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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 show, we'll discuss what a potential recession might look like and what it means for markets with Jing Roy from TD Asset Management. MoneyTalk's Anthony Okolie is going to give us an update on the latest Canadian retail sales. And in today's WebBroker education segment, Caitlin Cormier is going to show us how you can research fixed income assets 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 to our guest of the day, let's get you an update on the markets. We will start you on Bay Street with the TSX Composite Index. We are modestly in negative territory to the tune of about 40 points or about a face of a percent. Noticing a little bit of stability and some energy names today, nothing to outsize but the Canadian Natural Resources caught my eye earlier. It is to the upside, some green on the screen, almost 72 bucks per share, up almost 2%. Did notice some weakness in the mining names it including Kinross Gold. Nothing to outsize. At six bucks and $0.12 per share, you got Kinross down a little less than half a percent. South of the border, you have investors clearly focused on monetary policy. It today is the first day of two days of testimony and Washington by Jerome Powell saying the fight against inflation willcontinue and will probably necessitate higher rates and rate hikes. The market down right now about two points, nothing too dramatic, a little less than half a percent. Check on the tech heavy NASDAQ. It the tech stocks have not liked monetary policy during this rate hiking cycle. Perhaps these words of Powell putting caution into the trade. Your data hundred and 50 points about on the NASDAQ, about a full percent. in video, so much artificial intelligence buzz and excitement. It had quite a runas you can see her today. Today it is giving a little bit back. At 424 per share, your down about 14 takes or 3%. And that your market update. There are plenty of concerns about a potential recession on the horizon, but despite those fears, markets have held up well. The S&P 500 Even Clawing Its Way into bull market territory in recent days and weeks. So how should investors be eyeing different asset classes in this environment? Joining us now to discuss is Jing Roy, portfolio manager with TD Asset Management. Great to have you on the program. This is your first time. >> Thank you. Glad to be here. >> We've been talking about a potential recession so long now. I forget people asking if it's a recession. How is impacting different asset classes? >> For the most anticipated recession, we really have to see where fears manifesting in asset classes. we are seeing recession fear being reflected in the bond yields and in oil prices. But it's not really reflected in equity prices for credit spread. Let's take all of these asset classes in turn and dive a little deeper into each one of them. When we talk about the yield curve structure, the yield curve is steeply an extremely inverted for nominal and real rates in the US, Canada and the euro zone. This means that in the future we are expected lower growth and lower inflation. That's very bearish on the outlook. Secondly, let's take a look at the oil price, which is down 12% year to date. In this fight, the very active effort for OPEC to manage the supply, it follows the industrial production slump that we are seeing in the US, the euro zone and China. Moving on to equities, it's not being reflected in the S&P 500 index in the US, for example. There are a few reasons for that. Number one, it's important to remember that equity acts very differently than the underlying economy. For example, technology accounts for about 1/3 of the index, that contributes to only about 8% of the GDP. So there is a disconnect there. And secondly, it's very important to understand that the earnings growth expectation right now on the street, it's a V-shaped recovery that people are expecting. So if you look at the S&P 500 index and take out the overwhelming dominance of the top seven tech names, the street is expecting about 10% earning growth in each of the next two years. And that's compared to a recessionary scenario of -10% average. So earnings are not really pricing in a recession. Lastly, I think the risk appetite is really returning. Because the economy has stayed so resilient and it is reaching the end of the hiking cycle, as a result of that, the dovetail risk has been taken out. What you are seeing is that the risk premium, the extra compensation and equity investor would demand to hold it as an asset has declined to a 15 year low. If you look at the Vix index, it's at a 30 year low. If you look at applied volatility before major economic data releases, they have collapsed. So all of these plays lead to kind of a bold narrative for equity prices. And when you look at the credit spread, even though bond investors are typically less bearish and equity investors, but the recessionary fear is not there either because if you look at high-yield indices, the default rating implied from the credit spread is about half of what we would typically see during a recession and the recovery rate is 1/3 higher than what we typically see in a recession. So overall, asset prices are pricing a no lending situation. >> No landing situation. That was a fascinating breakdown across asset classes. What about across geographies as we been living with the storm clouds on the horizon? >> I the US, as we detailed in a previous section, there is no landing. The tremendous amount of fiscal stimulus really propped up the corporate profits and consumer spending, so that's about 18% of the GDP by IMF estimates. So we are still working through that. Across the pond, in the euro zone, it's even more dramatic. Technically, the euro zone is in a technical recession, but the equity price there has actually outperformed the US year today. And because the equity company over there gives more Index to US growth, export growth and also the fact that they are chief beneficiary is of energy transition physical spending. I think when we come back home, the mood is a little sombre in Canada because cyclical sectors actually make up over half of our index here. So what we see is that equity and return the actually factoring a kind of pessimistic view of the economic growth in Canada here. And the situation is even more dire in China. The sentiment is undoubtedly very, very bearish there because in the short term, the growth coming out of the rebound, coming out of the COVID lockdown, is petering out. And in the longer term, people are focused on the kind of deleveraging and balance sheet risk that could cause a long-term stagnation without policy support. One outlier in the develop market is Japan. Over there, the central bank policy is extremely supportive because his prerogative is really to support the economy to be relaunched to a sustainable 2% inflation target. As a result, the monetary policy is very, very easy and you seeing expansion and service, PMI and also manufacturing. >> When you said no landing, no landing, is this a mythical place where you don't have a recession? Should we be expecting an economic pullback of some sort? Would it look like, what is the shape or size? >> There are lots of Alphabet to describe the shape of a recession. If I have to pick one, it would be a U-shaped one. What does that mean? It basically says that the recession will take longer to play out because it will be a credit lead cycle. Typically, it will have to take time because the interest rates have to stay higher for longer for this narrative to play out. It really comes to the point that how long companies and households can withstand the high interest rate without cutting back consumption. So the first domino to fall is really the corporate sector because they have higher interest rate sensitivity. About 1/3 of corporate debt is a floating rate. How it will play out is that corporate profit are impacted by the slowing growth and higher financing costs, which compelled them to cut demand for goods and services as well as labour. And for those that have been flying too close to the sun, they will have to resort to distressed asset sales to shore up their balance sheet and some of them will not make it and declare bankruptcy. And then this corporate malaise will spread to the household sector through unemployment, which will ultimately impact consumer consumption. And this feeds right back into corporate profitability and it creates a kind of downward spiral and reinforcing narrative for the economy. So that's how the anatomy of this recession will play out, but it will be a long game. It will take time to play out. And we are already seeing some sign of weakening. In the corporate sector, for example, we are seeing bankruptcies rising among private firms because they mostly rely on regional banks for credit and the credit conditions there has been fairly tight. And we are also seeing consumer spending has started to weaken, especially among the lower income consumer groups and the delicacies for car loans and credit card has started to take up among these income bracket. >> Once you get into a recessionary situation, it makes a lot of sense, corporations, weakness and economy, people get laid off, they go home and say they're not gonna buy things because they don't have a job. What does it mean for fixed income, for equities? > Let's take fixed income first. If the rate has to be kept higher for longer, than the long-term US bonds treasuries will outperform IG credit which would in turn outperform high-yield credit. Let's break it down one by one. Because in that scenario, a U-shaped recessionary scenario, growth will slow down. so if you think that real growth and inflation expectation will decline by let's say 25 basis point, conservatively speaking, for each, that's 50 basis point of decline in nominal yields that can translate to about 10% upside for those long bonds. And that's on top of the 3 1/2% of the yield you're collecting just from coupons. So when you put that together, you're getting equity like, midteens return which is quite attractive. And moving on to IG credit, what's interesting is that at the front end of the curve, as the curve is deeply an extremely inverted, you're getting very attractive carrying, especially for high quality credit. As a result of that, that specific slice of the IG credit market is very attractive. However, for high yield, the credit spend will widen more so than for IG credit. It and the kind of outcome will be nonlinear. So we are cautious towards high-yield credit at the moment. So the key here is really to construct a fixed income portfolio that's defensively positioned, stay with defensive qualities and stay with quality. At the same time, you have to maximize to carry. >> On the equity side, I guess stocks, the SPD five entering a bull market despite all of the concerns we had entering the year, some people are scratching their heads. >> Yeah, for equities, it's not one recipe to fit all. Where I would start is my number one. it's very hard to rely on macro, specifically interest rate, to propel the valuation multiple any higher, especially given the fact that the equity risk premium is at such low level. So the broom valuation multiple expansion is quite limited unless the Fed starts to cut rates, which we are not expecting for quite some time. So as a result of that, this is a very good environment for stock pickers who can identify companies with underappreciated earnings growth and free cash flow growth. As a result of that, you will look for managers with good stock-taking abilities. in the second point I want to make is that, you know, the factor rotation within the equity market would become more frequent and harder to trade, and factory rotation typically responds to financial conditions changing and we expect more of thatbecause of the Fed and that result in a delay for the Fed to calibrate the Fed funds rate to the prevailing economic growth and inflation dynamics. As a result of that, you can have temporary loosening of financial conditions when economic data is weak but tightening financial conditions when economic data is strong. As a result of that, you are seeing oscillating financial conditions. But we know that the end result is tightening financial conditions, the path is uncertain. So we have to really zoom out and the key is to focus on the long-term trajectory and stay with quality companies that have profitable business models, strong cash flow generation capabilities and at the same time have a very strong balance sheet to weather the higher cost of capital and at the same time have a very friendly, shareholder friendly dividend policy. And the third, the last point I want to make, is because there is widening policy divergence across the globein terms of monetary policy and fiscal policy, so to increase the diversification of your equity portfolio, it will now make sense to look abroad, outside of the US, to see regions, whether there are regions that are more supportive fiscally and monetarily to support economic growth. >> Fascinating stuff and definitely a lot there for our audience to start doing their homework about what they want to be doing for the rest of the year and perhaps into next year. You're 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. We have shares of FedEx in the spotlight today. The global shipping giant says it plans to ground 29 more planes in the coming fiscal year, pointing to what it calls ongoing demand challenges. The move is part of ongoing efforts at FedEx to cut billions in costs. Of course, consumers have been shifting away from discretionary purchases and that's hurting the shipping business. FedEx down right now about 1%. Here at home, we got Allied Properties selling its portfolio of Toronto data centres for $1.35 billion. The buyer is Japanese telecommute occasions firm KDDI, which operates data centres in the US, Asia and Europe. Allied says it will use about $1 billion of the proceeds to pay down some debt. Allied down right now about 3%. Winnebago Industries says sales declined almost 40% in his latest quarter, compared to the same period last year. The company says it is facing a more challenging market for its recreational vehicles. Winnebago has also been offering customers at some steeper discounts on its vehicles. Right now, the name at 62 bucks and change it down a little more than 3%. A quick check in on the market. We will start on Bay Street with the TSX Composite Index. We are down about 33 points, a little five 1/5 of a percent, so nothing too dramatic. And south of the border, you do have Jerome Powell giving his first of two days of testimony in Washington. He is talking about the need to continue fighting inflation and is probably going to require more interest rate hikes, even though they did pause or skip or however you want to use that language around what they did the last time around by holding the rates. We are back now Jing Roy, take your questions about asset allocation. Plenty coming in. This has been a hot topic recently. How should we be thinking about all the AI hype in the markets right now? I think people are trying to ask themselves, AI, is it the real deal? >> I think so. By various industry estimates, the AI market can grow up to $15 trillion through 2030 and can add to GDP by anyone near 1 1/2 to 2% of GDP growth through 2030. The applications of AI is enormous. But at the same time, there is a tremendous amount of uncertainty related to the business model and the unit economics for those AI driven business model and how these business models evolve over time. If you look at the market across the AI supply chain, most of the value is being accrued to the chip manufacturers and the software providers because that's the first order impact which is pretty obvious and transparent. The way you look deeper into the second layer across the supply chain, there's still opportunities to be found. If you look at the semi equipment manufacturers, which are still being affected by cyclical downturn in chip demand, there could be opportunities there and also if you look at a new business model where AI really powered on reliable, credible data as some of the content providers and media companies will have a new lease on life because they will have developed new business model and monetized their content. So you really have to look through the second layer to understand how AI impact can play out. And if you zoom out to look at the macro level, it really comes down to whether the AI benefit will be accrued to capital or labour, because that will have significant implications on your asset return. Because that would drive the wealth distribution and the economy which will, in turn, impact the growth rate of the economy and decided the government policy on whether they need to redistribute wealth. So those are the very important, longer-term implications for AI, but overall, AI is a very important trend and we should keep a keen eye on the development. >> A good break down there on the AI universe out there. Let's get to another one. This was a story throughout the spring. Commercial real estate weakness. How big of a risk is this right now? >> we are seeing weakness and commercial real estate across the globe, the US, Europe and to some extent in Canada. but I don't think commercial real estate currently presents a systemic risk at the moment. It's confined to certain regions, a structural shift in working habits and also a certain type of lower rated properties. In order for commercial real estate to brought a note to become a systemic risk, you need to have cross collateralization of commercial real estate, which means that you have to take leverage, like a second mortgage, for example, to purchase other assets using high leverage. And so far, we have not seen that. So most of the commercial real estate damage will be sustained by the banks. For example, in the US, commercial real estate, mostly loans, sits on regional banks as they account for about half of commercial real estate loans outstanding. As a result of that, regional banks profitability will be impacted. Across the border here in Canada, commercial real estate is about 10% of our banks, but office, which is seeing the most acute pressure right now, is only about one or 2% within the loan portfolio, so the impact here is quite limited. >> That's interesting and good point. Commercial real estate, offices are only a part of that. As always, make sure you do your own research before making any investment decisions. we will go back to 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. Relative to our educational segment of the day. If you're looking for potential investments in the fixed income space, WebBroker can help. Joining us now with Maurice Caitlin Cormier, client education instructor with TD Direct Investing. Caitlin, always great to see you. Let's talk about where investors can find different fixed income products you're on the platform? >> Absolutely. We always talk about how interest rates have changed, inflation, all these things going on, and there has certainly been more talk about fixed income type of products and Cilicia take a moment to see where we can find them within WebBroker and what is available there. Time is going to go ahead and hop right into WebBroker. I'm in a click on the research tab in the corner of the screen, underinvestment someone to scroll all the way down to fixed income. Within this fixed income portal, this is where we kind of have everything that is available to be purchased or I should say not everything but a lot of the stuff that's available to be purchased within the fixed income space. So we have, we can see here that this is kind of a quick pick sort of an area. It shows we have agency bonds, Canada bonds, municipal bonds, corporate bonds, and then we have some strip bonds. And then on the far right hand side, we have the bankers acceptance, commercial paper and government T-bills which would all be considered money market type of investments. This is what we call a quick pick because it has a listing of securities with maturity dates coming up, so between zero and five, five and 10 and 10+ years. You can certainly use this area to kind of search for any particular security you might be looking for, or just kind of have a peek at what is out there. But there is also a fixed income surge that I will click into in just a moment where we can actually search for something specific. I just want to highlight here that we do have a fixed income desk that you can call Monday to Friday, 830 to 5 PM Eastern time for assistance. So if you are looking for something and it's not there, you have additional questions, you can always reach out to the fixed income desk and speak to somebody there about any questions you might have. >> Keep going. >> Sorry. I'm just going to hop into fixed income surge there before he helped the next thing. Just with the fixed income surge, this is where you can kind of specify what it is you're looking for. So recently we have U.S. Treasury bonds that are available within the fixed income portal. So they are not on the previous page but if I want to see it here, I could click U.S. Treasury bonds and it will show up with the listings of those individual securities that meet the criteria. back to you. >> Okay, now I talk. I was just so excited to ask you, can the purchase be completed on WebBroker? >> Yeah, absolutely! So of course, that's with the main key is. You're excited, you've seen what's there and you want to get to the purchase part. I completely get your excitement, Greg. No problem. We absolutely can go ahead and complete purchases for fixed income products on WebBroker. So I've just come back to kind of the main screen here. I would go ahead and click on one of these kind of categories, so it's going to show up similar to our results on the previous screen where we can see the securities. Now, I will let you know that you do have to scroll across to get the additional info. So if you're looking for something about the fixed income security and you can't see it, it could be that you just have to scroll. That can be a bit hidden sometimes. So just a pro tip. we are going to click right beside the security, I have highlighted this one here, I'm going to click this little box to ticketand then up the top, I click the buy button. This is where you actually go forward and complete my purchase and put how much I want to purchase. It shows me here with the prices, what my yield is, my coupon rate, maturity, settlement date, all that information is listed here. So I actually click it, if I want additional information about the bond, that will create a pop up with some additional info on the bond as well. This is where we can go. We just fill in the information here, and we are on our way to purchasing that product for our poor flow. >> I knew you could answer that question. Thanks for that. >> No problem. Have a great one. > Caitlin Cormier, client education instructor at 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 we get back to your questions on asset allocation for Jing Roy, a reminder on how you can get in touch with us. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind, so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live. Okay, we are back with Jing Roy, taking questions about asset allocation. This one just came in in the past couple of moments. where are you finding some opportunities right now, whether it's equities or bonds? On the platform, we cannot give specific investment advice, but we can talk about equities and bonds in this environment and what it investor should be looking at. >> First of all, we need a defensive portfoliobecause we are expecting a recession to slowly take shape as we go through the credit cycle. As a result of that, long bonds provide a good protection and portfolio diversification with the potential to give you equity -like return, which is very rare given past history. This is an opportunity we have to capitalize on. Within equity markets, we need to make sure we have a diversified, factored exposure. Any one single fund with a concentrated factor exposure that does not change will find itself being disadvantaged when we find financial conditions continue to oscillate on a downward trajectory. As a result of that, we need to be mindful of the fact that it's a stock pickers market and avoid making broad macro calls unless we think the Fed will cut rates, which it's harder to come by unless the inflation falls to about 3%. >> On the fixed income side, when people are thinking about central bank policy, obviously you are getting coupon right now that people have not seen in years, the Fed raises for a few more times or said to hold for a long time, were the risks? >> If the financial conditions are not had enough. If you look at the Fed's projection for inflationand the Fed funds rate and the difference between those two numbers is actually the real rate. It hovers around 2% for this year and next year and this is the rate that the Fed deems to be tightening the financial conditions and will drive the economy to 2% inflation trajectory. So in order to achieve that, they need to hold the rate at a high level. But if the economic growth becomes stronger then we are currently anticipating, then the feds will continue to raise rates and that will create a bit of a turbulencein the bond market and in the equity market. But with our eye on the prize at the end of the road, because it's very hard for us to rest a credit cycle once it gets in motion. Then the question becomes you need to maximize you are carrying income while you wait for the ultimate kind of recessionary scenario where the corporate profits and customer spending will be jeopardized by the tighter financial condition. >> Very interesting things to consider there. Let's take another question now from the audience. How will nearshoring affect your investment thesis? Obviously this idea of bringing production back home. That's been happening in North America for a while now. >> Yeah, that really plays into the manufacturing renaissance theme we are seeing. It's very interesting because that initiative to build a resilient supply chain is accompanied by a significant amount of fiscal stimulus in both the US and the euro zone. As a result of that, you are seeing the cyclical sectors are becoming less cyclical because of the physical support we are seeing. If you take industrials, for example, they should be going down in concert with weakening manufacturing PMI data we are seeing as result of that. But as a result of the fiscal stimulus, we are not seeing that. So it's very interesting, the dynamics of the markets are to change. And when you have fiscal policy working its way through the system, there are very distinct winners and losers. As a result, you need to focus on the companies who can benefit disproportionately from these fiscal stimulus and it is really a deep dive into the company fundamentals. >> We will get back to your questions for Jing Roy on asset allocation in just a moment. 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.comor 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. Retail sales growth in Canada continued to outperform in April, a sign of the ongoing resiliency of the Canadian shoppers despite higher inflation and recession fears. Anthony Okolie has been taking a look at the numbers and TD Economics's take on this and the application. >> According to stats Canada, Canadian retail sales rose 1.1% month over month in April. That beats stats Canada's expectations of 0.2% rise. Core sales, when you exclude the volatile category, that was also 1.5% higher. Also, again, and of estimates. And it rose for the fifth consecutive month. When we adjust for the impact of inflation, volume of sales were up .3% month over month. Now when we break things out by sector, sales rose in 8/9 categories and sales and general retail merchandise led the way higher, up more than 3% in April. The general merchandise retailers, people have been feeling the pinch for the higher cost of food and household items so they've been shopping at places like Walmart or Costco where they can find more discounted prices for their groceries, more so than supermarkets, as inflation continues to remain elevated here in Canada. Now other areas that were strong, we still strengthen sales and clothing and clothing accessory stores, they are up more than 2% as well month over month. Meanwhile, on the downside, we saw weakness in furniture, electronics and appliance stores which were in the red in April. We saw the shift away from durable goods to services over the past a while. TD Economics does say that losses in furniture, electronics and appliance stores only took about 1/10 of a percentage point off the strong and light reading. Looking ahead, Statistics Canada's advance estimate indicates that sales were up 0.5% in May. That is slightly stronger men TD Economics forecast based on their internal corresponding data which excludes those in tilts towards housing related categories. TD Economics says that overall this report suggests that there is a re-acceleration of spending here in Canada resulting in a stronger hand off to the second quarter. >> For the month of April, I may have been partly responsible becauseI had for family birthdays and a wedding anniversary, so spending in April. But perhaps other people were as well. What is TD Economics saying about the rest of the year? Can consumers keep going at this pace? >> We might've seen a spike from your bank account alone. TD Economics overall, they think the consumer spending profile has received an upgrade with their latest quarterly forecast which I touched on earlier this week. With the timing for any contraction now pushed back to 2024, TD Economics is no forecasting 2023 real consumer spending to common at a 2.4% annual average with spending expected to come in flat next year in 2024. So in terms of Bank of Canada monetary policy, TD Economics a sale of the bank is likely to hike again in July, that their latest retail sales numbers does vindicate the Bank of Canada's latest decisions to raise interest rates by 25 basis points. >> Interesting stuff. Thanks Anthony. >> My pleasure. >> That's Anthony Okolie. No for an update on the markets. we are looking at TD's advanced dashboard,a platform designed for active traders available to the TD Direct Investing popper. We are looking at the heat map function here, which is your view of the market by price and volume. TSX 60 is down modestly. you have a name like CNQ right now, Canadian Natural Resources, up 1.8%. And another name like Cenovus up a little more than 2%. If you are looking for weakness on the screen, as evidenced by Shopify right therein the red, down to the tune of about 2.8%. You are seeing a bit of a shift in the materials stocks. Earlier today, they were a bit of appointive weakness. It's a mixed picture but you have a name like First Quantum, FM right now, Apollos 2% and Nutrien, of course, it is in the potash business, it is up to the tune of about 3%. And that is your market update. We are back with Jing Roy from TD Asset Management, taking your questions about asset allocation. And we have of you were wondering, this is the big question, we get this a lot, when does your guest see the federal or BOC lowering interest rates? >> So I alluded to, earlier in the program, that it is not likely due to lower rates until inflation hits about 3%. Because they need to maintain the real rate at 2% to restrict economic activity. Based on the current Fed funds rate to 5%, which means inflation has to go down to 3% before they are comfortable lowering interest rates to avoid tightening. We look at the current market consensus, I think inflation is projected to get to 3% in the first quarter of 2024. And as a result, the market is pricing rate cuts starting early 2024. However, this estimate could be a bit optimistic given how slowly we are making… How slowly you this inflation progress we are making because of the service, sticky service inflation and wage growth. >> That's been sort of the head scratch of the year and I feel like the markets have been at odds with the central bank. Particularly Jerome Powell, I thought there was a. There were the bond market was saying, we hear what you are saying, but you will be cutting by the summer. Jerome Powell kept saying no. We are gonna get a higher, keep them higher for a long time. It is a market now more aligned with what Jerome Powell is saying these days? >> It's becoming more aligned. At least the rate cuts have been priced out to the balance of the year which was not the case six months ago. But we really need to see the wage growth to start to taper down and the labour market come into balance. Ultimately, it will be a retrenchment of both corporate and household demand that will bring the inflation back to 2%. What we are seeing is that service inflation is very prominently featured here because the goods inflation has already been going to negative deflation territory. So the cause of this inflationary surge, it's not just the supply side. There is a very prominent demand-side future as well. >> I had a question from the audience talking about or asking what it would take to get inflation down. We have been bringing inflation down subtly but you mention the fact that on the services side, some of the other parts, there is worry that things are sticky. How sticky are they? We could probably follow on this question by saying, because you it would it's gonna take in terms of spending slowly, with that sticky part of the inflation puzzle, how to get that down? > The most sticky part of the inflation is really the rent component. And this rent component is calculated based off of the home price. So if home prices stable, then the rent component will be very slow and retrenching to a lower growth level. But what we are seeing in the market is that tenants entering new leases actually are experiencing better bargaining power and the rent for new leases are actually falling. But it takes a long time for that to filter through the PCE data because it's a slow moving, this measure in the inflation metric is calculated off of a stock so it will take time. And secondly, I think you have to make sure that goods inflation stays low, stays deflationary without perking up and it really comes down to unemployment. The consumer spending habits need to retrench. Their balance sheet needs to feel a bit of a pinch through higher costs of debt. >> It was a pleasure having you. I enjoyed the conversation. I hope you will come back sometime soon. >> Great. Thanks for having me. >> Are things to Jing Roy, portfolio manager at TD Asset Management. As always, make sure you do your own research before making any investment decisions. turn in tomorrow. Jennifer Nowski, portfolio manager with TD Asset Management will join us. She wants to take your questions about commodity stocks. You don't have to wait until the show begins to get those questions in. You can email moneytalklive@td.com. That's all the time after the show today. Thanks for watching. We will see you tomorrow. [music]