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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
coming up on today show, we'll discuss a state of Canada's energy sector with Michael O'Brien, or folio manager with TD Asset Management.
With the threat of a recession hanging over the markets, we are going to take a look at what we are hearing from corporate earnings season. TD Asset Management's Damian Fernandes has some insights on that space.
And TD economist Thomas Feltmate will give us his view on whether the Fed will likely be on pause as we get more signs this week of inflation cooling. Plus in today's WebBroker education segment, Nugwa Haruna is going to take Esther's different order types which may help you trade more efficiently.
Before he gets all that, let's get you an update on the markets. A bit of a down day on Bay Street and Wall Street on this last trading day of the week. At 20,412, you got the TSX down a very modest five points, pretty much just flat, but it is three ticks to the downside.
We are still getting earnings coming in on the side of the border, including Park lawn. This is in the cemetery and funeral business. But the earnings are clearly pleasing the street.
At 2667, they are up almost 10% today.
Mapleleaf reported earlier this week, it was better-than-expected and there was a pop in the shares.
A little bit of get back on the front today.
At 2669, you're down about 3% on Mapleleaf.
Now south of the border, you still have the markets trying to figure out where the Fed may be headed and what the economic data is going to tell us in the coming weeks.
Those politicians in Washington have to get together and agree to make it on their debts. You got the S&P 500 down about nine point, for the percent. Let's have the NASDAQ is holding a. A bit weaker here. Down 57 point almost half a percent.
Rivian, in the electric vehicle market, they reported earlier this week. The chair got a nice pop early this week and a little bit of giveback right now, they are down about 5%. That is your market update.
Of course, these are markets that are looking for some direction in terms of what might be coming next, whether it's a possible recession, the state of inflation.
A few things happen this week, few things on the rater for next week. Our Anthony Okolie has been digging in and joins us nevermore.
>> Thanks very much, great, this week we got a lot of inflation data, particularly out of the United States.
I will start with US CPI data. It remains a strictly high of 4.9% but did show signs of easing in April.
The so-called core prices remain elevated because of persistently strong shelter costs.
The report contained some positive signs for continued slowdown in price gains and it still suggests that the risk rates may need to stay at higher for longer.
Headline inflation, we are still off the Fed's 2% target.
Now we also got US wholesale prices which rose at the slowest pace since early 2021, reinforcing the notion that inflation continues to a cool, albeit slowly. I think some key applications of this are obviously it makes it easier for the Pettipas rate hikes.
Fed chair Jerome Powell said in a news conference on May 3, we feel like we are getting closer or maybe even there. But TD Economics says, well, let's hold off a little bit, it's too early to save another rate hike is still on the card.
>> These are things that central banks were expected to see. If we hike the cost of borrowing as aggressively we have for the past year, you should see a slowdown,you should see a more cautious consumer. Next week we will actually get a read I think on both sides of the border about consumers and how they are spending.
>> Exactly. This will help put the picture together for some the central banks. In Canada, of course, we get Statistics Canada's Consumer Price Index report and it's expected to show inflation sslowing once again in April.
Canada's been cut in half from a peak of above 8% to 4.2% in March. TD Securities, they are expecting inflation rates to slow about half a percent month over month to 4.2% on an annual basis in April, core inflation to slip to 4.3%.
On Friday, we get Canadian retail sales for March, and in the US, we get US retail sales for April and TD Securities expects retail sales to rebound by a strong 1% month over month in April. That follows marches .6 month over month drop.
So a lot of economic data coming out next week.
>> Because I'm a bit of a Bank of Canada nerd, on Thursday, they are going to have their financial system review and then after that, that's basically an exercise in sort of risk probability, take a look at our financial system, what could be some challenges, what is the state of things. It's always an interesting one. Then we will hear from Tiff Macklem after it, so there could be some stuff they are considering what we are seeing south of the border with US regional banks and had a Bank of Canada feels about our system.
It could be another busy week before heading into a long weekend.
>> Another busy week. Again, we will be watching this quite closely to see what happened.
>> That'll be an interesting one. Thanks for that, Anthony.
MoneyTalk's Anthony Okolie.
Earlier this week I spoke with Thomas Feltmate, Senior economist with TD Bank. Here's our conversation.
>> We saw again there month over month.
There are s encouraging signs that we can point to.
When we saw the shoulder gains, they continued to slow in April, so that's encouraging.
March and April now have shown some pullback relative to the stronger prints we were seeing earlier last year.
And it kind of aligns to the narrative that we've been telling that shelter costs in the US, when we look at market-based measures of rent, they already peaked last year.
There's going to be some kind of lag showing up in inflation data and that's we've seen in the last couple of months. Certainly encouraging. And then on the good side of things, late last year we were seeing a lot of signs of deflation there.
but now, over the last two months, core goods have again contributed positively to inflation.
So a lot of that had to do with one off sharp increase and used vehicle prices.
Strip data, core goods were flat.
When we look at non-housing services, again, some moderation there but it's only started over the last month or so so it's still too early to say whether we are seeing a cooling on the core measure or whether these are just one-off effects.
>> Does it suggest that the last stretch will be the hardest?
>> That last move down from the 3 1/2 down to two is certainly going to be where we see a lot more stickiness coming through, particularly on the surface side of things.
>> What would the Fed make of it?
Because after the rate hike of last week, Jerome Powell was very careful not to say that we are on pause. But he sort of laid the groundwork that they could be, depending on the data at the end of the rate hiking cycle.
What does a print like this tell us about what the Fed might be thinking?
>> I think it kind of confirms what they were hinting and where they are basically reaching a point where they are comfortable with the degree of restriction that's in the economy today. But they also left the door open to future rate hikes if we continue to see economic data move to the upside. On the inflation numbers this morning, very, very early signs but we are seeing some cooling, so I think that kind of works in their favour.
But if we look back at last week's reading unemployment where we saw the US economy added over 250000 Jobs in April, things are still running out for well over trend pays and it suggest we could see a stronger push come through on the price side of things.
I think you're comfortable right now but if we continue to see upside surprises in the economic data, they definitely left the door open to more hikes.
>> Pauses one thing, possibility of another hike if the data pushes them in that direction. But then you have certain pockets of the market, I'm thinking of fixed income, that are actually starting to price and cuts as early as… I think it's pushed back to the fall but still within the remainder of this year. Is that a little too optimistic?
>> I think so at this point.
Certainly, we know that there is a lot of stickiness on the inflation side of things and just given the strength that we are still seeing in the labour market, I think it would be optimistic to say that come fall this year, the Fed would feel comfortable to start kind of easing back on the policy rate, particularly just given the trajectory that we are still seeing on the inflation data.
Very, very early signs of cooling. A lot of strength still in the labour market. But I think our opinion is that that's a bit premature at this point.
> In this country, we have been on pause with our central bank for a little while now, but the same thing. The data tells us that we gotta move again, we will move again.
What's the most likely scenario in Canada going forward?
>> I think it's a very similar story.
We got the April jobs numbers last week as well. They came in well above consensus, just like the US. We are still seeing a lot of underlying momentum going through on the hiring side of things. Those higher frequency reads that we are seeing on consumer spending a continue to point to Summit near-term acceleration in spending activity, so this kind of works against where policymakers are trying to get the economy.
So ultimately, that means rates need to stay elevated for longer.
So certainly through this year, we have both the Bank of Canada and the Federal Reserve interested in keeping the policy rate where it is today.
>> I've had discussions where it has been suggested,but if they can get down to around three, they are going to be happy now.
The target is to, there is a range on either side.
to keep the confidence of the consumer, to anchor inflation excitation, do they really have to wrestle it down to two?
>> Certainly this is a question that policymakers have been asked over the last year or so.
And what we have heard from Terry Powell is that 2% is their mandate and that's what they are targeting.
so kind of at all costs, that's what they're trying to get inflation back to, which again, probably argues that rates need to stay higher for longer relative to what markets are currently at.
>> The point is to cool inflation. I guess the thinking is you can't will inflation without pulling the economy.
We are seeing strength in the labour market, the consumer is holding up.
Where did the cracks need to be for central banks to think, okay, this is working.
Headline is one thing but the robust demand for labour, people are still getting raises, that all seems to be working against each other.
>> Yeah, I would agree with that. I think we are still seeing a lot of strength in the labour market.
That said, in the US, there is separately some crack starting to emerge, I would say.
When you look at job openings, for example, they have come in over the last year or so, they have fallen from about 10 million, 11 million them to closer to 9.6. So that's meaningful. However, they are still elevated by historical standpoint. When we look at continued jobless claims, they have continued to add higher. This is another sign that things are starting to ease of it.
Right now we look at where they are sitting, they are above the 2019 average. So again, another encouraging sign that things are starting to cool, but it's on the margin right now.
The labour market still remains historically tight and we are seeing that come through on the wage side of things. Wage growth is still well above what would be consistent with inflation closer to 2%.
>> That was Thomas Feltmate, Senior economist with TD.
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.
Air Canada nearly doubled its revenue in the first quarter compared to the same period last year.
And the airline says it's seeing strong advance bookings for the rest of 2023.
Air Canada results were also helped by lower-than-expected fuel costs in the quarter.
Right now, this stock modestly in positive territory.
The return to theatres helped Cineplex now it's loss in its most recent quarter.
Revenue was up nearly 50% year-over-year, with both theatre attendance and concession stand sales posting an increase. Cineplex is also touting his lineup of summer releases, including new offerings from the mission impossible and Indiana Jones franchises.
Higher capital expenses weighing on the bottom line at Crescent Point Energy for its most recent quarter.
Lower oil prices compared to the same period last year also contributed to lower year-over-year profits.
A quick check in on the main benchmark index. We will start your own Bay Street with the TSX Composite Index.
The last trading day of the week. We are down a modest 20 points, about 1/10 of a percent.
South of the border, the S&P 500, that broader read of the US market here, again modestly in negative territory, down 15 points were little more than 1/3 of a percent.
Energy stocks are major component of the TSX index and many big players in the space have just reported their latest earnings.
Earlier I spoke with Michael O'Brien, portfolio manager at TS management, who says it was a messy quarter but there were some positives.
>> They are operating in some pretty hostile environments when you are thinking about northern Alberta in the winters, so the Q4 and Q1 tend to have operational hiccups, quite often weather-related.
So we saw that flowing through the numbers, production numbers and the upstream business were kind of, a little bit soft. And then you also had some issues with a number of the integrated players like Cenovus and Suncor with downtime at the refineries, Cenovus in particular. So it was just one of those quarters where things weren't clicking on all cylinders. That said, they were all still very profitable, generated a lot of cash and a decent amount of that came back to shareholders in dividends or buybacks.
>> You're talking about its building profitable. That's interesting because of course the price of crude oil on average for the first quarter of last year, much higher than it was for the most recent quarter of this year.
But still profitable at these levels?
>> Oh yeah, and I think that something, especially after the last five, six years, we went through period where oil prices were quite weak for an extended period of time.
we tend to forget.
In Q1, the quarter that just passed, oil prices kind of bounced around between 70 and $80.
that doesn't sound as exciting as last year, like you said, when it was over hundred dollars per barrel.
But relative to where it was in the late part of the last decade, these are pretty robust prices. So we kind of forgot my.
70, $80 a barrel oil for the Canadian producers, that's a very healthy level.
So we've seen all of these companies continue to improve their balance sheets. They all continue to return cash to shareholders.
If oil were to stay at 70, $80, it doesn't sound as exciting but it's a very, very attractive level for these producers.
>> What can shareholders expect going forward?
With the year-over-year comparison, you get past this tough winter months where you can have operational challenges, which is the rest of the year look like?
>> The rest of the year should be a bit smoother. For example, Cenovus, one of the big Canadian players, they were kind of almost operating with one hand tied behind their back in Q1 where for their five refineries were basically of commission or running at sub optimal rates.
Management tells us that hopefully by June or July, though should all be back up and running 100%.
We should see a nice improvement there. You think about the weather-related downtime we saw in Q4, Q1, that should be behind us now.
I think the outlook for the back half of the year looks pretty good.
So really what investors are focusing on now is, as they rightly should have, these companies focused initially coming out of the pandemic in the recovery period abode to delivering the balance sheets.
they got dead to a more sustainable level. The exciting thing for equity holders now is that by and large, all of these companies are within striking distance of thatsort of magic number where they figure that the debt levels have gotten where they are comfortable with and beyond that point, basically all of the free cash flow they get generated is going to come back to us either as dividends, buybacks, special dividends.
And so for example C and Q, Canadian Natural Resources, their magic number is $10 billion in net debt.
They are a couple of billion dollars off. They figure by late this year or early next year, they will reach that $10 billion plateau. Going forward after that, 100% of the free cash flow they generate will come back to shareholders.
Cenovus, their magic number is $4 billion of net debt.
They are at about 6 1/2 billion today. They figured that at the end of this year, they will be there.
That's something that investors should keep their eye on is barring something really unforeseen in terms of major, major declines in oil prices, the free cash flow being returned to shareholders by these big players should continue to accelerate as we go into 2024.
>> I was going to ask you, how much is investors taking a look at the Canadian energy patch have to worry about those external factors, whether it's a global economic slowdown that depresses demand or even what OPEC gets up to?
>> Oil is a global commodity.
The world runs on oil and as we have all seen, whether fundamentally justified or not, oil prices will swing quite violently with the macro mood of the day. So if what you are reading about when you get up in the morning is recession, you see the R word is a headline in the business section, chances are oil prices or when to respond to that negatively.
On the other hand, if people get more optimistic about the economic backdrop or focus on things like China reopening, that tends to pit a bid under oil.
Those are macro, top-down driven or sentiment driven drivers but they are really real for oil. But at the end of the day, what it comes down to is the supply and demand fundamentals, and that washes out in inventory trends.
so we try to look through the noise. We understand that headlines will buffet the oil price.
Like I said, it's been bouncing around between 70 and $80 year to dates.
but at the end of the day, if we keep our eyes on the real fundamentals, supply a stripping demand, our inventory is diminishing, that's really gonna tell us where oil prices are going to be 10, 12, 36 months from now.
>> I think about the Canadian market, obviously energy is a big part of it.
the financials haven't reported, they come of the tail end. But we have heard from some of the miners.
You've got gold above $2000 per ounce.
With the picture there?
>> Obviously, what's being taken away from oil in terms of the negative sentiment around the economy, obviously gold tends to feed off of liquidity, it tends to feed off of macro fears as well.
So you see people quite concerned aboutthe US regional banks. That puts a bit into gold.
They are the same kind of things that undermine oil and other commodities here today.
Gold has been the beneficiary of the difficulties that some of these other commodities have been weathering.
North of $2000, there is obviously a very attractive gold price to the minors.
Where they are struggling a little bit though is on not so much on the revenue side is on the cost side, just maintaining efficient operations, a lot of input cost and inflation, a lot of the things you need to run a mine have gone up a lot in price over the last little while.
so even though the gold headline over 2000, you think that would be free cash flow gushing out of these companies, they are kind of getting a lot of pressure on the cost side.
The free cash flow follow-through isn't as great as you might expect.
>> That was Michael O'Brien, portfolio manager with TD Asset Management.
Now let's get to our educational segment of the day.
if you're looking to trade more efficiently, you may consider using some of the different order types available on WebBroker. Nugwa Haruna, Senior client education Dr. TD Direct Investing, has more.
>> Iif you're an investor looking for a way to trade more efficiently or looking for more of a hands-off approach, they may consider looking at OTA.
these are if and then type of orders. This involves the investor placing two types of orders at the same time.
The first one must happen for the second one to be triggered. Let's happen to WebBroker and have a look at how an investor could place these orders.
once in WebBroker, I'm going to click on the buy sell ticket in the top right-hand corner here, and once here, I'm going to click on the strategies tab.
so you will be presented with different kinds of conditional orders but today, as I mentioned, we will focus on the one triggers another order.
So once I click on this, you will be presented with those two trade tickets that I mention.
So in this instance, an investor for instance he was looking to enter into a position and then exit after making a profit, they may consider using this or another way investor could use this is if you want to enter a position but you think the prices may fluctuate, you may buy at a lower price and then via an even lower price. So let's use the first strategy there. And investors looking to purchase, I'm just going to throw in any security that I think of here.
So I'm gonna say want to buy the stock and let's say I want to buy 100 of this stock. I'm going to use a limit price and this lets me set the maximum amount I'm willing to pay for the stock.
So in this instance, I was in the maximum I want to pay for the stock is $165.
Now I can set my timeframe how long I'm going to wait, so in this instance I'm going to say good till cancelled. For US traded stocks, that's 180 calendar days. This is my first order that are putting in the system. Now typically if I wasn't using a conditional order, I would have to wait for this order to go through for me to place a cell ticket, but but because I'm using a one triggers another order, it let's replace a cell ticket at the same time.
So I'm going to click on the second order to get here and I will use the same security.
Will pull up the stock year. And now I want to be able to sell the stock with the same quantity, 100, I'm so going to use a limit price, but in this instance, I'm hoping the price has gone up so I make some kind of profit.
So let's say you decide to sell at 175. Now I have two tickets.
First, I need to purchase the stock for hundred and 65, so only after that order goes through my second order be triggered which would be a cell ticket to sell at 175. So that's the way an investor can place a one triggers another order in the system. A few risks that investors want to be aware of is that these are two separate order tickets which means that you will be dealing with two different commissions, so it's like to be aware.
But you don't have to worry about commissions if none of your orders go through.
Another way that an investor can trade more effectively is considering conditional orders.
>> Our thanks to Nugwa Haruna, 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.
Recession fears have been hanging over the markets for quite some time now, but what is corporate America telling us about the state of the global economy?
Damian Fernandes, or will you mentor it TD Asset Management join me earlier to discuss.
>> Things are slowing less than people are forecasting.
When you look at just the breadth of earnings season, and by the way, we are basically done earnings season, the only companies left of the retailers who have a one-month leg, so the majority of the companies in the S&P 500 reported, that's about 90% of the market. While earnings are negative, they are less negative than people expected. I can put some numbers into that.
People were expecting close to high single-digit, -9% earnings growth, it's coming in at -3, four.
So materially, much better.
Inflation is still growing, that help support the topline. On balance, we are finding is that this earnings season is actually surprising in how less bad it is.
Your opening comments were, what is this recession coming?
>> We've been watching the signposts for a while now.
>> I think people just need to think about a conventional recession.
Muscle memory forces people to think about the most dramatic experiences.
Most dramatic recessions we've had, the COVID recession or the 08 recession, don't think of that. It's a much more conventional recession, think 91 or 2001 when parts of the economy will slow in the other parts will continue along and provide some impetus for growth.
>> In terms of company is telling us what they are expecting going forward, I recall some of the big tech name saying, we are seeing a slowing in customers for some of our cloud services in other areas as well.
It seems like they are preparing for it but are they overly dire?
>> Year-to-date, you talked about this on the show, the FAANG stocks, FAANG bites back.
Microsoft is calling for up to 9% constant currency revenue growth, double-digit EPS growth. Facebook was a surprise, Meta, sorry.
that's etched into my head. But met a report of its call for revenues to be up high several digit 6/4.
That's much better than people feared with the pullback.
Broadly, parts of the market are growing in some parts are lagging.
>> What are the markets really waiting for in terms of a direction?
We had the recession fear for so long. This time you got a US Federal Reserve that might be on pause.
They are not using that word but the street seems to be thinking that maybe they are done.
What is the catalyst going forward?
>> The catalyst, I think what surprising people is wise to market lower?
We're talking about earnings, we've been talking about for a while, actual company earnings are better year-over-year, they are negative but better than expected.
My view is that the reason the market is where it is and hasn't fallen out of bed is because think about last year and what caused viewers indigestion, what caused you to reach for the Pepto-Bismol? It was for things, really.
It was accelerating inflation, it was Federal Reserve's that were tightening rates aggressively to adjust that inflation, genii out of the bottle.
We actually had, we still do, but there was a war that lit a fuse under commodity prices.
That exacerbated those inflation words. And then finally, the world's second-largest economy was still in a zero COVID policy, China.
As we look forward today, at the start of this year too, a lot of those, 3 1/2 of thosefor things, sadly, tragically, there still a geopolitical conflict, but every commodity price from W OTI to potash to iron ore is lower year-over-year, the Chinese economy is acceleratingas it gets up from its COVID hangover and inflation is falling.
Maybe doesn't get to the Fed's target of 2% but it is falling. So that kind of puts the Fed out of the game.
there are things that she worry about. This is and all blue skies ahead. We do have some worries.
but the main agitators of last year's market performance actually looked to be receding.
>> Markets, we are told, are forward-looking instruments. Are they looking past, perhaps, a mild recession, a soft landing, whatever people think is going to be in looking to the other side of it?
>> That is the pivotal question. Right now, we were talking about, it's not sunny blue skies ahead, it's because we are not sure about the magnitude of this drawdown. What I mean by this drawdown is this economic pullback.
We might be going into a recession, we might be going into a soft landing, I think the market is pricing in a scenario where we are going into a soft issue landing, a shallow recession where we can recoup last year's earnings by sometime last year.
If this, what's happening with credit tightening in the US or if something comes out of left field, if we have a much more traumatic pullback, then the market, that's what the market would cause concern.
We are following these things.
Something else that I'm looking at is, that's giving me a source of grief is probably the debt ceiling negotiations that are down the pipeline.
All of these things can take a regular slowdown or of run-of-the-mill pullback shallow recession and it can metastasize to something much deeper and then that's when the market falls out of bed again.
>> We have been Fed watchers, central-bank watchers for the past year for very good reason. As you said, this very aggressive rate hiking campaign.
It seems that there are parts of the market, I'm thinking more fixed income in the bond market, the things they will be turning pretty quickly in terms of going from tightening policy to slashing rates. How does that line up with reality, do you think?
>> I try to think about historical precedents and historical precedents being and not being a fixed income expert is that the Fed normally tightens until something breaks. Well, guess what? They broke three regional banks and a global investment bank in this tightening campaign. Historically, when you think about what's happening,after you've had a tightening campaign that has led to a financial crisis of sorts, the Fed's own pause and I think that playbook probably applies.
In terms of said cuts, this year, we will just have to see if the data plays out.
If the economic data continues to show up like the earnings data which is not as bad as fear, maybe some of those cuts have to be walked back or maybe not if the economy continues to slow, but I think the initial part of your common, the fact that the Fed being on pause are on hold with the potential for cuts, I think that's very likely.
>> That was Damian Fernandes, portfolio manager with TD Asset Management.
Let's check in on the markets on this last trading day of the week. A bit of a down session on bad Wall Street. Nothing too dramatic, but it is in the red.
26 points to the downside for the TSX Composite Index, a little more than 1/10 of a percent. We heard from Air Canada this morning and the travel demand, they say, is strong. Fuel costs lower compared to last year. The stock popped a bit on the news in the morning but it's just sort of fading through the session.
Still positive but I 2105, it's only up four cents per share.
Of course, Shopify has been on a run recently.
A bit of giveback today, at 8373, set about 1 1/2%.
South of the border, investors digested a softer than expected inflation prints.
There is more economic data to come out of the world's largest economies. Investors are trying to figure out, is the Fed on pause?
You down 20 points on the S&P 500, about half percent.
The tech heavy NASDAQ was trailing, I think, it's down about half a percent as well, or 65 points. Bank of America, we have seen some real volatility in the US regional banks but gets fell through the big banks as well.
It's down 1.4%.
And we want to show you shares of Tesla.
Not that we have new specifically related to Tesla, but sort of related. Let's dig through that puzzle. It turns out that Twitter has a new CEO. Elon Musk said yesterday that there is a new CEO, their identity wasn'treveal.
Linda yeah Carino resigned from NBC Universal and will join Twitter as its next Chief Executive Officer.
Yesterday we actually saw shares of Tesla pop on the news that Elon Musk had a new CEO.
There's a bit of a decrease today.
He said he still does plan to be part of this whole Twitter enterprise, saying that Linda yeah Carino will focus primarily on business operations but Elon will focus on product design a new technology over at Twitter.
Some interesting development there.
You want to stay tuned.
On Monday, Vitali Mossounov, global technology analyst at TD Asset Management will be taking your questions.
You have to wait until Monday, you get Headstart does questions. Just email moneytalklive@td.com. That's all the time you have the show today. On behalf of everyone here, Anthony Okolie who contributes daily, everyone behind the scenes who produces the show, thanks for watching. We will see you next week.
[music]
coming up on today show, we'll discuss a state of Canada's energy sector with Michael O'Brien, or folio manager with TD Asset Management.
With the threat of a recession hanging over the markets, we are going to take a look at what we are hearing from corporate earnings season. TD Asset Management's Damian Fernandes has some insights on that space.
And TD economist Thomas Feltmate will give us his view on whether the Fed will likely be on pause as we get more signs this week of inflation cooling. Plus in today's WebBroker education segment, Nugwa Haruna is going to take Esther's different order types which may help you trade more efficiently.
Before he gets all that, let's get you an update on the markets. A bit of a down day on Bay Street and Wall Street on this last trading day of the week. At 20,412, you got the TSX down a very modest five points, pretty much just flat, but it is three ticks to the downside.
We are still getting earnings coming in on the side of the border, including Park lawn. This is in the cemetery and funeral business. But the earnings are clearly pleasing the street.
At 2667, they are up almost 10% today.
Mapleleaf reported earlier this week, it was better-than-expected and there was a pop in the shares.
A little bit of get back on the front today.
At 2669, you're down about 3% on Mapleleaf.
Now south of the border, you still have the markets trying to figure out where the Fed may be headed and what the economic data is going to tell us in the coming weeks.
Those politicians in Washington have to get together and agree to make it on their debts. You got the S&P 500 down about nine point, for the percent. Let's have the NASDAQ is holding a. A bit weaker here. Down 57 point almost half a percent.
Rivian, in the electric vehicle market, they reported earlier this week. The chair got a nice pop early this week and a little bit of giveback right now, they are down about 5%. That is your market update.
Of course, these are markets that are looking for some direction in terms of what might be coming next, whether it's a possible recession, the state of inflation.
A few things happen this week, few things on the rater for next week. Our Anthony Okolie has been digging in and joins us nevermore.
>> Thanks very much, great, this week we got a lot of inflation data, particularly out of the United States.
I will start with US CPI data. It remains a strictly high of 4.9% but did show signs of easing in April.
The so-called core prices remain elevated because of persistently strong shelter costs.
The report contained some positive signs for continued slowdown in price gains and it still suggests that the risk rates may need to stay at higher for longer.
Headline inflation, we are still off the Fed's 2% target.
Now we also got US wholesale prices which rose at the slowest pace since early 2021, reinforcing the notion that inflation continues to a cool, albeit slowly. I think some key applications of this are obviously it makes it easier for the Pettipas rate hikes.
Fed chair Jerome Powell said in a news conference on May 3, we feel like we are getting closer or maybe even there. But TD Economics says, well, let's hold off a little bit, it's too early to save another rate hike is still on the card.
>> These are things that central banks were expected to see. If we hike the cost of borrowing as aggressively we have for the past year, you should see a slowdown,you should see a more cautious consumer. Next week we will actually get a read I think on both sides of the border about consumers and how they are spending.
>> Exactly. This will help put the picture together for some the central banks. In Canada, of course, we get Statistics Canada's Consumer Price Index report and it's expected to show inflation sslowing once again in April.
Canada's been cut in half from a peak of above 8% to 4.2% in March. TD Securities, they are expecting inflation rates to slow about half a percent month over month to 4.2% on an annual basis in April, core inflation to slip to 4.3%.
On Friday, we get Canadian retail sales for March, and in the US, we get US retail sales for April and TD Securities expects retail sales to rebound by a strong 1% month over month in April. That follows marches .6 month over month drop.
So a lot of economic data coming out next week.
>> Because I'm a bit of a Bank of Canada nerd, on Thursday, they are going to have their financial system review and then after that, that's basically an exercise in sort of risk probability, take a look at our financial system, what could be some challenges, what is the state of things. It's always an interesting one. Then we will hear from Tiff Macklem after it, so there could be some stuff they are considering what we are seeing south of the border with US regional banks and had a Bank of Canada feels about our system.
It could be another busy week before heading into a long weekend.
>> Another busy week. Again, we will be watching this quite closely to see what happened.
>> That'll be an interesting one. Thanks for that, Anthony.
MoneyTalk's Anthony Okolie.
Earlier this week I spoke with Thomas Feltmate, Senior economist with TD Bank. Here's our conversation.
>> We saw again there month over month.
There are s encouraging signs that we can point to.
When we saw the shoulder gains, they continued to slow in April, so that's encouraging.
March and April now have shown some pullback relative to the stronger prints we were seeing earlier last year.
And it kind of aligns to the narrative that we've been telling that shelter costs in the US, when we look at market-based measures of rent, they already peaked last year.
There's going to be some kind of lag showing up in inflation data and that's we've seen in the last couple of months. Certainly encouraging. And then on the good side of things, late last year we were seeing a lot of signs of deflation there.
but now, over the last two months, core goods have again contributed positively to inflation.
So a lot of that had to do with one off sharp increase and used vehicle prices.
Strip data, core goods were flat.
When we look at non-housing services, again, some moderation there but it's only started over the last month or so so it's still too early to say whether we are seeing a cooling on the core measure or whether these are just one-off effects.
>> Does it suggest that the last stretch will be the hardest?
>> That last move down from the 3 1/2 down to two is certainly going to be where we see a lot more stickiness coming through, particularly on the surface side of things.
>> What would the Fed make of it?
Because after the rate hike of last week, Jerome Powell was very careful not to say that we are on pause. But he sort of laid the groundwork that they could be, depending on the data at the end of the rate hiking cycle.
What does a print like this tell us about what the Fed might be thinking?
>> I think it kind of confirms what they were hinting and where they are basically reaching a point where they are comfortable with the degree of restriction that's in the economy today. But they also left the door open to future rate hikes if we continue to see economic data move to the upside. On the inflation numbers this morning, very, very early signs but we are seeing some cooling, so I think that kind of works in their favour.
But if we look back at last week's reading unemployment where we saw the US economy added over 250000 Jobs in April, things are still running out for well over trend pays and it suggest we could see a stronger push come through on the price side of things.
I think you're comfortable right now but if we continue to see upside surprises in the economic data, they definitely left the door open to more hikes.
>> Pauses one thing, possibility of another hike if the data pushes them in that direction. But then you have certain pockets of the market, I'm thinking of fixed income, that are actually starting to price and cuts as early as… I think it's pushed back to the fall but still within the remainder of this year. Is that a little too optimistic?
>> I think so at this point.
Certainly, we know that there is a lot of stickiness on the inflation side of things and just given the strength that we are still seeing in the labour market, I think it would be optimistic to say that come fall this year, the Fed would feel comfortable to start kind of easing back on the policy rate, particularly just given the trajectory that we are still seeing on the inflation data.
Very, very early signs of cooling. A lot of strength still in the labour market. But I think our opinion is that that's a bit premature at this point.
> In this country, we have been on pause with our central bank for a little while now, but the same thing. The data tells us that we gotta move again, we will move again.
What's the most likely scenario in Canada going forward?
>> I think it's a very similar story.
We got the April jobs numbers last week as well. They came in well above consensus, just like the US. We are still seeing a lot of underlying momentum going through on the hiring side of things. Those higher frequency reads that we are seeing on consumer spending a continue to point to Summit near-term acceleration in spending activity, so this kind of works against where policymakers are trying to get the economy.
So ultimately, that means rates need to stay elevated for longer.
So certainly through this year, we have both the Bank of Canada and the Federal Reserve interested in keeping the policy rate where it is today.
>> I've had discussions where it has been suggested,but if they can get down to around three, they are going to be happy now.
The target is to, there is a range on either side.
to keep the confidence of the consumer, to anchor inflation excitation, do they really have to wrestle it down to two?
>> Certainly this is a question that policymakers have been asked over the last year or so.
And what we have heard from Terry Powell is that 2% is their mandate and that's what they are targeting.
so kind of at all costs, that's what they're trying to get inflation back to, which again, probably argues that rates need to stay higher for longer relative to what markets are currently at.
>> The point is to cool inflation. I guess the thinking is you can't will inflation without pulling the economy.
We are seeing strength in the labour market, the consumer is holding up.
Where did the cracks need to be for central banks to think, okay, this is working.
Headline is one thing but the robust demand for labour, people are still getting raises, that all seems to be working against each other.
>> Yeah, I would agree with that. I think we are still seeing a lot of strength in the labour market.
That said, in the US, there is separately some crack starting to emerge, I would say.
When you look at job openings, for example, they have come in over the last year or so, they have fallen from about 10 million, 11 million them to closer to 9.6. So that's meaningful. However, they are still elevated by historical standpoint. When we look at continued jobless claims, they have continued to add higher. This is another sign that things are starting to ease of it.
Right now we look at where they are sitting, they are above the 2019 average. So again, another encouraging sign that things are starting to cool, but it's on the margin right now.
The labour market still remains historically tight and we are seeing that come through on the wage side of things. Wage growth is still well above what would be consistent with inflation closer to 2%.
>> That was Thomas Feltmate, Senior economist with TD.
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.
Air Canada nearly doubled its revenue in the first quarter compared to the same period last year.
And the airline says it's seeing strong advance bookings for the rest of 2023.
Air Canada results were also helped by lower-than-expected fuel costs in the quarter.
Right now, this stock modestly in positive territory.
The return to theatres helped Cineplex now it's loss in its most recent quarter.
Revenue was up nearly 50% year-over-year, with both theatre attendance and concession stand sales posting an increase. Cineplex is also touting his lineup of summer releases, including new offerings from the mission impossible and Indiana Jones franchises.
Higher capital expenses weighing on the bottom line at Crescent Point Energy for its most recent quarter.
Lower oil prices compared to the same period last year also contributed to lower year-over-year profits.
A quick check in on the main benchmark index. We will start your own Bay Street with the TSX Composite Index.
The last trading day of the week. We are down a modest 20 points, about 1/10 of a percent.
South of the border, the S&P 500, that broader read of the US market here, again modestly in negative territory, down 15 points were little more than 1/3 of a percent.
Energy stocks are major component of the TSX index and many big players in the space have just reported their latest earnings.
Earlier I spoke with Michael O'Brien, portfolio manager at TS management, who says it was a messy quarter but there were some positives.
>> They are operating in some pretty hostile environments when you are thinking about northern Alberta in the winters, so the Q4 and Q1 tend to have operational hiccups, quite often weather-related.
So we saw that flowing through the numbers, production numbers and the upstream business were kind of, a little bit soft. And then you also had some issues with a number of the integrated players like Cenovus and Suncor with downtime at the refineries, Cenovus in particular. So it was just one of those quarters where things weren't clicking on all cylinders. That said, they were all still very profitable, generated a lot of cash and a decent amount of that came back to shareholders in dividends or buybacks.
>> You're talking about its building profitable. That's interesting because of course the price of crude oil on average for the first quarter of last year, much higher than it was for the most recent quarter of this year.
But still profitable at these levels?
>> Oh yeah, and I think that something, especially after the last five, six years, we went through period where oil prices were quite weak for an extended period of time.
we tend to forget.
In Q1, the quarter that just passed, oil prices kind of bounced around between 70 and $80.
that doesn't sound as exciting as last year, like you said, when it was over hundred dollars per barrel.
But relative to where it was in the late part of the last decade, these are pretty robust prices. So we kind of forgot my.
70, $80 a barrel oil for the Canadian producers, that's a very healthy level.
So we've seen all of these companies continue to improve their balance sheets. They all continue to return cash to shareholders.
If oil were to stay at 70, $80, it doesn't sound as exciting but it's a very, very attractive level for these producers.
>> What can shareholders expect going forward?
With the year-over-year comparison, you get past this tough winter months where you can have operational challenges, which is the rest of the year look like?
>> The rest of the year should be a bit smoother. For example, Cenovus, one of the big Canadian players, they were kind of almost operating with one hand tied behind their back in Q1 where for their five refineries were basically of commission or running at sub optimal rates.
Management tells us that hopefully by June or July, though should all be back up and running 100%.
We should see a nice improvement there. You think about the weather-related downtime we saw in Q4, Q1, that should be behind us now.
I think the outlook for the back half of the year looks pretty good.
So really what investors are focusing on now is, as they rightly should have, these companies focused initially coming out of the pandemic in the recovery period abode to delivering the balance sheets.
they got dead to a more sustainable level. The exciting thing for equity holders now is that by and large, all of these companies are within striking distance of thatsort of magic number where they figure that the debt levels have gotten where they are comfortable with and beyond that point, basically all of the free cash flow they get generated is going to come back to us either as dividends, buybacks, special dividends.
And so for example C and Q, Canadian Natural Resources, their magic number is $10 billion in net debt.
They are a couple of billion dollars off. They figure by late this year or early next year, they will reach that $10 billion plateau. Going forward after that, 100% of the free cash flow they generate will come back to shareholders.
Cenovus, their magic number is $4 billion of net debt.
They are at about 6 1/2 billion today. They figured that at the end of this year, they will be there.
That's something that investors should keep their eye on is barring something really unforeseen in terms of major, major declines in oil prices, the free cash flow being returned to shareholders by these big players should continue to accelerate as we go into 2024.
>> I was going to ask you, how much is investors taking a look at the Canadian energy patch have to worry about those external factors, whether it's a global economic slowdown that depresses demand or even what OPEC gets up to?
>> Oil is a global commodity.
The world runs on oil and as we have all seen, whether fundamentally justified or not, oil prices will swing quite violently with the macro mood of the day. So if what you are reading about when you get up in the morning is recession, you see the R word is a headline in the business section, chances are oil prices or when to respond to that negatively.
On the other hand, if people get more optimistic about the economic backdrop or focus on things like China reopening, that tends to pit a bid under oil.
Those are macro, top-down driven or sentiment driven drivers but they are really real for oil. But at the end of the day, what it comes down to is the supply and demand fundamentals, and that washes out in inventory trends.
so we try to look through the noise. We understand that headlines will buffet the oil price.
Like I said, it's been bouncing around between 70 and $80 year to dates.
but at the end of the day, if we keep our eyes on the real fundamentals, supply a stripping demand, our inventory is diminishing, that's really gonna tell us where oil prices are going to be 10, 12, 36 months from now.
>> I think about the Canadian market, obviously energy is a big part of it.
the financials haven't reported, they come of the tail end. But we have heard from some of the miners.
You've got gold above $2000 per ounce.
With the picture there?
>> Obviously, what's being taken away from oil in terms of the negative sentiment around the economy, obviously gold tends to feed off of liquidity, it tends to feed off of macro fears as well.
So you see people quite concerned aboutthe US regional banks. That puts a bit into gold.
They are the same kind of things that undermine oil and other commodities here today.
Gold has been the beneficiary of the difficulties that some of these other commodities have been weathering.
North of $2000, there is obviously a very attractive gold price to the minors.
Where they are struggling a little bit though is on not so much on the revenue side is on the cost side, just maintaining efficient operations, a lot of input cost and inflation, a lot of the things you need to run a mine have gone up a lot in price over the last little while.
so even though the gold headline over 2000, you think that would be free cash flow gushing out of these companies, they are kind of getting a lot of pressure on the cost side.
The free cash flow follow-through isn't as great as you might expect.
>> That was Michael O'Brien, portfolio manager with TD Asset Management.
Now let's get to our educational segment of the day.
if you're looking to trade more efficiently, you may consider using some of the different order types available on WebBroker. Nugwa Haruna, Senior client education Dr. TD Direct Investing, has more.
>> Iif you're an investor looking for a way to trade more efficiently or looking for more of a hands-off approach, they may consider looking at OTA.
these are if and then type of orders. This involves the investor placing two types of orders at the same time.
The first one must happen for the second one to be triggered. Let's happen to WebBroker and have a look at how an investor could place these orders.
once in WebBroker, I'm going to click on the buy sell ticket in the top right-hand corner here, and once here, I'm going to click on the strategies tab.
so you will be presented with different kinds of conditional orders but today, as I mentioned, we will focus on the one triggers another order.
So once I click on this, you will be presented with those two trade tickets that I mention.
So in this instance, an investor for instance he was looking to enter into a position and then exit after making a profit, they may consider using this or another way investor could use this is if you want to enter a position but you think the prices may fluctuate, you may buy at a lower price and then via an even lower price. So let's use the first strategy there. And investors looking to purchase, I'm just going to throw in any security that I think of here.
So I'm gonna say want to buy the stock and let's say I want to buy 100 of this stock. I'm going to use a limit price and this lets me set the maximum amount I'm willing to pay for the stock.
So in this instance, I was in the maximum I want to pay for the stock is $165.
Now I can set my timeframe how long I'm going to wait, so in this instance I'm going to say good till cancelled. For US traded stocks, that's 180 calendar days. This is my first order that are putting in the system. Now typically if I wasn't using a conditional order, I would have to wait for this order to go through for me to place a cell ticket, but but because I'm using a one triggers another order, it let's replace a cell ticket at the same time.
So I'm going to click on the second order to get here and I will use the same security.
Will pull up the stock year. And now I want to be able to sell the stock with the same quantity, 100, I'm so going to use a limit price, but in this instance, I'm hoping the price has gone up so I make some kind of profit.
So let's say you decide to sell at 175. Now I have two tickets.
First, I need to purchase the stock for hundred and 65, so only after that order goes through my second order be triggered which would be a cell ticket to sell at 175. So that's the way an investor can place a one triggers another order in the system. A few risks that investors want to be aware of is that these are two separate order tickets which means that you will be dealing with two different commissions, so it's like to be aware.
But you don't have to worry about commissions if none of your orders go through.
Another way that an investor can trade more effectively is considering conditional orders.
>> Our thanks to Nugwa Haruna, 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.
Recession fears have been hanging over the markets for quite some time now, but what is corporate America telling us about the state of the global economy?
Damian Fernandes, or will you mentor it TD Asset Management join me earlier to discuss.
>> Things are slowing less than people are forecasting.
When you look at just the breadth of earnings season, and by the way, we are basically done earnings season, the only companies left of the retailers who have a one-month leg, so the majority of the companies in the S&P 500 reported, that's about 90% of the market. While earnings are negative, they are less negative than people expected. I can put some numbers into that.
People were expecting close to high single-digit, -9% earnings growth, it's coming in at -3, four.
So materially, much better.
Inflation is still growing, that help support the topline. On balance, we are finding is that this earnings season is actually surprising in how less bad it is.
Your opening comments were, what is this recession coming?
>> We've been watching the signposts for a while now.
>> I think people just need to think about a conventional recession.
Muscle memory forces people to think about the most dramatic experiences.
Most dramatic recessions we've had, the COVID recession or the 08 recession, don't think of that. It's a much more conventional recession, think 91 or 2001 when parts of the economy will slow in the other parts will continue along and provide some impetus for growth.
>> In terms of company is telling us what they are expecting going forward, I recall some of the big tech name saying, we are seeing a slowing in customers for some of our cloud services in other areas as well.
It seems like they are preparing for it but are they overly dire?
>> Year-to-date, you talked about this on the show, the FAANG stocks, FAANG bites back.
Microsoft is calling for up to 9% constant currency revenue growth, double-digit EPS growth. Facebook was a surprise, Meta, sorry.
that's etched into my head. But met a report of its call for revenues to be up high several digit 6/4.
That's much better than people feared with the pullback.
Broadly, parts of the market are growing in some parts are lagging.
>> What are the markets really waiting for in terms of a direction?
We had the recession fear for so long. This time you got a US Federal Reserve that might be on pause.
They are not using that word but the street seems to be thinking that maybe they are done.
What is the catalyst going forward?
>> The catalyst, I think what surprising people is wise to market lower?
We're talking about earnings, we've been talking about for a while, actual company earnings are better year-over-year, they are negative but better than expected.
My view is that the reason the market is where it is and hasn't fallen out of bed is because think about last year and what caused viewers indigestion, what caused you to reach for the Pepto-Bismol? It was for things, really.
It was accelerating inflation, it was Federal Reserve's that were tightening rates aggressively to adjust that inflation, genii out of the bottle.
We actually had, we still do, but there was a war that lit a fuse under commodity prices.
That exacerbated those inflation words. And then finally, the world's second-largest economy was still in a zero COVID policy, China.
As we look forward today, at the start of this year too, a lot of those, 3 1/2 of thosefor things, sadly, tragically, there still a geopolitical conflict, but every commodity price from W OTI to potash to iron ore is lower year-over-year, the Chinese economy is acceleratingas it gets up from its COVID hangover and inflation is falling.
Maybe doesn't get to the Fed's target of 2% but it is falling. So that kind of puts the Fed out of the game.
there are things that she worry about. This is and all blue skies ahead. We do have some worries.
but the main agitators of last year's market performance actually looked to be receding.
>> Markets, we are told, are forward-looking instruments. Are they looking past, perhaps, a mild recession, a soft landing, whatever people think is going to be in looking to the other side of it?
>> That is the pivotal question. Right now, we were talking about, it's not sunny blue skies ahead, it's because we are not sure about the magnitude of this drawdown. What I mean by this drawdown is this economic pullback.
We might be going into a recession, we might be going into a soft landing, I think the market is pricing in a scenario where we are going into a soft issue landing, a shallow recession where we can recoup last year's earnings by sometime last year.
If this, what's happening with credit tightening in the US or if something comes out of left field, if we have a much more traumatic pullback, then the market, that's what the market would cause concern.
We are following these things.
Something else that I'm looking at is, that's giving me a source of grief is probably the debt ceiling negotiations that are down the pipeline.
All of these things can take a regular slowdown or of run-of-the-mill pullback shallow recession and it can metastasize to something much deeper and then that's when the market falls out of bed again.
>> We have been Fed watchers, central-bank watchers for the past year for very good reason. As you said, this very aggressive rate hiking campaign.
It seems that there are parts of the market, I'm thinking more fixed income in the bond market, the things they will be turning pretty quickly in terms of going from tightening policy to slashing rates. How does that line up with reality, do you think?
>> I try to think about historical precedents and historical precedents being and not being a fixed income expert is that the Fed normally tightens until something breaks. Well, guess what? They broke three regional banks and a global investment bank in this tightening campaign. Historically, when you think about what's happening,after you've had a tightening campaign that has led to a financial crisis of sorts, the Fed's own pause and I think that playbook probably applies.
In terms of said cuts, this year, we will just have to see if the data plays out.
If the economic data continues to show up like the earnings data which is not as bad as fear, maybe some of those cuts have to be walked back or maybe not if the economy continues to slow, but I think the initial part of your common, the fact that the Fed being on pause are on hold with the potential for cuts, I think that's very likely.
>> That was Damian Fernandes, portfolio manager with TD Asset Management.
Let's check in on the markets on this last trading day of the week. A bit of a down session on bad Wall Street. Nothing too dramatic, but it is in the red.
26 points to the downside for the TSX Composite Index, a little more than 1/10 of a percent. We heard from Air Canada this morning and the travel demand, they say, is strong. Fuel costs lower compared to last year. The stock popped a bit on the news in the morning but it's just sort of fading through the session.
Still positive but I 2105, it's only up four cents per share.
Of course, Shopify has been on a run recently.
A bit of giveback today, at 8373, set about 1 1/2%.
South of the border, investors digested a softer than expected inflation prints.
There is more economic data to come out of the world's largest economies. Investors are trying to figure out, is the Fed on pause?
You down 20 points on the S&P 500, about half percent.
The tech heavy NASDAQ was trailing, I think, it's down about half a percent as well, or 65 points. Bank of America, we have seen some real volatility in the US regional banks but gets fell through the big banks as well.
It's down 1.4%.
And we want to show you shares of Tesla.
Not that we have new specifically related to Tesla, but sort of related. Let's dig through that puzzle. It turns out that Twitter has a new CEO. Elon Musk said yesterday that there is a new CEO, their identity wasn'treveal.
Linda yeah Carino resigned from NBC Universal and will join Twitter as its next Chief Executive Officer.
Yesterday we actually saw shares of Tesla pop on the news that Elon Musk had a new CEO.
There's a bit of a decrease today.
He said he still does plan to be part of this whole Twitter enterprise, saying that Linda yeah Carino will focus primarily on business operations but Elon will focus on product design a new technology over at Twitter.
Some interesting development there.
You want to stay tuned.
On Monday, Vitali Mossounov, global technology analyst at TD Asset Management will be taking your questions.
You have to wait until Monday, you get Headstart does questions. Just email moneytalklive@td.com. That's all the time you have the show today. On behalf of everyone here, Anthony Okolie who contributes daily, everyone behind the scenes who produces the show, thanks for watching. We will see you next week.
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