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[theme music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today's show, MoneyTalk's Anthony Okolie is going to break down that US jobs report that landed this morning and what could possibly mean for interest rate. TD Asset Management's Haining Zha will assess whether Beijing's big stimulus package will be enough to boost that country sluggish economy.
And Andriy Yastreb will discuss whether the conflict in the Middle East will lead to a sustained rise in the price of oil.
Plus, in today's WebBroker education segment, Bryan Rogers will show us how to screen for dividend using the platform.
Before he gets all that, let's get you an update on the markets. Last trading day of the week. As we entered October this week, we entered the last trading quarter of the year. Got green on the screen on both sides of the border. Up 170 points on the TSX Composite Index, good for a gain of almost 3/4 of a percent. Crude continuing to climb higher. American benchmark is just a bit below 75 bucks per barrel right now, it has definitely made some gains in recent days. We got some news specific stories as well to tell you about, including SilverCrest, that minor is being acquired by a US minor Coeur in a deal worth billions of US. That has SilverCrest shares on the move to the tune of about 12%. Noticing a tech rally as well on both sides of the border. Shopify's part of that story here in Canada.
It is up to the tune of a little more than 3%. South of the border, investor taking a look at that jobs report that Anthony is going to break down for us in a moment.
They didn't like the sound of it. A resilient economy. Soft landing, all that stuff. The S&P 500 up we will call that 20 points, one third of a percent. The tech heavy NASDAQ showing a little more strongly. Up almost half a percent. CVS Health, $65, up about two dollars per share or 3.2%. Reports floating around that a strategic review has been underway for a while at CVS Health and that's leading to speculation, speculation we are saying here, not confirmed, about perhaps even seeing them separate their retail and insurance business line so there's a bit of excitement around the name. And that your market update.
We got the latest US payrolls report out of the United States coming in well above expectations.
A lot to go through. MoneyTalk's Anthony Okolie joins us now with more. We have been waiting for this because we know the Fed is more focused on the labour market, this we are focused on the labour market.
>> We got a big jobs number today. They added 254000 Jobs in September, that blew by expectations for 150,000 addition. This is the biggest job gain since January 2024, as you can see by that chart.
In addition to that big blowout in September, we got some revisions that showed a strong pace of hiring in the prior months, August was revised up 17,000, July a much bigger addition of 55,000. That takes the net new jobs in July to 144,000 jobs. This also aligns with a JOLTS Report that we saw earlier this week which showed that job demand has steady to pre-COVID levels. The job openings surprise to the upside in August, hitting a three month high of about 8000 jobs versus consensus. Coming back to today's jobs report, the unemployment rate actually slipped to 4.1% which is 4.2% in August. What we are seeing there is civilian employment is outpacing the modest gain in the labour force so the 4.1% also was better than what Wall Street expected. No change at 4.2%. Where we sell the gains was really restaurants and bars.
That led the job creation. We saw gains in healthcare, Social Assistance and the strength of the job market spilled over to hourly earnings, up 4% year-over-year.
Overall a really strong report.
This really gives a signal that the economy in the US is strong.
It may have taken off the table a 50 basis point rate cut and that something investors have been clamouring for.
>> When I look at the reaction in the bond market, the US 10 year bond yield right now is up 10 basis points, it spiked on this.
It seems to be cooling expectations.
The Fed started with 50 basis points. We heard from Terry Powell earlier this week, I think it was on Monday, he was saying we don't have to go as aggressively going forward.
>> He reiterated that the Fed is in no hurry to cut rates and that his base case is for two additional 25 basis point cuts by year end. TD Securities doesn't change the forecast for 25 basis point cuts two more times this year.
>> Fascinating stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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.
Seaports from Maine to Texas are working to move a backlog of goods after US dockworkers reached a deal to pause their strike action. The union representing some 45,000 workers in the US Maritime alliance are giving themselves until January 15 to negotiate a new contract. The US economy appears to have escaped any longer-term impacts as the three-day strike didn't last as long as some fear.
Also had shares of electric vehicle maker of Rivian in the spotlight, down to the tune of more than 6%. The company is lowering its annual production forecast, citing a production disruption caused by a shortage of an unspecified auto part. The disruption also meant Rivian delivered fewer vehicles in its third-quarter than analysts expected.
We will fill you in on the details of the deal in the minor sector. US-based Coeur Mining is buying Vancouver's SilverCrest Metals in an all stock transaction valued at $1.7 billion US. A combined company is expected to produce 21 million ounces of silver and 432,000 of gold next year. The acquirer is down about 7%, SilverCrest is up, this is the way it plays out between the company being bought and the company doing the buying. Quick check on the markets. We will start here in Toronto with the TSX Composite Index. Read on the screen for the last trading day of the week, up almost 3/4 of a percent. South of the border, that resilient US economy really plays into that soft landing story that the market has been trading off over the past several months.
We are up 20 points on the S&P 500, about one third of a percent.
Let's talk about Chinese stocks, they have been surging as Beijing unveiled a series of big stimulus measures to tackle several economic challenges, including an ailing labour market, housing crisis and we consumer demand. Haining Zha, VP and Dir.
for asset allocation at TD Asset Management join MoneyTalk Kim Parlee to discuss.
>> It is highly unusual but if you think about why they are doing it now, they have every reason to do it. There are some weird things going on. If you look at the for example M1, at the last 20, 25 years, it had never been negative and earlier this year we had a negative print which has never happened before.
Another data point if you look at mortgage, it never happened before that the household is actually paying back mortgage, the mortgage loan is actually decreasing and growing at a negative rate.
So these are all some of the strange things that happened that put policymakers on high alert.
>> So they saw the alerts and I'm taking your word here, this was a generational move in the market that people saw because it was impressive. Can you talk a bit about how they responded to those alerts that they saw, what did the government do?
>> Before they are doing baby steps in the face of a death spiral. So as you can see, it is not enough. Some of these data points, they continue to deteriorate to the point that you have to react. If you're looking forward to November, we will have the US election. What if Trump got elected?
There could be another source of external shock when that happened. The death spiral is actually going to be even worse. So I think they are doing this at the right moment.
>> Monetary policy, housing markets, capital markets, what do they do?
>> Let's go through one by one. In terms of monetary policy, there are a lot more this time around.
On the reserve requirement ratio cut, they cut by 50 basis points. This is kind of excited because there is ample liquidity within the Chinese economy. The problem is the household and the private enterprise, they don't want to use that liquidity to any either for doing business or for investing because it's a very bleak picture out there.
The second component is they cut reverse repo by 20 basis points. So if you had this 20 basis points in the last few policy changes, they are cutting by 10 basis points.
This is actually more than what they did before. Third component, if we are moving down the yield curve looking at one year, medium-term lending facility, they cut by 30 basis points, it's different than what they did before.
Before, they only did 10, 20 basis points.
Most importantly, this time around, they made the monetary stimulus open ended so the central bank Gov.
make it very clear that in the upcoming quarters, months or quarters, there will be more. So very rarely you see central bank Gov. proactively communicate the policy like that. It's a little bit like forward guidance used by the Fed.
>> So it's not just what they did, which was significant, but it was more to say there is more to come or you should be expecting more to come.
Maybe just take us through what you think that more to come could be. If you had a crystal ball, you could tell us everything but what are the kinds of things you could see happening?
>> On the monetary policy front, they can further cut RRR reserve requirement rate or also all kinds of interest rate including the loan of prime rate which directly links it to the corporate lending rate and mortgage rate.
This is actually related to the second component, the housing market. One of the biggest things they did is to lower the mortgage rate on the existing mortgage by 50 basis points. So this will result in immediate saving of 150 year renminbi for consumers and households.
And given the interest rate cut in reverse repo in upcoming months, this loan prime rate will also be cut another 25 basis points and the loan prime rate, these mortgages are set on an annual basis and most of the reset will happen earlier next year so if you come look at how much the loan prime rate has already gone down plus this additional 50 basis points cut, we are talking about roughly 1 trillion consumer savings which roughly equals 1% of GDP.
>> That's money going into consumers pockets today that they did not have before and hopefully will get them, stimulate the domestic side of the economy. So capital markets, what are you expecting to happen?
>> That's actually the most innovative part. They created something that we have never seen before. The first one is 500 billion liquidity facility for nonfinancial, non-bank financial institutions. For example, mutual funds, insurance company, broker-dealers.
The sole purpose of the money, you can only use it to buy equity.
Which never happened before. You can almost think of it as a because I QE so I think for any investor investing in that market, when you hear the word QE, you should be on high alert because QE means more return for investors in the long run.
The second facility they created is a corporate buyback facility so right now in the US, the US government actually put a 1% tax on the corporate buyback but in China, after they put out this new facility, they are lending you money at 2 1/4% for you to buy back corporate shares.
So just imagine if a company's dividend yield is four or 5% which there are plenty in the Chinese equity space because the stock prices gone down by so much but to keep their dividend, then that 2 1/4 percentage volume rate versus that four, 5% dividend rate means that as an investor, if you buyback, you can gather that roughly 2% yield spread.
>> It's extraordinary in terms of how much, how targeted some of these are, some to the consumer, some to capital markets to keep things going.
I'm going to ask you, is this time for investors to start focusing on China again or did we miss it? Was at the big move or how should people think about this?
>> This kind of very violent rally is kind of unfriendly to most investors because investors are still stuck in bearish sentiment or mood. All of a sudden it comes with this step change, it is very hard for investors to all of a sudden change their investment attitude. So very few of them actually benefit from this rally but if you missed out on last week, you are already missing out on 25% of return. But to be fair, even after a 25% rally, the Chinese equity valuation is still low. The 4P's trading roughly 13 times so it's not expensive at all and there are in the near future there could be more policy stimulus coming.
>> That was Haining Zha, VP and Dir. for asset allocation at TD Asset Management.
Now, let's get your educational segment of the day.
If you are looking to screen for stocks with dividends, WebBroker has tools which can help. Bryan Rogers, Senior client education instructor with TD Direct Investing joins us now with more.
>> That's something I'm excited to show because I think investors like the idea of getting that dividend yield, especially Canadian investors seem to be really interested in how can I get the most out of my stocks when it comes to that dividend return?
So what I wanted to show is in WebBroker, if we jump over there. If we are looking for a certain yield life or 5%, we do have screeners available and I'm on the screeners page right now. You go to research and then you want to go to screeners to get here.
Just to show you where I started from.
On the left-hand side, you see a link that says themes. There are a number of these that you might find. There is preset screens and also community screens.
If you don't want to preset screen, sometimes you can find dividends but not always, you might find dividend ETFs or something like that. I don't know if I see that right here.
They are, top dividends. A top dividends screen. The one I want to show that I think people will like is community screens.
This is all of the web broker users, if they save a particular screen that they have done, they can name it, what it is, and then you can see that there is a lot of criteria related to dividend with safety for example.
I don't know if this was you Greg, Greg made a screen. I don't know if it's the same Greg.
>> Did I make a screen?
[laughing] >> Do you remember that or not?
I will scroll down. There is 5% dividend.
5 million market cap or higher, my dividend screen, so you get the idea that you can find a lot of existing screens. If I click on one of these, if I click on this one at the top, it will also tell you before, it tells you the average historical performance, the number of matching securities on there, showing eight on this particular one.
If I go into the details itself, you can see as I scroll down the results. It will show you the stocks, Whitecap Resources, halo expiration, and it tells you the criteria that were used in terms of dividend yield, different and coverage, etc.
You can see they have a pretty high dividend yield. I think this screen used to 6% or higher and than these other criteria.
So what you could do is go to this bulk edit on the top right hand side, you can click the toggle. It shows where you can adjust this, you can do, you can actually take off some of the criteria if you wanted to go with different sectors or industries but you can see there's dividend growth and each one of these, you can figure with each one of these mean.
Dividend coverage for example, might not be something you're familiar with.
It will explain to you just the chance that you're gonna have dividends grow based on the company's situation.
You can adjust these.
If you want to do this on your own, if I go to screening up here, that's where I can now go to this bulk edit and then I just select whatever dividend. I select this criteria here, add my own criteria and then at that point I'm gonna start to get results that I would like to see, I am looking for that particular yield.
>> All right, so we've done all this work, we've got our variables in play, what were looking for, and then life takes you somewhere else. You want to make sure you do something, right? So you can come back and get all that work.
>> Yeah, nothing more frustrating then when you do all this work in, put together a good screen and then all of a sudden you go away and get locked out of web broker or something else happens, you click back and you forget to save it. So that's what I want to show. If you want to save your own screen, what I will do is jump into WebBroker. What we are going to do is you could do your very old one from scratch and then save it. Absolutely. What I will do instead is let me go back.
I'm going to go back to this section. If I start over and we go into the community screens, if I take this one I was looking at, dividend with safety, what I'm going to do is make a few adjustments. I will go into bulk edit and show you how to save it for yourself.
This might save you a little bit of time because you don't have to do it from scratch. Let's say we decided we wanted to go it's a little bit lower than the dividend rate.
There is only a total. Let's say we go to 4% dividend rate.
I just adjusted that there.
I knew hundred percent. Dividend coverage, dividend growth rate, maybe I will eat at the same.
Then I can add other criteria. It simple to add if I go to more criteria which is the stock price. If I wanted to see the stocks that were in a range that I liked investing at, there it is at the top, I just added it in right here. I'm gonna say I want stocks that are $25 or higher so I won't get anything lower than what I would like to see.
It opens the search, gives you the results at the bottom. You can see the stock price column I added.
All the adjustments are there.
Now I'm getting nine results, one more than I had before.
At this point, save it. You're good to be able to… My apologies at the top. We are going to click, this is something that's not that intuitive.
You're going to click this star and you're gonna be able to save it on here as your own… The save button is right here. This is where you axis it. I was getting confused.
You can change the name, dividend whatever, Bryan's dividend church, you can fill in some of these columns if you want to share it or keep it to yourself and once you are done that, you can save screen and it's going to be available for you and could be available to others if you allow other people to view it as well and make it public, just like the way you found that original one. So that's the way you can create a dividend screen.
>> I'm pretty sure that other Greg was not me.
Great stuff as always. Thanks for that.
>> Awesome. Thank you.
>> Bryan Rogers, Senior client education instructor with TD Direct Investing.
October's investor education month at TD Direct Investing. Use this QR code to navigate to the DI website where there is more informative videos.
It's been a volatile trade in the oil market as investors consider warnings from Saudi Arabia about oil prices falling if OPEC can maintain discipline, while conflict in the Middle East also threatens production. Andriy Yastreb, VP for portfolio management at TD Asset Management join me earlier to discuss.
>> A lot of analysts are trying to sort through all the news.
I'm paying attention to what the Saudi ministers are saying.
He went to the media and said that we could see oil and $50 sometime soon if other OPEC members do not come back to discipline and honour their commitment.
What's interesting about that is that he's not telling this to you and me through the media, he's telling that to other OPEC members through the media which tells you that most likely he has already had multiple conversations about that over the phone or behind closed doors and the message was not well received.
So the risk there that may be this is the final warning because-- before something actually happens and I have a chart here that looks at Saudi oil production and oil prices over the last 10 years and what's interesting here is that Saudi's cuts oil production by about a million barrels last year in the summer of last year, and have been supporting markets by doing this over 12 months and oil prices have been helped.
The interesting thing I noticed when making this chart is that when oil prices are high, it's not always the case but typically the case, when oil prices are higher moving higher, Saudi production is also high. It tells you that the market is tied, that's when oil prices do well and that's not the environment we have today.
Stepping back, let's see what happened in OPEC over the last 12, 18 months.
Starting in summer last year, OPEC had a meeting in June. They did not agree on cuts that would be enough to stimulate the market and the Saudi's decided to act unilaterally and had a 1 million barrels voluntary cut which is still in place.
That simulated the market for three, four months.
In December of that year, there was another OPEC meeting. It was supposed to be quiet. Go over existing cuts and nothing was excited to happen. Instead, there was a lot of drama around the meeting itself.
It was pretty much dismissed by the market at that time. Then in June of this year, the latest ministerial meeting, there was a press release which basically rolled out the plan of how OPEC was planning to bring back to million barrels of production over the end of 2025 by month and by country, how much production would change. There was also a footnote where the benchmark production for the US was stopped by 350,000 barrels per day. All this tells me is that over the last two years or so, we have seen more and more tension building within OPEC in reaction to growth in production outside of OPEC. If we look at the 2025 balances in estimates, it looks like it's going to be an oversupplied market even before any barrels are coming in from OPEC so the bottom line here is that there are cracks in OPEC. We'll have to wait and see how it plays out but as investors, we have to put a higher probability on the possible $50 oil.
If the Saudi's really want to do that, they have the ability to do that.
>> Turn on the spigots and put the price there. In the meantime, day by day, trying to figure out what's happening in the Middle East and where it might head does have crude prices in the here and now higher. How should we be thinking about that?
>> The spike in oil prices we are seeing this week is all driven by geopolitics, obviously by Israel. I think this morning I saw headlines about Biden talking about the possibility of Israelis striking oil and gas facilities in Iran. It's interesting because if you look at history and over the last 20 years or so, every time you had geopolitical risks that spiked well, usually it did not last very long.
The disruptions were very small. I think the biggest example you can make of that is in 2019, there was a period when Iranian drones deliberately struck Saudi facilities. The largest oil field in the world, large facilities. There were multiple strikes, multiple drones. The immediate impact was people thinking there was going to be a war between the Saudi's and he ran.
People were wondering, are we going to have one or two or 3 million barrels taken off the market and for how long, how many weeks or months that will happen. And then if you look at the impact on oil prices, they dissipated in three days and the facilities were back online within a couple of weeks. So it was interesting, it was a big event, it was actual impact and strike on facilities but it was recovered very quickly and I think the other thing to keep in mind is that everybody in this environment in the Middle East is interesting and in keeping oil flowing.
It's only a ran in the Saudi's that one oil to begin to flow but it's also their biggest customers which are China and India and Europe and the US and I'm sure right now those countries are all talking to Israelis and trying to cool down hotheads in probably both countries. So another example, more recent geopolitical tensions, I have another chart here that shows gas flows through Ukraine. We've seen war in Ukraine for 2 1/2 years. I think a lot of people in general don't really know that Russian gas continues to flow through Ukraine. There were contracts signed to export Russian gas into Europe using Ukrainian pipelines and Europe really needs gas so despite this were going for 2 1/2 years, Russian gas keeps flowing through Ukraine and on top of that in August of this year, Ukraine launched a limited invasion and the Kursk reason of Russia and that's where the metering station on these pipelines is. The actual fighting took place pretty close to the pipeline and the metering station but gas continued to flow. My take away is that geopolitical risk which is a lot of attention.
This time it would be different, we never know but judging by history of what we have seen so far, usually the disruption is quite small.
>> The key here seems to be the risk raises the risk premium on whether it's natural gas or crude oil. Ultimately, our barrels being taken off the market? At this point, barrels are not being taken off the market.
>> If you look at demand, it has been weak and revised down. A lot of that was driven by China.
The expectations of Chinese demand from the beginning of the year came down.
Even though we have a lot of excitement about stimulus, lower rates and whatnot, what's interesting here is if you look at manufacturing PMI's that usually drive demand for oil and commodities, they are weak, they are under 50 in Germany and the US and Japan and China.
All major manufacturing regions of the world are still weak here and we will have to wait and see if that stimulus actually goes to the system.
>> That was Andriy Yastreb, VP for portfolio research at TD Asset Management.
Now, for an update on the markets.
We have green on the screen on Bay and Wall Street on this last trading day of the week. Let's start with the TSX, the opposite is up more than half a percent, two thirds of a percent. Let's dig into the TSX 60. The financials and banks are in the green. They put a lot of points on the top line number when they moved to the upside. We do have Manulife up a little more than 2% in that bucket.
We are seeing some of the big energy companies continue to make gains. We now have West Texas intermediate, American benchmark crude just five $75 per barrel.
It's been quite a move this week for crude prices given the uncertainty in the Middle East, wondering what will come next and could it lead to any disruptions, that's the overhang. We have tech stocks on the move on both sides of the border. Shopify is up more than 3%. South of the border, the S&P 500 is up about one third of a percent. We will jump into the 100, easier to sift through 100 than 500.
We are firmly into the S&P 100 now. You can see Nvidia in terms of volume taking up some space on the screen, up a little shy of a full percent. Tesla bouncing back after a couple days of selling pressure on a couple days of those lower deliveries.
The stock moved slower on that slight mist. AMD and Intel also making some gains along with the financials on Wall Street.
That was your market update.
We are going to talk about rates trending lower in the US and Canada. Interest in interest sensitive sectors. Quite a mouthful.
We are talking about stocks that move off of interest rate policy like REITs and utilities. They have begun to move higher but we have not seen the same move in telecoms. Vince Valentini, managing director for equity research at TD Cowen, joined me earlier to discuss. For full disclosure on the companies covered by TD Cowen, please see the link at the end of the video.
>> If you look at the telcos south of the border, AT&T, Verizon and Virgin Mobile are all up this year so you're seeing rates help a lot of sectors. Canadian telcos cannot seem to get out of their own way in terms of bad news. The big picture bad news which I think I've talked about a couple times before is the price point. We are seeing the worst pricing environment in the wireless industry then pretty much everyone I talked to in the wireless industry has seen in their careers and certainly in my career as an analyst. I know you can ask if things are gonna get better. It seems like there's some green shoots that that price war is ending but the results we have seen in the past four quarters and what we will likely continue to see in the upcoming third-quarter results are going to show the nasty edge of pricing. Volume of subscribers is good, there's good growth on that front but the pricing is offsetting all of the volume growth so we are now down to virtually zero service revenue growth for all of the three big wireless carriers. That's the biggest overhang. Each company has their own company specific sort of problems, whether it's the MLSE deal with Rogers that people don't understand, the dividend quality or payout ratio with BCE that people are concerned about, Telus has their non-telecom businesses that are concerning people and Telus international has been the prime sort of target on that front.
All of that culminates with that leverage is pretty high. There is not much margin for error as far as investors are concerned.
When we go back to those US telcos, they've done much better. On average they have about 2 1/2 times that leverage ratios. The Canadian telcos are more 3 1/2 times. Rogers is 4.7 times. People are saying a combination of uncertain pricing environment with higher than sort of normal debt leverage probably leads to people saying even if rates are coming down, there may be safer places to put our money. That's the backwards -looking view as to why the stocks have not done as well as some other rate sensitive sectors so far.
>> When it comes to that pricing war, is a little surprising that someone hasn't back down at this point? It's been going on for a while and I think a lot of people were thinking, there will be a certain point when one of these companies backs away.
Nobody is backing away.
>> We have seen people back away in some ways.
I mentioned green shoes earlier. I am still very bullish that the sector will do much better over the next 12 months then we have seen over the past 12 months.
Especially as we are going to talk about later in the show is the Bank of Canada likely continues to cut interest rates, the yields and returns and free cash flow yields on these names start to look too attractive to ignore but we do need to see somebody backing down in some stabilization. We saw that starting in late July.
As we have talked about before, this all started with Rogers buying Shaw, being forced to sell their wireless business to Quebecor and that made Quebecor much stronger as an international player so we effectively have a disruptive force carrier in the wireless industry which for years we did not have, it was more of a cozy oligopoly with everybody keeping prices to reasonably high discipline.
That upset the apple cart.
Quebecor spent about a year trying to find their footing. They had to figure out how to market that freedom business properly.
They had to get retail distribution matter, they had to figure out how to do Internet in bundles with wireless, a whole bunch of blocking and tackling that they had to do. In the interim they said we still want a lot of customers. We have a low cost structure so we will just use price. We will lower price to get customers and they did that. They started to pivot in July and said, we have the other pieces of the puzzle in place, if we can win customers on a bit more of a blend of quality and price, it's better for their long-term business model and we are starting to see that. They have held the line. Price increases they announced in late July. That's one dynamic of seeing stabilization. Quebecor is less aggressive, that the three incumbents will be less aggressive because they have such a big base of customers the price were could be really painful. Everybody has talked about how great the volume growth has been in the Canadian market. Last year was basically record levels of subscriber growth driven in part by high levels of immigration in Canada.
There is a double-edged sword to that.
When the pool of new customers is so big, the carriers look at this and say we have not seen this type of volume growth for a decade, we want to lean into that and get our piece of the pie when that's there, because a year or two from now, the pie might not be growing that big. Most people think the Canadian government will put the brakes even further on immigration so there won't be as much subscriber growth but I think everybody attacking that pool created a bit of undisciplined and now people are saying the volume growth is leveling off, hopefully it will be more balanced. On one front, Quebecor is getting more discipline, on the other, the holding volume growth will get people to play nicer in price and we have seen a bit of better pricing action on the last few months which is where I think things get better.
>> You mentioned it discipline and debt earlier when it comes to debt leverage, investors are waiting for some discipline there. Are we seeing moves?
>> Absolutely.
I have covered the sector for 30 years.
It's not always the most disciplined sector when it comes to capital allocation. Some of these companies make acquisitions sometimes that they spend too much on order some investors don't understand the logic of it or they sometimes spend too much on capex, to long-term focused without paying attention to the short-term cash flow or the short term balance sheet issues. When this industry gets backed into a corner and feels pressured, there are lots of ways to lower debt leverage. We are finally seeing some recognition from the companies.
BCE had their debt downgraded by the S&P and Moody's in the last few months.
Everyone is critical of Rogers debt leverage. Telus has issues as well.
I think out of that pain comes a bit more attention to detail and the biggest thing these companies are now doing is looking at selling non-core assets. There will also be reductions in capex going forward where all the players will be increasing cash flow to pay down debt.
BCE's steel was a clear sign of capitulating on an asset that they always they wanted to keep ownership of.
>> The sports team.
>> Yes, agreeing to sell MLSE for $4.7 billion shows that they are serious about reducing their debt leverage. Telus is talking about multibillion dollars of proceeds from selling real estate and copper now that they have been all fiverr network. Rogers is articulating at least $1 billion in asset sales over the next year. I think the good news is everybody, the management teams now realize how serious the problem is and they are paying more serious attention to it and that means we should see better moves. They are all asset rich. They all have assets they can sell if they want to, they can all spend less on capex if they need to so I think the first point is they have to recognize there's a problem in for a long time they weren't to and were happy to keep debt leverage high. The good news is that I think they are all now quite motivated to do what shareholders want and get that debt down over the next year.
>> That was Vince Valentini, managing director for equity research at TD Cowen.
As always, make sure you do your own research before making any investment decisions.
stay tuned for Monday show. Jeff Evans, VP, director and lead of empirical research and PM support at TD Asset Management will be our guest.
He wants to take your questions about real estate and infrastructure stocks. You can always get a head start with your questions for Jeff or any other guest.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of me, Anthony, Kim in front of the camera and everyone behind-the-scenes to bring see the shows on a daily basis, thanks for watching and we will see you after the weekend.
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Coming up on today's show, MoneyTalk's Anthony Okolie is going to break down that US jobs report that landed this morning and what could possibly mean for interest rate. TD Asset Management's Haining Zha will assess whether Beijing's big stimulus package will be enough to boost that country sluggish economy.
And Andriy Yastreb will discuss whether the conflict in the Middle East will lead to a sustained rise in the price of oil.
Plus, in today's WebBroker education segment, Bryan Rogers will show us how to screen for dividend using the platform.
Before he gets all that, let's get you an update on the markets. Last trading day of the week. As we entered October this week, we entered the last trading quarter of the year. Got green on the screen on both sides of the border. Up 170 points on the TSX Composite Index, good for a gain of almost 3/4 of a percent. Crude continuing to climb higher. American benchmark is just a bit below 75 bucks per barrel right now, it has definitely made some gains in recent days. We got some news specific stories as well to tell you about, including SilverCrest, that minor is being acquired by a US minor Coeur in a deal worth billions of US. That has SilverCrest shares on the move to the tune of about 12%. Noticing a tech rally as well on both sides of the border. Shopify's part of that story here in Canada.
It is up to the tune of a little more than 3%. South of the border, investor taking a look at that jobs report that Anthony is going to break down for us in a moment.
They didn't like the sound of it. A resilient economy. Soft landing, all that stuff. The S&P 500 up we will call that 20 points, one third of a percent. The tech heavy NASDAQ showing a little more strongly. Up almost half a percent. CVS Health, $65, up about two dollars per share or 3.2%. Reports floating around that a strategic review has been underway for a while at CVS Health and that's leading to speculation, speculation we are saying here, not confirmed, about perhaps even seeing them separate their retail and insurance business line so there's a bit of excitement around the name. And that your market update.
We got the latest US payrolls report out of the United States coming in well above expectations.
A lot to go through. MoneyTalk's Anthony Okolie joins us now with more. We have been waiting for this because we know the Fed is more focused on the labour market, this we are focused on the labour market.
>> We got a big jobs number today. They added 254000 Jobs in September, that blew by expectations for 150,000 addition. This is the biggest job gain since January 2024, as you can see by that chart.
In addition to that big blowout in September, we got some revisions that showed a strong pace of hiring in the prior months, August was revised up 17,000, July a much bigger addition of 55,000. That takes the net new jobs in July to 144,000 jobs. This also aligns with a JOLTS Report that we saw earlier this week which showed that job demand has steady to pre-COVID levels. The job openings surprise to the upside in August, hitting a three month high of about 8000 jobs versus consensus. Coming back to today's jobs report, the unemployment rate actually slipped to 4.1% which is 4.2% in August. What we are seeing there is civilian employment is outpacing the modest gain in the labour force so the 4.1% also was better than what Wall Street expected. No change at 4.2%. Where we sell the gains was really restaurants and bars.
That led the job creation. We saw gains in healthcare, Social Assistance and the strength of the job market spilled over to hourly earnings, up 4% year-over-year.
Overall a really strong report.
This really gives a signal that the economy in the US is strong.
It may have taken off the table a 50 basis point rate cut and that something investors have been clamouring for.
>> When I look at the reaction in the bond market, the US 10 year bond yield right now is up 10 basis points, it spiked on this.
It seems to be cooling expectations.
The Fed started with 50 basis points. We heard from Terry Powell earlier this week, I think it was on Monday, he was saying we don't have to go as aggressively going forward.
>> He reiterated that the Fed is in no hurry to cut rates and that his base case is for two additional 25 basis point cuts by year end. TD Securities doesn't change the forecast for 25 basis point cuts two more times this year.
>> Fascinating stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
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.
Seaports from Maine to Texas are working to move a backlog of goods after US dockworkers reached a deal to pause their strike action. The union representing some 45,000 workers in the US Maritime alliance are giving themselves until January 15 to negotiate a new contract. The US economy appears to have escaped any longer-term impacts as the three-day strike didn't last as long as some fear.
Also had shares of electric vehicle maker of Rivian in the spotlight, down to the tune of more than 6%. The company is lowering its annual production forecast, citing a production disruption caused by a shortage of an unspecified auto part. The disruption also meant Rivian delivered fewer vehicles in its third-quarter than analysts expected.
We will fill you in on the details of the deal in the minor sector. US-based Coeur Mining is buying Vancouver's SilverCrest Metals in an all stock transaction valued at $1.7 billion US. A combined company is expected to produce 21 million ounces of silver and 432,000 of gold next year. The acquirer is down about 7%, SilverCrest is up, this is the way it plays out between the company being bought and the company doing the buying. Quick check on the markets. We will start here in Toronto with the TSX Composite Index. Read on the screen for the last trading day of the week, up almost 3/4 of a percent. South of the border, that resilient US economy really plays into that soft landing story that the market has been trading off over the past several months.
We are up 20 points on the S&P 500, about one third of a percent.
Let's talk about Chinese stocks, they have been surging as Beijing unveiled a series of big stimulus measures to tackle several economic challenges, including an ailing labour market, housing crisis and we consumer demand. Haining Zha, VP and Dir.
for asset allocation at TD Asset Management join MoneyTalk Kim Parlee to discuss.
>> It is highly unusual but if you think about why they are doing it now, they have every reason to do it. There are some weird things going on. If you look at the for example M1, at the last 20, 25 years, it had never been negative and earlier this year we had a negative print which has never happened before.
Another data point if you look at mortgage, it never happened before that the household is actually paying back mortgage, the mortgage loan is actually decreasing and growing at a negative rate.
So these are all some of the strange things that happened that put policymakers on high alert.
>> So they saw the alerts and I'm taking your word here, this was a generational move in the market that people saw because it was impressive. Can you talk a bit about how they responded to those alerts that they saw, what did the government do?
>> Before they are doing baby steps in the face of a death spiral. So as you can see, it is not enough. Some of these data points, they continue to deteriorate to the point that you have to react. If you're looking forward to November, we will have the US election. What if Trump got elected?
There could be another source of external shock when that happened. The death spiral is actually going to be even worse. So I think they are doing this at the right moment.
>> Monetary policy, housing markets, capital markets, what do they do?
>> Let's go through one by one. In terms of monetary policy, there are a lot more this time around.
On the reserve requirement ratio cut, they cut by 50 basis points. This is kind of excited because there is ample liquidity within the Chinese economy. The problem is the household and the private enterprise, they don't want to use that liquidity to any either for doing business or for investing because it's a very bleak picture out there.
The second component is they cut reverse repo by 20 basis points. So if you had this 20 basis points in the last few policy changes, they are cutting by 10 basis points.
This is actually more than what they did before. Third component, if we are moving down the yield curve looking at one year, medium-term lending facility, they cut by 30 basis points, it's different than what they did before.
Before, they only did 10, 20 basis points.
Most importantly, this time around, they made the monetary stimulus open ended so the central bank Gov.
make it very clear that in the upcoming quarters, months or quarters, there will be more. So very rarely you see central bank Gov. proactively communicate the policy like that. It's a little bit like forward guidance used by the Fed.
>> So it's not just what they did, which was significant, but it was more to say there is more to come or you should be expecting more to come.
Maybe just take us through what you think that more to come could be. If you had a crystal ball, you could tell us everything but what are the kinds of things you could see happening?
>> On the monetary policy front, they can further cut RRR reserve requirement rate or also all kinds of interest rate including the loan of prime rate which directly links it to the corporate lending rate and mortgage rate.
This is actually related to the second component, the housing market. One of the biggest things they did is to lower the mortgage rate on the existing mortgage by 50 basis points. So this will result in immediate saving of 150 year renminbi for consumers and households.
And given the interest rate cut in reverse repo in upcoming months, this loan prime rate will also be cut another 25 basis points and the loan prime rate, these mortgages are set on an annual basis and most of the reset will happen earlier next year so if you come look at how much the loan prime rate has already gone down plus this additional 50 basis points cut, we are talking about roughly 1 trillion consumer savings which roughly equals 1% of GDP.
>> That's money going into consumers pockets today that they did not have before and hopefully will get them, stimulate the domestic side of the economy. So capital markets, what are you expecting to happen?
>> That's actually the most innovative part. They created something that we have never seen before. The first one is 500 billion liquidity facility for nonfinancial, non-bank financial institutions. For example, mutual funds, insurance company, broker-dealers.
The sole purpose of the money, you can only use it to buy equity.
Which never happened before. You can almost think of it as a because I QE so I think for any investor investing in that market, when you hear the word QE, you should be on high alert because QE means more return for investors in the long run.
The second facility they created is a corporate buyback facility so right now in the US, the US government actually put a 1% tax on the corporate buyback but in China, after they put out this new facility, they are lending you money at 2 1/4% for you to buy back corporate shares.
So just imagine if a company's dividend yield is four or 5% which there are plenty in the Chinese equity space because the stock prices gone down by so much but to keep their dividend, then that 2 1/4 percentage volume rate versus that four, 5% dividend rate means that as an investor, if you buyback, you can gather that roughly 2% yield spread.
>> It's extraordinary in terms of how much, how targeted some of these are, some to the consumer, some to capital markets to keep things going.
I'm going to ask you, is this time for investors to start focusing on China again or did we miss it? Was at the big move or how should people think about this?
>> This kind of very violent rally is kind of unfriendly to most investors because investors are still stuck in bearish sentiment or mood. All of a sudden it comes with this step change, it is very hard for investors to all of a sudden change their investment attitude. So very few of them actually benefit from this rally but if you missed out on last week, you are already missing out on 25% of return. But to be fair, even after a 25% rally, the Chinese equity valuation is still low. The 4P's trading roughly 13 times so it's not expensive at all and there are in the near future there could be more policy stimulus coming.
>> That was Haining Zha, VP and Dir. for asset allocation at TD Asset Management.
Now, let's get your educational segment of the day.
If you are looking to screen for stocks with dividends, WebBroker has tools which can help. Bryan Rogers, Senior client education instructor with TD Direct Investing joins us now with more.
>> That's something I'm excited to show because I think investors like the idea of getting that dividend yield, especially Canadian investors seem to be really interested in how can I get the most out of my stocks when it comes to that dividend return?
So what I wanted to show is in WebBroker, if we jump over there. If we are looking for a certain yield life or 5%, we do have screeners available and I'm on the screeners page right now. You go to research and then you want to go to screeners to get here.
Just to show you where I started from.
On the left-hand side, you see a link that says themes. There are a number of these that you might find. There is preset screens and also community screens.
If you don't want to preset screen, sometimes you can find dividends but not always, you might find dividend ETFs or something like that. I don't know if I see that right here.
They are, top dividends. A top dividends screen. The one I want to show that I think people will like is community screens.
This is all of the web broker users, if they save a particular screen that they have done, they can name it, what it is, and then you can see that there is a lot of criteria related to dividend with safety for example.
I don't know if this was you Greg, Greg made a screen. I don't know if it's the same Greg.
>> Did I make a screen?
[laughing] >> Do you remember that or not?
I will scroll down. There is 5% dividend.
5 million market cap or higher, my dividend screen, so you get the idea that you can find a lot of existing screens. If I click on one of these, if I click on this one at the top, it will also tell you before, it tells you the average historical performance, the number of matching securities on there, showing eight on this particular one.
If I go into the details itself, you can see as I scroll down the results. It will show you the stocks, Whitecap Resources, halo expiration, and it tells you the criteria that were used in terms of dividend yield, different and coverage, etc.
You can see they have a pretty high dividend yield. I think this screen used to 6% or higher and than these other criteria.
So what you could do is go to this bulk edit on the top right hand side, you can click the toggle. It shows where you can adjust this, you can do, you can actually take off some of the criteria if you wanted to go with different sectors or industries but you can see there's dividend growth and each one of these, you can figure with each one of these mean.
Dividend coverage for example, might not be something you're familiar with.
It will explain to you just the chance that you're gonna have dividends grow based on the company's situation.
You can adjust these.
If you want to do this on your own, if I go to screening up here, that's where I can now go to this bulk edit and then I just select whatever dividend. I select this criteria here, add my own criteria and then at that point I'm gonna start to get results that I would like to see, I am looking for that particular yield.
>> All right, so we've done all this work, we've got our variables in play, what were looking for, and then life takes you somewhere else. You want to make sure you do something, right? So you can come back and get all that work.
>> Yeah, nothing more frustrating then when you do all this work in, put together a good screen and then all of a sudden you go away and get locked out of web broker or something else happens, you click back and you forget to save it. So that's what I want to show. If you want to save your own screen, what I will do is jump into WebBroker. What we are going to do is you could do your very old one from scratch and then save it. Absolutely. What I will do instead is let me go back.
I'm going to go back to this section. If I start over and we go into the community screens, if I take this one I was looking at, dividend with safety, what I'm going to do is make a few adjustments. I will go into bulk edit and show you how to save it for yourself.
This might save you a little bit of time because you don't have to do it from scratch. Let's say we decided we wanted to go it's a little bit lower than the dividend rate.
There is only a total. Let's say we go to 4% dividend rate.
I just adjusted that there.
I knew hundred percent. Dividend coverage, dividend growth rate, maybe I will eat at the same.
Then I can add other criteria. It simple to add if I go to more criteria which is the stock price. If I wanted to see the stocks that were in a range that I liked investing at, there it is at the top, I just added it in right here. I'm gonna say I want stocks that are $25 or higher so I won't get anything lower than what I would like to see.
It opens the search, gives you the results at the bottom. You can see the stock price column I added.
All the adjustments are there.
Now I'm getting nine results, one more than I had before.
At this point, save it. You're good to be able to… My apologies at the top. We are going to click, this is something that's not that intuitive.
You're going to click this star and you're gonna be able to save it on here as your own… The save button is right here. This is where you axis it. I was getting confused.
You can change the name, dividend whatever, Bryan's dividend church, you can fill in some of these columns if you want to share it or keep it to yourself and once you are done that, you can save screen and it's going to be available for you and could be available to others if you allow other people to view it as well and make it public, just like the way you found that original one. So that's the way you can create a dividend screen.
>> I'm pretty sure that other Greg was not me.
Great stuff as always. Thanks for that.
>> Awesome. Thank you.
>> Bryan Rogers, Senior client education instructor with TD Direct Investing.
October's investor education month at TD Direct Investing. Use this QR code to navigate to the DI website where there is more informative videos.
It's been a volatile trade in the oil market as investors consider warnings from Saudi Arabia about oil prices falling if OPEC can maintain discipline, while conflict in the Middle East also threatens production. Andriy Yastreb, VP for portfolio management at TD Asset Management join me earlier to discuss.
>> A lot of analysts are trying to sort through all the news.
I'm paying attention to what the Saudi ministers are saying.
He went to the media and said that we could see oil and $50 sometime soon if other OPEC members do not come back to discipline and honour their commitment.
What's interesting about that is that he's not telling this to you and me through the media, he's telling that to other OPEC members through the media which tells you that most likely he has already had multiple conversations about that over the phone or behind closed doors and the message was not well received.
So the risk there that may be this is the final warning because-- before something actually happens and I have a chart here that looks at Saudi oil production and oil prices over the last 10 years and what's interesting here is that Saudi's cuts oil production by about a million barrels last year in the summer of last year, and have been supporting markets by doing this over 12 months and oil prices have been helped.
The interesting thing I noticed when making this chart is that when oil prices are high, it's not always the case but typically the case, when oil prices are higher moving higher, Saudi production is also high. It tells you that the market is tied, that's when oil prices do well and that's not the environment we have today.
Stepping back, let's see what happened in OPEC over the last 12, 18 months.
Starting in summer last year, OPEC had a meeting in June. They did not agree on cuts that would be enough to stimulate the market and the Saudi's decided to act unilaterally and had a 1 million barrels voluntary cut which is still in place.
That simulated the market for three, four months.
In December of that year, there was another OPEC meeting. It was supposed to be quiet. Go over existing cuts and nothing was excited to happen. Instead, there was a lot of drama around the meeting itself.
It was pretty much dismissed by the market at that time. Then in June of this year, the latest ministerial meeting, there was a press release which basically rolled out the plan of how OPEC was planning to bring back to million barrels of production over the end of 2025 by month and by country, how much production would change. There was also a footnote where the benchmark production for the US was stopped by 350,000 barrels per day. All this tells me is that over the last two years or so, we have seen more and more tension building within OPEC in reaction to growth in production outside of OPEC. If we look at the 2025 balances in estimates, it looks like it's going to be an oversupplied market even before any barrels are coming in from OPEC so the bottom line here is that there are cracks in OPEC. We'll have to wait and see how it plays out but as investors, we have to put a higher probability on the possible $50 oil.
If the Saudi's really want to do that, they have the ability to do that.
>> Turn on the spigots and put the price there. In the meantime, day by day, trying to figure out what's happening in the Middle East and where it might head does have crude prices in the here and now higher. How should we be thinking about that?
>> The spike in oil prices we are seeing this week is all driven by geopolitics, obviously by Israel. I think this morning I saw headlines about Biden talking about the possibility of Israelis striking oil and gas facilities in Iran. It's interesting because if you look at history and over the last 20 years or so, every time you had geopolitical risks that spiked well, usually it did not last very long.
The disruptions were very small. I think the biggest example you can make of that is in 2019, there was a period when Iranian drones deliberately struck Saudi facilities. The largest oil field in the world, large facilities. There were multiple strikes, multiple drones. The immediate impact was people thinking there was going to be a war between the Saudi's and he ran.
People were wondering, are we going to have one or two or 3 million barrels taken off the market and for how long, how many weeks or months that will happen. And then if you look at the impact on oil prices, they dissipated in three days and the facilities were back online within a couple of weeks. So it was interesting, it was a big event, it was actual impact and strike on facilities but it was recovered very quickly and I think the other thing to keep in mind is that everybody in this environment in the Middle East is interesting and in keeping oil flowing.
It's only a ran in the Saudi's that one oil to begin to flow but it's also their biggest customers which are China and India and Europe and the US and I'm sure right now those countries are all talking to Israelis and trying to cool down hotheads in probably both countries. So another example, more recent geopolitical tensions, I have another chart here that shows gas flows through Ukraine. We've seen war in Ukraine for 2 1/2 years. I think a lot of people in general don't really know that Russian gas continues to flow through Ukraine. There were contracts signed to export Russian gas into Europe using Ukrainian pipelines and Europe really needs gas so despite this were going for 2 1/2 years, Russian gas keeps flowing through Ukraine and on top of that in August of this year, Ukraine launched a limited invasion and the Kursk reason of Russia and that's where the metering station on these pipelines is. The actual fighting took place pretty close to the pipeline and the metering station but gas continued to flow. My take away is that geopolitical risk which is a lot of attention.
This time it would be different, we never know but judging by history of what we have seen so far, usually the disruption is quite small.
>> The key here seems to be the risk raises the risk premium on whether it's natural gas or crude oil. Ultimately, our barrels being taken off the market? At this point, barrels are not being taken off the market.
>> If you look at demand, it has been weak and revised down. A lot of that was driven by China.
The expectations of Chinese demand from the beginning of the year came down.
Even though we have a lot of excitement about stimulus, lower rates and whatnot, what's interesting here is if you look at manufacturing PMI's that usually drive demand for oil and commodities, they are weak, they are under 50 in Germany and the US and Japan and China.
All major manufacturing regions of the world are still weak here and we will have to wait and see if that stimulus actually goes to the system.
>> That was Andriy Yastreb, VP for portfolio research at TD Asset Management.
Now, for an update on the markets.
We have green on the screen on Bay and Wall Street on this last trading day of the week. Let's start with the TSX, the opposite is up more than half a percent, two thirds of a percent. Let's dig into the TSX 60. The financials and banks are in the green. They put a lot of points on the top line number when they moved to the upside. We do have Manulife up a little more than 2% in that bucket.
We are seeing some of the big energy companies continue to make gains. We now have West Texas intermediate, American benchmark crude just five $75 per barrel.
It's been quite a move this week for crude prices given the uncertainty in the Middle East, wondering what will come next and could it lead to any disruptions, that's the overhang. We have tech stocks on the move on both sides of the border. Shopify is up more than 3%. South of the border, the S&P 500 is up about one third of a percent. We will jump into the 100, easier to sift through 100 than 500.
We are firmly into the S&P 100 now. You can see Nvidia in terms of volume taking up some space on the screen, up a little shy of a full percent. Tesla bouncing back after a couple days of selling pressure on a couple days of those lower deliveries.
The stock moved slower on that slight mist. AMD and Intel also making some gains along with the financials on Wall Street.
That was your market update.
We are going to talk about rates trending lower in the US and Canada. Interest in interest sensitive sectors. Quite a mouthful.
We are talking about stocks that move off of interest rate policy like REITs and utilities. They have begun to move higher but we have not seen the same move in telecoms. Vince Valentini, managing director for equity research at TD Cowen, joined me earlier to discuss. For full disclosure on the companies covered by TD Cowen, please see the link at the end of the video.
>> If you look at the telcos south of the border, AT&T, Verizon and Virgin Mobile are all up this year so you're seeing rates help a lot of sectors. Canadian telcos cannot seem to get out of their own way in terms of bad news. The big picture bad news which I think I've talked about a couple times before is the price point. We are seeing the worst pricing environment in the wireless industry then pretty much everyone I talked to in the wireless industry has seen in their careers and certainly in my career as an analyst. I know you can ask if things are gonna get better. It seems like there's some green shoots that that price war is ending but the results we have seen in the past four quarters and what we will likely continue to see in the upcoming third-quarter results are going to show the nasty edge of pricing. Volume of subscribers is good, there's good growth on that front but the pricing is offsetting all of the volume growth so we are now down to virtually zero service revenue growth for all of the three big wireless carriers. That's the biggest overhang. Each company has their own company specific sort of problems, whether it's the MLSE deal with Rogers that people don't understand, the dividend quality or payout ratio with BCE that people are concerned about, Telus has their non-telecom businesses that are concerning people and Telus international has been the prime sort of target on that front.
All of that culminates with that leverage is pretty high. There is not much margin for error as far as investors are concerned.
When we go back to those US telcos, they've done much better. On average they have about 2 1/2 times that leverage ratios. The Canadian telcos are more 3 1/2 times. Rogers is 4.7 times. People are saying a combination of uncertain pricing environment with higher than sort of normal debt leverage probably leads to people saying even if rates are coming down, there may be safer places to put our money. That's the backwards -looking view as to why the stocks have not done as well as some other rate sensitive sectors so far.
>> When it comes to that pricing war, is a little surprising that someone hasn't back down at this point? It's been going on for a while and I think a lot of people were thinking, there will be a certain point when one of these companies backs away.
Nobody is backing away.
>> We have seen people back away in some ways.
I mentioned green shoes earlier. I am still very bullish that the sector will do much better over the next 12 months then we have seen over the past 12 months.
Especially as we are going to talk about later in the show is the Bank of Canada likely continues to cut interest rates, the yields and returns and free cash flow yields on these names start to look too attractive to ignore but we do need to see somebody backing down in some stabilization. We saw that starting in late July.
As we have talked about before, this all started with Rogers buying Shaw, being forced to sell their wireless business to Quebecor and that made Quebecor much stronger as an international player so we effectively have a disruptive force carrier in the wireless industry which for years we did not have, it was more of a cozy oligopoly with everybody keeping prices to reasonably high discipline.
That upset the apple cart.
Quebecor spent about a year trying to find their footing. They had to figure out how to market that freedom business properly.
They had to get retail distribution matter, they had to figure out how to do Internet in bundles with wireless, a whole bunch of blocking and tackling that they had to do. In the interim they said we still want a lot of customers. We have a low cost structure so we will just use price. We will lower price to get customers and they did that. They started to pivot in July and said, we have the other pieces of the puzzle in place, if we can win customers on a bit more of a blend of quality and price, it's better for their long-term business model and we are starting to see that. They have held the line. Price increases they announced in late July. That's one dynamic of seeing stabilization. Quebecor is less aggressive, that the three incumbents will be less aggressive because they have such a big base of customers the price were could be really painful. Everybody has talked about how great the volume growth has been in the Canadian market. Last year was basically record levels of subscriber growth driven in part by high levels of immigration in Canada.
There is a double-edged sword to that.
When the pool of new customers is so big, the carriers look at this and say we have not seen this type of volume growth for a decade, we want to lean into that and get our piece of the pie when that's there, because a year or two from now, the pie might not be growing that big. Most people think the Canadian government will put the brakes even further on immigration so there won't be as much subscriber growth but I think everybody attacking that pool created a bit of undisciplined and now people are saying the volume growth is leveling off, hopefully it will be more balanced. On one front, Quebecor is getting more discipline, on the other, the holding volume growth will get people to play nicer in price and we have seen a bit of better pricing action on the last few months which is where I think things get better.
>> You mentioned it discipline and debt earlier when it comes to debt leverage, investors are waiting for some discipline there. Are we seeing moves?
>> Absolutely.
I have covered the sector for 30 years.
It's not always the most disciplined sector when it comes to capital allocation. Some of these companies make acquisitions sometimes that they spend too much on order some investors don't understand the logic of it or they sometimes spend too much on capex, to long-term focused without paying attention to the short-term cash flow or the short term balance sheet issues. When this industry gets backed into a corner and feels pressured, there are lots of ways to lower debt leverage. We are finally seeing some recognition from the companies.
BCE had their debt downgraded by the S&P and Moody's in the last few months.
Everyone is critical of Rogers debt leverage. Telus has issues as well.
I think out of that pain comes a bit more attention to detail and the biggest thing these companies are now doing is looking at selling non-core assets. There will also be reductions in capex going forward where all the players will be increasing cash flow to pay down debt.
BCE's steel was a clear sign of capitulating on an asset that they always they wanted to keep ownership of.
>> The sports team.
>> Yes, agreeing to sell MLSE for $4.7 billion shows that they are serious about reducing their debt leverage. Telus is talking about multibillion dollars of proceeds from selling real estate and copper now that they have been all fiverr network. Rogers is articulating at least $1 billion in asset sales over the next year. I think the good news is everybody, the management teams now realize how serious the problem is and they are paying more serious attention to it and that means we should see better moves. They are all asset rich. They all have assets they can sell if they want to, they can all spend less on capex if they need to so I think the first point is they have to recognize there's a problem in for a long time they weren't to and were happy to keep debt leverage high. The good news is that I think they are all now quite motivated to do what shareholders want and get that debt down over the next year.
>> That was Vince Valentini, managing director for equity research at TD Cowen.
As always, make sure you do your own research before making any investment decisions.
stay tuned for Monday show. Jeff Evans, VP, director and lead of empirical research and PM support at TD Asset Management will be our guest.
He wants to take your questions about real estate and infrastructure stocks. You can always get a head start with your questions for Jeff or any other guest.
Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. On behalf of me, Anthony, Kim in front of the camera and everyone behind-the-scenes to bring see the shows on a daily basis, thanks for watching and we will see you after the weekend.
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