Market Insights

[music] Hello I'm Greg Bonnell and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. coming up on today show: we'll hear from TD Asset Management's Benjamin Chim on all this aggressive central bank rate hiking. And in today's WebBroker education segment, Bryan Rogers will join us to discuss how to set up trigger orders using the platform. Before we get all that, let's get you updated on what's happening in the markets. Friday was quite a day heading into the weekend in terms of losses on Wall Street and Bay Street. Another down session. Nothing too dramatic but we have read on the screen. 18,828 rather 19,828. Down 45 points or 1/4 of a percentage. What is keeping us is showing the energy sector. Energy names in Canada are getting a bid right now. They are the only sector in positive territory. The rest are in the red. Interesting story when it comes to the miners. Denison Mines and a buck 75 a share is up almost 12%. Of course it seems to be a bit of a follow-up to last week's news in Japan. Where Japan was talking about having to restart some nuclear reactors to meet that country's energy needs. In another mining name, Teck resources down a modest percentage. And now a broader rate of the American market south of the border. Pushing down to get the downward trend, it's not keeping much company in terms of the sector. So right now you do have energy to the upside along with some telecom and utility stocks. Some way to the downside in New York. When it comes to the tech names and potato are some of the healthcare stocks. The S&P 500 4039, a little less than half a percent. Let's check in on the tech heavy NASDAQ Seo it's peering at this hour. Down more than a full percent. But there are energy names itself the border as well catching a bid today with the price of crude, Exxon to the upside it to the tune of almost 3%. And that your market update. Joining us now for more on what's happening in the markets and see what we need to be mindful of heading into the next situation, but he talks Anthony Okolie. Anthony. >> What the markets will be focused on this week is the US jobs report coming in on Friday. That's kind of a big win. Certainly markets are looking for about 528000 New Positions Added in July. Taking the unemployment rate to a near five decade rate low. Jobs projected in more volatility to markets which have already been volatile after last week's meeting at Jackson Hole. >> Really when you think about what Jerome Powell said on Friday, I don't know if it was the tone in which he delivered it, the forcefulness… But if you actually went, you would say "I went to Jerome Powell and I heard the US central bank say this all Summer." All the Summer trade in that rally receiving, let's watch every inflation, every jobs report but maybe not take the chair of the US Federal Reserve at his word. I don't know who was the delivery, how stern it was, but we definitely notice on Friday. We have a rate decision coming in next month with some pretty important data points. Let's see if we can test Jerome's, will call him J's resolving all this. >> After the last report, pointing towards may be inflation peeking, saying maybe he won't be as aggressive at the symposium. Of course he kind of poured water on a potential pivot to a less aggressive monetary policy and so I think that is certainly what caught the market's attention. Again, I think they will be flowing this inflation because the Fed has come out and said "we will be data depended and watch what is happening with inflation." But again, I think his comments certainly took the market and I think the markets have taken the fact that Jerome Powell is serious about fighting inflation and be more aggressive going forward. >> That's the key point, when you bring up the pivot point. Saying "maybe at some point they love to ease off and start cutting rates in the new year." History has taught us he said. History has taught us. This site will be long and we came back down and started to see some results. People might be thinking he is actually serious and we should listen to them. >> Yes. If you look to some of his comments, he expects the Fed to continue raising rates it will cost some pain to the US economy. I think the markets are starting to listen to the Fed. Maybe not to fight the Fed and listen to what they're saying and that he is serious about fighting inflation. >> Heading into Labor Day, we know the volumes will be thin. Thank you Anthony. >> Thank you. >> Anthony will join us later in the show. Let's take a look at the new TD economics report of the housing market in this country. >> Now let's get you updated on some of the top stories in a look at how the markets are trading. Several more Western companies are announcing plans to either suspend or wind down their Russian operations. Erickson and its rival Nokia are the latest add their names to a long list of corporations exiting Russia in the wake of the invasion on Ukraine. In over the weekend, Dell Technologies announced that it will end all operations in the country. Dell suspended sales in Russia back in February. Walmart is offering to buy the remaining shares of the South African retailer MassMart. That it doesn't already own. Walmart articles more than 50% of the company which he purchased in 2010. It's offering almost $377 million for the remaining shares of MassMart. Representing a more than 50% premium. The South African retailer has struggled in recent years in the face of numerous challenges and Walmart has previously injected money into the company. Elon musk says the world needs to continue producing oil and gas to meet its energy needs. At a conference in Norway, musk said oil and gas will be needed in the short term because otherwise civilization will crumble. Musk added he believes some additional exploration is warranted given that. Oil prices have become a bit of a tug-of-war in recent weeks. That as investors way concerns of tight supply against fears of a global economic downturn. Quick check of the markets again. Let's start at Bay Street at home. TSX Composite Index down a modest bit here. 19,834… South of the border, energy names with a bit of a downdraft in the tech space. Some of the key sectors, keeping the S&P 500 in negative territory. Down 1/3 of a percent. Almost 14 points. Aggressive central bank tightening has sent shockwaves through the markets. While stoking fears of a recession on the horizon, what is this all mean for the health of corporations? Benjamin Chim, Senior Portfolio Manager for Fixed Income at TD Asset Management join me earlier to discuss. >> The short answer, in terms of how much rising rates impact corporate debt is a lot. It affects a lot. It's a big driving force behind why we see these big drive outs here today the corporate bond space. In terms of investing and high-yield. The market has really been essentially, repricing bonds to the prospect that, you know, interest rates will continue to rise. And the fact that, you know, we will potentially be sing a recession. If not at the end of this year than possibly the end of next year. So spreads and yields are adjusted to that. But as we sort of think through what the future will look like and how things will progress going forward, we are still sort of thinking about investing in corporate bonds with quite a bit of caution. I think this can be a decent amount of volatility going forward into the end of the year. Possibly the next year. The reason why we are fairly concerned is that, inflation levels are still, as you know, persistently high right? The July number was encouraging. It is inflation to fall little bit. But we are still talking about central banks trying to get inflation down from that 7 1/2 to 8% level to their target 2 to 3%. There are several elements interments in terms of the inflation metric that are still pretty sticky. You have rent etc. So there is a decent chance or decent potential for inflation to rollover. But sort of plateau in that 4 to 5% range. If it stays there for an extended period of time, that's going to be of any challenging backdrop for corporate bonds to find, to fund as well as having a recession potentially. Credit quality could get compressed and that scenario really isn't being priced into markets right now. So that's where we see a little bit of a cautionary situation where with corporate bonds, you need to expect a decent amount of volatility going forward. > Let's talk about that caution. Is it going to come down to the quality of the corporation? The quality of the issue? If there's gonna be a challenging economic environment that also involves higher interest rates? >> Yeah. I mean the one sort of bright spot, saving grace for corporate bonds going into this. Is that we are coming from a situation, a rather unique situation in that credit quality is pretty good. It is much better than we have typically seen heading into a recession. It really has not been that long since we've had that since the COVID pandemic where there were lockdowns, the economy was really struggling. Companies were obviously struggling to get by with businesses shut down. High-yield debt market has a 10% default rating in 2020. So a lot of the weaker companies got wiped out. They restructured. Since then in the last two years, they really, most companies focused on rebuilding. Turning out their debt maturity profiles so that is put them in a position today where, you know, they are dealing with what is now much more volatile, much more difficult funding market. They have a lot of flexibly to wait out. There a lot of flex ability to proceed to different avenues to fund their growth. So they are in a good spot. They possess in confidence. If we even if we do start to see some dislocation in credit markets, it's not likely to see what we saw in 2020. >> When we think of the challenges we are faced with now, and there is no shortage of challenges, if we were to be optimistic about this, what could go right in terms of investing in corporate bonds against the larger economic backdrop? What could resolve itself in the world? Saying "I feel a little more enthusiastic with the space." >> If central banks end up addressing inflation better than what we expect and better than what the market expects, that certainly extremely positive for risk premiums. That could potentially mean that soft landing that they can have a hard time meeting could come to realization if that happens. We will certainly see all markets rally including corporate bonds. The potential transfer of bonds, when you think about the all and yields, pretty decent right? They are set up to have some pretty decent long-term returns. Because the yield on the investment market right now is 4.7%. The yield on the high-yield market right now is around 8%. That's a lot higher than we saw going into this year. The concern that we have overall, of course is when you drill down into that yield number, the risk and premium spread for corporate bonds is not as attractive as I usually see in a recessionary period. So in high-yield, it's 4. 8% basis points, typically in recessions, you see spread being much higher than that. For example, during COVID, the high-yield spread hit a thousand basis points, 10%. We saw 400 basis points… At 145, 480, we are not even half of that right now. We would like to see more of that concern around the downside. Talking about being priced in the markets a little bit more. So if you are going to invest in corporate bonds, yes there is pretty good potential for long-term returns because of whether yields are, but you need to be prepared for a decent man of volatility. >> The risk obviously in the return. Trying to weigh those out in terms of what kind of investment decisions want to make. It's interesting the time but the fact that you will get that headline yield and that can look attractive but you need to go below the surface and figure out exactly what is happening. It sounds like in terms of, dividends… If they invest in high-yield companies and say "look at the size that dividend". But you have to ask why the number is like that and why, what is happening below the surface. >> The same thing for credit. You can ask what is happening below the surface. Right now we are not in a dislocated market. We are not in a situation where credit quality is a big concern. It's more than inflation. And if the concern starts to shift towards that, there could be more volatility. > That was Benjamin Chim, Senior Portfolio Manager for Fixed Income at TD Asset Management. Stay tuned, we'll have more with Chris Whelan. From TD Securities. Now it's get to today's education segment. In volatile markets, you have certain price levels you're watching with the stock and setting trigger orders on these are one of the tools that investors can use. Joining us now is Bryan Rogers, Client Education Instructor at TD Direct Investing. Bryan take us through these trigger orders work. >>… Today I wanted to introduce one called "one triggers another." OTA to add to your list of acronyms. These are kind of like a statement Greg. The first order goes through in the second level automatically be triggered. So you can use those in several ways. The most commonly used to trigger a second order to sell or for additional profit or to sell on stock and sometimes you can combine them both to which we will look at as well. Or potentially you can just add on an additional buy at a reduced price. So if you continue to buy the stock,… You can still have an automatically triggered a lower price if you see that trend. So the benefit is convenient. You are forced to wait for your first order so you'll know if the first condition is met and if the second order will automatically go through. So I wanted to just jump over to WebBroker and take a quick look. How to enter one of these orders. So as you can see I have the order ticket up at the moment. You actually have to jump over and instead of going to stocks, you have to jump over to the "strategy" section. This is a similar type of order as one cancels the other. One triggers another, that's the button and it will give you a screen that shows your symbol. You have to put in your symbol again. So I'll just do this is a quick example. Once there you'll get your information on the stock. You'll have two sections: OTA to tell you what type of order, "one triggers another " and then this a lot of times you will use a limited order, limit price, limit quantity if I want to buy a little bit cheaper. If I put 160… Now I can go to this bottom sort of a second leg of the order and once that Apple does trigger, it triggers in $150, I can enter in something like a "sell order". Or a "sell stock." . If I don't have all day and I want to get out of Apple, I can put this number in, this will automatically get triggered as soon as that first-order does. You want to make sure you put your symbol and catch it. If it doesn't show up in the right-hand side here, you may not organize the order. So you may have to go in again. But that's really all there is to it. In terms of one triggers another. You can do different combinations of words as well. >> Some interesting stuff very useful. What about the commission structure around these orders? >> The commission structure is the same. Meaning any stock ordered, you would still face a regular fee. US or Canadian for the commission. It would only go …… It's going to trigger automatically. If it doesn't get filled, consider it like any other trade, any other orders that go through would be charged a commission. So one thing I want to add, is jumping into WebBroker really quickly is because we did talk about the other day about the "one cancels other" order, if I want to go up from where I was, I can go to "change strategy" and we talk about the "one cancels other " which is a stop order where you can put in above the market or below the market at the same time. But that's if you already own the stock. If you wanted to use this to combine the trigger order, you can actually do what is called a "first triggers OCO " (…) If I'm hedging against a loss, you can put that all the way up there and you can use one trigger order to trigger this one example. >> Great stuff as always. Bryan thanks for joining us today. >> Thanks Greg. >> That was Bryan Rogers Client Education Instructor at TD Direct Investing. Make sure to check out our WebBroker for more educational videos. TD economics is that with a new report today on the health of the Canadian housing market. Anthony Okolie joins us now with more. What are we hearing here Anthony? >> TD economics is saying that the average home prices could fall between 20 to 25% by the first 1:45 thousand 23. After peaking in the first quarter of this year. They said that home sales could tumble as much is 35% over the same period. Now, TD economics suspects a steeper drop in BC in Ontario where the average home will cost you well over $1 million. TD economics describes their forecast. More as a recalibration of a market instead of a severe downturn. They point to several factors why there is a severe downturn. They see this recalibration as being because number one, they expect the Bank of Canada depositor hiking cycle by the fourth quarter and move to smaller hikes. They also expect a five year bond yield which expects mortgages to fall next year as growth and inflation slows. In addition to that, there baseline forecast: they are expecting a soft landing scenario where personal income continues to grow and slow down in the tight labour market could also serve to restore balance in the housing market. They also mentioned that Canadians have built a pool of excess savings which provide a longer lifeline to finance mortgages and the downpayments. And finally, the low inventory levels in resale markets as well as one of the factors that will also point to the recalibration. Now, longer-term TD economics more positive on the outlook for housing. However, rising rates of home prices are likely to partially trim the pandemic gains that we've seen. As well as affordability that should remain restrained over the next several years. Great. >> You talk about pullback in both prices and housing activity, compared to the first quarter of this year, the first quarter of next year, those are pretty sizable numbers. We know the housing market is been a pretty key driver or significant driver of the Canadian economy in recent years. If this comes to pass, what kind of economic impacts are we talking about? >> When they look at the economic impacts, they expect one to 1 1/2 percentage points from the GDP from the second quarter of this year to the third quarter, sorry the first 1:45 thousand 23. This is a milder hit from what took place in the global crisis in terms of the downturns. But more importantly it's not about the cause of contraction of overall GDP. >> You said longer-term, you're talking about a growing population, growing immigration, little bit of supply on the other side of recalibration. What are the risks to that? >> They point to several risks in the report but I think the biggest risk, the largest downside risk is this steeper pullback than there baseline. Now, for there baseline, they've seen some modest and positive growth but they see the unemployment rate taking up to about 4.9%. If we do see a much bigger contraction than there baseline then potentially, the slowdown of the housing market will spill into the broader economy. >> Interesting stuff. Thanks Anthony. > My pleasure. >> Monthly talks Anthony Okolie. Let's check in with the TSX Composite Index on Bay Street. Modest territory less than 1/5 of a percent. You're seeing some selling across a number of sectors but the support of price an American benchmark crude today, you have less taxes with 3% to the north of almost (…) Sees supporting the energy names on the TSX, money moving on that sector. Big energy among them. We showed you Denison Mines at the top of the show. The uranium plays are still getting a bid on the heels of Japan saying last week they would have to restart some nuclear operations to meet that country's energy demands. A bit of an energy crunch right now particularly in Europe and what role it will play going forward if you're really trying to cut down on carbon in the economy? You have Cameco today almost up 8 1/2%. South of the border, let's check in on the S&P 500 after the big selloff of Friday on the heels of Jerome Powell getting ready stern with investors about the path forward for aggressive rate hikes and also staying that course to try to slay inflation. You do have some downside momentum today. Energy names are putting points in the table on Wall Street. It's offsetting some of the weakness. Text seems to lead the leading on the other side. Were down 12 points in the S&P 500. A little less than 1/3 of a percent. Let's check on the NASDAQ. It is off the lows of the session, even from when we began a program just about 30 minutes ago. Right now down to the tune of 64 basis points. Occidental Petroleum, one of the names in the energy space on Wall Street, saving some money moving in this direction. It is up 3 1/3%. The price of oil, of course, has been making gains after bouncing around at $90 in the Summer. Almost $96 a barrel for American benchmark crude. Of course, you have investors trying to weigh recession fears against tight supply. Earlier, I spoke with Bart Melek Head of Commodities Strategy with TD Securities to discuss his outlook on this. >> Well, I'm afraid that at least for the time being there will continue to be downside pressure. Part of the reason, of course, is very poor performance in China. In fact, TD Securities believes that growth for this year will probably have a to handle on it. 2 to 3% growth rate in China is very, very low by historical standards. Certainly very low compared to what we have been used to. At the same time, I think there's a growing group of investors who believe that the world might actually be headed for a recession. The Federal Reserve may not pivot in early February like we've seen the bond market price that we could have higher rates for longer. That all means that oil demand, now currently estimated well over 2 million barrels per day in growth in 2023 may not actually materialize. Indeed, TD Securities, in fact I have modelled them significantly lower. May be between 1.2, 1.5 million barrels. When I take that data into my model, I come up with a surplus in the third quarter and probably a balance market in the fourth quarter. That basically means that the crisis pricing or the "big risk of disruptions" get priced out of the market and that would explain much of what we've seen on the downside with crude markets. >> You brought along some great charts for us. Let's show this one. It actually illustrates the weakening commodity demand that you were just talking about. I want to show the picture and explain what it means to the audience. >> What this is is a proprietary estimate of where demand trends are moving for commodities. This is very much based on the pricing, the price signals don't come out a vacuum. This is very much based on, fundamentally very poor Chinese data. As we all know now, I think, we continue to have COVID zero policy in that country. Industrial activity is pointing to a contraction over the next few months. We've seen recently the stalling of movement, tracking or essentially, mobility data. Also showing that mobility isn't really recovering as much as we thought. But aside from the demand side of the equation, there is a big risk of a large increase in supply coming from Iran. And that's, you know, on the potential solution to Iran nuclear problems. Where the United States and you know we quite define them as P5, permanent members plus one which is Germany are thinking of making a deal which would allow Iran access to the global market. Of course they would have to conform to some limitations of the nuclear program but essentially, that is thought to potentially add as much as 1 million barrels of crude within the next 12 months. >> You had a great tournament as well. The let's talk about the prospects here of a deal. Let's see in terms of, because that's a question to write? We don't have a oil put on the global market, how quickly can they return that will do the market? It looks like they can fairly quickly. >> Pretty quickly. We were estimating in 2015 with the field at that time weren't really damaged, we really see no evidence that the current fields in Iran have been damaged permanently. His so they can, most likely, produce .2 million barrels of supply within a month. Some .7 million barrels in the next six months and .9 to 1 million barrels within 12 months. There's one very important element to remember: they have some 100 million barrels of inventory of petroleum products and crude which can be deployed in fairly quick order. The last time around, when the P5 plus one nuclear deal allowed Iran to reenter the global market, we've seen a reduction in price from 50 to, that was the price when the deal was announced… To just over a month after after that on the 29th. We side then at $32. And that's something I've written about last Wednesday in a publication. >> If we didn't get a deal, because we've been talking about this for quite some time, are there other areas question Mark I think OPEC has the ability to be sort of a swing participant. I think we've had some mornings with OPEC themselves saying "listen we can wrap up quite as quickly as the world thinks we can in times of tightness." >> That's been a problem for quite a long time where OPEC has promised to deliver a lot more crude than they actually did. In fact, this time around, last month, they promised 648 barrel increase. They didn't deliver. And I think there's very little possibility that they could deliver as much crude as many people think they have. That could be strategic. That could be due to constraints in the oil fields. But ultimately we know that they have the ability to keep markets quite tight for a variety of reasons. Some strategic, some natural, logistical and technological reasons. The issue of course, within OPEC, is that the countries that have the progress don't have the supply. And that once the dawn of the supply at the quotas. So there would have to be some sort of reordering of policy within the organization. But I don't think at this point and that's could be an issue. Everyone is focusing on a slowdown in demand and certainly the forward markets are, we've seen, strategic traders remove some of that positioning. And we've seen outflows over the last month or so from long positions into more neutral stance. > Sting of policy, obviously heading into a midterm election cycle in the United States, the Biden administration has good reason to want to, not only bring down, which we've seen, price at the pump come down to the past several weeks, but keep them down. Push them even lower. Voters get angry basically, when more and more of their money is going into the tanks. How influential is the Biden administration when all of these dynamics are being seated and crude. >> Very influential. First of all they have erected the strategic petroleum reserve in the United States to release a significant amount of crude. Some 1 million barrels a day. Without that, these markets would be much much tighter. While we are somewhat negative, you couldn't really say were overly negative. Were still looking at prices, you know, in the 80s before our quarterly forecast going into 2022, the final three months and 2023. Where we essentially think that those SPR releases will ultimately stop, as planned,and if it does create an oversupply for a time, OPEC will strategically remove some of the promised crude increases from the plan. … And stabilize these markets. So there will be downside pressure for now. But we don't think it will be a route. >> At these levels, as you mentioned, still flirting around $90, is the oil and gas industry all that concerned? When you're getting this for a barrel? >> I think, based on what we know about the structure in places like Saudi Arabia and Russia and Canadian… I think these prices, everybody is covering their costs and then some. Would you like to make more money? I think the answer inevitably is "of course we would." What are there big concerns at this is gonna be a problem? I think right now it's on the cards. >> Stay tuned. Tomorrow Jennifer Nowski, Portfolio Manager at TD Asset Management will be taking your questions about commodity stocks. So you want to miss that one. You can get those questions in ahead of time. You have to wait until noon tomorrow. Just email MoneyTalkLive@td.com. Before we say goodbye, let's bring Anthony back in the conversation. Anthony Okolie. We talked about the fact that Jerome Powell had some pretty harsh words for us and we know investors are carefully watching all the pieces of data. In the morning, working at the latest consumer confidence read in the United States. Right now the estimate is there will be, a big part of the American economy a bit of an approval. >> It is a big part of the American economy. Three quarters of the GDP approximately. Our consumers confident of the future? I think it a continue to spend? I think it's important to see how consumers are feeling about inflation and jobs. Certainly this will have an impact on notches consumers but also the markets as well. So I think it's a big data point to be watching including the Fed as well. >> The WebBroker platform tells me 10 AM Eastern time tomorrow for the latest review one consumer confidence. That's all the time we have to show today. On behalf of me and Anthony, thanks for watching and will see you tomorrow. [music]