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[theme 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 will discuss what to expect from tomorrow's Bank of Canada rate decision. Leslie Preston from TD economics joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Cowen report on the metals and mining space.
And in today's WebBroker education segment, Meagan Henriques is going to show us how to find information on dividend stocks using the platform.
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 all that and our guest of the day, let's get you an update on the markets.
We will start here at home on Bay Street with the TSX Composite Index.
We've got some modest downside pressure, 36 points, just shy of 1/5 of a percent.
I'm noticing weakness in the price of oil today, and that's dragging down some energy names. Not a lot of bright spots on the Toronto market today. Some notable movers include Baytex energy, feeling that downward pressure from the price of crude.
Also noticing copper under pressure today to and that's bringing down First Quantum, it is down and material space. You can see we are not getting a lot of momentum to the upside for the top line number. South of the border, the S&P 500 is flirting on either side of the breakeven line. A little momentum now to the upside.
We are up a little more than 1/4 of a percent, 16 points. The tech heavy NASDAQ, let's see how it's sharing. It's up about half a percent, just shy 100 points. UPS, tell you more later about the global shipping giant, but handing it in its quarterly report and forecast, the street is not pleased.
You're pulling back about 13% on United Parcel Service. And that's your market update.
The Bank of Canada is widely expected to cut its benchmark interest rate at tomorrow's decision, but has there been anything in recent economic data that could give them pause? Joining us now discusses Leslie Preston, senior economist at TD. Great to have you back. As they head into the meeting tomorrow with binders of information under their arms, we have the same information. Let's take a temperature check of the economy.
Inflation seems like the place to start.
>> Inflation, from a headline perspective, came down in the latest reading but there's a fly in the ointment when it comes to Canadian inflation and that set in the most recent three months services price pressures have picked up again. So while you look at core inflation which is with the Bank of Canada tracks, they have a couple of measures, we have seen in progress all of those core inflation measures in recent months. It's looking like the Bank of Canada is going to cut next week but I think if they surprise markets with a pause, it will be because of those slightly stubborn ratings on core inflation that we have received in recent months.
>> When you look at that slightly stubborn core inflation print, do you think, if they did give us a pause tomorrow, they would be able to point to that, their escape hatch despite the widespread expectation, what you make of that? Is that a troubling sign as to where we are headed on inflation?
>> No.
I don't think it would be a troubling sign of where we are headed on inflation. It would just be a sign of a cautious Bank of Canada, that the Bank of Canada would not want to risk an upturn in inflation and cutting rates and adding fuel to the economy to trigger more inflation. When we look at the economic activity indicators, things like retail sales, growth, things are soft and the Canadian economy. And I think that's why markets are focused mainly on a cut because the indicators that suggest where inflation will be a few months from now based on demand in the economy, or weakening.
>> That's key, right, for the Bank of Canada. We are talking about a year, you're in half, two years. You mention retail sales. Got a fresh print last weekend that was starting to indicate consumers feeling the pressures of inflation and higher rates.
>> Absolutely, it was a disappointing retail sales report for May and Statistics Canada also released an advanced indicator for June which they tend to revise a fair bit but it's also pointing to a soft June so we are certainly seeing on the retail front Canadian consumer is ratcheting back. We had a bit of a pop higher in April but that appears to be just a veneer. When you pull the lens back for consumer spending as a whole, we have had two quarters, the fourth quarter last year in the first quarter of this year where consumer inflation was running at about 3%. Our tracking now it's about 1%. We have seen the Canadian consumer get more cautious in recent months.
>> I think we were before so laser focus on inflation for the past couple of years for good reason, we used to be labour market folks kissed. The jobs are pretty important. If you have money, it filters into the economy. What we see on the jobs front?
>> We continue to see a gradual cooling in Canada's labour market. We focus on the unemployment rate which is one of the less volatile indicators coming out of the labour force survey, we have seen unemployment rising Canada from the peak labour market tightness back in 2022 of unemployment being just below 5%, the employment rate is now at 6.4 which is not a bad unemployment rate on a historic basis. It puts us back in 2017.
The economy was doing reasonably well in 2017 so it has come back to better balance.
We expect the unemployment rate to continue to rise over the remainder of the year but it is a bit of a unique situation in that it is not because we are seeing people losing jobs on that, it's that we are not seeing job creation keep pace of Canada's very rapid population growth.
Just to put some numbers around it, Canada's population has grown about 3.4% over the past year. Jobs have grown by 1.7, so it's half and that's why we are seeing this drift upwards in the unemployment rate and bringing in a more balanced labour market.
>> That's a nice entry point in talking about the overall economy and GDP because there have been arguments made that we may be seeing growth, modest or tepid growth, but things we do not look as good per capita because we have been growing the population so aggressively.
>> Even in real terms, GDP growth is not fantastic. In the first quarter, we had growth of 1.7% which is kind of the Canadian economy basically treading water and we are tracking around 1.8% in the second quarter, so more of the same.
Obviously, I mentioned consumer spending only around 1% so we have other parts of the economy that we expect to be carrying the load in the second quarter.
Overall growth in Canada has been pretty subdued. Looking at 123 as a whole, the economy grew a little bit above 1%. It we are looking for a similar performance this year in 2024. I think subdued is a pretty good adjective to describe where the Canadian economy is right now.
>> We put all that together, the Bank of Canada puts it all together, tomorrow morning, we are going to hear from them.
Widespread expectations, you said off the top, they will deliver the second cut of the cycle.
Seems like a fairly safe bet? I hate to say anything is a safe bet but we seem to be leaning that way.
You said there was one fly in the ointment.
>> The fly in the ointment is, depending on which way you are looking at it, typically we talk about inflation in your on your terms and if we look at inflation that way, it's been coming down nicely for a couple of years but just in the most recent months, progress has stalled at around 2.8% on core inflation so still was in the bank's range, that one to 3% range.
If we look at the past six months, core inflation has been just above two and we can see that probably fit in, in large part, to why they cut in June but in the most recent months there taking up. So it's really about how much weight, this is what we don't know, the Bank of Canada and their internal deliberations is putting on this upswing. Is it something we are worried about or? All the state is volatile.
We saw in the US core inflation pickup in the first quarter and services and now it is coming back down so there's always going to be volatility along the downward trend so we will see you tomorrow how much weight the Bank of Canada is putting on that.
>> So whether the BOC cuts or weights tomorrow, there is also the widespread belief that we are now in a cutting cycle.
We have reached the point, we raised it dramatically, looked at their while to cool inflation and we are now embarking on bringing that rate down. What does the path look like in the next six months, a year?
>> We expect cuts to continue. We expect two more cuts this year, likely tomorrow and then one later in the fall in October.
Another 50 basis points from the BOC. It depends on how the economy unfolds. If growth slows further than we are tracking, the BOC may cut a little bit faster but right now we are looking for two more cuts this year.
>> I imagined that the criteria for them to even consider going back to hiking would have to be pretty high.
We would have to sort of miss a lot of our targets here for them to get back in that mindset, saying not only do we need to pause but reversed course.
>> Yes, the bar would be very high for a hike right now particularly given as I mentioned the labour market has been cooling, measures of wage growth are cooling, growth is not great. We would have to see a pretty big turn of events for the Bank of Canada to resume hiking.
>> Interesting stuff in a great start to the program. We are going to get your questions about the economy and interest rates for Leslie Preston 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 global shipping giant UPS in the spotlight today. The company cutting its revenue guidance, that in the face of weak freight demand and lower shipping rates. The wider industry has been working through what some are calling a freight recession. Consumer spending patterns have changed pretty dramatically over the past couple of years coming out of the pandemic. We can see UPS down right now to the tune of about 13% as the street reacts to all that.
Let's talk about Coca-Cola. It handed in a beat on the top and bottom lines for its most recent quarter.
Sales volumes were slightly down in North America but Coke did manage to grow its case volumes in Latin America and the Asia-Pacific regions.
Coke's rival, Pepsi, has also been seeing we are demand for its products in the US.
Put it all together, you got Coca-Cola, pretty modest, up a little shy of a full percent. General Motors, once again tapping the brakes on its electric vehicle ambitions.
The Detroit automaker says it's delaying the Buick brands first EV and delaying a second US electric truck plant by about six months. DM says it will continue to be guided by consumer demand when it comes to its EV strategy. GM at this hour down a little more than 7%.
Handed in earnings as well in the street is parsing for those. Quick check in on the markets. We will start with the TSX Composite Index on Bay Street, down 23 points, 1/10 of a percent. We have the price of oil pulling back today.
I believe we are at the lowest level in more than a month. That's what my computers telling me. South of the border, the S&P 500, right now we are up a modest 15 points, about one quarter of a percent.
We are back with Leslie Preston, taking your questions about the economy and interest rates.
Here we go. We talked about the Bank of Canada. Now, what should be expect from the Fed next week? We get past the BOC tomorrow and then we have a countdown to the Fed.
>> No rest for economic watchers over the next couple of weeks. We expect to hear from the Fed very closely aligned to what we have been hearing from Jerome Powell because we have heard a fair bit from him and other Fed governors and presidents over the past few weeks and that's that he has been pleased by the progress that inflation has made. They saw pop higher in inflation the first quarter that was concerning but measures have since been better behaved.
It improves their confidence that rate cuts are getting closer but we do not think the Fed is there yet. They have had ample opportunity to signal that cuts are coming and they are saying they are coming but the signal has not been strong enough to cut rates in July but we think a cut based on the way the economy is going is coming in September.
>> Let's talk about the American economy because I think one of the head scratchers through this exercise of raising rates dramatically, trying to slow down inflation, just how strong and exceptional the US economy has been.
You say we are starting to see some signs but is it a bit perplexing that it took this long with borrowing costs that high for the economy to finally start to say maybe we want to cool it?
>> I think there are a few unique factors that have made the US economy resilient and to your point, the US economy did slow in the first half of the year. We have had growth around roughly 2% over the first half of the year and if we look back at her own forecast towards the end of 2023, we were expecting stronger growth than that based on the momentum we had seen in 2023 in the face of rate hikes. The US consumer is very different from the Canadian consumer. The Canadian consumer shoulders a very heavy debt loads that American households, for the most part, do not.
In the wake of the housing crash in the US, Americans never really regained the same degree of leverage. In fact, barely regained any leverage. So the interest rate hikes have less of an impact on the US consumer as a whole. That's not to say we are not seeing signs of strain and that's another reason why we think the US economy is slowing is because we are seeing delinquency rates for consumers in the US pickup, just not anything related to housing and mortgages but more on auto loans, credit cards, those arrears are coming up.
So non-homeowner consumers in the US are certainly exhibiting signs of strain after a couple of years of very strong inflation and higher borrowing costs.
>> That's a big one to watch next week when we get our central bank out of the way. Let's put the two of them together now. We have someone in the audience asking, how much divergence are we going to see between the Bank of Canada and the Fed? We have already begun.
>> Right now we are at 75 basis points, three quarters of a percentage point in divergence. After tomorrow if the Bank of Canada cuts, we will be at 100 and we kind of expect that 75, 100 to oscillate through the remainder of the year, basically ending up at the similar divergence as they are now because we also expect the Fed to cut rates into quarter-point moves later this year.
So that divergence has hurt the Canadian dollar over the past number of months. We could see it winding out a little bit early next year with the Bank of Canada getting perhaps a little more speed to rate cuts in early 2025 to a full percentage point or 100 basis points, but we look back through history, the current divergence is similar to what we saw in the mid-2000's, before the housing bust when the Federal Reserve also raised rates further than the Bank of Canada to cool their economy. But we are nowhere near the two percentage point differential we saw in the late 90s when the Canadian dollar got very weak and we saw more divergence on monetary policy.
So yes, there is a divergence. It does hurt the Canadian dollar, but it's not historically unprecedented. It's in the realm of something we frequently see in Canada and the US.
>> The Bank of Canada is deliberating. The mandate is inflation. It's not the value of the Canadian dollar. At what point, if the Canadian dollar showed considerable weakness based on their actions diverging from the US, would they have to take notice?
>> Well, Gov. Macklem and anyone of the Bank of Canada will say they do not target the Canadian dollar, they target inflation. The challenge is the Canadian dollar gets very weak, it drives up prices for imported goods so it complicates the situation on inflation. So we do not have another big leg down in the Canadian dollar and I don't think there is necessarily a level of the Canadian dollar. It would be part of a whole host of other factors that would make the Bank of Canada act.
Typically, the other factor that will weaken the Canadian dollar is turmoil in the global economy or something else going on which then produces a whole different calculus for the Bank of Canada, depending on the reason basically the Canadian dollar might be weakening.
>> Interesting stuff. Another question now from the audience. Someone wants to know what you are making of the pessimism we saw in the latest Business Outlook Survey?
Are businesses right to be so downbeat?
>> Has we discussed a little while ago, the growth outlook for Canada right now is pretty subdued.
In an economy where our population is growing by 3.5%, growth was only about 1%, so that the contraction. It's only understandable that businesses are a bit pessimistic but the question might be getting at that we are seeing a bit more of a divergence between where growth is and sentiment. Sentiment is weaker than growth would suggest. Sentiment is pointing to an economy that has weakened further than the typical relationship we would have seen in the past and I think we are seeing this in a lot of sentiment indicators especially for consumers and I think it's been a generation since consumers or businesses have dealt with high inflation for a reasonable period of time and high interest rates and I think the dampening impact is not going away overnight so businesses have been through a tough slog, had to pivot in the pandemic and are dealing with shortages coming out of the pandemic and no interest rates are high so the pessimism looks a little bit more overdone then you would expect given economic growth but I think given so many of these unique factors over the past couple of years, it is perhaps understandable that businesses are a bit glum.
>> I don't know we coined ourselves here but the phrase people have been using, I have talked with Brad Simpson from TD Wealth about the vibecession.
Here's the facts, what's happening in the economy, here is what you are feeling. As an economist, is it kind of hard to navigate the facts and the feeling?
>> The macroeconomics talk about the economy as a whole and often when I speak to clients and people in the bank, we show graphs showing per capita earnings. People are feeling of their households are cutting back on what they are spending due to higher inflation and borrowing costs.
Because the Canadian population is growing, overall, the Canadian economy is growing but I think that really does explain the disconnect between the aggregate numbers we are seeing and what individual households are feeling.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Leslie Preston on the economy and interest rates 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.
If you are looking to research stocks that pay dividend, what broker has tools which can help. Meagan Henriques, Senior client education instructor with TD Direct Investing has more.
>> So first thing is, let's define what a dividend yield is, which is the money that a company is going to pay it shareholders, divided by the current stock price. So this can be really appealing to investors that while they are investing, they are accumulating some income. So let me show you on what broker how we can find these dividend paying stocks.
First thing is, from our main menu, we are going to click on research and then under tools, we are going to go to screeners.
From here, there are a lot of screeners so you can explore this page but the one I am interested in is under our preset screens.
So let's go there and then there's already a category for us which makes this research so much easier. So let's click on Top Dividends.
So we already have some criteria in play but we have over 500 matches. This can still be a little overwhelming in terms of finding the company that works for us, so let's narrow down our search. For instance, I can, under exchange, specify, instead of having both US and Canadian, I'm going to click here and I'm going to narrow it down to companies that are on the Toronto Stock exchange.
Okay. So now we have narrowed it down.
We are under 80. Still quite a few.
From here, we can also change some of the criteria that is already here so as an example, let me click on dividend yield and we have this bar that I can either scroll right or left or I can actually put my criteria in selecting a have a minimum of 5%, and I will maximum.
So and I have narrowed it down to an amount that kind of makes sense, I can actually go a little higher, let's say I put eight. Okay. Now I have seven matches.
I scroll down and I can see these different matches. What's nice is that the system already ranks it for us.
So based on the criteria that's there, gives it an average and if you average the best, then you have a higher ranking.
Here, we see these different ranks from 1 to 10, and lastly, what I wanted to show is we have to go back up but if you did like the criteria that you put in, we stipulated that we want to companies on the Toronto Stock exchange, we want a dividend yield of at least 8% and we don't want to have to go in every time and re-add this criteria. What we can do is we can click on save on the top right. We can give this a name. I'm going to call this July 19. I can even decide if I want to get alerts on a weekly basis or whatnot.
And then when I'm done, I can just get on save. And that is how you will be able to screen for dividend companies on web broker.
>> Our thanks to Meagan Henriques, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or use this QR code that will navigate to TD Direct Investing's Instagram page and when you there you will find more informative videos.
Before you get back to your questions about the economy and interest rates for Leslie Preston, 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 Leslie Preston, we are taking your questions about the economy and interest rates.
Here is a popular topic in Canada. A bit of an understatement. Health of the housing market?
>> Well, the housing market really in recent months remained fairly subdued. We had some good news in the month of June.
We did see sales pick up quite strongly in June but still remaining around 8% below pre-pandemic levels of activity.
Now recall we did have some tax changes come in to effect in June which may have pushed or hurried some sales along so we will see in the coming months whether that was a one time lip. But overall, the housing market, fairly subdued with mortgage rates still remaining relatively high. We do expected to pick up as the Bank of Canada cuts rates through the remainder of the year but that the upturn from here would be relatively modest and that is largely because affordability remains very strained in Canada's housing market.
So limiting the upside to housing prices but we do expect them to return back to rising again for the remainder of this year following an upturn in sales.
>> I find the reaction to the rate cut in the housing market so fascinating because simply, with the Bank of Canada pause, you know through the rate hiking campaign, and then they pause, the housing markets took off again, saying it's over. Of course, the Bank of Canada had to come it was more hikes because inflation was not going the way they wanted it to. It seems like a much more cautious potential homebuyer now, perhaps after everything they have been through.
>> Yes, absolutely.
Rates are at a higher level and have been there now for a while.
I think a lot of buyers are recalibrating what they can afford, if they expected a slightly higher rate environment to persist relative to what we had basically between the global financial crisis in the pandemic.
>> There had been a criticism in the past when the housing market was running up, even before the pandemic, that the housing market goes, so goes a huge chunk of the economy. When you buy a house, you furnish it, you finance it. It's a whole section of the economy that is substantial and relies on housing. Going forward, how important is the housing markets of the overall economic growth of the country?
>> It is a fairly big chunk.
We have had a twenty-year housing boom in Canada so it is a fair chunk of our economy. As I say, we do expect to return to growth but the weakness in housing has been a part of that weakness in consumer spending and retail sales.
People are not going out and buying big-ticket durables furniture, the source of things you buy when you're moving to a new house so yes, it is a way to on the Canadian economy but we do expect activity to pick up further as the policy rate comes down further.
>> The only insight I can add to this is if you buy a new house, move in first, then by the coach. We went the other way around 17 years ago, the cat got delivered, and it did not fit in the room.
Our appetites were a little bit too big.
Let's take another question from the audience.
The US election, it it already is a big one for us. How could impact Canada?
>> The most topical issue for Canada in the US election is trade policy.
Articulate when it comes to a possible second mandate for trumpet because that's an area where he has put a lot of promises in terms of blanket tariffs. Canada is a small, open economy. Exports make up about 1/3 of our gross domestic product. That's three times the importance than the US has. US exports are about 11%. Canada is three times more dependent on trade. Very important to Canada's economy.
Of course, in the last trump administration, it Canada signed the USMCA agreement, the replacement to NAFTA, and that comes up for renewal in 2026. If we see a Pres. Trump, that will come up for renewal. Having the USMCA does not insulate us from other trade disputes.
I think trade is going to be an issue for Canada and it will be something that Canadian politicians and diplomats will have to keep a close eye on that relationship.
>> When I think about our trade relationship with the United States, it makes sense, they are across our border, our neighbour, our biggest trading partner. I can go back to the Harper government we talked about we know North and South is important for trade, east-west, Canada has to look across the Pacific and Atlantic. There have been some deals but it hasn't really seemed to change her cross the past decade, that reliance we have on the Americans. There is Asia-Pacific, some European deals but it doesn't change the fact that we need the Americans.
>> Yes, in fact, since the signing of the USMCA, Canada's dependence on the US and Mexico has increased.
This has deep independence on the US and Mexico for trade. Very important for Canada's economy to preserve that relationship and try to keep it as friction free as possible.
>> Friction free. I could lose four years of friction free after some of the years we've had. Let's talk about, still on trade, someone wants to know, should we be worried about how a trade war with China could impact the economy? This feels like a possible trumpet ministration two. Even the abiding administration has been playing tough on China.
>> Biden did not take off those tariffs that from put on China in his mandate.
And it is an issue for Canada but not top of mind for Canada's worries. In terms of broader economic growth slowing, one of the key issues for Canada has been our productivity performance, weak business investment. These are things that are weighing on Canada's growth over the medium term so in terms of what we worry about for Canada, I would put more on that, how the consumer is going to cope with higher interest rates, given high debt loads, that the potential US trade war with China absolutely would have bigger impact, particularly in specific sectors of Canada like the agricultural sector which exports a lot to China, that would certainly be affected but I wouldn't say it's the top worry for Canada right now.
>> And I think about the impact it can have on the global economy, it feels like after the past several years, supply chain constraints, the idea of onshoring, bringing manufacturing home, not being so reliant on these global networks, that has that taken some pressure off in terms of how important the second-largest economy in the world is to the rest of the world?
>> Certain sectors in Canada's economy, particularly commodity producers, not just agricultural but any kind of quantity, when China weakens, typically commodity prices come down. That's lower revenues for those Canadian exporters or businesses in general.
It has an impact but as I say, it would not be my top worry for the Canadian economy over the next couple of years.
>> Interesting stuff. We are going to get back your questions for Leslie Preston on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder that you can get in touch with us anytime. 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.
Just talking about commodities with Leslie, they have attracted a lot of attention this year. Gold, silver, copper.
Tell them all go on historic runs throughout the spring and early summer but we have noticed lately that copper has come under a bit of pressure, we can getting a bit further and rising inventories. Anthony Okolie joins us now on TD Cowen's cake.
>> They predict it will be flat quarter over quarter. When it comes to earnings for their covered universe, they say earnings will be up 15% quarter over quarter. That is driven by higher base metal prices. Gold prices have recorded record highs in the second quarter and the group-- the coverage universe should benefit from that. Of course, the high price has been due to central bank buying globally. Safe haven flows as well as physical demand for gold. Historically, the US Fed rate cycle has been a significant factor driving gold prices and TDA Cowan believes that a fed pit it will support gold prices going forward. They also see geopolitical risk and politics as potential tailwinds for the yellow metal.
When it comes to valuations, they believe that valuations forced senior gold producers remain attractive that the market would like to see stronger free cash flow in the second quarter for these companies. Turning to copper, second quarter has been pretty volatile for copper prices but TD Cowen says those prices which registered the highest all-time high quarterly average should support solid margins for those copper producers.
While TD Cowen has raised its copper price predictions for 2024, they expect that flat copper production quarter over quarter with growth accelerating in the second half of this year as key projects begin to ramp up.
Finally, on uranium, TD Cowen trimmed their uranium price forecast due to weaker than expected spot prices here today. They do remain optimistic that prices will rise in the second half of this year and into 2025 as nuclear and utilities look to lock in future long-term supply requirements.
Looking ahead to the third quarter, they expect production, earnings and free cash flow to improve materially as key projects continue to ramp up towards designed capacity. TD Cowen is constructive on the growth outlook for the sector.
>> Constructive outlook, very interesting take on the space. What are the risks?
>> There are a number of risks, forecast risk, financial risk, technical and political risks including risks to commodity prices, fuel prices, operating costs and input costs among others.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers on the TSX 60.
Easier glance for us. We will screen by price and volume. You can see where the weakness is in the market today. Price of crude pulling back to a month low so you have some of the big energy names to the downside. Cenovus, CVE, a little more than 2%. Suncor pulling back at 2%, CNQ in the same ballpark. A bit more of a mixed picture in the material space where you find the minors. Anthony was talking to us about the minors. If you are on the page watching the show right now, you probably scroll down and see a headline of an article by Hussein Allidina. As you look at the mining space, there is Nutrien, that's potash, Barrick's to the upside modestly. South of the border, I want to see was happening on the S&P 100.
Amazon is up to the tune of about 3%. Not a lot happening in the tech space out of that. Modest green from Apple or Google or Meta. UPS really in the headlines today, disappointing quarter and forecast from the global shipping giant. Tells us a little bit about what's happening in the economy there.
If you've got a freight recession on your hands, what does the consumer look like?
Where you shipping stuff around the world, your shipping it because consumers are buying it.
We are back now with Leslie Preston from TD Economics taking another question for you here. Republicans and Democrats seem like they will be big spenders. Any concerns about borrowing costs and deficits laying on the economy?
>> I think most economists have concerns about deficits in the US. The US has a structural deficit that is expected to worsen over the coming years as Baby Boomers retire and draw on social supports which drives that widening deficit and the more debt the US government has, the more money they have to spend.
So far it hasn't presented too much of a problem because there seems to be an insatiable appetite in financial markets for US treasuries but it is difficult to say when that could shift so if markets demand for treasuries goes down, we could see yield, prices go down and yields go higher, worsening the situation so it is concerning from an economist perspective that neither party seems to be making serious policy proposals for getting back to balance and in the previous trumpet ministration, we saw tax cuts with not a lot of spending restraint so the deficit were seconds so we are not hearing as much about spending from the Trump campaign this time around but we are certainly hearing about tax cuts so it is certainly a worry and every dollar that the US spends servicing its debt, its money they could be spending elsewhere for lowering consumers and businesses taxes. It certainly a worry but it's one that does not seem to be acute yet for politicians.
>> As the campaign picks up heading towards the November vote, is that something you will be watching, seeing who the candidates are, see who ends up leading the Democrats after Joe Biden said he would not be trying to reclaim that office and the election? Are you gonna be watching this to see what they have to say about spending and the economy and taxes?
>> Absolutely. We will be tracking the platforms closely and once we know not just to the Pres. is but also with the makeup of Congress is because Congress controls the purse, Pres. may have an agenda but if Congress is not on their side, they can often have difficulty implementing it. So watching both of those and seeing which direction fiscal policy could be headed in the years ahead for sure.
>> We have run out of time for questions.
Before we let you go, big event tomorrow morning. The BOC coming out with the right decision. They have already delivered one cup for the cycle. What are you expecting and what are you watching for?
>> We are expecting another quarter-point interest rate cut from the Bank of Canada tomorrow and we are also getting a monetary policy report update.
So an update on where the Bank of Canada forecast is for the Canadian economy so that's what I will be watching most closely, how their outlook has shifted since April. Since April, inflation has come down a little faster than they had expected so we will be seeing where their outlook is for that and how they are gauging the outlook for Canada's economy, that's what we will be sifting through with a very close eye.
>> Great primer for our audience. I appreciate you joining us and look forward to the next time.
>> My pleasure.
>> Our thanks to Leslie Preston, Senior economist with TD. As always, make sure you do your own research before making any investment decisions.
and if we can get your question today, we will aim to get it into future shows.
Stay tuned. On tomorrow's program, and across the MoneyTalk universe, we will have full coverage of the Bank of Canada's rate decision. We will start with TD economics Andrew Hencic. He will be talking to Anthony Okolie about that in the morning. You can look for that in your inbox or on our website, moneytalkgo.com.
And then a MoneyTalk Live, Andrew Kelvin will join us from TD Securities and break down what we heard from Gov. to Mac alone, in the press conference and was coming for the path forward. And you get a head start with your questions. Just email MoneyTalkLive@TD.com. That's all the time we have for the program today. Thanks for watching. We'll see you tomorrow.
[theme 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 will discuss what to expect from tomorrow's Bank of Canada rate decision. Leslie Preston from TD economics joins us. MoneyTalk's Anthony Okolie is going to have a look at a new TD Cowen report on the metals and mining space.
And in today's WebBroker education segment, Meagan Henriques is going to show us how to find information on dividend stocks using the platform.
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 all that and our guest of the day, let's get you an update on the markets.
We will start here at home on Bay Street with the TSX Composite Index.
We've got some modest downside pressure, 36 points, just shy of 1/5 of a percent.
I'm noticing weakness in the price of oil today, and that's dragging down some energy names. Not a lot of bright spots on the Toronto market today. Some notable movers include Baytex energy, feeling that downward pressure from the price of crude.
Also noticing copper under pressure today to and that's bringing down First Quantum, it is down and material space. You can see we are not getting a lot of momentum to the upside for the top line number. South of the border, the S&P 500 is flirting on either side of the breakeven line. A little momentum now to the upside.
We are up a little more than 1/4 of a percent, 16 points. The tech heavy NASDAQ, let's see how it's sharing. It's up about half a percent, just shy 100 points. UPS, tell you more later about the global shipping giant, but handing it in its quarterly report and forecast, the street is not pleased.
You're pulling back about 13% on United Parcel Service. And that's your market update.
The Bank of Canada is widely expected to cut its benchmark interest rate at tomorrow's decision, but has there been anything in recent economic data that could give them pause? Joining us now discusses Leslie Preston, senior economist at TD. Great to have you back. As they head into the meeting tomorrow with binders of information under their arms, we have the same information. Let's take a temperature check of the economy.
Inflation seems like the place to start.
>> Inflation, from a headline perspective, came down in the latest reading but there's a fly in the ointment when it comes to Canadian inflation and that set in the most recent three months services price pressures have picked up again. So while you look at core inflation which is with the Bank of Canada tracks, they have a couple of measures, we have seen in progress all of those core inflation measures in recent months. It's looking like the Bank of Canada is going to cut next week but I think if they surprise markets with a pause, it will be because of those slightly stubborn ratings on core inflation that we have received in recent months.
>> When you look at that slightly stubborn core inflation print, do you think, if they did give us a pause tomorrow, they would be able to point to that, their escape hatch despite the widespread expectation, what you make of that? Is that a troubling sign as to where we are headed on inflation?
>> No.
I don't think it would be a troubling sign of where we are headed on inflation. It would just be a sign of a cautious Bank of Canada, that the Bank of Canada would not want to risk an upturn in inflation and cutting rates and adding fuel to the economy to trigger more inflation. When we look at the economic activity indicators, things like retail sales, growth, things are soft and the Canadian economy. And I think that's why markets are focused mainly on a cut because the indicators that suggest where inflation will be a few months from now based on demand in the economy, or weakening.
>> That's key, right, for the Bank of Canada. We are talking about a year, you're in half, two years. You mention retail sales. Got a fresh print last weekend that was starting to indicate consumers feeling the pressures of inflation and higher rates.
>> Absolutely, it was a disappointing retail sales report for May and Statistics Canada also released an advanced indicator for June which they tend to revise a fair bit but it's also pointing to a soft June so we are certainly seeing on the retail front Canadian consumer is ratcheting back. We had a bit of a pop higher in April but that appears to be just a veneer. When you pull the lens back for consumer spending as a whole, we have had two quarters, the fourth quarter last year in the first quarter of this year where consumer inflation was running at about 3%. Our tracking now it's about 1%. We have seen the Canadian consumer get more cautious in recent months.
>> I think we were before so laser focus on inflation for the past couple of years for good reason, we used to be labour market folks kissed. The jobs are pretty important. If you have money, it filters into the economy. What we see on the jobs front?
>> We continue to see a gradual cooling in Canada's labour market. We focus on the unemployment rate which is one of the less volatile indicators coming out of the labour force survey, we have seen unemployment rising Canada from the peak labour market tightness back in 2022 of unemployment being just below 5%, the employment rate is now at 6.4 which is not a bad unemployment rate on a historic basis. It puts us back in 2017.
The economy was doing reasonably well in 2017 so it has come back to better balance.
We expect the unemployment rate to continue to rise over the remainder of the year but it is a bit of a unique situation in that it is not because we are seeing people losing jobs on that, it's that we are not seeing job creation keep pace of Canada's very rapid population growth.
Just to put some numbers around it, Canada's population has grown about 3.4% over the past year. Jobs have grown by 1.7, so it's half and that's why we are seeing this drift upwards in the unemployment rate and bringing in a more balanced labour market.
>> That's a nice entry point in talking about the overall economy and GDP because there have been arguments made that we may be seeing growth, modest or tepid growth, but things we do not look as good per capita because we have been growing the population so aggressively.
>> Even in real terms, GDP growth is not fantastic. In the first quarter, we had growth of 1.7% which is kind of the Canadian economy basically treading water and we are tracking around 1.8% in the second quarter, so more of the same.
Obviously, I mentioned consumer spending only around 1% so we have other parts of the economy that we expect to be carrying the load in the second quarter.
Overall growth in Canada has been pretty subdued. Looking at 123 as a whole, the economy grew a little bit above 1%. It we are looking for a similar performance this year in 2024. I think subdued is a pretty good adjective to describe where the Canadian economy is right now.
>> We put all that together, the Bank of Canada puts it all together, tomorrow morning, we are going to hear from them.
Widespread expectations, you said off the top, they will deliver the second cut of the cycle.
Seems like a fairly safe bet? I hate to say anything is a safe bet but we seem to be leaning that way.
You said there was one fly in the ointment.
>> The fly in the ointment is, depending on which way you are looking at it, typically we talk about inflation in your on your terms and if we look at inflation that way, it's been coming down nicely for a couple of years but just in the most recent months, progress has stalled at around 2.8% on core inflation so still was in the bank's range, that one to 3% range.
If we look at the past six months, core inflation has been just above two and we can see that probably fit in, in large part, to why they cut in June but in the most recent months there taking up. So it's really about how much weight, this is what we don't know, the Bank of Canada and their internal deliberations is putting on this upswing. Is it something we are worried about or? All the state is volatile.
We saw in the US core inflation pickup in the first quarter and services and now it is coming back down so there's always going to be volatility along the downward trend so we will see you tomorrow how much weight the Bank of Canada is putting on that.
>> So whether the BOC cuts or weights tomorrow, there is also the widespread belief that we are now in a cutting cycle.
We have reached the point, we raised it dramatically, looked at their while to cool inflation and we are now embarking on bringing that rate down. What does the path look like in the next six months, a year?
>> We expect cuts to continue. We expect two more cuts this year, likely tomorrow and then one later in the fall in October.
Another 50 basis points from the BOC. It depends on how the economy unfolds. If growth slows further than we are tracking, the BOC may cut a little bit faster but right now we are looking for two more cuts this year.
>> I imagined that the criteria for them to even consider going back to hiking would have to be pretty high.
We would have to sort of miss a lot of our targets here for them to get back in that mindset, saying not only do we need to pause but reversed course.
>> Yes, the bar would be very high for a hike right now particularly given as I mentioned the labour market has been cooling, measures of wage growth are cooling, growth is not great. We would have to see a pretty big turn of events for the Bank of Canada to resume hiking.
>> Interesting stuff in a great start to the program. We are going to get your questions about the economy and interest rates for Leslie Preston 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 global shipping giant UPS in the spotlight today. The company cutting its revenue guidance, that in the face of weak freight demand and lower shipping rates. The wider industry has been working through what some are calling a freight recession. Consumer spending patterns have changed pretty dramatically over the past couple of years coming out of the pandemic. We can see UPS down right now to the tune of about 13% as the street reacts to all that.
Let's talk about Coca-Cola. It handed in a beat on the top and bottom lines for its most recent quarter.
Sales volumes were slightly down in North America but Coke did manage to grow its case volumes in Latin America and the Asia-Pacific regions.
Coke's rival, Pepsi, has also been seeing we are demand for its products in the US.
Put it all together, you got Coca-Cola, pretty modest, up a little shy of a full percent. General Motors, once again tapping the brakes on its electric vehicle ambitions.
The Detroit automaker says it's delaying the Buick brands first EV and delaying a second US electric truck plant by about six months. DM says it will continue to be guided by consumer demand when it comes to its EV strategy. GM at this hour down a little more than 7%.
Handed in earnings as well in the street is parsing for those. Quick check in on the markets. We will start with the TSX Composite Index on Bay Street, down 23 points, 1/10 of a percent. We have the price of oil pulling back today.
I believe we are at the lowest level in more than a month. That's what my computers telling me. South of the border, the S&P 500, right now we are up a modest 15 points, about one quarter of a percent.
We are back with Leslie Preston, taking your questions about the economy and interest rates.
Here we go. We talked about the Bank of Canada. Now, what should be expect from the Fed next week? We get past the BOC tomorrow and then we have a countdown to the Fed.
>> No rest for economic watchers over the next couple of weeks. We expect to hear from the Fed very closely aligned to what we have been hearing from Jerome Powell because we have heard a fair bit from him and other Fed governors and presidents over the past few weeks and that's that he has been pleased by the progress that inflation has made. They saw pop higher in inflation the first quarter that was concerning but measures have since been better behaved.
It improves their confidence that rate cuts are getting closer but we do not think the Fed is there yet. They have had ample opportunity to signal that cuts are coming and they are saying they are coming but the signal has not been strong enough to cut rates in July but we think a cut based on the way the economy is going is coming in September.
>> Let's talk about the American economy because I think one of the head scratchers through this exercise of raising rates dramatically, trying to slow down inflation, just how strong and exceptional the US economy has been.
You say we are starting to see some signs but is it a bit perplexing that it took this long with borrowing costs that high for the economy to finally start to say maybe we want to cool it?
>> I think there are a few unique factors that have made the US economy resilient and to your point, the US economy did slow in the first half of the year. We have had growth around roughly 2% over the first half of the year and if we look back at her own forecast towards the end of 2023, we were expecting stronger growth than that based on the momentum we had seen in 2023 in the face of rate hikes. The US consumer is very different from the Canadian consumer. The Canadian consumer shoulders a very heavy debt loads that American households, for the most part, do not.
In the wake of the housing crash in the US, Americans never really regained the same degree of leverage. In fact, barely regained any leverage. So the interest rate hikes have less of an impact on the US consumer as a whole. That's not to say we are not seeing signs of strain and that's another reason why we think the US economy is slowing is because we are seeing delinquency rates for consumers in the US pickup, just not anything related to housing and mortgages but more on auto loans, credit cards, those arrears are coming up.
So non-homeowner consumers in the US are certainly exhibiting signs of strain after a couple of years of very strong inflation and higher borrowing costs.
>> That's a big one to watch next week when we get our central bank out of the way. Let's put the two of them together now. We have someone in the audience asking, how much divergence are we going to see between the Bank of Canada and the Fed? We have already begun.
>> Right now we are at 75 basis points, three quarters of a percentage point in divergence. After tomorrow if the Bank of Canada cuts, we will be at 100 and we kind of expect that 75, 100 to oscillate through the remainder of the year, basically ending up at the similar divergence as they are now because we also expect the Fed to cut rates into quarter-point moves later this year.
So that divergence has hurt the Canadian dollar over the past number of months. We could see it winding out a little bit early next year with the Bank of Canada getting perhaps a little more speed to rate cuts in early 2025 to a full percentage point or 100 basis points, but we look back through history, the current divergence is similar to what we saw in the mid-2000's, before the housing bust when the Federal Reserve also raised rates further than the Bank of Canada to cool their economy. But we are nowhere near the two percentage point differential we saw in the late 90s when the Canadian dollar got very weak and we saw more divergence on monetary policy.
So yes, there is a divergence. It does hurt the Canadian dollar, but it's not historically unprecedented. It's in the realm of something we frequently see in Canada and the US.
>> The Bank of Canada is deliberating. The mandate is inflation. It's not the value of the Canadian dollar. At what point, if the Canadian dollar showed considerable weakness based on their actions diverging from the US, would they have to take notice?
>> Well, Gov. Macklem and anyone of the Bank of Canada will say they do not target the Canadian dollar, they target inflation. The challenge is the Canadian dollar gets very weak, it drives up prices for imported goods so it complicates the situation on inflation. So we do not have another big leg down in the Canadian dollar and I don't think there is necessarily a level of the Canadian dollar. It would be part of a whole host of other factors that would make the Bank of Canada act.
Typically, the other factor that will weaken the Canadian dollar is turmoil in the global economy or something else going on which then produces a whole different calculus for the Bank of Canada, depending on the reason basically the Canadian dollar might be weakening.
>> Interesting stuff. Another question now from the audience. Someone wants to know what you are making of the pessimism we saw in the latest Business Outlook Survey?
Are businesses right to be so downbeat?
>> Has we discussed a little while ago, the growth outlook for Canada right now is pretty subdued.
In an economy where our population is growing by 3.5%, growth was only about 1%, so that the contraction. It's only understandable that businesses are a bit pessimistic but the question might be getting at that we are seeing a bit more of a divergence between where growth is and sentiment. Sentiment is weaker than growth would suggest. Sentiment is pointing to an economy that has weakened further than the typical relationship we would have seen in the past and I think we are seeing this in a lot of sentiment indicators especially for consumers and I think it's been a generation since consumers or businesses have dealt with high inflation for a reasonable period of time and high interest rates and I think the dampening impact is not going away overnight so businesses have been through a tough slog, had to pivot in the pandemic and are dealing with shortages coming out of the pandemic and no interest rates are high so the pessimism looks a little bit more overdone then you would expect given economic growth but I think given so many of these unique factors over the past couple of years, it is perhaps understandable that businesses are a bit glum.
>> I don't know we coined ourselves here but the phrase people have been using, I have talked with Brad Simpson from TD Wealth about the vibecession.
Here's the facts, what's happening in the economy, here is what you are feeling. As an economist, is it kind of hard to navigate the facts and the feeling?
>> The macroeconomics talk about the economy as a whole and often when I speak to clients and people in the bank, we show graphs showing per capita earnings. People are feeling of their households are cutting back on what they are spending due to higher inflation and borrowing costs.
Because the Canadian population is growing, overall, the Canadian economy is growing but I think that really does explain the disconnect between the aggregate numbers we are seeing and what individual households are feeling.
>> Interesting stuff. As always, make sure you do your own research before making any investment decisions.
we will get back to your questions for Leslie Preston on the economy and interest rates 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.
If you are looking to research stocks that pay dividend, what broker has tools which can help. Meagan Henriques, Senior client education instructor with TD Direct Investing has more.
>> So first thing is, let's define what a dividend yield is, which is the money that a company is going to pay it shareholders, divided by the current stock price. So this can be really appealing to investors that while they are investing, they are accumulating some income. So let me show you on what broker how we can find these dividend paying stocks.
First thing is, from our main menu, we are going to click on research and then under tools, we are going to go to screeners.
From here, there are a lot of screeners so you can explore this page but the one I am interested in is under our preset screens.
So let's go there and then there's already a category for us which makes this research so much easier. So let's click on Top Dividends.
So we already have some criteria in play but we have over 500 matches. This can still be a little overwhelming in terms of finding the company that works for us, so let's narrow down our search. For instance, I can, under exchange, specify, instead of having both US and Canadian, I'm going to click here and I'm going to narrow it down to companies that are on the Toronto Stock exchange.
Okay. So now we have narrowed it down.
We are under 80. Still quite a few.
From here, we can also change some of the criteria that is already here so as an example, let me click on dividend yield and we have this bar that I can either scroll right or left or I can actually put my criteria in selecting a have a minimum of 5%, and I will maximum.
So and I have narrowed it down to an amount that kind of makes sense, I can actually go a little higher, let's say I put eight. Okay. Now I have seven matches.
I scroll down and I can see these different matches. What's nice is that the system already ranks it for us.
So based on the criteria that's there, gives it an average and if you average the best, then you have a higher ranking.
Here, we see these different ranks from 1 to 10, and lastly, what I wanted to show is we have to go back up but if you did like the criteria that you put in, we stipulated that we want to companies on the Toronto Stock exchange, we want a dividend yield of at least 8% and we don't want to have to go in every time and re-add this criteria. What we can do is we can click on save on the top right. We can give this a name. I'm going to call this July 19. I can even decide if I want to get alerts on a weekly basis or whatnot.
And then when I'm done, I can just get on save. And that is how you will be able to screen for dividend companies on web broker.
>> Our thanks to Meagan Henriques, Senior client education instructor at TD Direct Investing.
For more educational resources, you can check out the learning centre on web broker or use this QR code that will navigate to TD Direct Investing's Instagram page and when you there you will find more informative videos.
Before you get back to your questions about the economy and interest rates for Leslie Preston, 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 Leslie Preston, we are taking your questions about the economy and interest rates.
Here is a popular topic in Canada. A bit of an understatement. Health of the housing market?
>> Well, the housing market really in recent months remained fairly subdued. We had some good news in the month of June.
We did see sales pick up quite strongly in June but still remaining around 8% below pre-pandemic levels of activity.
Now recall we did have some tax changes come in to effect in June which may have pushed or hurried some sales along so we will see in the coming months whether that was a one time lip. But overall, the housing market, fairly subdued with mortgage rates still remaining relatively high. We do expected to pick up as the Bank of Canada cuts rates through the remainder of the year but that the upturn from here would be relatively modest and that is largely because affordability remains very strained in Canada's housing market.
So limiting the upside to housing prices but we do expect them to return back to rising again for the remainder of this year following an upturn in sales.
>> I find the reaction to the rate cut in the housing market so fascinating because simply, with the Bank of Canada pause, you know through the rate hiking campaign, and then they pause, the housing markets took off again, saying it's over. Of course, the Bank of Canada had to come it was more hikes because inflation was not going the way they wanted it to. It seems like a much more cautious potential homebuyer now, perhaps after everything they have been through.
>> Yes, absolutely.
Rates are at a higher level and have been there now for a while.
I think a lot of buyers are recalibrating what they can afford, if they expected a slightly higher rate environment to persist relative to what we had basically between the global financial crisis in the pandemic.
>> There had been a criticism in the past when the housing market was running up, even before the pandemic, that the housing market goes, so goes a huge chunk of the economy. When you buy a house, you furnish it, you finance it. It's a whole section of the economy that is substantial and relies on housing. Going forward, how important is the housing markets of the overall economic growth of the country?
>> It is a fairly big chunk.
We have had a twenty-year housing boom in Canada so it is a fair chunk of our economy. As I say, we do expect to return to growth but the weakness in housing has been a part of that weakness in consumer spending and retail sales.
People are not going out and buying big-ticket durables furniture, the source of things you buy when you're moving to a new house so yes, it is a way to on the Canadian economy but we do expect activity to pick up further as the policy rate comes down further.
>> The only insight I can add to this is if you buy a new house, move in first, then by the coach. We went the other way around 17 years ago, the cat got delivered, and it did not fit in the room.
Our appetites were a little bit too big.
Let's take another question from the audience.
The US election, it it already is a big one for us. How could impact Canada?
>> The most topical issue for Canada in the US election is trade policy.
Articulate when it comes to a possible second mandate for trumpet because that's an area where he has put a lot of promises in terms of blanket tariffs. Canada is a small, open economy. Exports make up about 1/3 of our gross domestic product. That's three times the importance than the US has. US exports are about 11%. Canada is three times more dependent on trade. Very important to Canada's economy.
Of course, in the last trump administration, it Canada signed the USMCA agreement, the replacement to NAFTA, and that comes up for renewal in 2026. If we see a Pres. Trump, that will come up for renewal. Having the USMCA does not insulate us from other trade disputes.
I think trade is going to be an issue for Canada and it will be something that Canadian politicians and diplomats will have to keep a close eye on that relationship.
>> When I think about our trade relationship with the United States, it makes sense, they are across our border, our neighbour, our biggest trading partner. I can go back to the Harper government we talked about we know North and South is important for trade, east-west, Canada has to look across the Pacific and Atlantic. There have been some deals but it hasn't really seemed to change her cross the past decade, that reliance we have on the Americans. There is Asia-Pacific, some European deals but it doesn't change the fact that we need the Americans.
>> Yes, in fact, since the signing of the USMCA, Canada's dependence on the US and Mexico has increased.
This has deep independence on the US and Mexico for trade. Very important for Canada's economy to preserve that relationship and try to keep it as friction free as possible.
>> Friction free. I could lose four years of friction free after some of the years we've had. Let's talk about, still on trade, someone wants to know, should we be worried about how a trade war with China could impact the economy? This feels like a possible trumpet ministration two. Even the abiding administration has been playing tough on China.
>> Biden did not take off those tariffs that from put on China in his mandate.
And it is an issue for Canada but not top of mind for Canada's worries. In terms of broader economic growth slowing, one of the key issues for Canada has been our productivity performance, weak business investment. These are things that are weighing on Canada's growth over the medium term so in terms of what we worry about for Canada, I would put more on that, how the consumer is going to cope with higher interest rates, given high debt loads, that the potential US trade war with China absolutely would have bigger impact, particularly in specific sectors of Canada like the agricultural sector which exports a lot to China, that would certainly be affected but I wouldn't say it's the top worry for Canada right now.
>> And I think about the impact it can have on the global economy, it feels like after the past several years, supply chain constraints, the idea of onshoring, bringing manufacturing home, not being so reliant on these global networks, that has that taken some pressure off in terms of how important the second-largest economy in the world is to the rest of the world?
>> Certain sectors in Canada's economy, particularly commodity producers, not just agricultural but any kind of quantity, when China weakens, typically commodity prices come down. That's lower revenues for those Canadian exporters or businesses in general.
It has an impact but as I say, it would not be my top worry for the Canadian economy over the next couple of years.
>> Interesting stuff. We are going to get back your questions for Leslie Preston on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder that you can get in touch with us anytime. 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.
Just talking about commodities with Leslie, they have attracted a lot of attention this year. Gold, silver, copper.
Tell them all go on historic runs throughout the spring and early summer but we have noticed lately that copper has come under a bit of pressure, we can getting a bit further and rising inventories. Anthony Okolie joins us now on TD Cowen's cake.
>> They predict it will be flat quarter over quarter. When it comes to earnings for their covered universe, they say earnings will be up 15% quarter over quarter. That is driven by higher base metal prices. Gold prices have recorded record highs in the second quarter and the group-- the coverage universe should benefit from that. Of course, the high price has been due to central bank buying globally. Safe haven flows as well as physical demand for gold. Historically, the US Fed rate cycle has been a significant factor driving gold prices and TDA Cowan believes that a fed pit it will support gold prices going forward. They also see geopolitical risk and politics as potential tailwinds for the yellow metal.
When it comes to valuations, they believe that valuations forced senior gold producers remain attractive that the market would like to see stronger free cash flow in the second quarter for these companies. Turning to copper, second quarter has been pretty volatile for copper prices but TD Cowen says those prices which registered the highest all-time high quarterly average should support solid margins for those copper producers.
While TD Cowen has raised its copper price predictions for 2024, they expect that flat copper production quarter over quarter with growth accelerating in the second half of this year as key projects begin to ramp up.
Finally, on uranium, TD Cowen trimmed their uranium price forecast due to weaker than expected spot prices here today. They do remain optimistic that prices will rise in the second half of this year and into 2025 as nuclear and utilities look to lock in future long-term supply requirements.
Looking ahead to the third quarter, they expect production, earnings and free cash flow to improve materially as key projects continue to ramp up towards designed capacity. TD Cowen is constructive on the growth outlook for the sector.
>> Constructive outlook, very interesting take on the space. What are the risks?
>> There are a number of risks, forecast risk, financial risk, technical and political risks including risks to commodity prices, fuel prices, operating costs and input costs among others.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, gives us a view of the market movers on the TSX 60.
Easier glance for us. We will screen by price and volume. You can see where the weakness is in the market today. Price of crude pulling back to a month low so you have some of the big energy names to the downside. Cenovus, CVE, a little more than 2%. Suncor pulling back at 2%, CNQ in the same ballpark. A bit more of a mixed picture in the material space where you find the minors. Anthony was talking to us about the minors. If you are on the page watching the show right now, you probably scroll down and see a headline of an article by Hussein Allidina. As you look at the mining space, there is Nutrien, that's potash, Barrick's to the upside modestly. South of the border, I want to see was happening on the S&P 100.
Amazon is up to the tune of about 3%. Not a lot happening in the tech space out of that. Modest green from Apple or Google or Meta. UPS really in the headlines today, disappointing quarter and forecast from the global shipping giant. Tells us a little bit about what's happening in the economy there.
If you've got a freight recession on your hands, what does the consumer look like?
Where you shipping stuff around the world, your shipping it because consumers are buying it.
We are back now with Leslie Preston from TD Economics taking another question for you here. Republicans and Democrats seem like they will be big spenders. Any concerns about borrowing costs and deficits laying on the economy?
>> I think most economists have concerns about deficits in the US. The US has a structural deficit that is expected to worsen over the coming years as Baby Boomers retire and draw on social supports which drives that widening deficit and the more debt the US government has, the more money they have to spend.
So far it hasn't presented too much of a problem because there seems to be an insatiable appetite in financial markets for US treasuries but it is difficult to say when that could shift so if markets demand for treasuries goes down, we could see yield, prices go down and yields go higher, worsening the situation so it is concerning from an economist perspective that neither party seems to be making serious policy proposals for getting back to balance and in the previous trumpet ministration, we saw tax cuts with not a lot of spending restraint so the deficit were seconds so we are not hearing as much about spending from the Trump campaign this time around but we are certainly hearing about tax cuts so it is certainly a worry and every dollar that the US spends servicing its debt, its money they could be spending elsewhere for lowering consumers and businesses taxes. It certainly a worry but it's one that does not seem to be acute yet for politicians.
>> As the campaign picks up heading towards the November vote, is that something you will be watching, seeing who the candidates are, see who ends up leading the Democrats after Joe Biden said he would not be trying to reclaim that office and the election? Are you gonna be watching this to see what they have to say about spending and the economy and taxes?
>> Absolutely. We will be tracking the platforms closely and once we know not just to the Pres. is but also with the makeup of Congress is because Congress controls the purse, Pres. may have an agenda but if Congress is not on their side, they can often have difficulty implementing it. So watching both of those and seeing which direction fiscal policy could be headed in the years ahead for sure.
>> We have run out of time for questions.
Before we let you go, big event tomorrow morning. The BOC coming out with the right decision. They have already delivered one cup for the cycle. What are you expecting and what are you watching for?
>> We are expecting another quarter-point interest rate cut from the Bank of Canada tomorrow and we are also getting a monetary policy report update.
So an update on where the Bank of Canada forecast is for the Canadian economy so that's what I will be watching most closely, how their outlook has shifted since April. Since April, inflation has come down a little faster than they had expected so we will be seeing where their outlook is for that and how they are gauging the outlook for Canada's economy, that's what we will be sifting through with a very close eye.
>> Great primer for our audience. I appreciate you joining us and look forward to the next time.
>> My pleasure.
>> Our thanks to Leslie Preston, Senior economist with TD. As always, make sure you do your own research before making any investment decisions.
and if we can get your question today, we will aim to get it into future shows.
Stay tuned. On tomorrow's program, and across the MoneyTalk universe, we will have full coverage of the Bank of Canada's rate decision. We will start with TD economics Andrew Hencic. He will be talking to Anthony Okolie about that in the morning. You can look for that in your inbox or on our website, moneytalkgo.com.
And then a MoneyTalk Live, Andrew Kelvin will join us from TD Securities and break down what we heard from Gov. to Mac alone, in the press conference and was coming for the path forward. And you get a head start with your questions. Just email MoneyTalkLive@TD.com. That's all the time we have for the program today. Thanks for watching. We'll see you tomorrow.
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