Market Insights

[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 hear from TD Asset Management Scott Colbourne on the potential timeline for rate cuts.

TD Cowen's Craig Hutchison will discuss whether cost pressures are easing for the miners.

And Hussein Allidina from TD Asset Management will give us his thoughts on whether the recent strength in oil has more room to run.

Plus in today's WebBroker education segment, Bryan Rogers will shows how you can find dividend information here on the platform.

Before he gets all that, let's get you an update on the markets. Last trading day of the week. The TSX touched a new all-time closing highest-rated. We had to wait while the dust settled on those trades because that new high was by .04 of one point. A high is a new high but it was just over the line. A bit of a pullback today, down 113 points off that high, about half a percent. Among the most actively traded names in Toronto include energy names.

You have crude oil slot. $10.54 at Crescent Point, giving it back about 1.8%.

Alimentation Couche-Tard had a pullback yesterday. It was the quarterly earnings and the forecast that did not please investors. At $76.52, you can see we are down another 2% so far this session.

South of the border, we touched new hires yesterday for the S&P 500. The NASDAQ is a more mixed session today. The S&P 500 down a modest six points or 1/10 of a percent.

The NASDAQ might be positive.

Yeah, .01, we will call that pretty much dead flat. We are getting corporate earnings. Nike forecasting earning sales while they replace it older style shoes with trendier offerings but apparently that will hit them for a while. At $93.24, the stock is down 7 1/2%.

And that's your market update.

Well, as we were saying as we were going to the markets, we saw new highs on Bay Street and Wall Street in the wake of a fairly significant development this week.

Moneytalk's Susan Prince joins us. It's course the Fed was on Wednesday afternoon, they had things to tell us and the market seemed pleased.

>> The thing that they told us was they indicated that they saw three rate cuts in the future for this year. Looking at a total of about 75 basis points.

Some relief there, that's what people wanted to hear, but there's always a little bit of a caveat, so when and what did they need to see in order to say, okay, we are good to go on that. There are a couple of things that the Fed is watching. James Orlando highlighted that in his report.

If we look at personal consumption index, which will be out at the end of the month, next Friday, they will be paying attention to that and what you are looking at there is a measure of prices going up, inflation, so what we are seeing is inflation is still going up but at a slower pace. This is happened since December and October, it was 3%. It by January of this year it's down to 2.4%.

Basically, what the Fed will be watching for is inflation will still go up but at a slower pace. That's one of the things they're looking at. Unemployment is another thing they are looking at.

It's an interesting thing because employment, they are anticipating that unemployment will peak at 4.5% in 2025.

It's a number they are paying attention to. I find that interesting because full employment is considered 5% unemployment.

>> But in the end that's a strong labour market.

>> Yeah, and I never want to be cavalier about that number because that 5% full employment or report half percent, 5% unemployment registering full employment or 4 1/2% unemployment is somebody's wife or brother or father or sisters so I don't want to be cavalier on that.

But it is a, we are still pretty close to full employment.

>> When the Fed came out this week and said they saw cuts this year, they had to admit the economy has been strong and lifted their GDP forecast and they change their forecast for the labour market.

Scott Colbourne was on the show earlier this week, we will show you part of that conversation and it later the show, but we always get this question, what should we do watching: inflation, CPI or PCE?

He goes, it doesn't matter what I think is more indicative of where we are headed in terms of inflation, the Fed is watching PCE and I'm watching PCE. Personal can some senator, it is a consumer let economy, how is the consumer doing? That's always the question we have.

>> The answer is yoga pants, the new economic indicator. You look at lululemon, their earnings were about $670 million.

It doesn't mean anything until you compared to a previous number.

A year ago, the number was 120 million.

That works out to earnings-per-share of 5.29 per share compared to just under a buck in the prior year.

Great performance. They are firing on all cylinders. The stock is down, close to $90 in the past few days, because firing on all cylinders, they said, the year ahead, our outlook is a little bit softer.

So we have that sort of experience of, great, the numbers are great, now what are you going to do?

Is it an economic indicator that the area softening or this company had a great run and they don't anticipate growth at the same levels?

>> We did a quick breaking analysis with someone from TD Economics, Andrew Hencic, and he was basically saying that even though the consumer appears strong right now, in the middle of the week, their expectation that the Fed is going to start cutting is that the consumer will start showing signs of fatigue.

Saying, you know, I've spent what I'm going to spend, especially coming out of the pandemic, it's time to slow down.

To be that's affecting Lulu.

>> I always like to take a look at what is my household doing? What are my friends doing?

And paying attention to that. Do you really need another set of yoga pants? You keep the gym membership but you're not accumulating as much.

All kinds of holidays or people talking about? And it's anecdotal but the trickle-down is we talk about all these big economic numbers but you and I and friends and colleagues are the ones who create how those numbers happen. So paying attention to what's around you can help you get a sense of the bigger picture sometimes.

>> I wonder why my son needs to live on campus when he could live at home this year.

It's going to cost me a fortune. Thanks, Susan.

Moneytalk's Susan Prince.

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.

Universe from Stats Can show there was a slowdown in auto sales to start the air.

Motor vehicles let a .3% pullback and overall retail sales for January. But an early read on February sales suggest a slight increase in retail receipts. TD Economics took a look at all of this and said if you look beneath the headline numbers, consumer sentiment appears to be improving. Let's check in on shares of lululemon, right now down 16 1/2%, just below 400 bucks per share. What's going on there? They are warning investors of slowing North American sales. The CEO, Calvin McDonald, says consumers are shifting their habits and that has made for slow start to the year. Lululemon is forecasting sales of up to $10.8 billion for this year, that is slightly below the streets expectations. A story for shares of FedEx.

Let's check in on those, global shipping giant improving operating margins in his largest unit for the most recent quarter.

FedEx has been cutting costs in an effort to boost the bottom line. And the market seems to like what they are seeing so far.

Quick check on the markets, we will start your on Bay Street with the TSX Composite Index.

Set a new all-time high at the close yesterday by .04 of one point, pulling back that high today, we are down 109 points, about half a percent.

Says of the border, the American market setting new records yesterday but right now the S&P 500 is down more than 1/10 of a percent.

It has been a big week for central banks, the US Fed signalling it still expects three rate cuts this year, so what does all mean for fixed income?

Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management join me earlier to discuss.

>> Yeah, it was a big week and the Fed gave us, I would say, an accommodative feeling, a mildly bullish feeling for fixed income.

They reinforced that the median dot plots for this year is three rate cuts.

So going into the market, as you know, rates had backed up this year-- 10-year rates, 2-year rates.

They rallied extensively through the end of last year, and they moved up about 40 or 50 basis points across the yield curve in both Canada and the United States.

We had better growth numbers. We had hotter than expected inflation numbers.

So I think leaning into yesterday's meeting, the markets were running a little hawkish, right?

They expected perhaps maybe two cuts this year, an adjustment on the dot plots, and they were surprised.

And I think the Fed Governor Powell just said, look, the trajectory on inflation, we're still comfortable where it's going.

The trajectory to 2%, it's a bumpy ride.

And it was sort of a mixed bag, though, right?

They raised the dot plots in 2025 and 2026 and the long run.

So there was a little bit of a mixed bag.

But really, the focus of the market was that near-term expectation of what's going to happen this year.

So the central thing that the markets have taken away is, broadly speaking, most central banks are looking at cutting sometime in June, first cut.

Maybe June, September, and December, out of both Bank of Canada and the Fed this year.

>> To get those cuts, in the American example-- because the Fed also had to recognize the US economy has been strong.

We're going to lift our GDP forecast.

Inflation taking a bit longer to come back down.

The labor market's been strong. We've got to change your unemployment forecast, but still delivering cuts.

Do they need to start seeing some sign that the US consumer is not falling to pieces but at least weakening and chilling out a little bit?

>> Yeah. There's sort of a sense of the-- they're very focused on the labor market.

And that is going to be something they're keenly focusing in on, any deterioration on that side.

And you're seeing a modest adjustment going on.

Today we had the weekly jobless claims and continuing claims. And so there's a modest adjustment to slightly weaker.

I would broadly characterize it post-COVID as a normalization of the US labor market-- not really something to be overly concerned, but the trajectory is slightly weaker.

And that's what the Fed is absolutely looking for.

It said, look, we can accommodate stronger growth, but we do expect that this disinflationary trend will continue to play out.

They're going to see a lot of data between now and June.

So they've got three CPI prints and three job prints.

So they did start by saying, look, it's very data dependent.

It's highly uncertain.

Broadly speaking, our confidence is that we're going to go towards 2%.

These near-term bumps haven't changed our confidence in that trajectory, maybe just the timing of it. But June is the central tendency now.

>> Right. That was the message from the Fed. The markets are happy with that message.

Let's talk about some of the other central banks.

Did you hear anything else from some of the other banks around the world that changed your idea of where we might be headed?

>> Yeah. We had a-- I would say there was a barbell.

We had six developed market central banks this week and seven emerging markets.

There were really no surprises out of the emerging market side.

There was a number of cuts out of that side.

But I would say on the developed market side, we started with the BOJ this week.

And they changed their policy setting.

They got out of negative interest rate policy. They moved away from yield curve control.

And they started this process of normalization.

That being said, I would have described it as a very soft tightening, if you will.

And so that was one side of it.

The other side, this morning, we had the first developed market central bank to cut rates.

That was a Swiss central bank-- softer inflation.

They did surprise the market. So we had a bit of the both sides, but I would describe all the central banks-- there was the Reserve Bank of Australia, Bank of England, Swiss central bank, RBA, BOJ, Fed.

All of them, broadly speaking, I would describe it as slightly dovish.

And on the mildly dovish side, leaning into this sense that, ultimately, the trajectory is to cut sometime this year.

And when you look at what's priced in now across the markets, pretty much everybody is sort of penciled in for the first cut in June.

>> All right, so putting it all together, what does it actually mean for fixed income this year?

>> You know, then I step back, and I say, look, we've had this huge adjustment upward, 40 to 50 basis points.

We're off those high levels. And yes, we had a positive reaction.

Look, it's going to mean that the likely scenario when you look back over rate cutting cycles, whether they're modest or large, leading into that first cut, it's a good time to be in fixed income.

There's a range of outcomes, obviously.

And I would describe what we're in as more of an adjustment, as opposed to the beginning of a huge rate cutting cycle.

So I'm constructive over the next three months into that first cut, which I think it's hard to bet against.

The Fed says June. I'm not going to bet against it.

But we'll watch the data as it comes out.

After that point, we'll see. After the first rate cut, we'll see where we go.

>> I guess the question for investors, no matter what the asset class is, is that we have an expectation.

Is it already fully priced into the market, or, as you seem to be suggesting, in the bond market, there's still room to run?

>> Yeah. We perhaps overshot at the end of last year-- six cuts, right?

So now we're back to three. I think there's room to say, look, if the data cooperates, we'll at least get three, and then we'll see where we go in the new year.

And that will mean there is scope for longer term yields to come down and the front-end yields to come down.

And that will benefit fixed income investors, for sure.

>> Yeah. It's a big world. It's a complicated world. There is always risks.

We don't know what's around the corner.

But if the central banks, for some reason, are-- we'll just take one. We'll take the Fed. What if they didn't cut at all this year?

What would have to happen for them say, you know what, 2024 just wasn't the year for it?

>> Look. Data dependency-- the data just continues to turn.

That being said, when you step away from the US, the data is consistently showing us that inflation is slowing.

Canada, we had CPI on Tuesday, and it definitely caught the market's attention.

It was lower than expectation. Today's Bank of England decision, while they kept it on hold, the hawks that were calling for rate hikes, they moved to more of a dovish stance.

So when you step back beyond this exceptional engine that it is the US, the trend is to modest adjustment on growth down and an adjustment on inflation.

So it will have to be a surprise on the US side that we don't get any adjustment on inflation.

And on balance, right now, the trajectory is there.

Be mindful of the fact that the Fed focuses on PCE, rather than CPI, which is everybody's focus.

And that is trending softer than CPI at this moment.

>> That was Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management.

Now, let's get our educational segment of the day.

If you're looking to find dividend information on my broker, there are tools that can help.

Peter tells Boris Bryan Rogers, Senior client education instructor with TD Direct Investing.

>> Thanks. Our really popular topic these days, we have had a lot of great webinar guests if you want to get some additional information on this kind of thing, you can do so. The big topic is dividends.

Everybody loves getting income from their investments but they might not understand, where can I find information? We do have simple tools on WebBroker that if you want to look for certain yield and stocks of a certain price and things like that, you can screen for dividend gaining stocks. I want to jump in and show everyone a simple way you can do that within the platform.

We jump over to a broker. You can see under research, go to screeners on the drop-down, the screeners for stocks. You can screen for mutual funds and ETFs here.

We talked about that before. Of focusing on stocks here, you can see these cool colourful looking icons that are showing different themes.

For somebody that doesn't like to take the extra time and says give me a screen for any dividend paying stock, highest or lowest, that is available here in a sense where you can go to the preset screens and you can scroll down with all kinds of other ones, top performers, etc., if you click on dividends, it's a predefined screen that you can see. There is some crazy dividend, like 19, 43. Make sure you look at the actual position itself to know what's going on with that, why is it so high, what kind of company as it. Some of these are royalty trusts and so on. That's one way you can do about if you want to do a really simple screen yourself, you can actually go back here and go to the screening tab if we click on this one, let's hit refresh, we will go to research, screeners, and then we are going to go to the screening tab because this is under Discover. We are going to click on bulk edit. Roughly, you can see there's a bunch of criteria that will already be there. If you click on bulk edit, it shows you what's already pre-populated.

I usually delete the first feel, like price-performance 52 weeks, and then I'm going to leave… I will take this one out as well, I'm going to leave the stock price. Now if you want to say I want to look for stocks that are $50 to 100, you can type that in, whatever range works for you.

You have common shares at the bottom. It's USA and Canada at the moment, you can define that if you want to.

We will click on more criteria. To do a quick one of the essence of time, we will add on dividend yield.

I can add other stuff as well. I could add dividend growth rate, things like that.

Now simply what we will look for we think a 4% dividend is decent and up to a high, as high as I can find, and then you will notice down below that all of these dividend show the criteria here, stock price and you can start to research that even further.

That is giving you an extensive list, 69 matches on this particular case of US and Canada that you can have available is a dividend screen, I should say.

>> All right, Bryan, we took the extra step and started doing some work ourselves, building our own criteria. I leave to be something else and come back and I'm like, I liked that work, what happened to it? There has to be a way to save it.

>> You don't want to do all that work and have it lost and do it all over again.

That's a good point.

You can save it. I have some that I am saved in the past.

I will show you the process of saving it and you can also alter them later on as well.

We jump into a broker and you can see the one I am on right now, let's say I wanted to add some other criteria. I will show you that quickly as well.

If I go to more criteria and see I want dividend growth rate, maybe I want to see stocks that may have high dividends but I want to add the rate that they've grown over the years.

You can say they grow at 5% as an example.

Now you notice the matches our little bit lower, there 33. You can just click on save.

Where's my %?

I can't find it on my computer.

>> I took it away from you! Take away your %.

>> My % is disappearing on me! I've got it.

Let's say 4 to 5% growth.

4%, 5% growth. You can do a little description as well, type that in. The reason that's important is you can actually share this as well. Keep it private but you can also share your screens and then you can do the same thing. When you are searching through there, if you are searching for screens that are like yours, you may find ones that somebody is looking for a similar type of dividend and stock price and things like that.

Once you to say screen, click save, and then one more thing to remember is if you want to find it, let's go back to the beginning. We go to research and then screeners again.

This is a little bit tricky. They used to be you had a different icon. Remember now, it's the star, you click on favourites, the star, and there's the screen I saved just now. 4%, 5% growth. Here are others I've done in the past.

You can look at them as they get updated if there are any changes, you can set alerts and you can edit it as you see fit.

So that's a rundown on how to create a nice, simple dividend screen.

>> Great stuff as always. Thanks for that.

>> All right, thank you.

>> Bryan Rogers, Senior client education instructor with TD Direct Investing. We see one live, interactive master classes and upcoming webinars.

Rising costs have been an issue for many sectors, including mining, but are there some signs of those pressures are easing?

Craig Hutchison, Dir. for equity research at TD Cowen jointly earlier to discuss.

>> If you look back about three years ago at the start of the pandemic, you had a lot of supply chain disruptions.

You layer on the fact that we had the war in Ukraine. The supply disruptions have been across the industry for the past couple years.

You've had issues around sulfuric acid supply, explosives, diesel prices. So all that's contributed to very high inflation in the mining area specifically.

So if you look back, say, last year, mining inflation costs are around maybe up 10%.

That is starting to come off the boil now.

Most companies are sort of guiding to inflation to be up sort of in that 3% to 5% range.

So still high, still probably above CPI, but it has come off.

Some of those factors are just Forex currencies are starting to come off just relative to the US dollar.

But it's still an issue, particularly in the North American markets.

It's very difficult, as you can imagine, to get miners to go to these sites, right?

It's just, it's a very tight labor market.

And so you're competing against other industries, like the oil and gas.

So it's been very difficult to kind of secure people in places like North America and Australia, where the markets are very tight.

>> OK. It's an interesting backdrop there.

We've had some questions from people who watch these programs saying they take a look at, say, the rally in the price of gold. And we could be talking about maybe any metal that's been in a rally lately.

Then they look at the actual stocks connected to the underlying commodity and they wonder why they're not fully participating. Is cost inflation part of that story?

>> Absolutely. So if you look back last year, the average price for gold, I think, was 1940.

So it was up 8% year over year. But costs were up almost the same amount.

So margins have remained flat despite a rising gold price environment.

So I think for the equities to participate, you need to see that margin expansion happening.

We think that will happen if gold starts to rise, if the Fed starts cutting here later this year, which is our expectation.

And it's been, I guess, challenging for gold also is competing against other asset classes.

It's competing against the S&P 500, which was up, I think, 25% last year. It's competing against Bitcoin. It's competing against even money market funds, which are earning, say, 5%, and gold doesn't give you an earnings yield.

So you have to basically-- gold will outperform in inflationary environments and outperform when real rates start to fall.

And we think real rates will start to fall as interest rates start to get cut later this year.

>> Let's talk about that interest rate path and the delivery of cuts later this year, which is the expectation.

When it comes to the equity side of things, you always try to wonder, how much of it was already priced in and how much room do you have to run.

So when it comes to the price of gold, how much of that expectation of cuts have been priced in, do you think?

Or do you think once the cuts arrive, gold continues to move?

>> Yeah, so we've done some work on that.

We've looked back at previous cycles over the last 40 years. And on average, gold tends to rally around 34% when the Fed starts to make those first cuts-- or, I guess when the last hike was done. And so the last hike was, I think, July of last year.

And since that point, gold has rallied 10%. So I still think there's a long way to go for gold.

But the issue has been, I think the expectations for rate cuts have been, they keep coming and they haven't happened so far.

>> A little dialed back from where we entered the new year.

>> Right. We should have been-- if you look at the consensus view, we should have had rate cuts last year, right?

And I think TD's view right now is for three cuts this year, so 75 basis points this year, 75 basis points next year.

But the expectations around that keep getting pushed out. I think the latest is now June or July.

So I think we need to see those actual rate cuts to really see the gold price move, but I still think there's more upside from where we are right now.

>> All right. So that's gold. Let's talk about copper. We've been seeing some movement in copper as well.

>> Yeah. I mean, copper has obviously got some good supply-demand dynamics. We could talk about that more.

One of the issues I think with copper is interesting, just in terms of what is the incentive price to bring on new supply.

And that's something that's come up when we're talking about inflation.

If you look back a few years ago, I think the incentive price for copper to generate a decent return on a project was probably around $3.50 per pound.

Today, that incentive price is probably north of $4.50 to $5.00 a pound.

And what that means is a lot of projects aren't going to get sanctioned at these current prices.

So we need to see prices move higher in order to incentivize new supply.

And the positive aspect of that is those who are producers now, you're not going to see a flood of new supply coming on the market.

So I think the price of copper will hold firm here, just given the fact that the supply-demand dynamics are going to be positive and pretty tight for the foreseeable future.

>> When it comes to central bank rate cuts, is copper as sensitive?

I imagine gold would be the most sensitive, but other commodities.

>> Yeah. I mean, if it results in a US dollar weakening, that's usually a positive for the commodities more broadly.

But if the Fed is cutting because the economy is slowing, copper is heavily tied to global GDP, that's not a strong thing.

That's not that's not great for copper.

But if it's more of a soft landing and we start to see some stimulus happening in China, that obviously-- that would really spur copper prices to go higher.

>> All right. We got gold. We got copper.

Let's talk about uranium.

This has been another space that's been very interesting this year in terms of the moves that we've seen. Where do we think we might be going forward here?

>> Yeah. No, it's certainly been very topical. I think the fundamentals for uranium are probably the best they've been in 15 years, going back to the Fukushima disaster. If you go back to, say, 2018, uranium prices were under $20 a pound.

And some of the big producers in the world, like Cameco and Kazatomprom, took leadership.

They curtailed production. That took a big step to tightening up supply.

And then if you move forward a couple of years after that, we had a bunch of ETFs come to the market and start to acquire pounds.

And they've taken out almost 60 million pounds in a 180 to 200 million pound a year market.

So that's pretty substantial. So they've tightened up the market.

Uranium touched over $100 a pound about two months ago.

It's come back a little bit. But I think if you just look at the overall demand that you're going to see going forward, I see the first time in my career where you've seen governments unilaterally sponsoring uranium.

The COP28 conference a couple months back, you had 22 different countries coming out and supporting nuclear, pledging to triple their nuclear capacity by 2050, including Canada and the US. And you have bipartisan support in the US, both with Biden and potentially Trump, if he gets back in power.

So I know there's always concerns about what would that mean if a Trump administration, Biden administration.

You do have support across, and the US is still the largest producer of nuclear power in the world.

>> OK. TD Cowen covers Cameco. And for full disclosure on the companies covered by TD Cowen, a division of TD Securities, please see the link to the TD Securities website at the end of this program.

I want ask you one more question before we finish this part of the chat, in terms of nuclear. What's the biggest risk here?

Is the risk that governments somehow turn away from it?

>> Yeah. I mean, if there is another sort of black swan event, if there's another Fukushima or an issue maybe in Ukraine, that obviously would derail it. But I guess the rise of renewable powers has cut into nuclear demand and the outlook in the past.

But I think the view is that the wind doesn't always blow and the sun doesn't always shine.

So for baseload no carbon intensive power, there is no substitute for nuclear.

>> That was Craig Hutchison, director of equity research at TD Cowen.

Now, for an update on the markets.

[music] We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.

We are pulling back on the headline numbers today. You can see there's not a lot of green on the screen.

Cameco is standing out, uranium play, about 1.5%.

We were just hearing Craig thoughts on uranium, weren't we?

Across the rest of the board, looking at some of the telecom names, Telus is down more than 2%, BCE down more than 1%, taking points off the table.

Not a lot happening in the financials either. If you dig into the material space, Nutrien is down a little more than 2%.

Not a big day for Toronto. Let's look south of the border.

It was slots after hitting you all-time highs after the Fed signalled this week they are still expecting three rate cuts at some point this year.

The tech stocks are holding in a bit better, Nvidia up a little more than 3%.

This was their big developer conference this week.

Nvidia announced a new chip as expected and as expected, that new chip is going to be more powerful than the chip they've got right now.

Nvidia got a little bit of a bid. Google to the upside as well and FedEx, up more than 7%. We told you earlier about their cost-cutting measures which will start bearing some fruit.

Definitely a stand out to the downside, Nike. Apparently old shoes are on their way out and they are trying to bring in some more fashionable running shoes and that's going to hit sales for a while and the market doesn't like the sound of that.

Forward based on TD Advanced Dashboard, you can visit TD.com/Advanced Dashboard.

All prices have been on the rise this month the two political events grab the attention of investors, but is there more going on with the price of crude than just a risk premium?

Hussein Allidina, head of commodities at TD Asset Management join me earlier to discuss.

>> In your lead up, you mentioned geopolitical concern. That is something that has been in the background definitely for the better part of the last five months and more recently with the increased attacks in the Red Sea.

But I think when we look at fundamentals, heading into the year, the market, most participants were of the view that we would see inventories building in the first quarter of this year.

First quarter is not done, but January, we've seen pretty large draws.

February has built but as normal. The most recent data shows us that inventories continue to drop.

So I think this is quite constructive.

We're seeing demand quite firm.

I think I've got a chart there that shows US gasoline demand here south of the border.

And US gasoline demand is quite firm and is actually at levels that you would expect to see in the summer.

We're not in the summer yet. The weather has been quite mild-- maybe encouraging some more driving.

But demand is quite firm. And when we bring all this together, Greg, it has contributed, as I mentioned, to a tighter inventory picture than was expected. The starting point was very tight inventories.

We thought we were going to get some builds in the first quarter.

Those haven't materialized. And because of that, the backwardation or the steepness in the crude market is still quite pronounced. This chart shows us the WTI forward curve as of yesterday. And you can see that the steepness has become more pronounced relative to where we were a week ago, a month ago. This underscores the tight supply demand picture, Greg.

>> You talked about emerging markets. And, obviously, there's demand there.

But you mentioned something pretty important here-- the fact that OPEC has held firm to its commitments to keep the supply side tighter than, perhaps, it needs to be. Walk us through that.

>> Yeah. So OPEC has reduced production.

And because they've reduced production, that has, obviously, contributed to tightening balances.

What I was getting at is that I'm not in the camp that oil prices necessarily go above $90, $95 a barrel this year, because they would return production to the market if that were to happen.

But as a commodity investor, I don't really need the oil price to move materially higher from here.

With the backwardation in the curve, I'm collecting a 10% roll yield or a 10% carry.

And that has been engineered by the tight balance that we're seeing in crude end products.

>> Let's talk about investment in the sector. Obviously, crude prices are moving higher.

You said you're not in the camp that they go much higher from here, given the fact that OPEC open the spigots if they want to.

But under-investment in the sector, this has been an ongoing theme.

I think for as long as we've been doing this show-- almost two years now, and you've been a regular guest-- we have talked about this. And it hasn't really changed all that much.

No. And, look, the truth is we've not been investing in commodities broadly-- oil, in particular-- over the course of the last 10 to 12 years.

The growth that we saw last year in non-OPEC supply-- outside of the US shale production, which is relatively short cycle-- came from Brazil, Guyana, and Canada.

Those projects are very long lead time projects. We're talking seven, eight, nine years.

And many of those projects, the first capital was spent on them in the last cycle, the last supercycle.

So if demand continues to grow, which I believe will if you believe that economic growth continues to move higher, you're going to need to invest. Or you're going to continue to see tighter balances, which will require higher prices to limit demand growth.

One point, Greg-- last year, the market got quite bearish on US production growth.

US production growth increased meaningfully in the fourth quarter.

I think I was on your show and said, look, part of that increase is likely private producers trying to pretty the pig, trying to grow production so that they could be bought out in the M&A space.

If we look at the more recent data out of the US, production has actually dipped below-- and I'm not talking about January where we had freeze ups in Texas.

I'm talking about the data more recently in the last couple of weeks.

You're averaging around 13 million barrels a day, which is about 200,000 barrels a day below where we were in the fourth quarter of last year.

So we really need to see an increase in investment because demand continues to grow, and my inventory picture is quite tight.

>> Do you anticipate that there will be that? What will it take to get that investment going?

What is the incentive price if you think oil doesn't go much higher from here?

>> So the problem, Greg, is we're above the incentive price today.

But because of this focus on ESG and energy transition, equity shareholders have, frankly, lambasted their companies over the course of the last five, 10 years to stay within cash flow and to return cash flow to investors.

They continue to do that, which is great in the short-term as an equity investor.

But in the medium-term, your energy company is going to look less like an energy stock because they're not spending in the upstream.

Look, I think as prices continue to move higher and stay elevated, you will see some incremental capex.

But we're not nearly at levels that we need to see given the dearth of investment over the course of the last 10 years, in my opinion.

>> How bumpy could that ride be over the next several years if investors are trying to weigh ESG, trying to weigh energy transition with the still-present need for fossil fuels? It doesn't seem like it's going to be a clean path where there's like a handoff at one point clear to the other side and say, hey, we're done.

Take it over. It's going to be messy, I would imagine.

>> Yeah. We've talked about this, right? I think the market's idea on how easy it will be to move from hydrocarbons to renewables is misguided. The world as we know it has been built on hydrocarbon infrastructure over the course of the last hundred years.

We're already seeing hiccups as it relates to the availability of EV charging capacity.

We're seeing a slowdown in the developed world in the EV sales space because the uptake is slower.

I don't think it's going to be clean. I think these ideas that consensus and our governments hold that this transition is going to be seamless is very misguided and very dangerous, if I'm being honest.

>> That was Hussein Allidina, had commodities at TD Asset Management.

As always, make sure you do your own research before making any investment decisions.

Stay tuned for Monday show.

Nicole Ewing, Dir. of tax and estate planning with TD Wealth is going to be our Guest taking your questions about tax and estate planning.

These questions can get complicated seating get them ahead of time.

Just email us at moneytalklive@td.com.

That's all the time have the show today.

Thanks for watching. We will see you after the weekend.

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