaceutical names outperformed.
There is a bifurcation between the haves and have-nots. They are tapping into obesity.
>> The house have a weight loss drug.
>> That's right. And they can't have enough of it. This year, I think this trend will continue but the focus will switch to basically how you can expand the market from other prescription uses for other metabolic diseases and also what is the persistence of the use for these drugs because they are new. At the same time, you want to take a look at what reimbursement policy change paramedic car, if it can be covered under Medicare, that would be a huge boost to demand. So for pharmaceutical companies, I think it's important to stick with quality companies with good earnings visibility and growth from a secular made trend.
When you look at other sectors in healthcare, I think medical device companies look very interesting right now because they lapped through a COVID low.
Now, the procedures actually are growing and you can see from the United Health reporting this quarter, the procedures are coming up, they are being reimbursed and the loss rate is going up which means there is demand for this procedures and good demand forecast for those device makers.
>> We'll get back to your questions for Jing Roy on asset allocation 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 any time. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We've all become inflation watchers over the past year and 1/2 or so. Canada's Consumer Price Index happened to move in the wrong direction in December.
The BOC is challenged to get back to the 2% inflation target. Anthony Okolie joins is now at TD securities take on these numbers.
>> I think the key take away was we sought no progress month over month but we saw a sharp acceleration and core inflation measures. Here are the key details. We will start with headline inflation. It edge up .3% higher. That did match consensus estimates. But this was overshadowed by the sharp rise that we saw in core inflation which edged up .1 percentage points to 3 1/2% on an annual basis.
When we exclude gasoline, headline CPI slowed year-over-year, that's down slightly from 3.6% in November 2 3 1/2% in December. As the chart shows, headline and core inflation have been on a downward trend since peaking in June 2022, up as much as a person. It spiked in the summer and has come down significantly since then. What is more worrying for the BOC are its yearly key yearly inflation measures which still have volatile components. These are the trim and medium core rates. They heated up last month.
They are averaging 3.65% versus an upwardly revised 3.55% a month earlier.
That's also faster than the pace that economists had expected coming in around 3.55%. Now, when we look beyond the headlines of the December report, the details were somewhat mixed in contrast with hawkish acceleration. Grocery prices were up 5% in December, the same percentage in November. We are seeing some persistence there in grocery prices.
We did see some cooling in service inflation in December. However, shelter prices remained a key driver into year end. That was driven by stronger rents for one. Also another sizable jump and mortgage interest costs. Meanwhile, gas prices were a key culprit that boosted the headline CPI higher. This was due to base your effect. Wally did see gasoline prices fall for the fourth consecutive month, there are now 1.4% higher versus a year ago when prices fell 15% in December 2022.
Overall, the jump across core inflation measures gives the December CPI report a hawkish tone and it sort of underscores the last mile of getting from as high as 8% to the 2% target. That's the hardest part. Again, this acceleration also funny as MoneyTalk's business survey outlook which showed limited progress in terms of the normalization of wage inflation expectations.
This should leave the Bank of Canada cautious as it considers when it will be appropriate to start cutting rates.
>> Let's talk about the Bank of Canada because in a way candidate, we are going to have a BOC monetary policy report, we are going to have an interest rate decision. What you think about next week's meeting in the meetings going forward?
>> I think despite December's report, TD believes that the Bank of Canada will see enough progress to inflation to start cutting interest rates by the April meeting. That said, TD Economics believes inflation is unlikely to be near the 2% target and they also note in the report that Gov. Tiff Macklem pointed out in December that the Bank of Canada doesn't need to see inflation a 2% to begin normalizing monetary policy.
Rather, they want to be confident that inflation is getting there.
>> Interesting stuff. A lot at stake.
Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
I never an update on the markets. We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers. Let's start with the TSX 60. We are going to screen by Price and volume. Let's he was happening out there.
We have a headline number that is in negative territory so I guess we can start with the materials bucket, Barrick Gold coming out with preliminary production numbers for its most recent quarter. The street doesn't seem impressed. The stock is down a little more than 6% right now, not much momentum here or in other gold-mining names either, which First Quantum, they are suspending their dividends after suspending their operations and Panama following problems with the Coppermine project there and Kinross which is having political problems and pushback in the country to a large degree. Kinross animals 2%. In the energy space, not a lot going on.
Peg seems to be working on both sides of the border, including Shopify here.
Nothing to get too excited about. It's up about half percent. South of the border, I want to check in on the S&P 100. We have more of the big heavyweight financial names coming house with the earnings today.
Morgan Stanley down almost 4%. Some of the other big names down, Goldman Sachs, just barely showing us something to the upside on the heels of their latest earnings report. But the chipmakers again showing some strength, that was the story of last year. I don't know what will happen this year but today it is AMD leading the pack, up almost 7% and Nvidia a bit 3%. Get more information by visiting TD.com/Advanced Dashboard.
We are back with Jing Roy from TD Asset Management, she wants to take your questions on asset allocation. As the AI hype train still on the rails?
>> I was saying there is a lot of substance behind this hype. Elliptical know what generative AI actually is.
From the corporate, the CIO's perspective, it's really a tool for increasing efficiency and productivity so the major hurdle they are experiencing right now is how to use the tool and launch it for mass adoption. So one of the surveys is actually pointing to the second half of this year to have the first project to be launched. As a result of that, the timeline for mass adoption is elongated from what we expect or what the market is pricing in. But that's okay. We just have to be a little bit patient.
When we look at the stocks that can benefit from this trend other than the obvious Microsoft of the world, I think we can look at the entire AI value chain. So we can look at Sammy's, for example, also companies using data structure manufacturing business because there is a big demand for cloud computing and also lastly when you look at who is going to implement these, you need the IT consultants to help you do that.
As a result, there are quite a bit of opportunities in the entire value chain.
Over the longer term, I think the attack IT hardware companies shouldn't feel quite left out because there is a longer theme at play here. Right now, all the AI computing is being done in cloud but in the future, there is a diffusion into the edge AI use case. As a result of that, IT hardware companies like Apple will be a key beneficiary of that.
>> Okay, interesting stuff to watch there on the AI front. We will squeeze in one more question.
The viewer wants to get your view on the industrials.
>> Industrials are very interesting at this juncture because investors can take their pick of some of the high quality investor companies but their valuation, they are seeing a cyclical headwind.
With the industrials, I think rails can be one of the plays for re-acceleration of the economy. We are seeing freight volume start to base towards the end of last year. It's been a freight recession since 2022. So it's been a long time for the database to be constructed and there is prospect for us to inflect higher if we actually achieve a soft landing and subsequent re-acceleration.
With rails, you want to make sure that the companies have other levers to pull to make sure they generate return that is not just dependent on a cyclical row coverage.
As a result of that, there is a lot of value available to be surfaced while you wait. So the second point I want to make on industrials is that this is a sector that's influx with some of the mega teams playing out, Internet of things, electrification. Energy management for data centres, for example. There are companies like that that's over indexed to these growth areas that can, you can invest into because their cash flows are less dependent and affected by the cyclical headwinds.
>> Great to have you back on the program.
Look forward to the next time.
>> Thank you very much.
>> Our thanks to Jing Roy, VP, Dir. and portfolio manager for asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
be sure to stay tuned for tomorrow show.
Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management will be our guest. He wants to take your questions about fixed income. I know you have them.
You can get a head start getting them into us.
Just email moneytalklive@td.com. That's all the time we have for the show today.
Thanks for watching. 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 some of the big questions that are facing investors this year but there are high hopes in the market for rate cuts. We are going to be joined by TD Asset Management's Jing Roy.
MoneyTalk's Anthony Okolie is going to take us to the latest Canadian inflation report.
And in today's WebBroker education segment, Caitlin Cormier is going to shows how you can find crypto current ETFs using the platform. So here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our Guest of the day, let's get you an update on the markets. You'll start her at home with the TSX Composite Index. Let's look at the top line number.
We are in negative territory. A little more than half percent, 119 point deficit.
Among most actively traded names on TSX at this hour include First Quantum.
We have been telling the story of First Quantum for several months now. That pulled back in October, with us the suspension of the Cobre Panama mine. They are down 2.6%. Want to check in on Denison Mines.
Nothing too dramatic.
Down about 1%. South of the border, let's check in on the S&P 500. The Americans are off of their a holiday Monday, Martin Luther King Day observed yesterday.
They are back to trading. Modest downside, 14 points, 1/3 of a percent. A bond yields on the 10 year it just above 4%.
Let's check out the NASDAQ. Right now seeing some of the chipmakers get a bid, that's keeping the NASDAQ just slightly in positive territory, up a little more than five points. Among those names, I'm going to show you Advanced Micro Devices.
AMD putting on a big push today. At 158 bucks and change, it's up almost 8% on the session. And that's your market update.
There are plenty of questions facing investors this year from whether we get rate cuts from central bank to the chances of a recession.
Joining us now to discuss how things may play out his Jing Roy, VP, director and portfolio manager for asset allocation at TD Asset Management. Great to have you back.
>> Thank you very much. Glad to be here.
>> We entered the year with some high hopes about where the economy could be headed, what the central banks might get up to. We will start with the dreaded our word, recession.
>> There is a market debate, how we get there, whether we get there. The consensus that we are going to have a soft landing and economic growth in both the US and Canada will be about half as fast as we experienced last year.
So given what we are seeing, cracks and consumer credit as well as the labour market, it's much easier to see a path for a slower growth going forward rather than a rapid recovery. It's especially the case in Canada where we have higher household debt and we are experiencing a higher debt servicing costs so that will put a bigger dent in Canadian households as well as growth.
>> When we talk about the recession debate, is there still part of that debate where people are saying we are going to get perhaps a hard landing? The story was about to get a soft landing, no landing.
The consensus in the market seems to be that things will slow but not precipitously to the point where we are going to be in trouble.
Our people still throwing around the trouble scenario?
>> Not really. The consensus really coalesced around the soft landing scenario and what we have seen in the past few months where the equity market and the bond market collectively returned double-digit returns in the last two months just because the consensus expectation shifted to a soft landing scenario and people become more aggressive in terms of rate cut expectations. As a result of that, it was very conducive for risk appetite as well as upside.
>> The central banks have indicated they will be cutting this year. In a soft landing scenario, do the central banks have to be aggressive to the downside?
>> Right now, the market is pricing in about 6 to 7 cuts in the US starting in March. In Canada, it's about 5 Cuts Starting in April. Right now, the modus operandi for the central bank is to cut rates commensurate with falling inflation.
If there is any sign of we are hitting a recession, and the central banks will be more aggressive in cutting the rates. And it's counterintuitive.
When central banks cut rates more aggressively, it is can susu for risk appetite. What we have is a situation is assets that can throw off very stable cash flows in that scenario. Case in point would be long bonds.
Because if there was a constant coupon.
For equities companies with very stable cash flow and have secular tailwind behind them, the technology and healthcare sectors, they will benefit as well.
>> We have set the table for a soft landing, for rate cuts from the central banks, hours and from the Fed. Let's talk about the surprises we might be facing this year. We are only two weeks in. We think it's going to go in this direction.
What do we need to be watching?
>> I think it's very important to understand where inflation is headed.
That will become a Northstar for understanding where the central bank policy might pivot towards.
As a result of that, you have to position the portfolio with a core view of what could happen. If the consensus estimate of a soft landing and a rate cut excitation come to pass, then I think the return expectation for assets, bonds and equity will be single digit territory. But we really need a surprise for that to deviate from our base case scenario.
So the biggest surprise, I think, if we experience growth a tad softer than what the market is expecting, then actually that would be bullish for markets and in a very strange twist of logic, revenue companies can benefit from that because they don't have revenues to contend with but they are disproportionately be benefiting from a more fund-raising market which are the result of lower interest rate and more liquidity in the system.
>> One of the stories in the past 12 months, and perhaps people had an expected heading into last year, was how will the American markets would do, how well the Magnificent Seven would do, the excitement around AI. Is there a chance that this year US markets will not outperform like they have?
>> That's an interesting question because for investors leaning towards those stronger growth scenarios, there is a higher probability that the US market will lag behind Canada and Europe. There are a few reasons for that. Number one, if growth in the US and inflation in the US surprise on the upside, then investors will have to recalibrate their aggressive rate cut excitation. As a result of that, financial conditions will tighten. Because of that done, US long bonds, government bonds, G6 economies because an investor wants higher returns and the price adjusts downwards to accommodate that and also for growth stocks, when growth becomes abundant, there will be a D rating for growth stocks because the premium for growth scarcity will no longer be there.
As a result of that, the US market is over index to equities. There is a strong likelihood that the US stock market will underperform Canada and Europe. But then, there's one saving grace, which is a strong dollar because of the hawkish Fed.
Of course, we have a couple of wildcards this year.
We have a potential policy shift after the US presidential election in November as well as the ongoing inflation shocks in the Middle East due to the regional conflict.
>> I feel like some of the uncertainty that's been in the market for a while and will continue into this year with some of those issues because a lot of investors to despite the fact that we saw US stocks rally so strongly last year to stay in cash. If you bring it back to asset allocation, we know there was a story, perhaps some people felt as they stayed in cash, they missed the market rally. Let's talk about diversification this year.
>> Because we don't know what's going to happen to the market, it's nice to know if we are working in a recessionary or a recovery scenario but sometimes the best of us to come to a lack of imagination, let's put it that way.
So I think it's very helpful to focus on income growth and stability when you are trying to navigate the uncertainty in the market right now.
So for portfolio that's well constructed, I would look for three attributes. First of all, it has to secure a base level of income over the medium term.
Secondly, it has to generate capital appreciation from equities or any other assets and finally it has to generate a source of returns from uncorrelated asset classes. You have different levers in play when we go through this uncertain path.
>> Interesting stuff and a great start to the program. We are going to get your questions about asset allocation for Jing Roy 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.
More earnings are coming in from some of the big Wall Street heavyweights.
Strengthen the investment banking business helps Morgan Stanley top quarterly revenue estimates. However, new CEO Ted Paek did Warren on the call the two major downside risks for this year, geopolitics in the US economy, McLeod things.
Meantime, Goldman Sachs delivered stronger than affected revenue from its asset and wealth management business. Shares of Barrick Gold under pressure today.
Investors are reacting to the mining companies pulmonary gold production of us for the fourth quarter. The stock is down almost 7% now.
What do we see? In a note to clients, TD Cowen says there was an improvement in production but Barrick's cost came in higher-than-expected for the quarter.
Restaurant Brands International is buying the largest franchisee of Burger King's in the United States.
The parent company of Tim Hortons will pay roughly $1 billion in cash to acquire carols, which operates more than 1000 Burger King's and 60 Popeyes restaurants in the United States.
Restaurant Brands International more than 2%. A quick check on the market, we will start with Bay Street, with the TSX Composite Index. We have a down day to the tune of 147 points, almost 3/4 of a percent to the downside.
South of the border, the S&P 500, that broader read of the US market, they are coming off a holiday weekend, they were not trading yesterday for the Martin Luther King holiday. They are 22 points to the downside, a little shy of half a percent.
We are back with that Jing Roy from TD Asset Management, taking your questions about asset allocation. First one here for you. Could the shipping issues in the Red Sea reignite inflation? This is an interesting question because you go back to the beginning of the inflation story a couple of years ago and shipping was at the core of it.
>> Right. I think the inflation story is the centre or epicenter of how we decide for the policy path for the central banks.
So we are seeing a bottleneck from the Red Sea because of the conflict in the region.
But this time around, the inflation impact will be quite muted because, first of all, we are in a synchronized global slowdown so the demand for goods is less strong.
And secondly, I think we have to put in perspective how the inflation will kind of transmit through the system. There are two transmission challenges. First is the higher freight cost. The freight cost tripled since November 4 ship sailing from Asia to Europe.
But that pales in comparison of what we experienced during COVID, that was a 10 X increase. Secondly, because now you have to sail around the Horn of Africa, that adds about 10 days to your trip. As a result of that, there will be supply chain disruptions, so companies will have to adjust their inventory levels and capital assumptions and pricing to accommodate the longer shipping time. So those two transmission mechanisms will put pressure on inflation but the overall inflation picture will be quite muted, unless one of the ceilings for oil, sea or oil trade, is blocked and then that will become a major issue for D inflation expectations.
>> When you talk about the transmission of these inflationary pressures, you wonder after everything we've been through, with inflation taking off halfway through COVID, if the consumer has the appetite.
You can get these transmissions, it's more for those suppliers, shippers, companies, they charge us more.
Don't know how much more we could take, the consumer. They might just say, listen, I'm tapped out.
>> Especially in the US we are seeing the COVID savings being drawn down and in Canada the situation is a little bit different. In Canada, in fact, our household debt is highest of G6 economies and about 50% of mortgages taken on before the rate hiking cycle will go through a renewal process this year at a higher rate. As a result of that, you can see on average that households will experiences a 30% increase in mortgage and servicing costs on a monthly basis. As a result of that, you will see a slower growth in consumer consumption and people will work towards more deleveraging and paring back nonessential spending which put a cap on economic growth in Canada.
But as long as the savings, Canadians actually have been sitting on COVID savings, but $100 million. As long as employment stays strong in a soft landing scenario, I think the Canadian economy should be able to weather it was a bit of turbulence.
>> Actually, we had a viewer question about our household debt levels and what it can mean. This viewer is saying how worried should we be about the impact of upcoming mortgage renewals?
>> Well, it really depends on how your cash flow management has been and how you have been planning your daily or monthly cash flow. As a result of that, we are seeing a lot of investors trying to put cash in the short-term savings product to make sure they can deliver when the time comes. As a result, you are seeing the GIC kind of, GIC purchase rate is still high because people are saving for rainy days.
>> Even though the GIC rates have come down pretty dramatically since we peeked out of 5% on the 10 year back in the fall.
>> Has been a very good diversify her for portfolio when we are going through a rate hike cycle but right now if you put cash in GIC today, you will very likely experienced the lower rate investment returns when it matures 12 months from now. As a result of that, you really have to look at what you should invest to lock in the high yield over the next 5 to 7 years instead of taking advantage of the GIC rate now.
As a matter of fact, the yield from bonds are at the highest rate in a generation.
It would be a terrible mistake for investors to not lock into that attractive rate and put a floor under their income in the next 5 to 7 years.
>> One viewer is wondering about duration.
What duration should we be looking at in fixed income? We are looking at yields now but haven't been at this level in bonds for quite some time.
>> Yeah, so when we construct a fixed income portfolio, we want to stay defensive which means we want a combination of government bonds and high-quality credit. So this portfolio will give you a high yield of 5 to 6% which is a high yield in terms of a 10 year span. But at the same time, if the economy hits a softer spot, it will have a diverse vacation benefit from government long bonds because their value will depreciate and give you some portfolio insurance without having to pay for it. So as a result of that, it's a good combination. To have when you look at generating income for the next 5 to 7 years.
>> Timeframe, I wanted to ask you about timeframe. People have gotten used to quick moves in the market. Maybe the central banks won't cut as quickly as we think and inflation takes longer to come down. Thinking about fixed income in the long term and they yield the people are getting now, is that the idea? You are not making a one-day decision but a multiyear decision.
>> Absolutely, because it's very important for you to have a core portfolio which satisfies the need for income growth and stability and right now, I think it's much more important to keep your eyes on the prize and focus on long-term perspective because over the long term, equity goes up about 80% of the time and we can expect single-digit return from equities. If we have stronger earnings growth or any of… Faster than we expected, such as with AI for productivity growth, you can see more upside than expected.
>> As always, make sure you do your own research before making any investment decisions.
we will be back with your questions for Jing Roy on asset allocation in just a moment's 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.
Regular viewers of the show will remember that last week, we took you through how a new bitcoin ETFs that launched in the United States work. In today's education segment, we will look at how you can screen for them on WebBroker. Joining us to discuss, Caitlin Cormier, client education instructor at TD Direct Investing.
All this conversation around approval of spot ETFs and deals with the Queen out of the US, what tools we have on WebBroker to find these ETFs?
>> Yeah, absolutely. So last week on Thursday I was able to go through some of the information that we have on WebBroker, it created a watchlist with these different ETFs but we've had update since then as of the end of last week on Friday, so really excited to show the viewers additional research that we have available so you can filter down further. Let's hop into a broker and do a screen for these ETFs.
We are going to click on research. We are going to go over to screeners and then we are going to click on the ETFs screen, and we are going to go ahead and create a custom screen. And in this case, we are going to choose fund category. If we're talking specifically about the US, then what I will do is I will actually add fund category and I'm going to choose digital assets. I'm going to scroll down, it's all of political here, so I'm going to click United States digital assets.
That's going to have the spot bitcoin ETFs that we had approval for last week.
I am also though, Canada also has some of these ETFs as well. We've had approval for quite a while for these ETFs. Within Canada, they are under this category here, alternative other.
I deselected mutual funds and we are just going to look at ETFs today. Of course, you can add anything else that you would like to see.
I will talk in the management expense ratio to understand the cost a little bit and also I'm going to add my fund inspection, these ETFs were released in the last week or so, so this is a way to filter for them.
If I click to see my screen result, I actually see the majority of the new ETFs right here at the top of my list because it showing here the funded section as of last week. So we are seeing a lot of those already showing up here and I think they discussed last week that some of them had promotional rates and stuff like that.
So really that's why we are seeing the lack of in our MER there. But there is additional information about these funds you can click through, see some summary information and understand a bit how they've been trading so far. Not really a whole lot of history on these particular funds.
If we are looking specifically for the brand-new one, we can go ahead and filter by fund inspection and that will throw them to the top of the list.
Once we have gone through when we want to do any sort of additional screening or additional research on these funds, we can always click on the symbol and add to watchlist. If you want to do that, we can go into a buy sell ticket or we can click on the ones we are interested in and click compare.
Keeping in mind, there's a lot of information available because they have only been trading for a short time so we have to be aware of that.
As time goes on, we will have more and more performance information but for now there is not a whole lot that we are able to pull up on those funds.
>> Okay, so we are able to pull them up in terms of seeing the listings of them. As you say, they are very new, not a lot of history. If a client wants to get more information about crypto current ETFs, where would they look?
>> We have some resources available through TD Direct Investing.
Through TD, we have an entire website that is devoted to these crypto current see ETFs or information. There is both an English and French immersion. There are videos and explanations about crypto current he as well as TD Direct Investing's YouTube channel.
We've got lots of information, all of our new videos are going to be released on that channel.
Great channel if you are looking for our latest educational information on this topic and lots of others.
>> Thanks for that.
>> Thanks so much.
>> Caitlin Cormier, client education instructor at TD Direct Investing.
As always, make sure you do your own research before making any investment decisions.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before get back to your questions about asset allocation for Jing Roy, 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're back with Jing Roy, taking your questions about asset allocation.
This one just coming in.
What is your forecast for emerging market countries for 2024?
>> Emerging market countries are, there is a lot of difference across the countries so we have to take them separately.
If we think that the Fed is going to enter a rate cuts cycle, as a result of that, it's very conducive for emerging markets.
They typically perform well when the US enters a rate cuts cycle because this time, they actually can't cut rates without worrying about capital flights.
Thus you can have a stimulus to the economy. Across the emerging markets, I think we need to focus on the bigger trends.
If we take a look at the trends in semi, it's important.
It's kind of oil.
>> Semiconductors are the new oil.
>> As a result of that, in Korea and Taiwan, with their huge chip industry and kind of exposure to the equity of chip companies, those are interesting to look at.
Moving on to China, the outlook for China is a bit foggy because the government has been very hesitant in unleashing large-scale stimulus.
Recently, it has basically initiated a program for catering towards investments into caring for the elderly. This is going to be a $4 trillion program over 10 years so it is sizable. As a result of that, there is a prospect for improving consumer spending because people don't have to save as much for their retirement and the social safety net will be important for economic recovery in consumer spending. It is also being weighed down by the real estate sector that is undergoing structural issues so that cannot be resolved overnight.
As a result of that, the view on China is a bit foggy. We really need stimulus from the government to become more supportive.
>> Is there a sense of why? That's a longer-term play.
Create a social safety net and help people as they move into their old years and are perhaps not working anymore. A long-term societal good but I think a lot of people have been waiting for China to do something in the here and now, whether it's in the property market, provides a quick stimulus, they seem hesitant.
>> It's very hard to get government money from China because there is the premium the market is requiring for policy uncertainty.
There is the policy reversal on the gaming industry which spooked investors and also the longer term implications of an other Trump administration if trump becomes the new Pres.
As a result of that, the results on the geopolitical landscape, it makes it difficult to get a lock on the Chinese market.
>> Interesting stuff indeed. US banks now.
If you are is wondering your thoughts on US banks.
They kicked off the earnings season, it's a bit of a mixed bag.
>> It has been.
US banks, especially the large money centres, will perform well if we achieve a soft landing and with the subsequent re-acceleration of economic growth for several reasons. First, bank stocks priced in a normalization of the credit cycle. If the credit cycle turns out to be better than people feared, then there's upside from the re-rating. Second, the balance sheet has been extremely strong for global G6 banks. There are two things coming out.
The capital increase requirement is likely to be walked back. That's a plus.
And if there is a policy shift after the presidential election, that would be most likely be friendly to the banking centre.
Lastly, the valuation, the way you look at it, it's basically at 15 year low historically so the stock is setting up pretty well if you have a longer-term perspective. Especially if you're being compensated from the dividend as well as the share repurchase.
>> What could get in the way of that thesis of the banks perhaps having their time to shine after having a pretty rough year last year? You named a few things that go in their favour, perhaps those things will come to pass.
>> That's why you have to focus on quality banks. I would caution against reaching above the quality curve into regional banks. I think there still a bit of a stress on the balance sheet coming from the market to market laws from the bond portfolio they own, the commercial real estate and if the deposit becomes more flighty.
>> Sticking with the US here, we have of you are wondering what your thoughts are on US healthcare, particularly the big pharmaceutical names in 2024?
>> Big pharmaceutical names outperformed.
There is a bifurcation between the haves and have-nots. They are tapping into obesity.
>> The house have a weight loss drug.
>> That's right. And they can't have enough of it. This year, I think this trend will continue but the focus will switch to basically how you can expand the market from other prescription uses for other metabolic diseases and also what is the persistence of the use for these drugs because they are new. At the same time, you want to take a look at what reimbursement policy change paramedic car, if it can be covered under Medicare, that would be a huge boost to demand. So for pharmaceutical companies, I think it's important to stick with quality companies with good earnings visibility and growth from a secular made trend.
When you look at other sectors in healthcare, I think medical device companies look very interesting right now because they lapped through a COVID low.
Now, the procedures actually are growing and you can see from the United Health reporting this quarter, the procedures are coming up, they are being reimbursed and the loss rate is going up which means there is demand for this procedures and good demand forecast for those device makers.
>> We'll get back to your questions for Jing Roy on asset allocation 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 any time. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We've all become inflation watchers over the past year and 1/2 or so. Canada's Consumer Price Index happened to move in the wrong direction in December.
The BOC is challenged to get back to the 2% inflation target. Anthony Okolie joins is now at TD securities take on these numbers.
>> I think the key take away was we sought no progress month over month but we saw a sharp acceleration and core inflation measures. Here are the key details. We will start with headline inflation. It edge up .3% higher. That did match consensus estimates. But this was overshadowed by the sharp rise that we saw in core inflation which edged up .1 percentage points to 3 1/2% on an annual basis.
When we exclude gasoline, headline CPI slowed year-over-year, that's down slightly from 3.6% in November 2 3 1/2% in December. As the chart shows, headline and core inflation have been on a downward trend since peaking in June 2022, up as much as a person. It spiked in the summer and has come down significantly since then. What is more worrying for the BOC are its yearly key yearly inflation measures which still have volatile components. These are the trim and medium core rates. They heated up last month.
They are averaging 3.65% versus an upwardly revised 3.55% a month earlier.
That's also faster than the pace that economists had expected coming in around 3.55%. Now, when we look beyond the headlines of the December report, the details were somewhat mixed in contrast with hawkish acceleration. Grocery prices were up 5% in December, the same percentage in November. We are seeing some persistence there in grocery prices.
We did see some cooling in service inflation in December. However, shelter prices remained a key driver into year end. That was driven by stronger rents for one. Also another sizable jump and mortgage interest costs. Meanwhile, gas prices were a key culprit that boosted the headline CPI higher. This was due to base your effect. Wally did see gasoline prices fall for the fourth consecutive month, there are now 1.4% higher versus a year ago when prices fell 15% in December 2022.
Overall, the jump across core inflation measures gives the December CPI report a hawkish tone and it sort of underscores the last mile of getting from as high as 8% to the 2% target. That's the hardest part. Again, this acceleration also funny as MoneyTalk's business survey outlook which showed limited progress in terms of the normalization of wage inflation expectations.
This should leave the Bank of Canada cautious as it considers when it will be appropriate to start cutting rates.
>> Let's talk about the Bank of Canada because in a way candidate, we are going to have a BOC monetary policy report, we are going to have an interest rate decision. What you think about next week's meeting in the meetings going forward?
>> I think despite December's report, TD believes that the Bank of Canada will see enough progress to inflation to start cutting interest rates by the April meeting. That said, TD Economics believes inflation is unlikely to be near the 2% target and they also note in the report that Gov. Tiff Macklem pointed out in December that the Bank of Canada doesn't need to see inflation a 2% to begin normalizing monetary policy.
Rather, they want to be confident that inflation is getting there.
>> Interesting stuff. A lot at stake.
Thanks, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
I never an update on the markets. We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers. Let's start with the TSX 60. We are going to screen by Price and volume. Let's he was happening out there.
We have a headline number that is in negative territory so I guess we can start with the materials bucket, Barrick Gold coming out with preliminary production numbers for its most recent quarter. The street doesn't seem impressed. The stock is down a little more than 6% right now, not much momentum here or in other gold-mining names either, which First Quantum, they are suspending their dividends after suspending their operations and Panama following problems with the Coppermine project there and Kinross which is having political problems and pushback in the country to a large degree. Kinross animals 2%. In the energy space, not a lot going on.
Peg seems to be working on both sides of the border, including Shopify here.
Nothing to get too excited about. It's up about half percent. South of the border, I want to check in on the S&P 100. We have more of the big heavyweight financial names coming house with the earnings today.
Morgan Stanley down almost 4%. Some of the other big names down, Goldman Sachs, just barely showing us something to the upside on the heels of their latest earnings report. But the chipmakers again showing some strength, that was the story of last year. I don't know what will happen this year but today it is AMD leading the pack, up almost 7% and Nvidia a bit 3%. Get more information by visiting TD.com/Advanced Dashboard.
We are back with Jing Roy from TD Asset Management, she wants to take your questions on asset allocation. As the AI hype train still on the rails?
>> I was saying there is a lot of substance behind this hype. Elliptical know what generative AI actually is.
From the corporate, the CIO's perspective, it's really a tool for increasing efficiency and productivity so the major hurdle they are experiencing right now is how to use the tool and launch it for mass adoption. So one of the surveys is actually pointing to the second half of this year to have the first project to be launched. As a result of that, the timeline for mass adoption is elongated from what we expect or what the market is pricing in. But that's okay. We just have to be a little bit patient.
When we look at the stocks that can benefit from this trend other than the obvious Microsoft of the world, I think we can look at the entire AI value chain. So we can look at Sammy's, for example, also companies using data structure manufacturing business because there is a big demand for cloud computing and also lastly when you look at who is going to implement these, you need the IT consultants to help you do that.
As a result, there are quite a bit of opportunities in the entire value chain.
Over the longer term, I think the attack IT hardware companies shouldn't feel quite left out because there is a longer theme at play here. Right now, all the AI computing is being done in cloud but in the future, there is a diffusion into the edge AI use case. As a result of that, IT hardware companies like Apple will be a key beneficiary of that.
>> Okay, interesting stuff to watch there on the AI front. We will squeeze in one more question.
The viewer wants to get your view on the industrials.
>> Industrials are very interesting at this juncture because investors can take their pick of some of the high quality investor companies but their valuation, they are seeing a cyclical headwind.
With the industrials, I think rails can be one of the plays for re-acceleration of the economy. We are seeing freight volume start to base towards the end of last year. It's been a freight recession since 2022. So it's been a long time for the database to be constructed and there is prospect for us to inflect higher if we actually achieve a soft landing and subsequent re-acceleration.
With rails, you want to make sure that the companies have other levers to pull to make sure they generate return that is not just dependent on a cyclical row coverage.
As a result of that, there is a lot of value available to be surfaced while you wait. So the second point I want to make on industrials is that this is a sector that's influx with some of the mega teams playing out, Internet of things, electrification. Energy management for data centres, for example. There are companies like that that's over indexed to these growth areas that can, you can invest into because their cash flows are less dependent and affected by the cyclical headwinds.
>> Great to have you back on the program.
Look forward to the next time.
>> Thank you very much.
>> Our thanks to Jing Roy, VP, Dir. and portfolio manager for asset allocation at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
be sure to stay tuned for tomorrow show.
Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management will be our guest. He wants to take your questions about fixed income. I know you have them.
You can get a head start getting them into us.
Just email moneytalklive@td.com. That's all the time we have for the show today.
Thanks for watching. See you tomorrow.
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