Market Insights

[music] Hello I'm Anthony Okolie and welcome to MoneyTalk Live which is brought to you by TD Direct Investing. every day, we are joined by guests from across TD, many of whom you'll only see here. We bring you the latest on what's happening and what's moving the markets. With it being Friday today, we are bringing you some of the best commentary of the week. Coming about today show: we look at this week's decision by the Bank of Canada to hike rates 75 basis points. Some market watchers have been wondering when it comes to rates, are we there yet? While the central bank made it clear, not quite. Senior economist Leslie Preston breaks it down for us. Inflation rates are certainly a theme for markets. Brad Simpson, Chief Wealth Strategist at TD Wealth says many of the market made the mistake of trying to fight the Fed. He'll tell us how that ended. Hint, not good for some investors. Plus in today's WebBroker education segment, we look at the importance of trade notifications. How they work and how you can set them up. Bryan Rogers, Senior Client Education Instructor T are will tell us all about that. Of course we always love to hear from you and your site get in touch with us: just email MoneyTalk Live, moneytalklive@td.com or Phil at the viewer response box under the video player and WebBroker. Now let's get you up on the markets. TSX Composite Index trading quite strongly 1.5%. Some of the stocks being highlighted right now, Shopify is actually up quite strongly. Up nearly 6%. Of course on Thursday, Shopify named a new chief operating officer and chief financial officer to the executive team. The shakeup of its top ranks comes after announcing cuts in its workforce in July. South of the border, the broader S&P 500,… Off the top session Thursday when traders were absorbing the latest comments from chairman Jerome Powell on inflation. the NASDAQ, up nearly 2%, Docusign, the electronic company is up nearly 3%. And of course the company reported sales beating top estimates. And that's your market update. Now let's talk more about the Canadian jobs numbers marking the third straight week where Canadians lost jobs. To the tune of 114,000 since May. We also saw a bounce back in the number of people entering the labour market in Canada. That helped push the jobless rate to a more sustainable level of 5.4% according to TD economics. Now, when we dig further into the jobs numbers, a few key points to highlight here: the bulk of the job declines were led by the public sector. We take a look at it by industry, job losses were felt mostly in the educational services and construction sectors. Now, let's break it down by regions. When you look at it by region, the Western provinces including BC and Manitoba saw noble job losses. Meanwhile job gains were seen in Québec while other provinces including Ontario saw little change. Now, we did see a change in total work hours in August. Their wages were up 5.4%. That is faster than the 5.2% pace that was notched back in July. We know that high inflation has driven up the cost of living. The TD economics wages make up a big part of the service costs. So today's report shows that it still takes some time for inflation, service inflation to cool. So clearly, wage growth is still increasing while domestic demand continues to rise. Will today's jobs numbers impact the bank of Canada's rates going forward? This news comes just days after the Bank of Canada delivered another supersized rate hike raising its overnight benchmark by 75 basis points to 3 1/4%. We spoke with TD Senior economist Leslie Preston to see if more hikes were likely. >> We do think there is more to come. A hawkish message overall for the Bank of Canada. >> 75 basis points to go. After that, what kind of situation is the bank going to be in? Getting set for percent rate, that's pretty dramatic considering where we started this year and where our call is standup this year. What happens in 2023 question my >> We think the Bank of Canada will take a long pause as it really assesses how the Canadian economy is digesting these higher borrowing costs. Central banks have been burdened in the past by giving up to pass inflation too quickly. I know some people in markets think there could be cuts next year. We think, barring a recession, the bank will be in for a long period of holding rates steady. >> The idea that they won't even blink as we heard. There will probably be some pain for us as Canadians. I want to go through that statement. You talked about hawkish, let's break down some of the areas. Because they had to recognize that when it came to inflation, the main message here that there try to fight, we did see headline inflation ease in July. There is a caveat though, however, they start talking about some of the underlying components and how it's playing out. How is it playing out in terms of inflation ease question mark if we go to the surface, we know there is some stickiness. >> Exactly. The Bank of Canada attracts three more inflation measures. They actually increase core inflation in July. The headline is coming down to lower energy prices even since the July report, we've all been seeing lower prices at the pump. But those underlying inflation metrics of the bank watches are around 5%. Just about 5% year on year, a lot higher than they want them to be. Also moving in the wrong direction. The bank called that out in their statement. Particularly, pointing to services inflation. Canada's economy is growing very strongly in the first half of the year and it's not surprising that services inflation has picked up. > I think it was TD economics earlier this week that had a pretty intriguing piece on the fact that "okay, you get inflation and you want to strip out the volatile elements in managing fuel." That's a big portion of my income going to energy and food. But they strip it with this idea that once that inflation starts to go on the service aside, that's a stickier place. That's hard to bring down. >> Exactly. Services inflation is proved over history to be much more persistent so as we see hire inflation, that's what's going to be tougher to bring down. >> Expectations as well. We know central banks worry about this. In the statement, they did talk about surveys suggesting that short-term inflation excitations remain high. Is that something the bank really needs? To basically crush its communication question mark to get as comfortable as Canadians so that they can get this under control at some point? >… They need to enact decisively and strongly with a 75% base decides to try and bring those inflation expectations back to where they like them to be. >> So they addressed inflation in the statement and said yes the headline inflation came down but the important caveat as we discussed, the Canadian economy. The economy grew at a pace not quite as robust I guess. As the Bank of Canada has been penciling in. Yet again, there is a caveat. However the Bank of Canada says there is other things to be looking at. The economy grew at a pace not quite as robust I guess, as the Bank of Canada has been penciling in. Yet again a caveat. But the Bank of Canada says there are other things to be looking at. >> The Bank of Canada is full of two-handed economists. As they pointed out, the domestic demand indicators were very strong. Consumer spending was very strong. Canadians, without covert restrictions, by large anymore, are outspending again. Those parts of the GDP report were pretty strong. >> Of course the headline for TD economics saying it will hit for by the end of the year. That captures the headlines and people understand that because it flows directly into their household budgets. You talked a little bit aboutquantitative and eventually trying to cool the economy. Is there much going on? How much is it actually contributing beyond the rate hikes that we've been seeing. >> The impact of quantitative tightening also acts to raise mid-to longer-term deals which restrains growth in the economy. The bank reiterated that it's quantitative tightening program is ongoing. So to a certain extent that it's a bit of a substitute for rate hikes. So when we say 4% of the policy rate, the effect is actually slightly larger than that given the impact of quantitative tightening. Locks when it comes to that pain that we've been warned of from Jerome Powell saying "we know, we are trying to wrestle inflation back down to the 2% target, there will be pain for households in the economy…" What kind of pain should we be bracing for us Canadians? >> We think that growth in the second half of the year will be 1% close to annualized. That's pretty slow by contrast from the first half of the year were wishes to about 3%. So we are calling for a pretty significant slowdown in growth. And likely arise in the unemployment rate. Again, putting that in perspective, Canada's unemployment rate is at 4.9%. In July. That's a 50 year low. Basically the job market in Canada has never been stronger. As this,… Potential growth rate, we do think there will be a rise in the unemployment rate eventually. >> Coming out of the financial crisis, we became accustomed as investors or households or Canadians that the central banks will arrive to the rescue. Every time we see trouble on the horizon, the markets themselves can have a bit of attention. Riding to the rescue. Is it just a different game that we've had? We are getting more of it today from our central bank. We had a from south of the border. They're probably still people out there who think they will flinch. Do you think they are serious this time? >> I think they are. To your point about the unemployment rate, riding to the rescue, I don't think an economy with 4.9% unemployment rate needs to be rescued and I think that's at the Bank of Canada has quickly been adjusting, the settings of monetary policy for the Canadian economy. You have inflation at a 40 year high, unemployment in a 50 year low… You know, I think you could see a degree of worsening in unemployment before the bank is that worried about the unemployment rate. Just to give it more perspective on that, prior to the pandemic, the employment rate was around 5.8, 5.9% and we were calling that low. It's important to paint the backed up as a very strong one for the Canadian consumer dealing with much higher inflation rates and higher wage rates. So we do think that, you know, when you say the bank riding to the rescue… I don't think that would be needed. Unless you know, they tightened it too far and triggered a recession. >> That was Senior economist from TD Leslie Preston now an update on the top stories of the business world todayand a look at how the markets are trading. new numbers from statistics Canada show a cumulative loss of 140,000 jobs across the country since the spring of the jobless rate jumped to 5.4%. That's higher than economists were expecting. TD economics says a cool down in the labour market should not cause the Bank of Canada to change course on rate hikes. Growing wages continue to rise. Meanwhile, soaring inflation has households changing their spending habits. It appears that Dollarama is benefiting from that shift. The discount retailer is importing an 18% jump in revenue in its most recent quarter. Compared to the same period last year. Dollarama says it is seeing strong demand from its offerings as consumers from all walks of life seek out less expensive options for household goods. The Montréal-based company expects that demand to continue and it's raising its full-year sales forecast. finally, shares of Corus Entertainment are in the spotlight today. That is the media company warns an uncertain economic environment will continue to pressure advertising revenue in the near term. Corus says high inflation and supply chain disruption also hitting the North American market adds for ad sales, longer-term, Corus says it believes it's well-positioned to create value for shareholders. And here's how the main benchmark index in Canada's trading. , Let's take a look of the broader S&P 500, also trading up. Over 1% today. Now let's get today's education segment. So you are on WebBroker, you've made your trade and now what? How do you know the train went through? Well, Bryan Rogers, Senior Client Education Instructor at TD Direct Investing is here to help us. Bryan, where and as an investor go after the place to trade? >> Anthony that's a great question. We talked a lot about this segment about entering orders. Stop orders and some of the other fancy ones… But we don't really talk about once you place that trade to confirm, is it partially filled, how do I cancel it? Replace it? Order status, we are the same as well. So you have an order status window you can go to. Here's where you see what happened to that order or adjusted order or whatever you entered. I want to take a look and jump into WebBroker to show you where that is. I don't have any orders available. Here's where you can see notifications and messages he would get. But to find where your orders are, you can go into "trading" then you go to "order status" and you can see across whatever account you've selected, for example, I have this US margin account. I can see all the orders that would be open either filled or whatever status they are at and I can select and filter and go by open orders, filled orders, cancelled orders and I can also look at historic orders as well. So if you have any open orders for example, you can change one, cancel it… One question we often get is "Will I get charged another commission if I end up changing my order? " The answer is sometimes you could depending on the situation. If you're trying to increase the number of shares, something to that nature… But if you are on the buying side and just want to reduce the price that you are asking, changing them in order, if you're just doing a price reduction, you won't get charged again. It will just do the filling of the rest of your partially filled order. The other thing I wanted to show is, once again, everywhere within WebBroker, if you're in a certain section, you click this "help" button. It will take you directly to the section of the help tab. It took me to review my order status and everything I need to know about that. So definitely utilize that. Utilize the learning centre two. There are videos on entering trades and things like that. This will show your order date, your status, maybe if the order was rejected, what happens then if there was a quantity to fill her in error… You can actually review what is going on in the order status. >> Great information. Now, as you know, orders sometimes take several hours or even days. Is there a way to be notified of an order fill? >> Yes for sure. That's something that is fairly new within WebBroker also. You can actually go into a trading notification setting. What will do is, I'll show everyone. It should go as a default. If you've had your account for a little while you may have missed that. We did launch these not that long ago. Two or three years ago I believe. You can check and see what your settings are for trade notifications. The way you would do that is to go to the top right-hand corner and you see your name in your company name. You left click on that. You want to go to "customized site " there are other things to enter in terms of what is your main homepage and several other things like security settings and so on. But we want to do is click on "trade notifications". This is where you will see trade notifications, what you should've selected. All of these selected if you want to see if you have an order filled or if an order is partially filled or wooden orders rejected. What will happen is it will pop up on a certain area of the screen. You can see either at the bottom left of the bottom right. You will have a little icon or tab pop up when that order goes through. You can actually set how long you want to see and for it to linger there so it doesn't pop up. It might immediately stand up there for 10 seconds or three seconds, whatever you prefer. If I click on this? , I don't have examples of the moment… This will actually explain a little bit more about those notifications. And it will show you what they look like. So it will look like this. You entered that order Anthony and you end up buying it, and you can actually go directly to the order status as well. To see if a partial fill was rejected and you can see other messages there. Definitely anything you had a need for that set up. >> Very informative as usual Bryan, thank you very much. >> Thanks Anthony. >> Our thanks to Bryan Rogers, Senior Client Education Instructor and TD Direct Investing. And here's a look at some upcoming classes that the client education team is hosting. New to investing, portfolio management… Even options trading so please check out the learning centre in WebBroker for more educational videos and upcoming webinars. Now there is an old saying on Wall Street: don't fight the Fed. Well our next guest says of the recent volatility in both the bond and equity markets suggest investors have been trying to do just that. And losing. We were joined earlier this week by Brad Simpson, Chief Wealth Strategist at TD Wealth who talked about the challenge of fighting the Fed. >> It's one of the most fascinating things I've seen and we've seen some remarkable things over the years. You can really count on this adage really ringing true. If you can step back from it, you look at what's happening in July and early August, we had interest rates, treasury standing to work their way down,… If you look at the financial conditions Index, the stock in the bond, we saw conditions loosening. You know, if you are a central banker, here are the three things that you didn't want to see. You didn't want to see rates coming down. You didn't want to see markets going up. You surely did not want to see the traditional of the shadow banking system that money was easing up in there. I think a lot of that has to do with a fool believing what they want to believe. We've got so used to and so addicted to the central bank coming to the rescue that now it's at the point where we just can't believe it would happen. Do they really mean it? I think the worst thing right now is "this is an aberration." This won't continue and now we are halfway through August gone. The light bulb is starting to really turn on. I think the people are waking up again very clearly seeing there is not a pivot coming anytime soon. >> Was the light bulb event Jackson Hole? It was very stern. Not that I expected otherwise from the central bank but it said "this, this, this." >> If you look at what's happened in the following days, you can even go before Jackson Hole. If you read the newspapers, commentary and all that. It will all be about Jackson Hole being quiet. That it could be one of the least significant Jackson Hole's we've had in a long time. I actually think there's a coordinated campaign by central bankers right now. Jerome Powell came to that. Unbelievably clear. Days following, you have seen fed bank governor after fed bank governor saying the same thing. Inflation is bad, there is no pivot coming and we will keep fighting this thing and of course, you see 75 basis points today… Exactly. Exactly word for word almost what was said. The Bank of Canada the day before. So yeah, it's… I think it's within to be interesting to see is. I'm not sure everybody will keep on this. Maybe for a while. But if you don't need a sign that we are in a regime change… We are in a regime change. >> We are so accustomed to central banks riding into the rescue. Even throwing a tantrum in the central bank saying they will back off. But now they will stay on course. What does it look like in this environment for investors and for how long will we have this sort of "regime" saying they have to inflict pain and it's what they have to do? >> I think the long story short is the first view is when we were, when things started opening up again, this would take a couple of quarters and we would work our way out of this. I think today, it really works into two camps. I think maybe the best way to oscillate between those two camps is a consensus view being that we will work this out in the next three or four quarters. We will somehow miraculously have a mild recession. We will thread this side of the needle. And so if that were the case, kind of where equity markets and fixed income markets are now, fairly reasonable place if all that rings true. The other side, the other camp… It would suggest that this is going to be a lot longer and harder than what was originally thought. I think that a key here for investors would probably be a key seem we will come back to a bunch of times today. I think we need, and the answer to where we are is this is going to be a process to get this back to where we need to get it to. And what happens a lot in markets when there is lots of liquidity and lots of movement and lots of momentum, it's, what makes that market move is a lot of speculators and a lot of quantitative traders making things move. This is a great you want to be in as an investor today. And so that changes your dynamic. This is a really tough trading market to be in. More and more, I think if you want to determine which economic environment you are in, I can pull up a chart for you that will make an argument whatever way you wanted to be. >> Yes you can make the numbers dance ha ha. > There is so much conflicting data out there it's incredible. That conflicting data is always really really hard to frame where we are in the present. This one is particularly difficult because there really is all of this "pick your data " and build a story around it. >> In a situation right now is central bankers basically saying "take the tough medicine, we know it tastes bad and you don't like it but it will provide the cure." So in the end, are we confident that the central banks will get a handle on inflation and bring it down? >> Yeah. And I think there are a couple of reasons why. I still am in the camp that, we sometimes have this tendency to make things so big. If you go back and you look over the last year and 1/2, just look at money supply. Look at M2. It absolutely J-curved to the moon. You wonder how inflation happened. I think it was pretty clear. Once you looked at that and said it gives folks a lot of extra spending money and a lot of really low interest rates and a lot of time on their hands, you will get a pretty active economy. That is indeed what we saw. And so, this means, you have to look at a lot of instances. You see manufacturing starting to slow. You see the cost of food. I know we talked about this a bit last time. But it is starting to flow through and you see it's still a little bit of surprise when you were in the grocery store. It's not as big of a surprise as it was because baseline cost of food are coming down. When you drive past a gas station and look up, the price of gases come down. So we are at this number of 10. What we've been saying is this move from 10 to 5, all things being equal, this is happening and were in the middle of it that in short order we should get there. This movement from five down to two and three, this is where the sticky stuff is going to be that we are going to have to work through. We have to keep it up if you want to watch on that, it's kind of twofold with housing on one side and labour markets and the other side. Those two things are going to tell you at what rate we are going to get this down to that number two, number three, the likelihood is this the story of your fourth quarter of 2023, moving into 2024, both likely were a lot of this will get solved. So yeah. >> That was Brad Simpson, Chief Wealth Strategist at TD Wealth. Turning to the markets, will start here in Canada. The TSX composition is sitting nicely in positive territory. It's up a strong 281 points or 1. 4%. Turning over the US, it looks like we are seeing positives across the board. We'll start with the broader S&P 500 index. Of course the markets are trying to shake a three week losing streak and so far looking positive. The S&P 500 index is sitting at 4048 points right now. Of 42 points. Just over 1%. Let's take a look at the NASDAQ index. It is also up right now, just about 1.6%, trading at 12 thousand 60 points. So staying with the markets, the price of gold has struggled this year. Thanks in part to the strength of the US dollar. And what the Fed poised to continue raising interest rates, our next guest says the outlook for gold could hardly be described as promising. Daniel Ghali is a Senior Commodity Strategist at TD Securities. And he talked about the relationship between gold and the Fed monetary policy. >> I'm spending most of my time right now gauging the Fed outlook. We are probably in the most hawkish central bank regime since the 80s. Going forward, we are trying to gauge how the economic data will look at if it will warrant a change in policy. Here is I think what terrifies the academics out there. We are seeing evidence of a persistence in inflation and an anchoring of inflation which means that not only inflation is broadening and impacting more and more goods and purchases and services that we purchase but there is also evidence that inflation and sensitivity to itself is rising. Meaning higher inflation is beginning higher inflation. >> Not wanting to get into that kind of a cycle, Jackson Hole, it's always a big event for us market watchers. Sometimes he come out the other end and you say "you told me what I already knew." I felt the same thing this time around except everyone paid attention. We had this nice Summer rally. Jerome Powell tells us "I told you there will be pain and we have to get inflation under control." It's like people realized he was really serious finally. >> Yes absolutely. What you're really pointing to is a clash between what we've seen central banks do over the last 40 years, which is acting the countercyclical way as we are seeing the Fed and other central banks battling inflation. Recessions are rising and turn in the market is anticipating that rate cut cycle immediately following the rate hiking cycle. Jerome Powell's speech was designed precisely at pricing out those market expectations. That has been done today. >> So in that environment for gold, the Fed remains strict and chair Powell holds on in the face of the pain that he says is to come. But if he stays the course, what can we expect for gold? How much? >> Actually, there's an argument to be made because the rates marketed no Preston this idea that a rate cut cycle is… There's an argument to be made out there that the move lower in gold prices is fundamentally running out of steam. But I think that's missing or has one major caveat. In that argument. Historically, looking through past hiking cycles, there's a point at which rates are elevated enough that they are now restrictive. What economists call the natural rate of interest. We are poised to meet that rate and remain above it for a sustained period of time despite the rising recessions. In that environment, gold prices tend to dramatically underperform. The other part of the rate hiking cycle where it's happening at that threshold. I think most of the pain is still ahead even though rates markets have already priced a sin. >> The fear of more pain ahead, you recently said "every take lower in gold prices raising the risk of capitulation of events." How quote how close we from that to happen in question mark >> I think the margin of safety consent capitulation is drawing razor thin. We are looking at a potential break of this 60, 75… That is a critical tactical level. What's interesting about this potential break is that it could catalyze a capitulation event from this new cohort of investors in gold that we think are holding an extremely large, bloated and complacent position. >> Let's dig into that. Because you said, when we were chatting earlier before you came on, that you were noticing sort of a different class of investor. Or a different sort of investor holding gold. What are you saying out there? >> Absolutely the. The commitment of traders report it has been analysed to death and yet most analysts are really missing one critical factor in that report which is the position from other reports which is defined as the funds as trading gold on behalf of themselves as opposed to money managers which trade gold on behalf of their clients, this new cohort, under reported goals has become the dominant speculative force in gold. Our analytics suggest there are about 70 participants. Trading shops that are holding an extraordinarily large position in gold share. If we did get even further into that, it doesn't seem that their position is related to any inflationary. Or any fed narrative. In turn, that is drawing our conclusion that is probably driven by complacent position accumulated earlier in the pandemic that is yet to filter out of the markets. >> So if we take that factor which we are noticing the market, this complacency, fears of a capitulation event, made on the morning on the way and on the train, how will I as an observer know when we have reached this capitulation questionable I see? >> We could potentially see gold prices fall significantly below fair value as a result of that. Liquidity in global markets is really eroding. If we see one cohort rush for the exit at the same time, we can probably say very sharp move lower in gold before prices stabilize on a more fundamental basis. >> In the long term, what could go right for gold? Longer than you and I have existed on the planet, people believe in gold as a safe haven. What can go right long term? >> I think longer term there is a very positive story for gold here which is the world has accumulated a massive amount of debt. Even though we are looking towards the next year to a Fed that will keep rates more outdated than they would be reduced by rising recessions, there's a point in which the Fed will pivot and that the point where you might want to own some gold. In particular, because the typical diverse the fires that you have in your portfolio, your typical stock and bond portfolios, designed to offer some diversification. But over the last year, we've seen in the higher inflation environment that's not necessarily the case. Both assets move in line with each other. So that's where gold can play a role and commodities more broadly. >> That was Daniel Ghali, Senior commodity strategist at TD Securities. And that is our show for Friday, September 9. Stay tuned Monday will be joined by Alexandra Gorewicz, Portfolio Manager active fixed income at TD Asset Management. Will be talking all things fixed income. And don't wait you can email us your questions now by emailing moneytalklive@td.com. That's all for our show today take care and see you next week. [music]