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Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today's show, we are going to discuss the potential opportunity in fixed income with more signs of inflation cooling. Scott Colbourne from TD Asset Management will give us his views. TD Securities Daniel Ghali is going to give us his take on what the end of hikes could mean for commodities.
And MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from a couple of big economic events next week right here in Canada. Plus in today's a broker education segment, Bryan Rogers will show us how you can trade after hours using the WebBroker platform.
Before we get to all that, let's get you an update on the markets. It has been a positive week for stocks on both sides of the border. Right now, hundred and 18 points on the table for the TSX Composite Index, but fairly healthy 59 basis points, a little more than half a percent. Among the most actively traded names on the TSX is a reversal of fortunes from yesterday.
With crude oil stabilizing after yesterday's big pullback and prices for American benchmark crude, using some of the energy names get a bid. Crescent Point Energy at nine bucks $0.67 per share, 3%.
Yesterday, it was gold getting the bed while energy was under pressure. There's been a reversal of fortunes. Let's check in on Kinross Gold. Seven bucks and $0.36 per share, down about 1.7%.
South of the border, then November rally continued into this week. Further signs of cooling inflation.
Today a bit of a pause. At 4507, you are down just to takes on the S&P 500. Some names giving back a little bit after making some sizable gains this week and month. He got the NASDAQ down about 1/5 of a percent.
Want to check in on. The earnings came out. Seems they are doing a better job than the Old Navy brand of stocking close that people want to buy. And so the stock is up 29%. That's a big jump off of an earnings report. I took a look at some report suggesting there had been a sizable short position against the company ahead of this so perhaps you are seeing a bit of a short squeeze as well adding to this rally in the name. And that is your market update.
It's been a very interesting week for stocks. At the November rally continued on further indication of cooling inflation.
Getting a real sense of the market right now that participants are feeling not only is the Fed done but they are thinking about when the market will start cutting.
It felt like something happened this week, Anthony. MoneyTalk's Anthony Okolie joins us now in terms of not changing investor thinking about where we might be heading but cementing some hopes that the market had.
Yeah, we saw a bit of a change in the narrative.
As you mentioned, inflation seems to be the centre of the story. The good news is in the US inflation did cool more than affected after rising for the last two months. Underlying core inflation slowed from 40 year highs as well. There's a lot to unpack here. I'm going to mention some key economic data we saw this week. US wholesale prices fell in October. The biggest monthly drop since April 2020.
Retail sales in the US fell in October, first time in seven months.
Slowing inflation, cooling economic reports are raising hopes that the Fed may be done hiking rates and so you talk about that narrative. We see this narrative shifting from higher for longer rates to back to kind of a soft landing and potential rate cuts. I think markets right now are anticipating rightly or wrongly that we could see a dovish pivot by the Fed, especially we continue to get some weak economic data and signs of cooling inflation.
It's been a while coming. It'll be interesting to see how it plays out.
Another inflation report three or four weeks from now, we will see. Thanks for that.
My pleasure.
MoneyTalk's Anthony Okolie prayed he will be back later with a preview of some big economic events happening in this country next week.
Amid the signs of cooling inflation earlier in the week, you start thinking about the end of a rate hiking cycle, the possibility of cuts at some point in 2024.
We had a chance to sit down with Scott Colbourne, head of active fixed income at TD Asset Management to talk about what it could mean in terms of opportunities in the bond market.
A good news day for all investors, whether it's fixed income or equities, it's a bit of a reinforcing of a Goldilocks sort of scenario, modest growth and good inflation.
A big sigh of relief. The market was expecting a little bit more.
Actually, they were expecting 3/10 or 4/10 of a month over month inflation at 2.2 so that relief has fed through into a huge rally, as you know, today across the board.
I think, from an inflation story, that takes the burden off any eminent hike from the Fed, so we will see how growth plays out through the next quarter or so. But for the near term, this is a big tailwind for the asset market.
Sometimes only take a look at a piece of economic data or an inflation report, they will say, beneath the headline, here's what I didn't like her here's what we need to pay attention to. Beneath the headline numbers here or the flat reading month over month, was there anything that gave you pause or concern under the rate hikes seem to be doing their work to bring inflation gradually down?
I think you're going to see a pushback by central bankers. This is a good news story. For the most part, the details are very good. Even shelter which popped up last month has come back down.
Maybe super core inflation, you can really slice and dice inflation here.
It's a little bit higher than expected, which is sort of the focus on the labour market and both the Bank of Canada and the Fed have sorta said they want to see further evidence of cooling on the wage front and the labour market. So I think they are, there will be a natural pushback by central bankers here.
They are not interested in hiking, in my personal opinion. They are going to be patient and let the data come to them. As the Fed chair did say, we are prepared to over tighten or stay on the tightening side more so than bringing about a change in the market. So there will be a dilemma, how much to price and in terms of cuts in the market, do you start in the second quarter of next year or do you move it more to the second half of the year and right now we are starting to price it into the second quarter so maybe that's where the tension will show up between the market and the central bankers but I do think we are done, and right now, it's a Goldilocks story because inflation has come down and growth is okay here.
But if we see growth go down and inflation continues to go down, that's going to be a little bit more concerning present markets.
Are the Fed and BOC not thinking so much about what they see in the data about how we react to it as investors, how consumers react to it?
Are they more worried about how we behave in the next couple of months?
There is an element of expectations here. We had inflation expectations that came out last week that work at least from the Michigan survey a little higher than markets expected. So there's that managing the expectations. Let the labour market cool off. We've got one nonfarm payroll that has been a bit soft and we need probably a string of that to feed through and continue the softening on the labour side. We see continuing, continuous claims creep up so there's evidence of increasing labour supply but not really may be real softness on the labour market. So yeah, be prepared to let central bankers wait here and the market is going to have to deal with that push and pull attitude from the central bankers here.
I want to ask you about an interesting headline I saw pass in the past little while.
Something about a bond auction in the United States. There have been concerns about issuance earlier in the year and they had a messy one recently.
The supply is a bit of a hair on the bond market and what we have seen is a big inversion of the yield curve. Short-term rates are higher than longer-term. That is consistent with the Fed tightening. As we move toward the Fed on hold and ultimately pricey and cunning, you are going to get a disinversion and is supporting that sort of higher rate staying above longer-term rates is the supply. Yes, last week we had three auctions. We had a three year, a 10 year and a 30 year. The first two went well, the 30 year was a big dud.
It led to a big selloff in rates. So I think that is going to weigh on the longer end. That being said, I think rates on the long and can still come down but it's that headwind, lots of supply that is going to impact the bond market and fiscal spending isn't going away anytime soon so they need to issue a lot of debt.
Speaking of fiscal spending not going anytime soon, we saw some of the rating agencies not pleased in the several past months about what's happening on Capitol Hill. It was Moody's the latest come out with a downgrade of the debt outlook?
They put a downgrade on the outlook but, yeah, it's on a ratings change but it is just another warning sign and the markets are doing a bit of that work to, putting in a term premium, on buying the longer end because of the excess supply.
So yeah, that is a huge issue.
I think this is not going to go away. I think politicians in our comfortable post-COVID spending. They may now rein it in a bit but I don't think this is going away and this is going to contribute to a stickiness or an upward bias on the longer and relative to the shorter end.
We put it all together, what does it mean for fixed income investors?
It was it have 2022, it hasn't been the 2023 that many of us thought it would be.
Have we turned the corner?
I believe we have turned a corner but I am measured in my enthusiasm.
I think that we could see long-term rates, ten-year rates in the US maybe converge to four, 4 1/4. I don't think we are going to see short-term policy rates get back quickly to the 0 to 2% range that may be we were comfortable with in the pre-COVID era.
So it is more of a measured enthusiasm but I think we have nipped the inflation challenge.
It's going to take a little bit of time to wring out the expectations in the labour market on wages.
But there are crosswinds at play, de-globalization, aging demographics, excess spending. So it's going to measure or limit how much we can see a rally in so I'm enthused for the moment and I think you're going to get a nice risk rally into the end of the year with lower bond yields and probably good returns on risk assets as well and we will see how 2024 plays out.
That was Scott Colbourne, head of active fixed income at TD Asset Management.
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.
God shares of retailer gap in the spotlight today, results of the company's Old Navy banner were the bright spot for the quarter. The company is working down outdated inventory and restocking was a more current clothing styles. The street like the report. Right now you got the stock of almost 30%.
I took a look before the show. There was a sizable short interest in gap so perhaps what you are saying in some of this gain here, it is a big one, are a bit of a short squeeze for some of those players in the market. It looks like autoworkers have ratified a new contract with Chrysler parent company Stellantis. Pulmonary numbers released by the United Auto Workers indicate the deal has the necessary support of workers.
Among the key details of the deal is at least a 25% wage increase over the life of the contract.
Right now Stellantis up modestly, a little shy 1%. It appears Amazon is shifting more resources toward artificial intelligence.
That as several reports out there that the tech giant will cut several hundred jobs at its Alexa voice assistant division and put more of those resources towards generative AI which of course has had quite a boom this year. Amazon up shy of 1%. A quick check in on the markets. We will start your own Bay Street with the TSX Composite Index.
We've got energy prices stabilizing today.
They pulled back a little bit more than 4% and have reclaim some of that ground. Your little bit above 75 bucks per barrel for American crude right now. 20,181, the TSX is that more than half a percent.
South of the border, the S&P 500, there has been a big rally so far in the month of November. Right now, there is green on the screen. It is pretty modest.
We will be generous, we will call that three points to the upside are six ticks.
The potential end of the Fed's rate hiking cycle will have a major impact on the commodity sector. Earlier I had a chance to discuss with Daniel Ghali, senior quality strategist with TD Securities.
Listen, we are looking at gold prices rallying towards $2,100 an ounce. That's on an average quarterly basis. So on a more tactical horizon, that can overshoot quite substantially. And really, what we're looking at here is a significant undervaluation of every macroeconomic scenario other than a soft landing.
We're actually expecting a US recession in the first half of next year. We're starting to see cracks emerge in the data.
And investors are very severely underpositioned for that in gold markets.
That's particularly notable, by the way, in a period in time when you have stock-bond correlations that are abnormally high. The traditional portfolio diversifiers that people tend to look at are no longer working as well. So commodities are one angle that you can take a look at to address that.
You mentioned the US economy there.
Obviously, you said the only thing that the market's really pricing in is a soft landing where we all come out of this unscathed. And we've been through a lot in the past couple of years. So if you think we're going to see a recession, then that would suggest that the US economy has peaked. It's been pretty strong up to this point. What does that mean for gold prices longer term? What are the correlations here?
Yeah, so I mean, the third quarter GDP report was gangbusters. And I think that intuitively, market participants have seen the trend growth that has occurred over the last few quarters and are starting to project that forward. But the reality is the quality of that GDP report was actually pretty poor. And we think that we've already reached peak US data.
Looking forward, we're expecting a meaningful deterioration in the growth outlook starting in the fourth quarter but continuing into the first half of next year. And we think the market is already comfortable with the idea of the Fed providing insurance cuts. But as the recession outlook firms, that's going to have to firm further as well. The Fed is going to have to cut far more than the market is currently expecting.
You said the word "cuts" there twice.
That is what a lot of people have been asking about, about when they will come.
Not only are we done-- and I mean, it appears if the Fed doesn't go higher again, we've been done for a while. We haven't seen a hike in quite a few months.
At the same time, though, when the cuts come-- let's first ask you when you think they might come. I mean, if the condition is a recession, when does the Fed feel the need to act?
So this is the hard part for people to wrap their heads around. The Chair Powell has already communicated the idea that the FOMC is actually comfortable with the idea of looking at the Fed funds rate in a real basis. So if the Fed actually just keeps nominal rates constant, and inflation is coming down over the first half of next year, you actually expect the real Fed funds rate to increase notably.
That's actually the Fed tightening significantly over that period of time, which is not necessarily necessary when growth is already deteriorating, when inflation is actually getting closer and closer to target every month. So the idea of insurance cuts has already been communicated. But if there is indeed a recession, as we expect, we think the market is going to price a significantly deeper cutting cycle.
Let's talk about the cutting cycle.
When the cut does come, the idea that if we were going to see, I guess, heading into this rate hiking cycle, people say, well, generally central banks, they move in 25-basis-point increments. They take it slow. They don't want to shock the economy. Inflation got out of hand. They had to shock the economy.
And it was pretty aggressive and a pretty short part of time. Once they feel like the mission has been accomplished, or even a recession has arrived, how aggressive could they be to the downside?
Well, so central bankers tend to look at data as it comes in. So by the very nature of that, they're going to be behind the curve when it comes to the growth outlook. They need to see actual weakening in the data before they cut. The result of that is the economic deterioration that we'll see between those moments in time is going to accelerate. And that's probably going to necessitate more aggressive cuts.
And then once we're actually in that place, gold. This is where you see the thesis playing out, right? Hitting on new all-time highs.
Yeah, absolutely. I mean, so what's interesting about gold markets is that the upside we've seen in interest rates tends to be pretty negative for gold prices. But gold prices today are actually still hovering. If you zoom out, they're still hovering near all-time highs.
So the deterioration of that relationship actually points to very significant central bank demand that has distorted that relationship, given that it's largely investors that tend to look at interest rates and that filters through to the capital that flows through to gold.
Central banks don't tend to look at it that way. And in fact, we think that this is a structural trend driven by a mind shift in the Global South where central banks from everywhere from China to the Middle East, Turkey, and so on and so forth are looking to add gold to their FX reserves. So bringing that back to the context here is if central bank demand remains as firm as it has been or just generally strong, and investor demand kicks in on a lower interest rate outlook, then the outlook for gold tends to be quite positive.
I only got about a minute left with you, Daniel. But while I got you in the chair, I got to ask you about liquid gold, about oil, what we've been seeing in the market right now and where we might be headed.
Yeah, so oil prices have been coming under a significant amount of pressure.
But we actually expect them to remain largely range bound at elevated prices over the next year. We're forecasting oil prices north of $90 a barrel. And the story here is a supply side story.
Contrary to what we've experienced last year, where you had structural constraints to supply, this year is a story about an engineered tightening in oil markets.
This has to do with the aggressive production curtailment deal from OPEC+ and its partners, Saudi Arabia and Russia's voluntary commitment to cut their supply even further, which we expect is going to persist over the course of the first half of next year at the very least.
They are now stuck in a position where because oil prices are under pressure, if they were to abandon the deal as is planned at the turn of the year, oil prices would deteriorate significantly.
And that would be counterproductive to the efforts that have been ongoing for almost six months now.
So they're stuck in a position where they need to keep supply tight. They're also now embracing the role of swing producer, given that investment into new supply has been curtailed in the West. And in turn, they now have a dominant share of global spare capacity.
That was Daniel Ghali of TD Securities.
Now, let's get our educational segment of the day.
Market watchers are well acquainted with regular trading hours, 9:30 AM Eastern time to 4 PM. You don't have to wait till the next day to make a trade after the close. Joining us now to discuss, Bryan Rogers, senior client education instructor at TD Direct Investing.
Great to talk with you again. If you own a broker in your thinking the trading day is over but maybe you are watching after our earnings in one place in trades, what do you do?
Yeah, you can only key point, great.
There are situations where you might be thinking, the company I own announced earnings, maybe there is a big move happening on the stock, it could be going up and you might want to capitalize and get that extra profit was going down and you want to get out of it, you think you have to wait until the next day even though all this action is happening. But as you said, there is an extended hours session where you can take part but there are a couple of key things you want to know. One is that it's only available for US dollar stocks. The other thing is there is a timeframe, there is a time element where with an WebBroker you can only do this up until about 7 PM. Stocks to trade pretty much 24 hours a day around the world in some form or another, but in North America, the ones we have access to will only usually go till about his latest 7 PM, that's where most of the volume happens.
We have that available in WebBroker. Let's jump in and take a look and show you how to do that if you did want to capitalize on this.
As you said, we have Nvidia, Nvidia is a stock that has its earnings coming up next week.
It's on the 21st. Let's say we did own the stock and armies came out after hours, it came out at 420 I believe is the time and you notice there's some big moves on the stock and you want to take advantage because often times you will see a spike in it may come back down again before the market opens the next day.
So if you did want to take advantage of that, jump into the order ticket.
I click on the sell button.
This is only available for US dollar stocks so if you do see this in here and you have a Canadian stock for example and you don't see what I'm looking at, that's why, it's just not available at this point.
There is somewhat of an extended time for limit order that because it has 4 o'clock for Canadian stocks but it something you can't control but that automatically happens. For US stock like Nvidia, we would fill in our quantity, let's say 100 shares.
Another key point is that it's only available on limit orders so limit meaning that we have to specify our price. Because this is a basically computer-driven after hours, I'm looking at one of those limit orders coming through.
You can still refresh, you can see the bid ask will change. The last price will stay static after 4 o'clock. The bid ask will update though. You can look at the bid ask and say you want to set a limit price.
Let's say it's breaking up select 500 or something like that after hours.
We could put in 500 and it would be choosing this down at the bottom, this good till is the key point that you're looking for to make this extended. You want to do this day plus extended markets.
You can do it after hours, you can enter it after the 4 o'clock time but if you enter it during the day, if I did it now for example, it would extend until 7 PM Eastern time.
And you could take advantage if there was that movement. But if you want to wait, you could wait until after hours and enter that in later as well.
So that takes us through the evening and the close of markets.
Things happen in the morning to, some companies, I never liked it when I was on the business journalism desk, getting up early to do this, but they report before markets open. There might be a reason to get into the market before the open. How do we do that?
That's a good point. That's just not fair, I agree.
It's much better later in terms of doing it after hours.
But they do often announce prior. We all know markets open at 930. So there is that timeframe, not too early, typically around 8 o'clock, a lot of the volume there, again, usually runs between 8 o'clock and 930, that's the timeframe said TD Direct Investing does as well. If you jump back into web broker there's not too much different to show you.
I will show you a section where you can look up some information on this.
You can do it if you want to buy or sell.
He would still do day plus extended but the key thing here is that is going to run from 8 AM until 9:30 AM. The other distinction I want to say is if you want to have this run across the whole day, let's say in the morning there's the announcement, you're not sure what's going to happen but you had a limit in mind if you're gonna sell a stock for certain price.
If that earnings announcement comes through in the morning and I'm not watching my computer, you can set this, remember, he can only do it for a day but you can set this for day plus extended and that's going to stay open as a limit order from 8 AM until 7 PM. Even if something happened after hours as well, you are covered for the full day. The last thing just to show you is you can go into this?
Here. We have talked about that before.
And you can just go through and scroll through on here and get some information and see if it comes up. You might have to scroll little bit on the day plus extended. But here we go, good till is what we are looking for.
And this will give you more information about the day plus extended time frame, said feature that you can use. If you're looking for more information on that, then that's available as well. There are other classes that we have, we run classes all the time and there are videos available so if you want to see all those order types, I know Caitlin talked about them the other day, but there are a ton there is a ton of information about those orders.
Thanks for that.
Thanks.
Bryan Rogers, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We have been talking about the signs of cooling inflation south of the border, the effect they have had on the markets this week.
But what has it mentioned in terms of investors and how they are positioning themselves? Andres Rincon, head of ETF sales and strategy at TD Securities join me earlier to discuss.
It's all been about fixed income.
Was really interesting, you mentioned earlier, we have seen a complete shift from both our advisor and retail investors and also institutional into fixed income ETFs and call it two thirds of the flows we have seen in Canada this year have been into fixed income ETFs, that's about $20 billion.
It's really impressive. What's interesting is the direct investing channel has taken up interest in the fixed income world. For the longest time, it remained dormant with interest rates being so low but with interest rates now being higher, a lot of these products are offering very attractive yields and it's interesting to see mom and pop every single day or the active trader, first thing they do is look at a fixed income ETF. It's a really interesting process to see that shift.
It's been mostly on the short end of the curve because it's paying quite a bit.
There's treasuries, HISA ETFs, money market ETFs, ultrashort Termont ETFs, that's a big part of it, about 40% is going there, and then you have the rest going to traditional AG fixed income but you are also seeing some money now go into the long end of the curve.
So it's a bit of a Bärbel exposure where you get a lot of money in the short end, a lot of money in the long end and that long end exposure is really being taken up by retail and wealth investors and also institutions originally to hedge exposure against rates declining and a meltdown in the market if it ever happens. So it's an interesting dynamic that we have right now on both sides of the border here.
You mentioned HISA ETFs, the high interest savings account ETFs. Recently, our regulator, OSFI in Ottawa, decided to change some rules around them.
Walk us through what they actually did at OSFI and what impact you are seeing on the market.
It's a little bit complicated. I will stay fairly… They've been reviewing these ETFs for several months now and they review stems from the liquidity provisions that these ETFs receive.
And the liquidity provisions really stem from whether the stickiness of these funds, are they retail or institutional money coming into these funds? Can investors follow that money anytime they want? So they have a variety of factors and they determined after a long review that these products should be considered as institutional money although most of it is actually retail money, I would say 90% plus is retail, but because it's an ETF or mutual fund format and it can go in and out, it should be considered like an institution.
What we will see is in February, we will see very likely a drop in the rate as the liquidity treatment for these ETFs will change. Now the drop in the rate will be fairly minimal.
We expect about 50 beeps or so.
That is still to be determined. But we do expect the space to remain very attractive at those rates and to be very popular because they are bank deposits of their relatively safe in this environment.
Interesting changes there. Lots of things happening in the ETF space.
Also this trend that I wasn't aware of, mutual funds apparently converting to ETFs. A bit of a different situation south of the border compared to here in Canada.
Walk me through that.
Yeah, they are creating a lot of news in the US because he a very big mutual fund companies or traditional mutual fund companies, some also have ETFs, but they are converting a lot of their large mutual funds into ETFs and you might ask why you are not seeing that in Canada. It is because the rules in Canada are different to those in the US. In Canada, you are already allowed to launch an ETF series of an existing mutual fund.
There is no need. It's allowed, anybody can do it. That's been the case for the longest time here in Canada.
You will often have a mutual fund or ETF that are the same in both structures. In the US, that structure where you have the ETF class was really patented by Vanguard and only Vanguard and that patent actually expired recently.
But you still have to apply to the SEC to get into that structure so what a lot of the issuers in the US have done is actually instead of going that route and having to fight with the SEC, they have converted some of their very large mutual funds into ETFs. Now that's also fairly complicated how you do that but what that allows them is to enjoy many of the benefits of the ETF structure and keep all their assets, most important. We are seeing a lot of these big, big issuers like at Fidelity and some other big players convert to all of those ETF structures, growing the ETF pie as it goes.
Does an investor have anything to be mindful of when a fund converts from one thing to the next, or is that really something on the institutional side?
Is actually mostly on the retail side.
Really, they don't have to be mindful of a lot. It has to go through voting process which is why said it can get complicated.
Not every mutual fund can actually do this.
The investor has to be mindful that they will have to vote for this transition and if they DO, then what ends up happening is that same day, there mutual fund would convert to an ETF and then what they have to understand is if they want to sell it, they have to sell it in the market as any other ETF.
Interesting stuff. Viewers of the show will know you are a regular guest on MoneyTalk Live. Of course you host your own show called Buyside Views. In the latest episode, you were joined by Samir Dhrolia, Senior Managing Director at the British Colombia investment management Corporation.
They discussed the rise of centralized trading. Have a listen to this.
So if you, for example, have a portfolio manager that is desiring to buy Google stock, they could buy it using call options, they can buy just the stock they could buy a swap on the product. A centralized trader will be able to look at all of the different ways of executing that order and optimizing it and delivering it to the portfolio manager and saying this is the best way you can execute this. She may want to go with the stock or use the option structure instead.
So this is where these broad skill sets of traders in a centralized framework are able to add value.
Okay, so first thing I will say, that couch looks very comfortable.
It is, yes.
But there are some interesting things being said there, Samir explaining centralized trading. An interesting space.
If you are a big asset manager or a pension plan, most of them actually have centralized trading or are transitioning to centralized trading. This is not necessarily new but we have seen a big push recently onto this platform and basically what it means is as he tried to explain is you have multiple regions, multiple asset classes and instead of them being traded separately by region and by asset class, they are all being treated out of a central desk. It has many benefits for a lot of the large asset managers across the world.
I think this is interesting for your audience to you because you have a lot of active traders, active trading on the TD platform, but you have a lot of traders on your platform and those that want to learn a little bit about trading and how some of the larger or largest shops in the world do this, this is a great video for them and for those of you that are listening, we are all Google podcast, Apple podcast ants modify and you can find us at TD Buyside Views.
That was Andres Rincon, head of ETF sales and strategy at TD Securities.
Now, for an update on the markets.
Okay, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function. We get a view of the market movers. We will start with the TSX 60 in your screening by price and volume.
It's really broken down between the three big sectors today, that topline TSX number. We will start with energy, their screen on the screen after yesterday's selloff in American benchmark crude. A bit of a rebound there.
It's flowing through to some energy names.
We are taking a look at Suncor, of almost 3 1/2%. Cenovus beside it also up in CNQ as well. Materials are also putting points on the table. And the last of the big three sectors, you get a bit of a mixed picture in materials today. Some of the gold-mining names are getting back but it's modest. Some other plays including tech which had big news earlier this week, selling school business, is up about 2 1/4% today. South of the border, I want to check in a energy space.
What is true for our energy names is true for an Exxon or Chevron today. When we look at technology, some of these names, Google and Microsoft, had some big games this week. A little bit of get back on the front. We can't actually show you a graph of the Canadian dollar against the US dollar. We had a viewer today sending a question asking what's going on with the Canadian dollar and why is it strengthening against the US back today.
Yes, oil prices are recovering from yesterday's selloff but it seems to be a story about broad-based weakness in the trade weighted US dollar. Pretty steep weekly fall for the US back on the back of all those cooling signs of inflation.
Today, he got the US dollar losing more ground against the euro, against the yen, against the British pound, against the Australian currency and against ours as well.
Hopefully that explain some of the strength we are seeing today in our currency against the US currency.
I hope I said something useful there for the viewer. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Now next week, it's been a busy week this week, but next week we get a lot of anticipated Canadian data in this country, including our read on inflation. And we will hear from the federal government in terms of the state of finances in Ottawa.
Anthony Okolie joins us now at TD Securities breakdown of what we can expect next week.
Inflation is a big story in the US as well as here in Canada. Just taking a look back at what we saw in September, Canadian inflation took a step in the right direction in September. CEPI slowed to 3.8% year-over-year, that's after a 4% jump in August. The core measure also ease despite higher gas prices in September. As the chart shows, both headline and core CPI have been on a downward trend since peaking in June 2022 before we saw a spike in the summer due to high gas prices.
Also two of the Bank of Canada's three underlying inflation measures, that's the CPI trim and it CPI median, also edged lower in September to just under 4%.
Looking ahead to next week's inflation data, TD Securities expects October CPI to drop about .7 percentage points to 3.1% year-over-year led by energy prices. On the core inflation front, they expect interest to come in at +.3% month over month and that equates to 3.2% year over year increase driven by another large jump in shelter component, primarily rent and mortgage costs.
When we talk about the bank's preferred measure of core inflation, TD Securities sees both CPI trim and CPI median breaking lower in October to just below 3% as the chart showed. But again, it's still a long way away from the bank's 2% target but TD Securities believes it should provide comfort to the Bank of Canada that their recent hikes are working through the economy to tame inflation.
Alright, I think they are both on the same day, we are getting inflation on Tuesday morning and then in the afternoon we are going to get the fall economic update from the federal government.
With the expectation there, what is TD Securities watching for?
The Bank of Canada has been pretty vocal since the October monetary policy report about government expenditure adding to inflation in 2024 and beyond.
TD Securities expects fiscal restraint will be key to the messaging around the fiscal economic statement on Tuesday. They are looking for the government to revise their deficit to about 45 billion in 2023 2024. That compares to the 40 billion they were expecting when they talked about in the budget. A similar downgrade for the next few years as well. TD Securities says that we could also see some modest stimulus in the form of another top up to GST, HST credits or some initiatives around housing supply.
But TD Securities believes that any spending measures will be modest in size and are unlikely to be fully implemented before 2024 and 2025. I think the key focus will be on fiscal restraint.
Tuesday is going to be a big day, inflation, fall economic statement and if you are a market watcher like Bryan Rogers was saying, Nvidia is reporting that day as well.
We are going to have a lot of fun on Tuesday.
A lot of things happening. Keep us busy.
Thanks for that.
My pleasure.
MoneyTalk's Anthony Okolie. Stay tuned.
We will be back on Monday when David Mau, VP director and portfolio manager with TD Asset Management will be our guest, taking your questions about industrial stocks.
You can get a head start with your questions. Just email moneytalklive@td.com. On behalf of everyone behind-the-scenes who brings you the show every day, Anthony and myself, thanks for watching and we will see you next week.
[music]
Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today's show, we are going to discuss the potential opportunity in fixed income with more signs of inflation cooling. Scott Colbourne from TD Asset Management will give us his views. TD Securities Daniel Ghali is going to give us his take on what the end of hikes could mean for commodities.
And MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from a couple of big economic events next week right here in Canada. Plus in today's a broker education segment, Bryan Rogers will show us how you can trade after hours using the WebBroker platform.
Before we get to all that, let's get you an update on the markets. It has been a positive week for stocks on both sides of the border. Right now, hundred and 18 points on the table for the TSX Composite Index, but fairly healthy 59 basis points, a little more than half a percent. Among the most actively traded names on the TSX is a reversal of fortunes from yesterday.
With crude oil stabilizing after yesterday's big pullback and prices for American benchmark crude, using some of the energy names get a bid. Crescent Point Energy at nine bucks $0.67 per share, 3%.
Yesterday, it was gold getting the bed while energy was under pressure. There's been a reversal of fortunes. Let's check in on Kinross Gold. Seven bucks and $0.36 per share, down about 1.7%.
South of the border, then November rally continued into this week. Further signs of cooling inflation.
Today a bit of a pause. At 4507, you are down just to takes on the S&P 500. Some names giving back a little bit after making some sizable gains this week and month. He got the NASDAQ down about 1/5 of a percent.
Want to check in on. The earnings came out. Seems they are doing a better job than the Old Navy brand of stocking close that people want to buy. And so the stock is up 29%. That's a big jump off of an earnings report. I took a look at some report suggesting there had been a sizable short position against the company ahead of this so perhaps you are seeing a bit of a short squeeze as well adding to this rally in the name. And that is your market update.
It's been a very interesting week for stocks. At the November rally continued on further indication of cooling inflation.
Getting a real sense of the market right now that participants are feeling not only is the Fed done but they are thinking about when the market will start cutting.
It felt like something happened this week, Anthony. MoneyTalk's Anthony Okolie joins us now in terms of not changing investor thinking about where we might be heading but cementing some hopes that the market had.
Yeah, we saw a bit of a change in the narrative.
As you mentioned, inflation seems to be the centre of the story. The good news is in the US inflation did cool more than affected after rising for the last two months. Underlying core inflation slowed from 40 year highs as well. There's a lot to unpack here. I'm going to mention some key economic data we saw this week. US wholesale prices fell in October. The biggest monthly drop since April 2020.
Retail sales in the US fell in October, first time in seven months.
Slowing inflation, cooling economic reports are raising hopes that the Fed may be done hiking rates and so you talk about that narrative. We see this narrative shifting from higher for longer rates to back to kind of a soft landing and potential rate cuts. I think markets right now are anticipating rightly or wrongly that we could see a dovish pivot by the Fed, especially we continue to get some weak economic data and signs of cooling inflation.
It's been a while coming. It'll be interesting to see how it plays out.
Another inflation report three or four weeks from now, we will see. Thanks for that.
My pleasure.
MoneyTalk's Anthony Okolie prayed he will be back later with a preview of some big economic events happening in this country next week.
Amid the signs of cooling inflation earlier in the week, you start thinking about the end of a rate hiking cycle, the possibility of cuts at some point in 2024.
We had a chance to sit down with Scott Colbourne, head of active fixed income at TD Asset Management to talk about what it could mean in terms of opportunities in the bond market.
A good news day for all investors, whether it's fixed income or equities, it's a bit of a reinforcing of a Goldilocks sort of scenario, modest growth and good inflation.
A big sigh of relief. The market was expecting a little bit more.
Actually, they were expecting 3/10 or 4/10 of a month over month inflation at 2.2 so that relief has fed through into a huge rally, as you know, today across the board.
I think, from an inflation story, that takes the burden off any eminent hike from the Fed, so we will see how growth plays out through the next quarter or so. But for the near term, this is a big tailwind for the asset market.
Sometimes only take a look at a piece of economic data or an inflation report, they will say, beneath the headline, here's what I didn't like her here's what we need to pay attention to. Beneath the headline numbers here or the flat reading month over month, was there anything that gave you pause or concern under the rate hikes seem to be doing their work to bring inflation gradually down?
I think you're going to see a pushback by central bankers. This is a good news story. For the most part, the details are very good. Even shelter which popped up last month has come back down.
Maybe super core inflation, you can really slice and dice inflation here.
It's a little bit higher than expected, which is sort of the focus on the labour market and both the Bank of Canada and the Fed have sorta said they want to see further evidence of cooling on the wage front and the labour market. So I think they are, there will be a natural pushback by central bankers here.
They are not interested in hiking, in my personal opinion. They are going to be patient and let the data come to them. As the Fed chair did say, we are prepared to over tighten or stay on the tightening side more so than bringing about a change in the market. So there will be a dilemma, how much to price and in terms of cuts in the market, do you start in the second quarter of next year or do you move it more to the second half of the year and right now we are starting to price it into the second quarter so maybe that's where the tension will show up between the market and the central bankers but I do think we are done, and right now, it's a Goldilocks story because inflation has come down and growth is okay here.
But if we see growth go down and inflation continues to go down, that's going to be a little bit more concerning present markets.
Are the Fed and BOC not thinking so much about what they see in the data about how we react to it as investors, how consumers react to it?
Are they more worried about how we behave in the next couple of months?
There is an element of expectations here. We had inflation expectations that came out last week that work at least from the Michigan survey a little higher than markets expected. So there's that managing the expectations. Let the labour market cool off. We've got one nonfarm payroll that has been a bit soft and we need probably a string of that to feed through and continue the softening on the labour side. We see continuing, continuous claims creep up so there's evidence of increasing labour supply but not really may be real softness on the labour market. So yeah, be prepared to let central bankers wait here and the market is going to have to deal with that push and pull attitude from the central bankers here.
I want to ask you about an interesting headline I saw pass in the past little while.
Something about a bond auction in the United States. There have been concerns about issuance earlier in the year and they had a messy one recently.
The supply is a bit of a hair on the bond market and what we have seen is a big inversion of the yield curve. Short-term rates are higher than longer-term. That is consistent with the Fed tightening. As we move toward the Fed on hold and ultimately pricey and cunning, you are going to get a disinversion and is supporting that sort of higher rate staying above longer-term rates is the supply. Yes, last week we had three auctions. We had a three year, a 10 year and a 30 year. The first two went well, the 30 year was a big dud.
It led to a big selloff in rates. So I think that is going to weigh on the longer end. That being said, I think rates on the long and can still come down but it's that headwind, lots of supply that is going to impact the bond market and fiscal spending isn't going away anytime soon so they need to issue a lot of debt.
Speaking of fiscal spending not going anytime soon, we saw some of the rating agencies not pleased in the several past months about what's happening on Capitol Hill. It was Moody's the latest come out with a downgrade of the debt outlook?
They put a downgrade on the outlook but, yeah, it's on a ratings change but it is just another warning sign and the markets are doing a bit of that work to, putting in a term premium, on buying the longer end because of the excess supply.
So yeah, that is a huge issue.
I think this is not going to go away. I think politicians in our comfortable post-COVID spending. They may now rein it in a bit but I don't think this is going away and this is going to contribute to a stickiness or an upward bias on the longer and relative to the shorter end.
We put it all together, what does it mean for fixed income investors?
It was it have 2022, it hasn't been the 2023 that many of us thought it would be.
Have we turned the corner?
I believe we have turned a corner but I am measured in my enthusiasm.
I think that we could see long-term rates, ten-year rates in the US maybe converge to four, 4 1/4. I don't think we are going to see short-term policy rates get back quickly to the 0 to 2% range that may be we were comfortable with in the pre-COVID era.
So it is more of a measured enthusiasm but I think we have nipped the inflation challenge.
It's going to take a little bit of time to wring out the expectations in the labour market on wages.
But there are crosswinds at play, de-globalization, aging demographics, excess spending. So it's going to measure or limit how much we can see a rally in so I'm enthused for the moment and I think you're going to get a nice risk rally into the end of the year with lower bond yields and probably good returns on risk assets as well and we will see how 2024 plays out.
That was Scott Colbourne, head of active fixed income at TD Asset Management.
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.
God shares of retailer gap in the spotlight today, results of the company's Old Navy banner were the bright spot for the quarter. The company is working down outdated inventory and restocking was a more current clothing styles. The street like the report. Right now you got the stock of almost 30%.
I took a look before the show. There was a sizable short interest in gap so perhaps what you are saying in some of this gain here, it is a big one, are a bit of a short squeeze for some of those players in the market. It looks like autoworkers have ratified a new contract with Chrysler parent company Stellantis. Pulmonary numbers released by the United Auto Workers indicate the deal has the necessary support of workers.
Among the key details of the deal is at least a 25% wage increase over the life of the contract.
Right now Stellantis up modestly, a little shy 1%. It appears Amazon is shifting more resources toward artificial intelligence.
That as several reports out there that the tech giant will cut several hundred jobs at its Alexa voice assistant division and put more of those resources towards generative AI which of course has had quite a boom this year. Amazon up shy of 1%. A quick check in on the markets. We will start your own Bay Street with the TSX Composite Index.
We've got energy prices stabilizing today.
They pulled back a little bit more than 4% and have reclaim some of that ground. Your little bit above 75 bucks per barrel for American crude right now. 20,181, the TSX is that more than half a percent.
South of the border, the S&P 500, there has been a big rally so far in the month of November. Right now, there is green on the screen. It is pretty modest.
We will be generous, we will call that three points to the upside are six ticks.
The potential end of the Fed's rate hiking cycle will have a major impact on the commodity sector. Earlier I had a chance to discuss with Daniel Ghali, senior quality strategist with TD Securities.
Listen, we are looking at gold prices rallying towards $2,100 an ounce. That's on an average quarterly basis. So on a more tactical horizon, that can overshoot quite substantially. And really, what we're looking at here is a significant undervaluation of every macroeconomic scenario other than a soft landing.
We're actually expecting a US recession in the first half of next year. We're starting to see cracks emerge in the data.
And investors are very severely underpositioned for that in gold markets.
That's particularly notable, by the way, in a period in time when you have stock-bond correlations that are abnormally high. The traditional portfolio diversifiers that people tend to look at are no longer working as well. So commodities are one angle that you can take a look at to address that.
You mentioned the US economy there.
Obviously, you said the only thing that the market's really pricing in is a soft landing where we all come out of this unscathed. And we've been through a lot in the past couple of years. So if you think we're going to see a recession, then that would suggest that the US economy has peaked. It's been pretty strong up to this point. What does that mean for gold prices longer term? What are the correlations here?
Yeah, so I mean, the third quarter GDP report was gangbusters. And I think that intuitively, market participants have seen the trend growth that has occurred over the last few quarters and are starting to project that forward. But the reality is the quality of that GDP report was actually pretty poor. And we think that we've already reached peak US data.
Looking forward, we're expecting a meaningful deterioration in the growth outlook starting in the fourth quarter but continuing into the first half of next year. And we think the market is already comfortable with the idea of the Fed providing insurance cuts. But as the recession outlook firms, that's going to have to firm further as well. The Fed is going to have to cut far more than the market is currently expecting.
You said the word "cuts" there twice.
That is what a lot of people have been asking about, about when they will come.
Not only are we done-- and I mean, it appears if the Fed doesn't go higher again, we've been done for a while. We haven't seen a hike in quite a few months.
At the same time, though, when the cuts come-- let's first ask you when you think they might come. I mean, if the condition is a recession, when does the Fed feel the need to act?
So this is the hard part for people to wrap their heads around. The Chair Powell has already communicated the idea that the FOMC is actually comfortable with the idea of looking at the Fed funds rate in a real basis. So if the Fed actually just keeps nominal rates constant, and inflation is coming down over the first half of next year, you actually expect the real Fed funds rate to increase notably.
That's actually the Fed tightening significantly over that period of time, which is not necessarily necessary when growth is already deteriorating, when inflation is actually getting closer and closer to target every month. So the idea of insurance cuts has already been communicated. But if there is indeed a recession, as we expect, we think the market is going to price a significantly deeper cutting cycle.
Let's talk about the cutting cycle.
When the cut does come, the idea that if we were going to see, I guess, heading into this rate hiking cycle, people say, well, generally central banks, they move in 25-basis-point increments. They take it slow. They don't want to shock the economy. Inflation got out of hand. They had to shock the economy.
And it was pretty aggressive and a pretty short part of time. Once they feel like the mission has been accomplished, or even a recession has arrived, how aggressive could they be to the downside?
Well, so central bankers tend to look at data as it comes in. So by the very nature of that, they're going to be behind the curve when it comes to the growth outlook. They need to see actual weakening in the data before they cut. The result of that is the economic deterioration that we'll see between those moments in time is going to accelerate. And that's probably going to necessitate more aggressive cuts.
And then once we're actually in that place, gold. This is where you see the thesis playing out, right? Hitting on new all-time highs.
Yeah, absolutely. I mean, so what's interesting about gold markets is that the upside we've seen in interest rates tends to be pretty negative for gold prices. But gold prices today are actually still hovering. If you zoom out, they're still hovering near all-time highs.
So the deterioration of that relationship actually points to very significant central bank demand that has distorted that relationship, given that it's largely investors that tend to look at interest rates and that filters through to the capital that flows through to gold.
Central banks don't tend to look at it that way. And in fact, we think that this is a structural trend driven by a mind shift in the Global South where central banks from everywhere from China to the Middle East, Turkey, and so on and so forth are looking to add gold to their FX reserves. So bringing that back to the context here is if central bank demand remains as firm as it has been or just generally strong, and investor demand kicks in on a lower interest rate outlook, then the outlook for gold tends to be quite positive.
I only got about a minute left with you, Daniel. But while I got you in the chair, I got to ask you about liquid gold, about oil, what we've been seeing in the market right now and where we might be headed.
Yeah, so oil prices have been coming under a significant amount of pressure.
But we actually expect them to remain largely range bound at elevated prices over the next year. We're forecasting oil prices north of $90 a barrel. And the story here is a supply side story.
Contrary to what we've experienced last year, where you had structural constraints to supply, this year is a story about an engineered tightening in oil markets.
This has to do with the aggressive production curtailment deal from OPEC+ and its partners, Saudi Arabia and Russia's voluntary commitment to cut their supply even further, which we expect is going to persist over the course of the first half of next year at the very least.
They are now stuck in a position where because oil prices are under pressure, if they were to abandon the deal as is planned at the turn of the year, oil prices would deteriorate significantly.
And that would be counterproductive to the efforts that have been ongoing for almost six months now.
So they're stuck in a position where they need to keep supply tight. They're also now embracing the role of swing producer, given that investment into new supply has been curtailed in the West. And in turn, they now have a dominant share of global spare capacity.
That was Daniel Ghali of TD Securities.
Now, let's get our educational segment of the day.
Market watchers are well acquainted with regular trading hours, 9:30 AM Eastern time to 4 PM. You don't have to wait till the next day to make a trade after the close. Joining us now to discuss, Bryan Rogers, senior client education instructor at TD Direct Investing.
Great to talk with you again. If you own a broker in your thinking the trading day is over but maybe you are watching after our earnings in one place in trades, what do you do?
Yeah, you can only key point, great.
There are situations where you might be thinking, the company I own announced earnings, maybe there is a big move happening on the stock, it could be going up and you might want to capitalize and get that extra profit was going down and you want to get out of it, you think you have to wait until the next day even though all this action is happening. But as you said, there is an extended hours session where you can take part but there are a couple of key things you want to know. One is that it's only available for US dollar stocks. The other thing is there is a timeframe, there is a time element where with an WebBroker you can only do this up until about 7 PM. Stocks to trade pretty much 24 hours a day around the world in some form or another, but in North America, the ones we have access to will only usually go till about his latest 7 PM, that's where most of the volume happens.
We have that available in WebBroker. Let's jump in and take a look and show you how to do that if you did want to capitalize on this.
As you said, we have Nvidia, Nvidia is a stock that has its earnings coming up next week.
It's on the 21st. Let's say we did own the stock and armies came out after hours, it came out at 420 I believe is the time and you notice there's some big moves on the stock and you want to take advantage because often times you will see a spike in it may come back down again before the market opens the next day.
So if you did want to take advantage of that, jump into the order ticket.
I click on the sell button.
This is only available for US dollar stocks so if you do see this in here and you have a Canadian stock for example and you don't see what I'm looking at, that's why, it's just not available at this point.
There is somewhat of an extended time for limit order that because it has 4 o'clock for Canadian stocks but it something you can't control but that automatically happens. For US stock like Nvidia, we would fill in our quantity, let's say 100 shares.
Another key point is that it's only available on limit orders so limit meaning that we have to specify our price. Because this is a basically computer-driven after hours, I'm looking at one of those limit orders coming through.
You can still refresh, you can see the bid ask will change. The last price will stay static after 4 o'clock. The bid ask will update though. You can look at the bid ask and say you want to set a limit price.
Let's say it's breaking up select 500 or something like that after hours.
We could put in 500 and it would be choosing this down at the bottom, this good till is the key point that you're looking for to make this extended. You want to do this day plus extended markets.
You can do it after hours, you can enter it after the 4 o'clock time but if you enter it during the day, if I did it now for example, it would extend until 7 PM Eastern time.
And you could take advantage if there was that movement. But if you want to wait, you could wait until after hours and enter that in later as well.
So that takes us through the evening and the close of markets.
Things happen in the morning to, some companies, I never liked it when I was on the business journalism desk, getting up early to do this, but they report before markets open. There might be a reason to get into the market before the open. How do we do that?
That's a good point. That's just not fair, I agree.
It's much better later in terms of doing it after hours.
But they do often announce prior. We all know markets open at 930. So there is that timeframe, not too early, typically around 8 o'clock, a lot of the volume there, again, usually runs between 8 o'clock and 930, that's the timeframe said TD Direct Investing does as well. If you jump back into web broker there's not too much different to show you.
I will show you a section where you can look up some information on this.
You can do it if you want to buy or sell.
He would still do day plus extended but the key thing here is that is going to run from 8 AM until 9:30 AM. The other distinction I want to say is if you want to have this run across the whole day, let's say in the morning there's the announcement, you're not sure what's going to happen but you had a limit in mind if you're gonna sell a stock for certain price.
If that earnings announcement comes through in the morning and I'm not watching my computer, you can set this, remember, he can only do it for a day but you can set this for day plus extended and that's going to stay open as a limit order from 8 AM until 7 PM. Even if something happened after hours as well, you are covered for the full day. The last thing just to show you is you can go into this?
Here. We have talked about that before.
And you can just go through and scroll through on here and get some information and see if it comes up. You might have to scroll little bit on the day plus extended. But here we go, good till is what we are looking for.
And this will give you more information about the day plus extended time frame, said feature that you can use. If you're looking for more information on that, then that's available as well. There are other classes that we have, we run classes all the time and there are videos available so if you want to see all those order types, I know Caitlin talked about them the other day, but there are a ton there is a ton of information about those orders.
Thanks for that.
Thanks.
Bryan Rogers, Senior client education instructor at TD Direct Investing. And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We have been talking about the signs of cooling inflation south of the border, the effect they have had on the markets this week.
But what has it mentioned in terms of investors and how they are positioning themselves? Andres Rincon, head of ETF sales and strategy at TD Securities join me earlier to discuss.
It's all been about fixed income.
Was really interesting, you mentioned earlier, we have seen a complete shift from both our advisor and retail investors and also institutional into fixed income ETFs and call it two thirds of the flows we have seen in Canada this year have been into fixed income ETFs, that's about $20 billion.
It's really impressive. What's interesting is the direct investing channel has taken up interest in the fixed income world. For the longest time, it remained dormant with interest rates being so low but with interest rates now being higher, a lot of these products are offering very attractive yields and it's interesting to see mom and pop every single day or the active trader, first thing they do is look at a fixed income ETF. It's a really interesting process to see that shift.
It's been mostly on the short end of the curve because it's paying quite a bit.
There's treasuries, HISA ETFs, money market ETFs, ultrashort Termont ETFs, that's a big part of it, about 40% is going there, and then you have the rest going to traditional AG fixed income but you are also seeing some money now go into the long end of the curve.
So it's a bit of a Bärbel exposure where you get a lot of money in the short end, a lot of money in the long end and that long end exposure is really being taken up by retail and wealth investors and also institutions originally to hedge exposure against rates declining and a meltdown in the market if it ever happens. So it's an interesting dynamic that we have right now on both sides of the border here.
You mentioned HISA ETFs, the high interest savings account ETFs. Recently, our regulator, OSFI in Ottawa, decided to change some rules around them.
Walk us through what they actually did at OSFI and what impact you are seeing on the market.
It's a little bit complicated. I will stay fairly… They've been reviewing these ETFs for several months now and they review stems from the liquidity provisions that these ETFs receive.
And the liquidity provisions really stem from whether the stickiness of these funds, are they retail or institutional money coming into these funds? Can investors follow that money anytime they want? So they have a variety of factors and they determined after a long review that these products should be considered as institutional money although most of it is actually retail money, I would say 90% plus is retail, but because it's an ETF or mutual fund format and it can go in and out, it should be considered like an institution.
What we will see is in February, we will see very likely a drop in the rate as the liquidity treatment for these ETFs will change. Now the drop in the rate will be fairly minimal.
We expect about 50 beeps or so.
That is still to be determined. But we do expect the space to remain very attractive at those rates and to be very popular because they are bank deposits of their relatively safe in this environment.
Interesting changes there. Lots of things happening in the ETF space.
Also this trend that I wasn't aware of, mutual funds apparently converting to ETFs. A bit of a different situation south of the border compared to here in Canada.
Walk me through that.
Yeah, they are creating a lot of news in the US because he a very big mutual fund companies or traditional mutual fund companies, some also have ETFs, but they are converting a lot of their large mutual funds into ETFs and you might ask why you are not seeing that in Canada. It is because the rules in Canada are different to those in the US. In Canada, you are already allowed to launch an ETF series of an existing mutual fund.
There is no need. It's allowed, anybody can do it. That's been the case for the longest time here in Canada.
You will often have a mutual fund or ETF that are the same in both structures. In the US, that structure where you have the ETF class was really patented by Vanguard and only Vanguard and that patent actually expired recently.
But you still have to apply to the SEC to get into that structure so what a lot of the issuers in the US have done is actually instead of going that route and having to fight with the SEC, they have converted some of their very large mutual funds into ETFs. Now that's also fairly complicated how you do that but what that allows them is to enjoy many of the benefits of the ETF structure and keep all their assets, most important. We are seeing a lot of these big, big issuers like at Fidelity and some other big players convert to all of those ETF structures, growing the ETF pie as it goes.
Does an investor have anything to be mindful of when a fund converts from one thing to the next, or is that really something on the institutional side?
Is actually mostly on the retail side.
Really, they don't have to be mindful of a lot. It has to go through voting process which is why said it can get complicated.
Not every mutual fund can actually do this.
The investor has to be mindful that they will have to vote for this transition and if they DO, then what ends up happening is that same day, there mutual fund would convert to an ETF and then what they have to understand is if they want to sell it, they have to sell it in the market as any other ETF.
Interesting stuff. Viewers of the show will know you are a regular guest on MoneyTalk Live. Of course you host your own show called Buyside Views. In the latest episode, you were joined by Samir Dhrolia, Senior Managing Director at the British Colombia investment management Corporation.
They discussed the rise of centralized trading. Have a listen to this.
So if you, for example, have a portfolio manager that is desiring to buy Google stock, they could buy it using call options, they can buy just the stock they could buy a swap on the product. A centralized trader will be able to look at all of the different ways of executing that order and optimizing it and delivering it to the portfolio manager and saying this is the best way you can execute this. She may want to go with the stock or use the option structure instead.
So this is where these broad skill sets of traders in a centralized framework are able to add value.
Okay, so first thing I will say, that couch looks very comfortable.
It is, yes.
But there are some interesting things being said there, Samir explaining centralized trading. An interesting space.
If you are a big asset manager or a pension plan, most of them actually have centralized trading or are transitioning to centralized trading. This is not necessarily new but we have seen a big push recently onto this platform and basically what it means is as he tried to explain is you have multiple regions, multiple asset classes and instead of them being traded separately by region and by asset class, they are all being treated out of a central desk. It has many benefits for a lot of the large asset managers across the world.
I think this is interesting for your audience to you because you have a lot of active traders, active trading on the TD platform, but you have a lot of traders on your platform and those that want to learn a little bit about trading and how some of the larger or largest shops in the world do this, this is a great video for them and for those of you that are listening, we are all Google podcast, Apple podcast ants modify and you can find us at TD Buyside Views.
That was Andres Rincon, head of ETF sales and strategy at TD Securities.
Now, for an update on the markets.
Okay, we are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing.
This is the heat map function. We get a view of the market movers. We will start with the TSX 60 in your screening by price and volume.
It's really broken down between the three big sectors today, that topline TSX number. We will start with energy, their screen on the screen after yesterday's selloff in American benchmark crude. A bit of a rebound there.
It's flowing through to some energy names.
We are taking a look at Suncor, of almost 3 1/2%. Cenovus beside it also up in CNQ as well. Materials are also putting points on the table. And the last of the big three sectors, you get a bit of a mixed picture in materials today. Some of the gold-mining names are getting back but it's modest. Some other plays including tech which had big news earlier this week, selling school business, is up about 2 1/4% today. South of the border, I want to check in a energy space.
What is true for our energy names is true for an Exxon or Chevron today. When we look at technology, some of these names, Google and Microsoft, had some big games this week. A little bit of get back on the front. We can't actually show you a graph of the Canadian dollar against the US dollar. We had a viewer today sending a question asking what's going on with the Canadian dollar and why is it strengthening against the US back today.
Yes, oil prices are recovering from yesterday's selloff but it seems to be a story about broad-based weakness in the trade weighted US dollar. Pretty steep weekly fall for the US back on the back of all those cooling signs of inflation.
Today, he got the US dollar losing more ground against the euro, against the yen, against the British pound, against the Australian currency and against ours as well.
Hopefully that explain some of the strength we are seeing today in our currency against the US currency.
I hope I said something useful there for the viewer. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
Now next week, it's been a busy week this week, but next week we get a lot of anticipated Canadian data in this country, including our read on inflation. And we will hear from the federal government in terms of the state of finances in Ottawa.
Anthony Okolie joins us now at TD Securities breakdown of what we can expect next week.
Inflation is a big story in the US as well as here in Canada. Just taking a look back at what we saw in September, Canadian inflation took a step in the right direction in September. CEPI slowed to 3.8% year-over-year, that's after a 4% jump in August. The core measure also ease despite higher gas prices in September. As the chart shows, both headline and core CPI have been on a downward trend since peaking in June 2022 before we saw a spike in the summer due to high gas prices.
Also two of the Bank of Canada's three underlying inflation measures, that's the CPI trim and it CPI median, also edged lower in September to just under 4%.
Looking ahead to next week's inflation data, TD Securities expects October CPI to drop about .7 percentage points to 3.1% year-over-year led by energy prices. On the core inflation front, they expect interest to come in at +.3% month over month and that equates to 3.2% year over year increase driven by another large jump in shelter component, primarily rent and mortgage costs.
When we talk about the bank's preferred measure of core inflation, TD Securities sees both CPI trim and CPI median breaking lower in October to just below 3% as the chart showed. But again, it's still a long way away from the bank's 2% target but TD Securities believes it should provide comfort to the Bank of Canada that their recent hikes are working through the economy to tame inflation.
Alright, I think they are both on the same day, we are getting inflation on Tuesday morning and then in the afternoon we are going to get the fall economic update from the federal government.
With the expectation there, what is TD Securities watching for?
The Bank of Canada has been pretty vocal since the October monetary policy report about government expenditure adding to inflation in 2024 and beyond.
TD Securities expects fiscal restraint will be key to the messaging around the fiscal economic statement on Tuesday. They are looking for the government to revise their deficit to about 45 billion in 2023 2024. That compares to the 40 billion they were expecting when they talked about in the budget. A similar downgrade for the next few years as well. TD Securities says that we could also see some modest stimulus in the form of another top up to GST, HST credits or some initiatives around housing supply.
But TD Securities believes that any spending measures will be modest in size and are unlikely to be fully implemented before 2024 and 2025. I think the key focus will be on fiscal restraint.
Tuesday is going to be a big day, inflation, fall economic statement and if you are a market watcher like Bryan Rogers was saying, Nvidia is reporting that day as well.
We are going to have a lot of fun on Tuesday.
A lot of things happening. Keep us busy.
Thanks for that.
My pleasure.
MoneyTalk's Anthony Okolie. Stay tuned.
We will be back on Monday when David Mau, VP director and portfolio manager with TD Asset Management will be our guest, taking your questions about industrial stocks.
You can get a head start with your questions. Just email moneytalklive@td.com. On behalf of everyone behind-the-scenes who brings you the show every day, Anthony and myself, thanks for watching and we will see you next week.
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