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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show,we are just days away from another Fed rate decision on interest rates.
of course, Mike MacBain of East Coast Fund Management is going to help keep things up for us. Speaking of interest rates and inflation, we have a key CPI data report coming out tomorrow morning here in this country. Our Anthony Okolie is going to have a preview of what to expect.
And in today's WebBroker education segment, this should be interesting.
Bryan Rogers is going to show us how to build and track mock portfolios here on the platform.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to the guest of the day, let's get you an update on the markets. A bit of a strange start to the week.
We continue to have crude prices rallying higher. We've got West Texas intermediate American benchmark up another 1/3% today, almost hitting 92 bucks per barrel but the energy stocks on Bay Street aren't taking part in that rally. Let's take a look at some of the most actively traded names.
I could have chosen any in the basket.
Suncor, a lot of the energy names are flat or to the downside. 4718 on Suncor, you're down about half a percent. Uranium played Denison Mines today, it was under some pressure earlier in the session. It has ticked into a positive territory but it's pretty modest. These are the most actively traded names right now.
Not a lot of upward or downward price action on the market to start the week. At two bucks and $0.22 per share, you're up just shy of a full percent.
South of the border, when you're a few days out of the Fed decision, there's a bit of caution on the markets. A 4164, you got the S&P 500 up about 1/3 of a percent.
let's see how of the NASDAQ is holding up.
It's up almost 1/5 of a percent or 22 points.
notice some pressure on tesla earlier in the session. At 267 bucks and change per share, down about 2 1/2. Nothing too dramatic but a bit of pressure to the downside. And that is your market update.
Borrowing costs are front and centre this week for investors. We got the US Federal Reserve on deck to deliver yet another interest rate decision.
We also have rising gasoline prices pushing headline inflation higher. So what might we expect from the inflation fighting central bank and Mark joining us now to discuss, Mike MacBain, CEO and CIO of East Coast Fund Management. Welcome to the show. It's your first time on.
>> It's an absolute pleasure to be here.
>>let's talk about the big issue.
For your and 1/2 now, investors have been focused on inflation, interest rate policy, and we are seeing headline starting to take a bit higher. You roll it all together, what do you think we are going to get from the Fed this week?
> I think the Fed is going to do nothing this week.
They have been pretty clear about their goals for lower inflation and higher unemployment, and the data that has come in and suggest that inflation has come down a little bit but they probably have time to wait.
I'm not convinced they're finished but I think, for this month, there hasn't been enough data to justify putting rates.
>> We talked about headline inflation, that's not what the central bank's focus on. Here at home and south of the border, they take a look at core, they want us to vote more volatile measures.
Gasoline has been volatile, oil prices have been volatile.
Is that the sort of thing where after all of the activity they had on interest rate, they might be able to look through some of these bumps?
>> Yeah, I think that what we have also seen on the inflation front is it has come down pretty significantly, as I think most people expected, but it's starting to kind of flatten out.
Last month's CPI numbers were a little bit stronger in the core segments that they are focused on.
And so I think they are… They haven't seen enoughinformation really to push rates higher at this meeting in my opinion.
>> So you think a hold for this week but you can't rule out before the end of the year another rate hike. What would take them there? If they are going to look through things like volatile gas prices and other volatile components, what would make them think the job isn't done yet?
>> I think that the two key factors our unemployment and inflation for them, and J Powell has been pretty direct about that.
I think he is, he believes very strongly that the economy won't slow down enough unless he starts to see some movement on unemployment. And so like I said, inflation numbers have come down.
They have flattened a little bit here.
Most recently, if we see continued strong employment and inflation doesn't continue to fall, then I think next month, that meeting is live in my opinion.
>> Is this making sense? Overall, we step back and think of how aggressive, may be aggressive is too strong a word but I think it fits, that the Bank of Canada has been, Western central banks have been, and raising the cost of borrowing and trying to tame inflation and they warned us at the outset that there's going to be a lot of pain, job loss, this and that, and there has been resilience. Can we square these things?
>> Yeah, there definitely has been resilience in the job market for sure. In terms of the sort of job openings data, that kind of peeked around 12 million jobs.
And that has dropped meaningfully. And I think thatFed chair Powell did talk about that 10 to 12 months ago that they want to take some slack in those job openings and that's kind of your Goldilocks scenario, right, because those are jobs that are actually out there. Then going away doesn't take a job away from any individual so that's fantastic, but you are still seeing hundred and 50,000 new jobs per month and that's too much for him.
At the end of the day, seeing a meaningful falloff in that and inflation will be the drivers.
>> Is a part of this equation to where they talked about we are taking these aggressive moves on borrowing costs, trying to tame inflation, we aren't done yet, when they have the further line, we are going to stay here for a while.
At certain points this year the bond market has believe them and in the bond market has decided not to fully believe what they are being told. Where are we out right now and what does the bond market actually think the Fed is going to do?
>> Well, if you remember two or three years ago, they were keeping rates low for what seemed like forever.
Their stated objective was, we are not even thinking about thinking about thinking about raising rates. Nine months after that, they started raising rates at unprecedented speed.
So I think you need to take those comments with a bit of a grain of salt because they have to say that because that's what their belief is today, but as we all know, the world changes quite quickly at times and if they decide that rates need to come down because we've gone into a recession and employment numbers fall off a cliff, then rates will go down. I'm not anticipating that. I do believe that we are going to be in a period where nothing really meaningfully happens in the rate market. A slight rise in rates over time in my opinion is where we go.
And I do you think that we are going to have relatively stagnant interest rates over the next 12 months.
But just because they say it has proven many times that is just what they are saying today.
>> So it's what they are saying today but the future could change. You had an interesting discussion in the summer with a colleague at TD Securities, Andres Rincon, I found it interesting that youtalks about because the entire world is laser focused on interest rates and central-bank action, you are not perhaps as diversified as you think you might be.
Run me through that line of thinking.
>> Well, the diversified 6040 portfolio has always been there because, usually speaking, when interest rates are going up, that's a strong market, equities are doing well so there's diversification and the opposite has also been true fairly consistently over a long period of time where equities are having a hard time, interest rates are coming down. So that diversification benefit from interest rates has been very helpful.
Since the central banks have been really in control of the economy, which has been for quite a long time now, really off and on for the last decade, they have been driving the equity market. So when the central banks are dropping rates, that's been viewed as positive for the equity market, the equity market has been rallying.
Dropping rates means bond prices are going up. Then we get to a point where interest ratesare basically zero. Where can they go? They can only go up.
And when they go up, that's bad for the equity market. So we have had that very positive correlation in the equity market and bond market.
if equities go down and bonds go down, there's no diversification there.
That's being a function. Interferences may be a strong word but because of central-bank interference.
>> Interesting times indeed and a great start to the show.
We are going to get your questions about fixed income and all things related with Mike MacBain of East Coast Fund Management in just a moment's time.
And a reminder that you can get in touch with us any time. time. response box under the video player on WebBroker.
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.
Auto talks continue here in Canada between Unifor and Ford ahead of a midnight deadline. In a release, Unifor says the two sides remain far apart at the bargaining table and the union is prepared for all scenarios, including strike action. Of course, south of the border, autoworkers at the big three have been staging targeted job action since last Friday. Something to keep an eye on.
We've got Clorox warning the last month's cyber attack on its idea and for structure could have a material financial impact on its current quarter. The maker of Pine-Sol and Liquid-Plumr says the breach forced it to take its computer systems off-line.
Clorox did not give a dollar figure for that financial impact their warning about, but it says it has restarted production up most of its facilities.
Heather Reisman is returning to the top job at Indigo Bics and music. This move comes just weeks after former CEO of Peter Ruis abruptly resigned from the post.
In a release, Reisman said there's a clear path to regain momentum at Indigo and to return the company to growth and profitability.
it's been moving up pretty aggressively since I checked this morning, up 16% per share.
Let's check in on Bay Street and Wall Street, we will start her at home with the TSX Composite Index. Crude prices that almost 92 bucks per barrel, that American benchmark. Energy stocks are not taking part in the rally. We are down about hundred and six points, about half a percent.
the S&P 500, tomorrow the Fed will go into the meeting, they will come out with a decision for us in the afternoon, a bit ahead of that, you're up about a modest 10 points.
We are getting back your questions for Mike MacBain. What are your thoughts on the high-yield bond market?
Do you see any opportunities there?
>> I think the high-yield bond market in a stable market is a decent opportunity. You are picking up yields in the sort of 7 to 8% range right now and that's relatively strong.
The problem with the higher bond market overall is that you have, in downturns, you have reasonable probabilities of default.
And so the high-yield bond segment is the riskier part of the bond market. And default rates run 2 to 3% in a normal market, so if you are earning seven and your default rates are two or three, on a diversified portfolio, high-yield, you're probably earning four or five.
The real trouble comes when you get into a recessionary environment and if you feel that we are moving towards that, which we probably are the next 12 to 18 months, you get default rates up into the 10, 12, 15% range.
And that's obviously a very negative outcome for the high-yield market. I think tactically you want to be in the high-yield bond market after a risk event rather than before a risk event.
so I wouldn't personally be investing in today.
But the yields have been, or higher been they've been in the past.
> If an investor is researching the space, what should they be looking at?
>> I think it's a dangerous space for a retail investor to get into on their own.
it's a very technical market. There are obviously risks around all the companies in the high-yield space.
and the dispersion of ratings versus potential default can be very high based on the individual companies, and so really in the bond space, the high-yield bond space, it is very similar to the Warren Buffet and the equity market. They are looking for deep value plays that are risky but they have done their research and I would really recommend not being in the high-yield bond market as an amateur.
>> Some words of caution.
Another question coming in from the audience. One of the viewers wants to know, in the medium term, one to three years, where does your guest see interest rates normalizing? Is it going to be different this time?
>> I think we are in a longer-term bear market in interest rates and so I'm not predicting 10, 12, 13% interest rates again in the near future, but I do thinkthat we are back in an environment where inflation is real.
The structural changes in the economy have been relatively significant, both to the labour force, onshoring energy production, national interest has sort of garnered the attention of almost every industry now.
It used to be that the only thing of national interest was military but now it is food and health care and silicon chips and energy. Everything now that's in national interest needs to be done at home which is more expensive and so I think we are in an environment or a decade where we are going to see higher interest rates.
Now, interest rates, as everybody knows, have gone, have moved shockingly over the last year and 1/2, so that's certainly going to slow down and I think that for the next year or so, for a benchmark five-year bank bond, they are yielding 5 1/2%, I think somewhere between 5 1/4 and 6% is probably where we are going to be in a years time.
Three years time is anybody's guess.
It's hard to guess anything in the market three years out.
my view is that we would be moving slowly higher from that. that. to if that's the environment. But you have a generation, we have a generation of people involved in the markets, generation of homeowners and workers who have never seen high interest rates. Howtough could that be for them to adjust to?
>> It is very true and if you think back to her three years ago, when mortgages were a 2% to end you could walk into the bank and they are begging for you to take a home equity line of credit for 50 basis points and everybody was doing it because money was free and why wouldn't you take it?
And now we are in an environment where mortgages are six, seven, 8% and so it's a very different regime. I think, in my experience, all of these things are manageable over longer periods of time.
They are very unmanageable over short periods of time.
So if interest rates go from 0 to 5% in a year, that's a challenge for a lot of companies and individuals but if they go from 0 to 5% over five years, that's not a big deal.
And if they go from 5 to 10% over five years, I mean, obviously, it's worse but you can plan around that.
It's the shock that makes it difficult.
And so I think that it all depends on the pace. I think the pace of interest rate risesis falling.
The significant pace of rate rises is behind us.
>> It was a shock to a lot of us over the past year and 1/2. Another question here from a viewer.
They would like to get your thoughts on long duration bonds.
Do they have the greatest upside?
I guess that scenario would be if they were to stop hiking and start cutting.
>> One way is to say they have the greatest upside been another way to say it is that they have the greatest volatility because the duration exposure of a long-term bond is significant.
that's the sort of pure math around it. So yes, therefore, if interest rates drop by hundred basis points, you're gonna make 20 times more money than you would if you owned a one year bond but the opposite is also true.
If interest rates go up, you're gonna lose 20 times as much money as you do with a one year bond.
So in my personal opinion, you have a very inverted yield curve right now. So when your bonds are at the 6%, 30 year bond yields, sub 4%. And so I think that as interest rates flat no, you're going to seea recent deepening of that curve and so in my mind, you're going to lose money on those long bonds because even if rates come down slightly, I think you're going to see that curve steepen again and long term bond yields are not necessarily gonna follow suit. As you mention the inversion of the yield curve, there was a time when people thought that meant something about the future of the economy. Did the pandemic just missed the economy of?
>>there's a lot of historical data.
We talked about if it was different earlier in the show. History says that once the yield curve reverts, within 18 months, you're in a recession. So that's been a pretty is strong held statistic historically.
And I do think the pandemic and the handouts in the pandemic has done something to kind of drag that out. We will see what happens because I think the yield curve has rarely been as inverted as it has been in the last year. So but I do think that the money washing around the system still exists and that is stopping that recession from happening at the moment.
>> As always at home, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Mike MacBain from East Coast Fund Management on the fixed income space in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's to get our educational segment of the day.
have you ever wondered how you could track a mock portfolio?
>> This is one of those things where you can add symbols to watchlist but one of the things you may not have discovered is that there actually is a way you can add somepricing information. If you want to test out in theory and say I think there's a stock that I'm looking at, I'm not quite ready to put my own money at risk and I'm not sure I want to buy it but I have a theory and I have a hunch on something, you could be using fundamental analysis or technical analysis, you might say, is this going to work over the long term?
You could entered in as if you're buying it right now, the dollar amount and then you can track it in WebBroker, you can look at it a month from now and say, hey, that did work so I think maybe you want to try this for real.
But without putting money at risk you can try this in WebBroker. So if we jump into the platform, I want to show you how you can do that.
It's a little trick within the system.
So if I pull up a system, but Apple up at the moment, I added to a watchlist easily right here by clicking add to watchlist or if I have a particular symbol in mind, I go to the watchlist tab and you're gonna see that there is normally 10 lists that are available.
One limitation is that you can only add 10 symbols to a list so you may have to get creative if you want to do it for a particular number of stocks in a certain sector and then create a new list and do something else, but you're only gonna be able to put 10 on each list.
But once you figure out which symbols you want to add, let's say if I was going to add Apple right here, I just have to type in the symbol, click on the symbol, added to the list.
we're going to add it on here right now.
Then what you are going to want to do is click on the tracker tab.
You can add the symbols without adding the details are referred to but if you want to create the small portfolio, click on tracker and now, as you have actually done this for some of these already, I have some at hundred shares,we were doing this in another class before. But if I want to add Apple on here and what if I bought it today,I will put in the number of shares, tab over to put my average cost in at 178, you can use whatever you want but you want to be realistic if you are actually buying a today as an example.
Click on save and you don't really see much right now. By the bid and ask, it might show you up a tiny bit.
It moved slightly. It's a tiny bit higher right now. There's a last price.
It's up $0.40 from where I put in my costs but this is going to continue to update every day and I see, was this a good buyer did not work out so well and you can test out the strategies on the watchlist.
>> Bryan, what I showed you there, you're using stocks, populated them with stocks.
Can you had any kind of investment these lists?
>> Yeah, that's a really good question.
You can add, if you're interested in saying, hey, I would like to do this with ETFs or mutual funds,if you haven't delved into this worldyet and you have a specific option you want to add on there, you can do that as well.
If we jump into WebBroker will show you how to add those types of investments.
We go back and closed his watchlist right now, if you went and pulled up a symbol, we will do it this way. If I go to research, you don't know the symbol yet, do your research, go to mutual funds for example, you can find a fund.
We can go to global equity and then I will find a random fund here.
So once I'm there, I just add this to the watchlist rate here and then I choose a watchlist as well.
I choose a portfolio watchlist. So now it's already added.
That symbol means already added. So I go to the watchlist itself, go appear, go portfolio, and I see on this one there is that fidelity global concentrated, so the same steps after that. You can add ETFs as well. Just make sure you entered in the right category.
You have to find that in the search for symbol.
You have to follow the actual symbol format if you are doing options.
Those the our family with options will know that already. I think you can add an index as well. You can add a price because you can't buy an index but you can add that as well.
And then I go to the tracker and add in a dollar amount if I want to be within my mutual fund as well.
>> Alright, great stuff as always, Bryan.
Thanks that.
>> Alright, thanks a lot, Greg.
>> Bryan Rogers, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we back to your questions about fixed income for Mike MacBain, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.comor you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Mike MacBain, taking your questions about interest rates, fixed income.
Lots coming in. Let's get to the next one.
A viewer wants to know how long you think bonds will take to react to a fall in rates?
>> I think the question there is, are you going to have a fall in rates? So let's talk about that for a second.
if rates fall, bonds will react. Like we have seen in terms of rate rising, the front-end of the yield curve has risen the most as policy rates have gone higher,but the bond yields have also risen, probably less as it goes down the curve and the same will happen if rates fall.
But I did say earlier on that the Fed is going to hold the next meeting but I think the risk of the Fed and the BOC raising rates ishi Ruth then them dropping rates right now, certainly over the near term.
Over the next six months, I think the likelihood of rates going up from the central bank action is higher than rates going down.
>> Is part of the psychology of what the central banks are doing right now, as you said, a couple of years ago, they were not even thinking about thinking about it. If you're thinking of taking a loan or buying a house or starting a business, rates will be low for a long time.
As part of what they're doing here try to make sure part of the fight that they know if they cut, it might set off a certain kind of activity that they don't want to see, whether it's in markets or the housing market?
>> That's 100% the case. They are trying to use forward guidance is the term, they are trying to use this forward guidance to convince people that rates are going to be higher and therefore don't be involving yourself in activity that's creating more bullish sentiment and more growth.
They are trying to reduce. If everybody thinks in three months time, rates are gonna be 200 basis points lower, they are going to start behaving like that's what's going to happen.
> Let's get to another question. A viewer wants to know, how would you prepare for market volatility?
Bit of a chance to get into sort of what you do and how you see fixed income investing.
>> Yeah, so our strategy is a little bit different than most.
We are an investment grade bond fund. We invest in the highest quality companies in Canada. We are heavily involved in financial services and banks.
But the big difference between what we do and what most other bond funds do is be eliminate interest rate exposure from the bonds that we buy.
And so, as you have seen or we have seen in the last three years, the interest rate component of the bonds that you buy has been the most volatile piece. So there has been no change to whether or not TD Bank is going to pay you back your money over the last two or three years, but their bonds have gone down in value.
And that is because interest rates have moved. So we invest in sort of shorter dated bonds, bonds where once we've eliminated that interest rate exposure, your… Your… You are investing in a return stream that is more reliable, return stream that is a bunch of investment-grade companies that will come through and that's more certain returns over time and means lower volatility in our opinion.
And so as it relates to the market today, our view is that we are in a seasonally difficult time for the bond market and, frankly, the equity market.
You come back from vacation and there haven't been any bond issues because all corporate treasurers have been away yet yields five or 6% in the bond market, so there's been reasonable investor appetite to buy those bonds. So they become more expensive through the summer and now we are back and corporate issuance has started and now there's a supply demand balance at the moment. Credit spreads on bonds, yields are rising. We think that that's, in the short term, an opportunity that we can take advantage of, and we think that there is also a reasonably good chance the September and October will be the sameand there will be a bit of a stumble in the market. So we are positioned to take advantage of backups in the market right now.
>> Interesting stuff. At home, always do your own research before you make any investment decisions.
Another question here. We've got someone talking about preferred shares. Should we consider preferred shares as part of fixed income or just stick with bonds?
>> Preferred shares has been the ultimate roller coaster over the past 5 to 10 years and it's unfortunate becauseit has the makings of being a great product but the problem is that the liquidity involved in that product makes it a volatile market that should move two or three, move 10 or 15 just because it's a retail held product and there are no institutions really involved in a and in fact they have almost restructured that market into a bond market.
The institutions player in the… Bond market which is the same sort of part on the capital structure as a preferred share but the structure is different where is a retail space in the preferred share market.
. . unfortunately that creates a bit of a liquidity gap when prices are going down andit's just a difficult part of that market. We avoided completely for that reason.
>> We are going to get back to your questions for Mike MacBain in just a moment's time.
As always, make sure you do your own research before making any investment decisions. and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right. We do have the US Federal Reserve on deck this week to give a rate decision. Of course, all of this has been about taming inflation. Tomorrow morning, we are going to get the latest inflation report out of this country. We note that the Americans had a hotter than expected print recently because energy prices are higher. What's the story in this country?
Anthony Okolie joins us now would TD Economics take on it.
>> As you mentioned, last week stronger-than-expected US inflation print… We could see a rebound in Canadian inflation They are pricing in a high probability of another Bank of Canada rate hike by the end of the year. Now TD Economics expects CPIAugust to show a big jump, 3.8% year-over-year, that compares to the 3.3% gain year-over-year that we saw in July and 2.8% we saw in June.
Now, the main culprit for the rising CPI: gasoline prices. The 5% month over month surge in gas prices will likely be the driver of headline inflation in August.
Now regarding core inflation, TD Economics doesn't expect too much progress there and that's because core no longer is benefiting from the downward draft from the base effects. As the chart showed, he chose a three month average of monthly price movements in the Bank of Canada's two core measures, just bring that up now.
That's the CPI median and the CPI trimmed.
These measures strip out certain components that demonstrate extreme volatility and price fluctuations. As the chart shows, these appear to be stuck at the mid-3% level. Now TD Economics maintains this is why the Bank of Canada is keeping the door open to more rate hikes in their policy.
Part of the rationale for the Bank of Canada's talkativeness according to TD Economics is due to the resilience of the Canadian consumerand their ability to weather the impact of higher rates.
As my next chart shows, the improved net worth of Canadian households is up 256 billion in the second quarter of 2023, that has provided some additional cushion for many Canadians along with the approximately $140 billion in unspent excess savings.
Now TD Economics warns that this could be a problem for the Bank of Canada because if consumers decide to spend their newfound wealth, that could put further pressure on growth and inflation. Finally, TD Economics note that there has been a clear slowing of spending. We have seen some weakness in the housing market as well as in the jobs market. We have come to do what TD Economics calls an inflection point. As the chart shows, hiring has slowed in Canada.
The unemployment rate has increased to 5.
5% and the number of unemployed has jumped to more than 120,000 this year.
However, despite the early signs of a jaw market slowdown, TD Economics says that Canadians are in a better financial position because as well we are seeing sticky inflation, that will make the Bank of Canada's job much harder to do. Now TD Economics doesn't expect the Bank of Canada to hike interest rates for the rest of this year. However, they do expect the Bank of Canada to keep the door open in case economic data surprises again to the upside. Greg?
>> You mentioned the resilient consumer today in that report but at the end of the week, we are going to get another retail sales figure. It's a bit dated, it falls a bit behind, but still what are we expecting there?
>> In June, we sell retail sales seek out a small gain that was really driven by a strong demand for new cars. But when you take out this demand, retail sales were down in June, well below estimates for an increase. Looking ahead, TD Economics says that spending might regain its footing with the help of government rebates aimed at helping lower income householdspay for groceries and whatnot but TD Economics points to a rebound in monthly spending in July.
They note that the cumulative effect of that past rate increases by the Bank of Canada is only starting to have a real impact on household budgets.
they believe that as more mortgages roll over at higher rates, homeowners will start to divert more of their income towards debt servicing and this means that retail sales could be the next in line to roll over.
>> July was my wife's birthday. We threw a big party.
>> I'm sure we'll see a bit of a bump.
>> Thanks for that, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now it's time for market update.
We are taking a look at the Advanced Dashboard and we are looking at the heat map function.
There is not a lot here for you.
Seeing a little bit of green on the screen when it comes to some of the mining names, whether it's… Or Kinross but it's modest.
Shopify standing out here, it's taking up the screen, downpour and 1/2%. The energy space is interesting because much is happening there, obviously, but all the big names are modestly but the fact that you have American benchmark crude continuing to rally higher and yet today, the energy stocks are not taking part in the rally.
Curious one there.
South of the border, want to check in on the S and P100, see what's moving today.
Tomorrow, the Fed officials will go into their two day meeting, Wednesday they come out of it in the afternoon with the rate decision for us. It's a mixed bag. You have Tesla taking up a lot of real estate in the middle of the screen, down about 2 1/2%.
In the tech bucket, but of strength, including Apple, up a little bit more than 2%.
We are now back with Mike MacBain, taking your questions about fixed income. This one just came in a little while ago.
Is there an opportunity now to invest in bonds maturing greater than five years with the expectation that rates will be lower in the future or is it best to continue investing at the front-end and reinvesting at maturity? Just to be clear to the audience, we can't give you specific investing advice on the platform.
We can deftly talk about what's happening out there in the markets.
What are your thoughts on this?
>> So it's kind of a risk and a return question.
So if you look at the one year big paper right now, you'll do is at about 5.75 to 6%.
Yield to you about five, 5 1/4.
So if you don't think that interest rates are going to fall, clearly you are better off owning a one-year paper. If you think your streets are going to rise, clearly you are better off owning one your paper because then you can earn a higher return on that and then you can buy your five-year bonds or ten-year bonds or 30 year bonds at a higher yield. So it really comes down to what your view is on rates.
As we talked about already, my view is that interest rates are going to be slowly rising over the next year, 18 months.
and so I would be investing in the short term. But if your view is that we are going to be in a recession in two months time of the first quarter of next year, rates will be lowerif we are in a recession, and so that's, you are better owning the longer dated bond.
>> It's been a great conversation. We have the Fed this Wednesday. A lot of the pundits and pontificate or say is not so much about the decision, nobody expect them to do anything, it's about how they frame the decision.what are you going to be watching for?
>> I think it's more of the same. Where did they feel inflation is?
Where did they feel employment is?
Do they think that…they have turned the corner on inflation?
Do they think that the reduction in numbers is enough to actually continue to pause? And those are for sure the two key numbers.
>> Great having you here. Hope you do it again.
>> All right.
Appreciated. Thank you very much.
>> Our thanks to Mike MacBain, he is CEO and CIO of East Coast Fund Management.
As always at home, make sure to do your own research before making investment decisions. Stay tuned for tomorrow show.
Robert Both, macro strategist at TD Securities will be our guest. He wants to take your questions on the economy, interest rates. You can get a head start with those questions.
Email moneytalklive@td.com.
That's all the time we have for today.
Thanks for watching.
We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show,we are just days away from another Fed rate decision on interest rates.
of course, Mike MacBain of East Coast Fund Management is going to help keep things up for us. Speaking of interest rates and inflation, we have a key CPI data report coming out tomorrow morning here in this country. Our Anthony Okolie is going to have a preview of what to expect.
And in today's WebBroker education segment, this should be interesting.
Bryan Rogers is going to show us how to build and track mock portfolios here on the platform.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to the guest of the day, let's get you an update on the markets. A bit of a strange start to the week.
We continue to have crude prices rallying higher. We've got West Texas intermediate American benchmark up another 1/3% today, almost hitting 92 bucks per barrel but the energy stocks on Bay Street aren't taking part in that rally. Let's take a look at some of the most actively traded names.
I could have chosen any in the basket.
Suncor, a lot of the energy names are flat or to the downside. 4718 on Suncor, you're down about half a percent. Uranium played Denison Mines today, it was under some pressure earlier in the session. It has ticked into a positive territory but it's pretty modest. These are the most actively traded names right now.
Not a lot of upward or downward price action on the market to start the week. At two bucks and $0.22 per share, you're up just shy of a full percent.
South of the border, when you're a few days out of the Fed decision, there's a bit of caution on the markets. A 4164, you got the S&P 500 up about 1/3 of a percent.
let's see how of the NASDAQ is holding up.
It's up almost 1/5 of a percent or 22 points.
notice some pressure on tesla earlier in the session. At 267 bucks and change per share, down about 2 1/2. Nothing too dramatic but a bit of pressure to the downside. And that is your market update.
Borrowing costs are front and centre this week for investors. We got the US Federal Reserve on deck to deliver yet another interest rate decision.
We also have rising gasoline prices pushing headline inflation higher. So what might we expect from the inflation fighting central bank and Mark joining us now to discuss, Mike MacBain, CEO and CIO of East Coast Fund Management. Welcome to the show. It's your first time on.
>> It's an absolute pleasure to be here.
>>let's talk about the big issue.
For your and 1/2 now, investors have been focused on inflation, interest rate policy, and we are seeing headline starting to take a bit higher. You roll it all together, what do you think we are going to get from the Fed this week?
> I think the Fed is going to do nothing this week.
They have been pretty clear about their goals for lower inflation and higher unemployment, and the data that has come in and suggest that inflation has come down a little bit but they probably have time to wait.
I'm not convinced they're finished but I think, for this month, there hasn't been enough data to justify putting rates.
>> We talked about headline inflation, that's not what the central bank's focus on. Here at home and south of the border, they take a look at core, they want us to vote more volatile measures.
Gasoline has been volatile, oil prices have been volatile.
Is that the sort of thing where after all of the activity they had on interest rate, they might be able to look through some of these bumps?
>> Yeah, I think that what we have also seen on the inflation front is it has come down pretty significantly, as I think most people expected, but it's starting to kind of flatten out.
Last month's CPI numbers were a little bit stronger in the core segments that they are focused on.
And so I think they are… They haven't seen enoughinformation really to push rates higher at this meeting in my opinion.
>> So you think a hold for this week but you can't rule out before the end of the year another rate hike. What would take them there? If they are going to look through things like volatile gas prices and other volatile components, what would make them think the job isn't done yet?
>> I think that the two key factors our unemployment and inflation for them, and J Powell has been pretty direct about that.
I think he is, he believes very strongly that the economy won't slow down enough unless he starts to see some movement on unemployment. And so like I said, inflation numbers have come down.
They have flattened a little bit here.
Most recently, if we see continued strong employment and inflation doesn't continue to fall, then I think next month, that meeting is live in my opinion.
>> Is this making sense? Overall, we step back and think of how aggressive, may be aggressive is too strong a word but I think it fits, that the Bank of Canada has been, Western central banks have been, and raising the cost of borrowing and trying to tame inflation and they warned us at the outset that there's going to be a lot of pain, job loss, this and that, and there has been resilience. Can we square these things?
>> Yeah, there definitely has been resilience in the job market for sure. In terms of the sort of job openings data, that kind of peeked around 12 million jobs.
And that has dropped meaningfully. And I think thatFed chair Powell did talk about that 10 to 12 months ago that they want to take some slack in those job openings and that's kind of your Goldilocks scenario, right, because those are jobs that are actually out there. Then going away doesn't take a job away from any individual so that's fantastic, but you are still seeing hundred and 50,000 new jobs per month and that's too much for him.
At the end of the day, seeing a meaningful falloff in that and inflation will be the drivers.
>> Is a part of this equation to where they talked about we are taking these aggressive moves on borrowing costs, trying to tame inflation, we aren't done yet, when they have the further line, we are going to stay here for a while.
At certain points this year the bond market has believe them and in the bond market has decided not to fully believe what they are being told. Where are we out right now and what does the bond market actually think the Fed is going to do?
>> Well, if you remember two or three years ago, they were keeping rates low for what seemed like forever.
Their stated objective was, we are not even thinking about thinking about thinking about raising rates. Nine months after that, they started raising rates at unprecedented speed.
So I think you need to take those comments with a bit of a grain of salt because they have to say that because that's what their belief is today, but as we all know, the world changes quite quickly at times and if they decide that rates need to come down because we've gone into a recession and employment numbers fall off a cliff, then rates will go down. I'm not anticipating that. I do believe that we are going to be in a period where nothing really meaningfully happens in the rate market. A slight rise in rates over time in my opinion is where we go.
And I do you think that we are going to have relatively stagnant interest rates over the next 12 months.
But just because they say it has proven many times that is just what they are saying today.
>> So it's what they are saying today but the future could change. You had an interesting discussion in the summer with a colleague at TD Securities, Andres Rincon, I found it interesting that youtalks about because the entire world is laser focused on interest rates and central-bank action, you are not perhaps as diversified as you think you might be.
Run me through that line of thinking.
>> Well, the diversified 6040 portfolio has always been there because, usually speaking, when interest rates are going up, that's a strong market, equities are doing well so there's diversification and the opposite has also been true fairly consistently over a long period of time where equities are having a hard time, interest rates are coming down. So that diversification benefit from interest rates has been very helpful.
Since the central banks have been really in control of the economy, which has been for quite a long time now, really off and on for the last decade, they have been driving the equity market. So when the central banks are dropping rates, that's been viewed as positive for the equity market, the equity market has been rallying.
Dropping rates means bond prices are going up. Then we get to a point where interest ratesare basically zero. Where can they go? They can only go up.
And when they go up, that's bad for the equity market. So we have had that very positive correlation in the equity market and bond market.
if equities go down and bonds go down, there's no diversification there.
That's being a function. Interferences may be a strong word but because of central-bank interference.
>> Interesting times indeed and a great start to the show.
We are going to get your questions about fixed income and all things related with Mike MacBain of East Coast Fund Management in just a moment's time.
And a reminder that you can get in touch with us any time. time. response box under the video player on WebBroker.
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.
Auto talks continue here in Canada between Unifor and Ford ahead of a midnight deadline. In a release, Unifor says the two sides remain far apart at the bargaining table and the union is prepared for all scenarios, including strike action. Of course, south of the border, autoworkers at the big three have been staging targeted job action since last Friday. Something to keep an eye on.
We've got Clorox warning the last month's cyber attack on its idea and for structure could have a material financial impact on its current quarter. The maker of Pine-Sol and Liquid-Plumr says the breach forced it to take its computer systems off-line.
Clorox did not give a dollar figure for that financial impact their warning about, but it says it has restarted production up most of its facilities.
Heather Reisman is returning to the top job at Indigo Bics and music. This move comes just weeks after former CEO of Peter Ruis abruptly resigned from the post.
In a release, Reisman said there's a clear path to regain momentum at Indigo and to return the company to growth and profitability.
it's been moving up pretty aggressively since I checked this morning, up 16% per share.
Let's check in on Bay Street and Wall Street, we will start her at home with the TSX Composite Index. Crude prices that almost 92 bucks per barrel, that American benchmark. Energy stocks are not taking part in the rally. We are down about hundred and six points, about half a percent.
the S&P 500, tomorrow the Fed will go into the meeting, they will come out with a decision for us in the afternoon, a bit ahead of that, you're up about a modest 10 points.
We are getting back your questions for Mike MacBain. What are your thoughts on the high-yield bond market?
Do you see any opportunities there?
>> I think the high-yield bond market in a stable market is a decent opportunity. You are picking up yields in the sort of 7 to 8% range right now and that's relatively strong.
The problem with the higher bond market overall is that you have, in downturns, you have reasonable probabilities of default.
And so the high-yield bond segment is the riskier part of the bond market. And default rates run 2 to 3% in a normal market, so if you are earning seven and your default rates are two or three, on a diversified portfolio, high-yield, you're probably earning four or five.
The real trouble comes when you get into a recessionary environment and if you feel that we are moving towards that, which we probably are the next 12 to 18 months, you get default rates up into the 10, 12, 15% range.
And that's obviously a very negative outcome for the high-yield market. I think tactically you want to be in the high-yield bond market after a risk event rather than before a risk event.
so I wouldn't personally be investing in today.
But the yields have been, or higher been they've been in the past.
> If an investor is researching the space, what should they be looking at?
>> I think it's a dangerous space for a retail investor to get into on their own.
it's a very technical market. There are obviously risks around all the companies in the high-yield space.
and the dispersion of ratings versus potential default can be very high based on the individual companies, and so really in the bond space, the high-yield bond space, it is very similar to the Warren Buffet and the equity market. They are looking for deep value plays that are risky but they have done their research and I would really recommend not being in the high-yield bond market as an amateur.
>> Some words of caution.
Another question coming in from the audience. One of the viewers wants to know, in the medium term, one to three years, where does your guest see interest rates normalizing? Is it going to be different this time?
>> I think we are in a longer-term bear market in interest rates and so I'm not predicting 10, 12, 13% interest rates again in the near future, but I do thinkthat we are back in an environment where inflation is real.
The structural changes in the economy have been relatively significant, both to the labour force, onshoring energy production, national interest has sort of garnered the attention of almost every industry now.
It used to be that the only thing of national interest was military but now it is food and health care and silicon chips and energy. Everything now that's in national interest needs to be done at home which is more expensive and so I think we are in an environment or a decade where we are going to see higher interest rates.
Now, interest rates, as everybody knows, have gone, have moved shockingly over the last year and 1/2, so that's certainly going to slow down and I think that for the next year or so, for a benchmark five-year bank bond, they are yielding 5 1/2%, I think somewhere between 5 1/4 and 6% is probably where we are going to be in a years time.
Three years time is anybody's guess.
It's hard to guess anything in the market three years out.
my view is that we would be moving slowly higher from that. that. to if that's the environment. But you have a generation, we have a generation of people involved in the markets, generation of homeowners and workers who have never seen high interest rates. Howtough could that be for them to adjust to?
>> It is very true and if you think back to her three years ago, when mortgages were a 2% to end you could walk into the bank and they are begging for you to take a home equity line of credit for 50 basis points and everybody was doing it because money was free and why wouldn't you take it?
And now we are in an environment where mortgages are six, seven, 8% and so it's a very different regime. I think, in my experience, all of these things are manageable over longer periods of time.
They are very unmanageable over short periods of time.
So if interest rates go from 0 to 5% in a year, that's a challenge for a lot of companies and individuals but if they go from 0 to 5% over five years, that's not a big deal.
And if they go from 5 to 10% over five years, I mean, obviously, it's worse but you can plan around that.
It's the shock that makes it difficult.
And so I think that it all depends on the pace. I think the pace of interest rate risesis falling.
The significant pace of rate rises is behind us.
>> It was a shock to a lot of us over the past year and 1/2. Another question here from a viewer.
They would like to get your thoughts on long duration bonds.
Do they have the greatest upside?
I guess that scenario would be if they were to stop hiking and start cutting.
>> One way is to say they have the greatest upside been another way to say it is that they have the greatest volatility because the duration exposure of a long-term bond is significant.
that's the sort of pure math around it. So yes, therefore, if interest rates drop by hundred basis points, you're gonna make 20 times more money than you would if you owned a one year bond but the opposite is also true.
If interest rates go up, you're gonna lose 20 times as much money as you do with a one year bond.
So in my personal opinion, you have a very inverted yield curve right now. So when your bonds are at the 6%, 30 year bond yields, sub 4%. And so I think that as interest rates flat no, you're going to seea recent deepening of that curve and so in my mind, you're going to lose money on those long bonds because even if rates come down slightly, I think you're going to see that curve steepen again and long term bond yields are not necessarily gonna follow suit. As you mention the inversion of the yield curve, there was a time when people thought that meant something about the future of the economy. Did the pandemic just missed the economy of?
>>there's a lot of historical data.
We talked about if it was different earlier in the show. History says that once the yield curve reverts, within 18 months, you're in a recession. So that's been a pretty is strong held statistic historically.
And I do think the pandemic and the handouts in the pandemic has done something to kind of drag that out. We will see what happens because I think the yield curve has rarely been as inverted as it has been in the last year. So but I do think that the money washing around the system still exists and that is stopping that recession from happening at the moment.
>> As always at home, make sure you do your own research before making any investment decisions.
we are going to get back to your questions for Mike MacBain from East Coast Fund Management on the fixed income space in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's to get our educational segment of the day.
have you ever wondered how you could track a mock portfolio?
>> This is one of those things where you can add symbols to watchlist but one of the things you may not have discovered is that there actually is a way you can add somepricing information. If you want to test out in theory and say I think there's a stock that I'm looking at, I'm not quite ready to put my own money at risk and I'm not sure I want to buy it but I have a theory and I have a hunch on something, you could be using fundamental analysis or technical analysis, you might say, is this going to work over the long term?
You could entered in as if you're buying it right now, the dollar amount and then you can track it in WebBroker, you can look at it a month from now and say, hey, that did work so I think maybe you want to try this for real.
But without putting money at risk you can try this in WebBroker. So if we jump into the platform, I want to show you how you can do that.
It's a little trick within the system.
So if I pull up a system, but Apple up at the moment, I added to a watchlist easily right here by clicking add to watchlist or if I have a particular symbol in mind, I go to the watchlist tab and you're gonna see that there is normally 10 lists that are available.
One limitation is that you can only add 10 symbols to a list so you may have to get creative if you want to do it for a particular number of stocks in a certain sector and then create a new list and do something else, but you're only gonna be able to put 10 on each list.
But once you figure out which symbols you want to add, let's say if I was going to add Apple right here, I just have to type in the symbol, click on the symbol, added to the list.
we're going to add it on here right now.
Then what you are going to want to do is click on the tracker tab.
You can add the symbols without adding the details are referred to but if you want to create the small portfolio, click on tracker and now, as you have actually done this for some of these already, I have some at hundred shares,we were doing this in another class before. But if I want to add Apple on here and what if I bought it today,I will put in the number of shares, tab over to put my average cost in at 178, you can use whatever you want but you want to be realistic if you are actually buying a today as an example.
Click on save and you don't really see much right now. By the bid and ask, it might show you up a tiny bit.
It moved slightly. It's a tiny bit higher right now. There's a last price.
It's up $0.40 from where I put in my costs but this is going to continue to update every day and I see, was this a good buyer did not work out so well and you can test out the strategies on the watchlist.
>> Bryan, what I showed you there, you're using stocks, populated them with stocks.
Can you had any kind of investment these lists?
>> Yeah, that's a really good question.
You can add, if you're interested in saying, hey, I would like to do this with ETFs or mutual funds,if you haven't delved into this worldyet and you have a specific option you want to add on there, you can do that as well.
If we jump into WebBroker will show you how to add those types of investments.
We go back and closed his watchlist right now, if you went and pulled up a symbol, we will do it this way. If I go to research, you don't know the symbol yet, do your research, go to mutual funds for example, you can find a fund.
We can go to global equity and then I will find a random fund here.
So once I'm there, I just add this to the watchlist rate here and then I choose a watchlist as well.
I choose a portfolio watchlist. So now it's already added.
That symbol means already added. So I go to the watchlist itself, go appear, go portfolio, and I see on this one there is that fidelity global concentrated, so the same steps after that. You can add ETFs as well. Just make sure you entered in the right category.
You have to find that in the search for symbol.
You have to follow the actual symbol format if you are doing options.
Those the our family with options will know that already. I think you can add an index as well. You can add a price because you can't buy an index but you can add that as well.
And then I go to the tracker and add in a dollar amount if I want to be within my mutual fund as well.
>> Alright, great stuff as always, Bryan.
Thanks that.
>> Alright, thanks a lot, Greg.
>> Bryan Rogers, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we back to your questions about fixed income for Mike MacBain, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.comor you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Mike MacBain, taking your questions about interest rates, fixed income.
Lots coming in. Let's get to the next one.
A viewer wants to know how long you think bonds will take to react to a fall in rates?
>> I think the question there is, are you going to have a fall in rates? So let's talk about that for a second.
if rates fall, bonds will react. Like we have seen in terms of rate rising, the front-end of the yield curve has risen the most as policy rates have gone higher,but the bond yields have also risen, probably less as it goes down the curve and the same will happen if rates fall.
But I did say earlier on that the Fed is going to hold the next meeting but I think the risk of the Fed and the BOC raising rates ishi Ruth then them dropping rates right now, certainly over the near term.
Over the next six months, I think the likelihood of rates going up from the central bank action is higher than rates going down.
>> Is part of the psychology of what the central banks are doing right now, as you said, a couple of years ago, they were not even thinking about thinking about it. If you're thinking of taking a loan or buying a house or starting a business, rates will be low for a long time.
As part of what they're doing here try to make sure part of the fight that they know if they cut, it might set off a certain kind of activity that they don't want to see, whether it's in markets or the housing market?
>> That's 100% the case. They are trying to use forward guidance is the term, they are trying to use this forward guidance to convince people that rates are going to be higher and therefore don't be involving yourself in activity that's creating more bullish sentiment and more growth.
They are trying to reduce. If everybody thinks in three months time, rates are gonna be 200 basis points lower, they are going to start behaving like that's what's going to happen.
> Let's get to another question. A viewer wants to know, how would you prepare for market volatility?
Bit of a chance to get into sort of what you do and how you see fixed income investing.
>> Yeah, so our strategy is a little bit different than most.
We are an investment grade bond fund. We invest in the highest quality companies in Canada. We are heavily involved in financial services and banks.
But the big difference between what we do and what most other bond funds do is be eliminate interest rate exposure from the bonds that we buy.
And so, as you have seen or we have seen in the last three years, the interest rate component of the bonds that you buy has been the most volatile piece. So there has been no change to whether or not TD Bank is going to pay you back your money over the last two or three years, but their bonds have gone down in value.
And that is because interest rates have moved. So we invest in sort of shorter dated bonds, bonds where once we've eliminated that interest rate exposure, your… Your… You are investing in a return stream that is more reliable, return stream that is a bunch of investment-grade companies that will come through and that's more certain returns over time and means lower volatility in our opinion.
And so as it relates to the market today, our view is that we are in a seasonally difficult time for the bond market and, frankly, the equity market.
You come back from vacation and there haven't been any bond issues because all corporate treasurers have been away yet yields five or 6% in the bond market, so there's been reasonable investor appetite to buy those bonds. So they become more expensive through the summer and now we are back and corporate issuance has started and now there's a supply demand balance at the moment. Credit spreads on bonds, yields are rising. We think that that's, in the short term, an opportunity that we can take advantage of, and we think that there is also a reasonably good chance the September and October will be the sameand there will be a bit of a stumble in the market. So we are positioned to take advantage of backups in the market right now.
>> Interesting stuff. At home, always do your own research before you make any investment decisions.
Another question here. We've got someone talking about preferred shares. Should we consider preferred shares as part of fixed income or just stick with bonds?
>> Preferred shares has been the ultimate roller coaster over the past 5 to 10 years and it's unfortunate becauseit has the makings of being a great product but the problem is that the liquidity involved in that product makes it a volatile market that should move two or three, move 10 or 15 just because it's a retail held product and there are no institutions really involved in a and in fact they have almost restructured that market into a bond market.
The institutions player in the… Bond market which is the same sort of part on the capital structure as a preferred share but the structure is different where is a retail space in the preferred share market.
. . unfortunately that creates a bit of a liquidity gap when prices are going down andit's just a difficult part of that market. We avoided completely for that reason.
>> We are going to get back to your questions for Mike MacBain in just a moment's time.
As always, make sure you do your own research before making any investment decisions. and a reminder that you can get in touch with us at any time.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
All right. We do have the US Federal Reserve on deck this week to give a rate decision. Of course, all of this has been about taming inflation. Tomorrow morning, we are going to get the latest inflation report out of this country. We note that the Americans had a hotter than expected print recently because energy prices are higher. What's the story in this country?
Anthony Okolie joins us now would TD Economics take on it.
>> As you mentioned, last week stronger-than-expected US inflation print… We could see a rebound in Canadian inflation They are pricing in a high probability of another Bank of Canada rate hike by the end of the year. Now TD Economics expects CPIAugust to show a big jump, 3.8% year-over-year, that compares to the 3.3% gain year-over-year that we saw in July and 2.8% we saw in June.
Now, the main culprit for the rising CPI: gasoline prices. The 5% month over month surge in gas prices will likely be the driver of headline inflation in August.
Now regarding core inflation, TD Economics doesn't expect too much progress there and that's because core no longer is benefiting from the downward draft from the base effects. As the chart showed, he chose a three month average of monthly price movements in the Bank of Canada's two core measures, just bring that up now.
That's the CPI median and the CPI trimmed.
These measures strip out certain components that demonstrate extreme volatility and price fluctuations. As the chart shows, these appear to be stuck at the mid-3% level. Now TD Economics maintains this is why the Bank of Canada is keeping the door open to more rate hikes in their policy.
Part of the rationale for the Bank of Canada's talkativeness according to TD Economics is due to the resilience of the Canadian consumerand their ability to weather the impact of higher rates.
As my next chart shows, the improved net worth of Canadian households is up 256 billion in the second quarter of 2023, that has provided some additional cushion for many Canadians along with the approximately $140 billion in unspent excess savings.
Now TD Economics warns that this could be a problem for the Bank of Canada because if consumers decide to spend their newfound wealth, that could put further pressure on growth and inflation. Finally, TD Economics note that there has been a clear slowing of spending. We have seen some weakness in the housing market as well as in the jobs market. We have come to do what TD Economics calls an inflection point. As the chart shows, hiring has slowed in Canada.
The unemployment rate has increased to 5.
5% and the number of unemployed has jumped to more than 120,000 this year.
However, despite the early signs of a jaw market slowdown, TD Economics says that Canadians are in a better financial position because as well we are seeing sticky inflation, that will make the Bank of Canada's job much harder to do. Now TD Economics doesn't expect the Bank of Canada to hike interest rates for the rest of this year. However, they do expect the Bank of Canada to keep the door open in case economic data surprises again to the upside. Greg?
>> You mentioned the resilient consumer today in that report but at the end of the week, we are going to get another retail sales figure. It's a bit dated, it falls a bit behind, but still what are we expecting there?
>> In June, we sell retail sales seek out a small gain that was really driven by a strong demand for new cars. But when you take out this demand, retail sales were down in June, well below estimates for an increase. Looking ahead, TD Economics says that spending might regain its footing with the help of government rebates aimed at helping lower income householdspay for groceries and whatnot but TD Economics points to a rebound in monthly spending in July.
They note that the cumulative effect of that past rate increases by the Bank of Canada is only starting to have a real impact on household budgets.
they believe that as more mortgages roll over at higher rates, homeowners will start to divert more of their income towards debt servicing and this means that retail sales could be the next in line to roll over.
>> July was my wife's birthday. We threw a big party.
>> I'm sure we'll see a bit of a bump.
>> Thanks for that, Anthony.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now it's time for market update.
We are taking a look at the Advanced Dashboard and we are looking at the heat map function.
There is not a lot here for you.
Seeing a little bit of green on the screen when it comes to some of the mining names, whether it's… Or Kinross but it's modest.
Shopify standing out here, it's taking up the screen, downpour and 1/2%. The energy space is interesting because much is happening there, obviously, but all the big names are modestly but the fact that you have American benchmark crude continuing to rally higher and yet today, the energy stocks are not taking part in the rally.
Curious one there.
South of the border, want to check in on the S and P100, see what's moving today.
Tomorrow, the Fed officials will go into their two day meeting, Wednesday they come out of it in the afternoon with the rate decision for us. It's a mixed bag. You have Tesla taking up a lot of real estate in the middle of the screen, down about 2 1/2%.
In the tech bucket, but of strength, including Apple, up a little bit more than 2%.
We are now back with Mike MacBain, taking your questions about fixed income. This one just came in a little while ago.
Is there an opportunity now to invest in bonds maturing greater than five years with the expectation that rates will be lower in the future or is it best to continue investing at the front-end and reinvesting at maturity? Just to be clear to the audience, we can't give you specific investing advice on the platform.
We can deftly talk about what's happening out there in the markets.
What are your thoughts on this?
>> So it's kind of a risk and a return question.
So if you look at the one year big paper right now, you'll do is at about 5.75 to 6%.
Yield to you about five, 5 1/4.
So if you don't think that interest rates are going to fall, clearly you are better off owning a one-year paper. If you think your streets are going to rise, clearly you are better off owning one your paper because then you can earn a higher return on that and then you can buy your five-year bonds or ten-year bonds or 30 year bonds at a higher yield. So it really comes down to what your view is on rates.
As we talked about already, my view is that interest rates are going to be slowly rising over the next year, 18 months.
and so I would be investing in the short term. But if your view is that we are going to be in a recession in two months time of the first quarter of next year, rates will be lowerif we are in a recession, and so that's, you are better owning the longer dated bond.
>> It's been a great conversation. We have the Fed this Wednesday. A lot of the pundits and pontificate or say is not so much about the decision, nobody expect them to do anything, it's about how they frame the decision.what are you going to be watching for?
>> I think it's more of the same. Where did they feel inflation is?
Where did they feel employment is?
Do they think that…they have turned the corner on inflation?
Do they think that the reduction in numbers is enough to actually continue to pause? And those are for sure the two key numbers.
>> Great having you here. Hope you do it again.
>> All right.
Appreciated. Thank you very much.
>> Our thanks to Mike MacBain, he is CEO and CIO of East Coast Fund Management.
As always at home, make sure to do your own research before making investment decisions. Stay tuned for tomorrow show.
Robert Both, macro strategist at TD Securities will be our guest. He wants to take your questions on the economy, interest rates. You can get a head start with those questions.
Email moneytalklive@td.com.
That's all the time we have for today.
Thanks for watching.
We will see you tomorrow.
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