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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 discuss whether the Bank of Canada is finished with it's hiking cycle after today's inflation report. Robert Both from TD Securities joined us.
MoneyTalk Anthony Okolie is going to have a look at a new TD Economics report on what to expect from the holiday shopping season.
And in today's WebBroker education segment, Hiren Amin is going to explain how high-yield bonds work and where you can find them on the WebBroker platform.
So 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 our guest of the day, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
See what kind of day we are having. Bit of a down session on Bay and Wall Street, nothing too dramatic. A pullback of 80 points we will call that, almost 1/2 a percent for the TSX. Among some of the most actively traded names today include some of the world minors. We are seeing gold firm up ahead of the release of the Fed minutes. Is it once already? Of course shorter holiday week in the state, the Fed minutes are coming this afternoon. Want to check in on Kinross Gold.
Earlier the gold names are getting a bid.
Even though the broader market is lower, at seven bucks and $0.53 per share, you got Kinross up 3%.
TransAlta Corporation moving in the other direction. It's an investor day. They give a strategic update. Taking a look at a note from TD Cowen seeing the free cash flow is going to be well below expectations. Perhaps that's what's weighing on the name today.
At 1073, TransAlta down a little more than 7%. South of the border, let's check in on the S&P 500. I had of the Fed minutes and a shorter trading week, there's a pullback of 12 1/2 points, about 1/4 of a percent.
Nothing too dramatic. The tech heavy NASDAQ as well, see what's happening there in terms of its pacing against the broader market. A little deeper in the hole. 117 point deficit, almost a full percent.
After the closing bells today, we are expecting a big one out of the US tax base, that would be Nvidia, the beneficiary this year of the AI boom, their GPI use are the ones people seem to want for AI processing. Yesterday the stock hit a new all-time high, today pulling back about 1 1/2%.
We will see what Nvidia gives us after the close. And that is your market update.
Canadian headline inflation cooled to 3.1% in October, just sitting above that target range for the Bank of Canada.
So is it safe now to say that our central banks hiking cycle is finished? Joining us now to discuss, Robert Both, macro strategist with TD Securities.
Robert, great to have you on the program.
Let's start with what we got out of the inflation print today. 3.1 was the headline. What did you find interesting?
So as you mentioned, we are sitting just above the target range right now so that 0.7% point drop is a lot of good news for Canadians that are struggling with a higher cost of living. It's also great news for the Bank of Canada because inflation is that much closer to their end goal.
Now as with every CPI report, there are a lot of moving pieces under the headline number.
And in this one, we saw a very stark divergence between energy prices and shelter prices. So energy prices were the main downward force in October. Gasoline prices fell by about 6.4% on the month.
You also had a drain from electricity and heating fuels. So when you strip some of that out, the headline numbers look a little bit less positive.
We also saw a more pressure come through the shelter channel in October. So that is going to be something that's a little tougher to digest for those households that are a little more financially stretched.
Rents have been a key driver of CPI for the last several months but those accelerated further in October. It rents saw their largest month over month increase in a few decades, so that is certainly something that speaks to the shortages across the housing market. We also saw more pressure come through mortgage interest cost, through property taxes as well so a much larger increase and we had last year.
So you are really seeing a bit of a gap between shoulder prices and the broader CPI basket. I think the biggest thing that stood out to me today was the improvement we saw for the Bank of Canada's core inflation measures.
Those had been running at about 3.8% year-over-year in October.
In September. In October, they are sitting around 2.55% and the Bank of Canada has been keenly focused on the three-month rates of core inflation and those have been maintaining a very tight range over the last 12 months. We actually saw them break below that range in October.
Those three-month rates of core inflation were running at 2.7% in September. They are now at 3.0% which is just the upper end of the Bank of Canada's target range.
So we are going to need to see a couple more months of this to really make this a trend, but it should give the bank a little bit more confidence that it's tight policy stances helping to release price pressures and that inflation does still remain on a path downward.
We are not that far away. December 6, I forgot that December was around the corner. We are going to get another rate decision from the Bank of Canada. It seems like a funny time because we think about it, are they on hold or what? Our central bank hasn't done anything since the summer but after what we have been through, we are all on edge as to what they do next.
What do you think we get? What are they going to do about rates?
We don't expect the Bank of Canada to cut rates until the middle part of next year.
We're December, there is a pretty high bar for a change in tone or signal that rate cuts might be a little bit closer.
The bank is actually been focus on hikes over the past few months, since July. They haven't done much but they have kept that threat of hikes on the table so that has helped keep financial conditions tight.
We expect that message to remain unchanged in December. The bank does need to see more progress on the inflation front to take the risk of hikes off the table but we think with a couple more months of softer core inflation and if we continue to see progress on the headline front as well, we are getting a little bit closer to when you can expect that change in tone from the bank.
Is there a part of this sort of issue for the Bank of Canada now's not so much the data from the CPI because it seems to be moving in the direction they would hope it would move after the rate hikes but how we start reacting to things? I think back to the spring when they said, we are going to stop here and see what kind of effect we have had on the economy, the housing markets boomed and then they came back to the table in September and had some more and that will things down. Are they worried about how we are what you react in the short term to small shifts?
I think the bank is very aware of how it's communication is interpreted by markets in the broader financial community and that is part of the desire to keep financial conditions tight and keep the risk of hikes on the table until they are much closer to easing, until they have more evidence that this isn't just a one off like we saw last spring.
This is a firmer trend towards 2% inflation and a balanced economy. I think the biggest difference is between what we saw in January and where we are today is just the broader state of the economy back in the early parts of this year, labour markets were still very tight. We were still in a state of excess demand.
We have seen two very weak quarters of GDP growth now, the Canadian economy contracted in the second quarter.
It looks like growth has remained pretty flat through Q3 as well and you are starting to see that excess supply creeping back into the economy.
So I think the bank still doesn't want to tip its hand until cuts are on the horizon but with a couple more data prints and if we do see more progress on those core inflation measures, we could be getting closer to that point in the new year.
How does the new year look in terms of the economy, in terms of jobs?
I think this has been a very aggressive hiking cycle. I think perhaps some of the effects of the rate hikes took a little longer to work through the economy. Is next year when we will see the full impact of what they have done?
So it is going to remain a very challenging environment for growth over 2024.
I think the bigger source of uncertainty is what's happening to the economy and Q3 and Q4 this year coming off that contraction in the second quarter, we do expect things to stabilize over Q4. We do expect to see a return to low but positive growth. Over the course of 2024, we should get closer to those trend like GDP numbers.
That does mean that excess supply is going to continue building over the course of next year, and we don't… We will also see a bit of a tailwind when the Bank of Canada does begin to ease off of its restrictive policy stance over the second half of the year. Now population growth is still continuing to provide a key driver to grow so that will keep us from tipping into a steeper slowdown. So we look for GDP growth at 0.9% next year.
We think with that population growth you still are going to continue to see job growth throughout the year but job growth will continue to be outpaced by the growth of the labour force, so we can see unemployment rate move higher as the economy moves further into excess supply, but we don't expect the type of material job losses that you might anticipate with a weaker growth outlook.
Interesting stuff. We are going to get your questions about the economy and interest rates for Robert Both in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer 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.
There is more evidence today consumers are holding off on making big-ticket discretionary purchases. Both electronics retailer and Best Buy and home-improvement chain lows are cutting their sales forecasts, that as cash-strapped households search for bargains. It's a shift that's been seen across the retail sector as essential centre groceries take up more of the family budget. Appears the market is taking a cautious approach to earnings from some common clothing retailers today. Let's start with Abercrombie and Fitch. It's raising its forecast after posting a 20% jump in sales, and the stock is pulled back to the tune of 2 1/2%. Meantime, shares of American Eagle are under significant pressure this morning and still down 15% right now. Investors are waiting a disappointing holiday sales forecast from the name.
Expectations are running high for Nvidia's quarterly results that are due after the closing bells today. The street is expecting sales growth of more than 170%, of course that's as artificial intelligence drives a boom in demand for Nvidia's group GPUs, those graphic processing units that are favoured by the industry for making a I sound like us.
They are down modestly at 1.7% ahead of that. Let's check in on the markets. We will start your Bay Street with the TSX Composite Index.
But a pullback of 95, 96 points, almost 1/2 a percent right now.
South of the border, shortened trading week, we are getting the minutes today at 2 PM Eastern time of the last Fed meeting.
You down 13 points, a little shy of 1/3 of a percent.
All right, we are back with Robert Both, take your questions about the economy and interest rates. Here's one. Very timely.
Only a couple of hours away. What are you watching for in today's fall fiscal update?
We will get the fiscal data 4 PM this afternoon and I think what we are most interested to see is just what happens to the fiscal projections both for this year and for the next several years as well.
The parliamentary fiscal office has come up to an update that does point to wider deficits over the horizon. Even though revenues might be a little bit stronger than we saw in the budget. Over the last six months, we have seen dribs and drabs of spending announcements and what the fiscal update will do is incorporate all of those spending announcements and presented in one updated package.
So we do expect to get a little more information from those announcements like the electric vehicle production plans, the tax credits on new rental construction, how all of those are factoring into the fiscal outlook.
We will also be watching us for an update on what the government is working on to alleviate some of those concerns around housing shortages.
There has been lots of speculation about new financing for rental construction. We should see more details of that in the budget, or the many budget, and we will also get an update on the government's borrowing program.
So the government has increased the size of GIC options over the last quarter or so.
We will see what that does to the total program size in 2023 and 2024.
There seem to be some concerns that wall monetary policy is trying to rein in inflation aggressively, the fiscal policy we will get this afternoon, they could be working at odds with each other.
How alive should we be to this issue?
I think it has gotten more and more attention over the last several months.
But I do think those perceptions that monetary and fiscal policy might be working against each other are going to result in a little more restraint from the budget update. So even though we have seen a lot of speculation around budgets to improve housing supply, what we have seen reported has been discussion of financing these with loans rather than something that would add to budget deficits.
Similarly, the fiscal update will give an accounting on all of the spending announcements over the last six months since the budget. We think there's probably going to be a little bit less in terms of new spending announced in this afternoon's report.
So that showed kind of give the impression that the federal government is cognizant that they don't want to add to inflation pressures, and we do think they are showing some restraint and we have also seen them trying to trim spending across departments as well so the budget they pledged to reduce spending by $15 billion over five years.
Deputy prime minister and Federal Finance Minister Freeland gave an update on that recently. So they are certainly attuned to the perception that increasing government spending by all levels of government, not just federal government, could add to inflation but we do expect new spending announcements this afternoon to be rather modest in size and more of those housing initiatives to come through the new loans rather than something that would add to those deficits.
Great breakdown there of what to watch for in just a couple hours time out of the federal government. Let's get to another question now from the audience.
Have you want to know, how do you see the housing market being affected when rates finally start going down?
So, well, we have seen the housing market and housing sentiment being quite sensitive to BOC communication shifts in the house, and we certainly sell at this spring when the bank announced that they would be conditionally pausing rate hikes going forward.
That really sparks in the round of exuberance across housing markets. These are regions like Toronto and Vancouver that had been hurting over the past 12 months bounce back and while I do think you will see a bit of upturn in housing sentiment when the BOC gets closer to cutting rates, this won't necessarily be the boon for housing affordability that some might want to be.
So the Bank of Canada's easing is going to be gradual. When compared to the pace of rate hikes on the way up, the bank was hiking by 50, 75, 100 basis points at a time. The cut cycle is going to look very different.
We expect a more gradual and orderly process and that should limit any rotation back into the housing market. That said, we do look for housing to stabilize over the first quarter of next year.
Our colleagues at TD Economics have been looking for 2024 home sales to rise by about 5.2%. Another 15% in 2025.
And you should also see a little more stabilization with prices roughly unchanged next year but rising by 5% in 2025.
In the past couple of months when we got the inflation numbers like we got this morning we are trying to figure out where the pressures remain? As you pointed out, one of the key pressure points our mortgage payment cost, rent costs and the assumptions is that landlords are raising costs because their costs are rising as well. It's a strange situation, we are trying to bring inflation down but we rates rates in part with what your mortgage. Is that a fair criticism, they deal with that kind of situation?
That's a question they've been getting a lot over the last 6 to 12 months and it's something that's going to come up going forward if we do see that wedge between shoulder costs and the wider CPI basket continue to widen.
The Bank of Canada had maintain policy rates at 0.25% or 0.5% for a period from 2015 all the way through to the start of those 2017 2018 rate hikes. So during that period of lower interest rates, housing prices accelerated quite sharply and that did put upward pressure on inflation. So the Bank of Canada of factors that in one monetary policy is maybe pushing house prices higher as well is when it's making affordability more stretched.
So they do look at shelter prices through the entire business cycle and not just when their hiking rates but the other tool they have is they have measures of core inflation that strip out those larger, more volatile month over month changes. So a Gov. Macklem mentioned in one of his most recent speeches that the trimmed mean measure of core inflation has actually excluded those mortgage interest costs for just about the last year and going forward, you will see rent stripped out of that calculation as well if you do see these larger increases.
So they are being excluded to some extent already, but it's something that we do expect to continue to get questions about going forward. Okay, let's get another question from the audience.
This one about the US central bank.
What would it take for the Fed to start raising rates again, or are they really done?
So we think the Fed is done here.
We look for them to start cutting rates in the second quarter of next year, but if you go back to September, the Fed did have one more rate hike and its projections, in its dot plot.
So like the Bank of Canada, we don't expect the Fed to take rate hikes off the table until it's got much more concrete evidence that things have truly turned and that we are on that path back to 2% inflation.
Momentum has been stronger south of the border.
US GDP was 4.9% in Q3 but looks to have slowed quite a lot going into Q4 so we are tracking Q4 growth in the US with 1.2%.
The Atlanta Fed tracker is around 1.9% but if gross conditions were to improve and if you were to see the US move further into excess demand heading into next year, that is certainly something that we keep FedEx on the table. Similarly, if we did see cases of joblessness start to accelerate, that would put more pressure on wage growth.
Those are the things that could push the Fed to hike again but we do believe that the US Fed has turned the tide and the Fed is done here.
As always, make sure you do your own research before making any investment decisions. we will get back to your questions for Robert Both on economy rates 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 get to our educational segment of the day.
If you are interested in fixed income, you may consider high-yield bonds as an option. Joining us now to discuss how they work and where you can buy them on the platform is Hiren Amin, Senior client education instructor with TD Direct Investing. Always great to see you. People may be familiar with the bond space, maybe not so much with high yield.
Can you walk us through all this and where you find them on WebBroker?
Absolutely, I sure can.
Let's talk about bonds real quick to paint a primer to our investors and viewers there.
So when a company goes out to raise capital for any sort of expansion projects or really anything they need to grow, they are going to do it one of two ways. They are either going to raise equity by selling pieces of the company to investors who buy stock or they can do it through the issuance of debt and that's where the bond market comes into play. So with that, bonds, usually it's a promise to pay back the amount they are borrowing to you and also during that duration of the bond they will pay out coupon payments or interest payments as we like to call it. Let's go into the fixed income platform here on WebBroker.
I'm going to click on the research tab, in the investment category, we will head over to the fixed income page.
High-yield bonds, just like the name sounds, is once where you are getting essentially high-yield.
Now to access some of those bonds, you went to click on the bond categories appear and we are going to click on high-yield. That will open a rate sheet for us. I have that open on another page so I'm going to flip over to that for a second.
Let's talk about high-yield for a quick second here. You are going to see a list of these high yields.
The first thing we want to make sure everyone understands that the title products is that they get classified based on their credit rating.
That credit rating you're going to notice on the rate sheet over here is going to be found under DRS and S&P ratings and one thing you are going to see that is a common feature of these is that these bonds are going to be double B or lower credit rating.
So in other words, they are categories that are not investment grade category and therefore that usually means is going to be more risky as a product. Because of this higher risk, investors demand for steeper discounts on these products compared to investment grade bonds, so to speak. If we talk about the discount price, bonds are usually priced at a par value of 100 but you can see some of the asking prices on these, they are all going to be mostly below $100 which represents that steep discount and that directly correlates with the yield for us. We can see some of the yields on these products.
If you look at the yield to maturity, they are all going to be pretty high-yield.
Again, it's because of the riskiness.
There is default risk associated with these high-yield products.
But again, investors are willing to go into these investments because this potentially upside capital gains because their product should be redeemed at par value and also along the way you are getting these high yields as well.
A good understanding of high-yield, the risk in high-yield. But if an investor is still interested, they are on the web worker platform, how would they place a trade to buy a high-yield bond?
Yeah, so with these products, one thing we will also highlight that is directly tied into how you can purchase this is liquidity risk. So compared to let's say investment grade bonds, these products pose more liquidity risk. So that usually, they are not as accessible, let's say it that way, to investors to purchase to the online platform.
So they do have to phone into the fixed income trade desk at TD Direct Investing so they can phone and places orders if they wish and they will also make sure they are aware of additional risks with specific bond issuers they might be looking at.
The other thing I will mention, Greg, because we really want to talk about the side of risk and if investors feel uneasy with taking on direct exposure through these products, you can do it through funds.
Let's talk about mutual funds for a second and how you can search those. If we go to research, investments, and ETFs, there is actually a section or category of funds where you can just look at high-yield ETFs. If we go down this list, Alphabet's the organize here, we should have it, I have missed it, Pierre. Right here.
High-yield fixed income products.
This way, you can leave it up to the professionals, and money manager to do all the buying and selling. You have a whole slew of different ETF high-yield exposure that you can get and also with the added benefit of diversity.
Some homework for any of our audience members looking at the high-yield. Great stuff as always. Thanks for that.
Anytime, Greg.
Hiren Amin, Senior client education instructor with 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.
All right, we are back with Robert Both, taking your questions about the economy and interest rates.
What is your outlook, Robert, for the US dollar versus the Canadian dollar? The US dollar strength has been a story for a long time.
I think even the US dollar heading into 24, 2024, is going to be what happens to the US data. I think the US dollar is going to follow its data for the direction.
As the US economy starts to turn, as growth cools and the pace of job growth slows and unemployment starts to take higher, we should see the dollar start to come off those highs as markets begin to price and a more aggressive easing profile for the Fed, especially relative to other central banks.
We have already seen some early signs for this in the last couple of top-tier data releases in the US, that October payrolls number and the October inflation report, both of those came in a bit weaker than expected and you did see quite a large pullback in the US dollar on those prints.
So the US dollar is trading around 137 Canadian today. We expect that to get down to 130 by the end of next year.
And get to 125 by the end of 2025. So we do look for that US dollar to soften against CAD and globally.
How about the other side of that equation, any factors here in Canada that could support the Canadian dollar strength against the US dollar?
I think in Canada, it can perform a little bit better than some of the other G 10 currencies. We obviously do you have a very strong macroeconomic driver for population growth that is going to limit the slowdown we see in the economy and should allow the Bank of Canada to ease a little more gradually than the Fed.
But we do look for the Canadian dollar to appreciate against the US over the next two years.
Alright, let's take another question from the audience. As you may have noticed, I am losing my voice. I will let Robert talk. What is the new normal for interest rates?
Yeah, you've been hearing a lot about the new normal or higher for longer from central banks over the last year.
And you know, a lot of that has been driven by some of these global trends that we saw heading into the pandemic which have reversed a little bit. Over the last 20 years heading into the pandemic, you had a very strong affect from globalization, from more digitalization, all of these forces that pushed interest rates lower, some of those are starting to slip into reverse. Supply chains are getting a little bit more complicated as onshoring becomes a little more popular.
All of the investments in the green energy sector and decarbonized in, those are all forces that are going to support higher interest rates going forward as well. So between the financial crisis and COVID 19 when we had that period of extremely low interest rates, we don't expect to get back there. We think the Bank of Canada is actually going to stop cutting when the interest rates are around 3%. That neutral level is a little bit higher than where they had their estimate of neutral heading into the pandemic, but we also never really got to where they want to, the problem enhance the pandemic was too little inflation, not too much.
So we do expect the environment is going to look a little different going forward.
For anyone renewing a mortgage, that might mean that you are going to be very hard-pressed to see a return to those sub 3% fixed rate loans.
If the Bank of Canada stops at 3%, we are going to see higher borrowing rates than what we were used to before the pandemic.
It's a new reality to get used to.
Takes you back to when I bought my first place in 2002. Maybe I have to return to that reality before it's all over.
Let's take another question from the audience paid with your outlook on oil and the energy sector?
Hood West Texas intermediate, American benchmark crude, near $100 US per barrel?
We do not expect benchmark oil prices to get back to this $100 levels, but we do expect oil prices to trade higher into 2024. So our forecast was published in our 2024 global outlook last week, it has WTI trading in an $85-$90 range over the first half of next year. That is a pretty significant increase from where it's trading today and that is going to make central banks jobs more difficult as they try to get inflation all the way back to 2%.
But we do think there is a little bit too much pessimism priced into energy markets right now.
Certainly, the global economy does look a little more fragile heading into 2024, but we are still in an environment with material supply risks to energy production, the Russia Ukraine conflict does not look like it's going away anytime soon, we've also got more tensions in the mid East, so this is, these are factors that can keep oil prices elevated even if the global economy is on a bit of a softer footing next year.
Okay. We will get back to your questions for Robert Both on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder that you can get tons of 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.
The holidays are fast approaching.
Shoppers in the United States might be in a mood to spend but all these inflationary pressures are really pressuring the wallet. We'll keep a lid on all the holiday purchases? Anthony Okolie joining us now in the new TD Economics report on the latest US pending trends and what could mean for retailers.
Thanks. TD Economics does not expect that the US holiday sales will match the exceptional sales we saw in the past three years as the economy had adjusted to the spending shock spurred on by the pandemic.
Despite that, spending during the holidays is expected to grow 4 1/2% on a year-over-year basis in the fourth quarter. That is lower than the 6% we saw in 2022 but it also tops the pre-pandemic average, as the chart shows. The big reason behind the solid sales growth that TD Economics is forecasting in the US is in large part due to the US pandemic era savings cushions in the US which will hopefully boost holiday spending during the season. Also a strong US job market as well is also helping to find a strong base to the sales growth. Now, TD Economics has that Americans have growth of $800 billion in excess savings as of the third quarter, that is nearly double TD's previous estimate of just over 470 billion.
When the forecast includes the excess savings via bank deposits, the amount is actually much larger, it's roughly about $1.3 trillion of cash assets, as the chart shows.
Also, the US job market, sorry, the US job market remains pretty strong as well.
Unemployment means a lot which should boost consumer willingness to spend during the holiday season.
And the US labour markets have been supportive of income growth.
That is the most important driver of spending. So far what we are seeing is that average hourly earnings and the employment cost Index showed that US workers are still getting races.
However, there are some headwinds for retailers, US retailers.
While incomes our growing, consumer spendings are outpacing real personal disposable income in recent months as the chart shows.
And with credit availability shrinking, consumers need to reign in that spending in line with their income. At the second biggest thing of course is what we have been hearing about all year, it's inflation.
It is down from its peak in June of last year. It's still relatively high and that could divert Americans spending to necessities like food and housing and away from other discretionary holiday spending items like cell phones, electronics and games. Now, also we are seeing a shift away from goods to services. Things like restaurants, experiences. That could be a drag on holiday spending totals as well.
Finally, more and more consumers are starting their holiday shopping much earlier, in October or even earlier than that as retailers compete to capture consumers wallets. As a result, we are seeing is October and November sales are increasing while December is decreasing.
Nevertheless, TD Economics expects the labour market, the strong labour market, along with the excess savings, should help keep the volumes of US sales going for the season.
It was only a couple of years back that your household was the same way, all of the gifts that came in for the holiday.
Were bought online. Obviously, we are living in a different world now. You can go out and buy in stores. What about that tension there between online and bricks and mortar?
Surprisingly we are seeing a lot of strength in online sales this year and it continues to attract US consumer dollars this season. As the chart shows, non-store retailers, the yellow line, mostly consisting of e-commerce sales, accounted for roughly 28% of sales in the holiday spending category.
Now that surpassed the former peak of 27.7% at the height of the pandemic in April 2020, and it's the highest of all categories with grocery stores, that's the green line, a distant second, at roughly 20%. That's not surprising as increasingly we are becoming more and more dependent on technology and connecting devices, customers what the convenience of purchasing all the smart phone or tablet's. We have also seen the growth of things like subscription-based services like Netflix, Amazon prime, also mobile apps such as Sephora or Amazon make the experience even better for the consumer, allowing more personal and shopping experiences, easy checkouts and updates on deliveries. No surprise that we are seeing strength in online shopping this season.
You have to get off the couch. Boom!
Thanks for that.
You're welcome.
MoneyTalk's Anthony Okolie.
Now, for an update on the markets. We are having a look at TDs Advanced Dashboard, platform designed for active traders through it TD Direct Investing. This is the heat malfunction, giving a view of the market movers. We are screening for the TSX 60 by price and volume. There is the price of gold firming ahead of the Fed minutes being released today.
There is strength in the space there.
That's very much where we will find the green on the skin today.
We can look at the energy bucket. Got some modest downward pressure there across financials and technology as well.
South of the border, let's check in all the S&P 100. So far, it's been a pretty good November.
A bit of a mixed session today. Some of the big tech names including AMD and the tax base and Intel. Of course, we have Nvidia reporting after the close today. We will see what the appetite is.
There are some pretty lofty expectations for sales coming out of Nvidia. Right now they are down about 1.3%. Written on the screen? There some, including Tesla.
That name is up a little more than 2%. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
All right, we are back now with Robert Both from TD Securities, let's get your questions. What are we expecting from Canadian retail sales later this week?
Anthony was just talking about the us but we are going to get a read out of Canada on Friday.
Is probably a little bit early to comment on holiday shopping. We are still getting data from September. But we do expect the report to come in a little bit stronger than it was projected by Statistics Canada. So they provide a flash estimate a month ahead of time. That estimate suggested that retail activity would remain unchanged in September. We are looking for something a little bit stronger than 0.3% month over month, but the underlying details are probably going to remain quite weak so we expect motor vehicles are going to be the main driver of retail sales growth in September and a lot of those auto sales were purchased well ahead of time, given that bottleneck squeeze for new vehicles, there is still a pretty long lead time there. So when you look at a flat print on the XLR's measure and you factor in how quickly goods prices are rising and how quickly the population is growing, the retail picture does look considerably worse on a volume spaces, and when you adjusted to a per capita basis.
So we are seeing that squeeze on Canadian households and we think that is going to continue in September.
Before I let you go, we are white squeeze in one more question. We saved the easiest for loss with the audience.
Are we entering a period of stagflation? I think you told me before that you get this question a lot out in the world.
We have gotten that one a few times.
What we are seeing I think is a version of stagflation but the stagnation is not quite as extreme as some of the previous periods we have seen the like the 1980s and also the inflation backdrop isn't quite as alarming as it was six months ago. So we are in a period of higher inflation and weaker growth so I don't like to get too caught up around the terminology.
I was going to call it stagflation light.
Stagflation light.
But we do expect growth to stabilize over the fourth quarter so I don't think we are in a scenario that you would define as a hard landing even if we do have two very weak quarters of growth.
Always great having you here. Always learn a lot.
Forward to the next conversation.
My pleasure.
Our thanks to Robert Both, macro strategist with TD Securities.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack, managing director and portfolio manager with TD Asset Management will be our guest, taking your questions about global stocks. A reminder that you get a head start with your questions. Just email moneytalklive@td.com.
That's all the time we have the show today. Thanks for watching.
We'll see you tomorrow.
[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 discuss whether the Bank of Canada is finished with it's hiking cycle after today's inflation report. Robert Both from TD Securities joined us.
MoneyTalk Anthony Okolie is going to have a look at a new TD Economics report on what to expect from the holiday shopping season.
And in today's WebBroker education segment, Hiren Amin is going to explain how high-yield bonds work and where you can find them on the WebBroker platform.
So 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 our guest of the day, let's get you an update on the markets. We will start here at home with the TSX Composite Index.
See what kind of day we are having. Bit of a down session on Bay and Wall Street, nothing too dramatic. A pullback of 80 points we will call that, almost 1/2 a percent for the TSX. Among some of the most actively traded names today include some of the world minors. We are seeing gold firm up ahead of the release of the Fed minutes. Is it once already? Of course shorter holiday week in the state, the Fed minutes are coming this afternoon. Want to check in on Kinross Gold.
Earlier the gold names are getting a bid.
Even though the broader market is lower, at seven bucks and $0.53 per share, you got Kinross up 3%.
TransAlta Corporation moving in the other direction. It's an investor day. They give a strategic update. Taking a look at a note from TD Cowen seeing the free cash flow is going to be well below expectations. Perhaps that's what's weighing on the name today.
At 1073, TransAlta down a little more than 7%. South of the border, let's check in on the S&P 500. I had of the Fed minutes and a shorter trading week, there's a pullback of 12 1/2 points, about 1/4 of a percent.
Nothing too dramatic. The tech heavy NASDAQ as well, see what's happening there in terms of its pacing against the broader market. A little deeper in the hole. 117 point deficit, almost a full percent.
After the closing bells today, we are expecting a big one out of the US tax base, that would be Nvidia, the beneficiary this year of the AI boom, their GPI use are the ones people seem to want for AI processing. Yesterday the stock hit a new all-time high, today pulling back about 1 1/2%.
We will see what Nvidia gives us after the close. And that is your market update.
Canadian headline inflation cooled to 3.1% in October, just sitting above that target range for the Bank of Canada.
So is it safe now to say that our central banks hiking cycle is finished? Joining us now to discuss, Robert Both, macro strategist with TD Securities.
Robert, great to have you on the program.
Let's start with what we got out of the inflation print today. 3.1 was the headline. What did you find interesting?
So as you mentioned, we are sitting just above the target range right now so that 0.7% point drop is a lot of good news for Canadians that are struggling with a higher cost of living. It's also great news for the Bank of Canada because inflation is that much closer to their end goal.
Now as with every CPI report, there are a lot of moving pieces under the headline number.
And in this one, we saw a very stark divergence between energy prices and shelter prices. So energy prices were the main downward force in October. Gasoline prices fell by about 6.4% on the month.
You also had a drain from electricity and heating fuels. So when you strip some of that out, the headline numbers look a little bit less positive.
We also saw a more pressure come through the shelter channel in October. So that is going to be something that's a little tougher to digest for those households that are a little more financially stretched.
Rents have been a key driver of CPI for the last several months but those accelerated further in October. It rents saw their largest month over month increase in a few decades, so that is certainly something that speaks to the shortages across the housing market. We also saw more pressure come through mortgage interest cost, through property taxes as well so a much larger increase and we had last year.
So you are really seeing a bit of a gap between shoulder prices and the broader CPI basket. I think the biggest thing that stood out to me today was the improvement we saw for the Bank of Canada's core inflation measures.
Those had been running at about 3.8% year-over-year in October.
In September. In October, they are sitting around 2.55% and the Bank of Canada has been keenly focused on the three-month rates of core inflation and those have been maintaining a very tight range over the last 12 months. We actually saw them break below that range in October.
Those three-month rates of core inflation were running at 2.7% in September. They are now at 3.0% which is just the upper end of the Bank of Canada's target range.
So we are going to need to see a couple more months of this to really make this a trend, but it should give the bank a little bit more confidence that it's tight policy stances helping to release price pressures and that inflation does still remain on a path downward.
We are not that far away. December 6, I forgot that December was around the corner. We are going to get another rate decision from the Bank of Canada. It seems like a funny time because we think about it, are they on hold or what? Our central bank hasn't done anything since the summer but after what we have been through, we are all on edge as to what they do next.
What do you think we get? What are they going to do about rates?
We don't expect the Bank of Canada to cut rates until the middle part of next year.
We're December, there is a pretty high bar for a change in tone or signal that rate cuts might be a little bit closer.
The bank is actually been focus on hikes over the past few months, since July. They haven't done much but they have kept that threat of hikes on the table so that has helped keep financial conditions tight.
We expect that message to remain unchanged in December. The bank does need to see more progress on the inflation front to take the risk of hikes off the table but we think with a couple more months of softer core inflation and if we continue to see progress on the headline front as well, we are getting a little bit closer to when you can expect that change in tone from the bank.
Is there a part of this sort of issue for the Bank of Canada now's not so much the data from the CPI because it seems to be moving in the direction they would hope it would move after the rate hikes but how we start reacting to things? I think back to the spring when they said, we are going to stop here and see what kind of effect we have had on the economy, the housing markets boomed and then they came back to the table in September and had some more and that will things down. Are they worried about how we are what you react in the short term to small shifts?
I think the bank is very aware of how it's communication is interpreted by markets in the broader financial community and that is part of the desire to keep financial conditions tight and keep the risk of hikes on the table until they are much closer to easing, until they have more evidence that this isn't just a one off like we saw last spring.
This is a firmer trend towards 2% inflation and a balanced economy. I think the biggest difference is between what we saw in January and where we are today is just the broader state of the economy back in the early parts of this year, labour markets were still very tight. We were still in a state of excess demand.
We have seen two very weak quarters of GDP growth now, the Canadian economy contracted in the second quarter.
It looks like growth has remained pretty flat through Q3 as well and you are starting to see that excess supply creeping back into the economy.
So I think the bank still doesn't want to tip its hand until cuts are on the horizon but with a couple more data prints and if we do see more progress on those core inflation measures, we could be getting closer to that point in the new year.
How does the new year look in terms of the economy, in terms of jobs?
I think this has been a very aggressive hiking cycle. I think perhaps some of the effects of the rate hikes took a little longer to work through the economy. Is next year when we will see the full impact of what they have done?
So it is going to remain a very challenging environment for growth over 2024.
I think the bigger source of uncertainty is what's happening to the economy and Q3 and Q4 this year coming off that contraction in the second quarter, we do expect things to stabilize over Q4. We do expect to see a return to low but positive growth. Over the course of 2024, we should get closer to those trend like GDP numbers.
That does mean that excess supply is going to continue building over the course of next year, and we don't… We will also see a bit of a tailwind when the Bank of Canada does begin to ease off of its restrictive policy stance over the second half of the year. Now population growth is still continuing to provide a key driver to grow so that will keep us from tipping into a steeper slowdown. So we look for GDP growth at 0.9% next year.
We think with that population growth you still are going to continue to see job growth throughout the year but job growth will continue to be outpaced by the growth of the labour force, so we can see unemployment rate move higher as the economy moves further into excess supply, but we don't expect the type of material job losses that you might anticipate with a weaker growth outlook.
Interesting stuff. We are going to get your questions about the economy and interest rates for Robert Both in just a moment's time.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer 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.
There is more evidence today consumers are holding off on making big-ticket discretionary purchases. Both electronics retailer and Best Buy and home-improvement chain lows are cutting their sales forecasts, that as cash-strapped households search for bargains. It's a shift that's been seen across the retail sector as essential centre groceries take up more of the family budget. Appears the market is taking a cautious approach to earnings from some common clothing retailers today. Let's start with Abercrombie and Fitch. It's raising its forecast after posting a 20% jump in sales, and the stock is pulled back to the tune of 2 1/2%. Meantime, shares of American Eagle are under significant pressure this morning and still down 15% right now. Investors are waiting a disappointing holiday sales forecast from the name.
Expectations are running high for Nvidia's quarterly results that are due after the closing bells today. The street is expecting sales growth of more than 170%, of course that's as artificial intelligence drives a boom in demand for Nvidia's group GPUs, those graphic processing units that are favoured by the industry for making a I sound like us.
They are down modestly at 1.7% ahead of that. Let's check in on the markets. We will start your Bay Street with the TSX Composite Index.
But a pullback of 95, 96 points, almost 1/2 a percent right now.
South of the border, shortened trading week, we are getting the minutes today at 2 PM Eastern time of the last Fed meeting.
You down 13 points, a little shy of 1/3 of a percent.
All right, we are back with Robert Both, take your questions about the economy and interest rates. Here's one. Very timely.
Only a couple of hours away. What are you watching for in today's fall fiscal update?
We will get the fiscal data 4 PM this afternoon and I think what we are most interested to see is just what happens to the fiscal projections both for this year and for the next several years as well.
The parliamentary fiscal office has come up to an update that does point to wider deficits over the horizon. Even though revenues might be a little bit stronger than we saw in the budget. Over the last six months, we have seen dribs and drabs of spending announcements and what the fiscal update will do is incorporate all of those spending announcements and presented in one updated package.
So we do expect to get a little more information from those announcements like the electric vehicle production plans, the tax credits on new rental construction, how all of those are factoring into the fiscal outlook.
We will also be watching us for an update on what the government is working on to alleviate some of those concerns around housing shortages.
There has been lots of speculation about new financing for rental construction. We should see more details of that in the budget, or the many budget, and we will also get an update on the government's borrowing program.
So the government has increased the size of GIC options over the last quarter or so.
We will see what that does to the total program size in 2023 and 2024.
There seem to be some concerns that wall monetary policy is trying to rein in inflation aggressively, the fiscal policy we will get this afternoon, they could be working at odds with each other.
How alive should we be to this issue?
I think it has gotten more and more attention over the last several months.
But I do think those perceptions that monetary and fiscal policy might be working against each other are going to result in a little more restraint from the budget update. So even though we have seen a lot of speculation around budgets to improve housing supply, what we have seen reported has been discussion of financing these with loans rather than something that would add to budget deficits.
Similarly, the fiscal update will give an accounting on all of the spending announcements over the last six months since the budget. We think there's probably going to be a little bit less in terms of new spending announced in this afternoon's report.
So that showed kind of give the impression that the federal government is cognizant that they don't want to add to inflation pressures, and we do think they are showing some restraint and we have also seen them trying to trim spending across departments as well so the budget they pledged to reduce spending by $15 billion over five years.
Deputy prime minister and Federal Finance Minister Freeland gave an update on that recently. So they are certainly attuned to the perception that increasing government spending by all levels of government, not just federal government, could add to inflation but we do expect new spending announcements this afternoon to be rather modest in size and more of those housing initiatives to come through the new loans rather than something that would add to those deficits.
Great breakdown there of what to watch for in just a couple hours time out of the federal government. Let's get to another question now from the audience.
Have you want to know, how do you see the housing market being affected when rates finally start going down?
So, well, we have seen the housing market and housing sentiment being quite sensitive to BOC communication shifts in the house, and we certainly sell at this spring when the bank announced that they would be conditionally pausing rate hikes going forward.
That really sparks in the round of exuberance across housing markets. These are regions like Toronto and Vancouver that had been hurting over the past 12 months bounce back and while I do think you will see a bit of upturn in housing sentiment when the BOC gets closer to cutting rates, this won't necessarily be the boon for housing affordability that some might want to be.
So the Bank of Canada's easing is going to be gradual. When compared to the pace of rate hikes on the way up, the bank was hiking by 50, 75, 100 basis points at a time. The cut cycle is going to look very different.
We expect a more gradual and orderly process and that should limit any rotation back into the housing market. That said, we do look for housing to stabilize over the first quarter of next year.
Our colleagues at TD Economics have been looking for 2024 home sales to rise by about 5.2%. Another 15% in 2025.
And you should also see a little more stabilization with prices roughly unchanged next year but rising by 5% in 2025.
In the past couple of months when we got the inflation numbers like we got this morning we are trying to figure out where the pressures remain? As you pointed out, one of the key pressure points our mortgage payment cost, rent costs and the assumptions is that landlords are raising costs because their costs are rising as well. It's a strange situation, we are trying to bring inflation down but we rates rates in part with what your mortgage. Is that a fair criticism, they deal with that kind of situation?
That's a question they've been getting a lot over the last 6 to 12 months and it's something that's going to come up going forward if we do see that wedge between shoulder costs and the wider CPI basket continue to widen.
The Bank of Canada had maintain policy rates at 0.25% or 0.5% for a period from 2015 all the way through to the start of those 2017 2018 rate hikes. So during that period of lower interest rates, housing prices accelerated quite sharply and that did put upward pressure on inflation. So the Bank of Canada of factors that in one monetary policy is maybe pushing house prices higher as well is when it's making affordability more stretched.
So they do look at shelter prices through the entire business cycle and not just when their hiking rates but the other tool they have is they have measures of core inflation that strip out those larger, more volatile month over month changes. So a Gov. Macklem mentioned in one of his most recent speeches that the trimmed mean measure of core inflation has actually excluded those mortgage interest costs for just about the last year and going forward, you will see rent stripped out of that calculation as well if you do see these larger increases.
So they are being excluded to some extent already, but it's something that we do expect to continue to get questions about going forward. Okay, let's get another question from the audience.
This one about the US central bank.
What would it take for the Fed to start raising rates again, or are they really done?
So we think the Fed is done here.
We look for them to start cutting rates in the second quarter of next year, but if you go back to September, the Fed did have one more rate hike and its projections, in its dot plot.
So like the Bank of Canada, we don't expect the Fed to take rate hikes off the table until it's got much more concrete evidence that things have truly turned and that we are on that path back to 2% inflation.
Momentum has been stronger south of the border.
US GDP was 4.9% in Q3 but looks to have slowed quite a lot going into Q4 so we are tracking Q4 growth in the US with 1.2%.
The Atlanta Fed tracker is around 1.9% but if gross conditions were to improve and if you were to see the US move further into excess demand heading into next year, that is certainly something that we keep FedEx on the table. Similarly, if we did see cases of joblessness start to accelerate, that would put more pressure on wage growth.
Those are the things that could push the Fed to hike again but we do believe that the US Fed has turned the tide and the Fed is done here.
As always, make sure you do your own research before making any investment decisions. we will get back to your questions for Robert Both on economy rates 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 get to our educational segment of the day.
If you are interested in fixed income, you may consider high-yield bonds as an option. Joining us now to discuss how they work and where you can buy them on the platform is Hiren Amin, Senior client education instructor with TD Direct Investing. Always great to see you. People may be familiar with the bond space, maybe not so much with high yield.
Can you walk us through all this and where you find them on WebBroker?
Absolutely, I sure can.
Let's talk about bonds real quick to paint a primer to our investors and viewers there.
So when a company goes out to raise capital for any sort of expansion projects or really anything they need to grow, they are going to do it one of two ways. They are either going to raise equity by selling pieces of the company to investors who buy stock or they can do it through the issuance of debt and that's where the bond market comes into play. So with that, bonds, usually it's a promise to pay back the amount they are borrowing to you and also during that duration of the bond they will pay out coupon payments or interest payments as we like to call it. Let's go into the fixed income platform here on WebBroker.
I'm going to click on the research tab, in the investment category, we will head over to the fixed income page.
High-yield bonds, just like the name sounds, is once where you are getting essentially high-yield.
Now to access some of those bonds, you went to click on the bond categories appear and we are going to click on high-yield. That will open a rate sheet for us. I have that open on another page so I'm going to flip over to that for a second.
Let's talk about high-yield for a quick second here. You are going to see a list of these high yields.
The first thing we want to make sure everyone understands that the title products is that they get classified based on their credit rating.
That credit rating you're going to notice on the rate sheet over here is going to be found under DRS and S&P ratings and one thing you are going to see that is a common feature of these is that these bonds are going to be double B or lower credit rating.
So in other words, they are categories that are not investment grade category and therefore that usually means is going to be more risky as a product. Because of this higher risk, investors demand for steeper discounts on these products compared to investment grade bonds, so to speak. If we talk about the discount price, bonds are usually priced at a par value of 100 but you can see some of the asking prices on these, they are all going to be mostly below $100 which represents that steep discount and that directly correlates with the yield for us. We can see some of the yields on these products.
If you look at the yield to maturity, they are all going to be pretty high-yield.
Again, it's because of the riskiness.
There is default risk associated with these high-yield products.
But again, investors are willing to go into these investments because this potentially upside capital gains because their product should be redeemed at par value and also along the way you are getting these high yields as well.
A good understanding of high-yield, the risk in high-yield. But if an investor is still interested, they are on the web worker platform, how would they place a trade to buy a high-yield bond?
Yeah, so with these products, one thing we will also highlight that is directly tied into how you can purchase this is liquidity risk. So compared to let's say investment grade bonds, these products pose more liquidity risk. So that usually, they are not as accessible, let's say it that way, to investors to purchase to the online platform.
So they do have to phone into the fixed income trade desk at TD Direct Investing so they can phone and places orders if they wish and they will also make sure they are aware of additional risks with specific bond issuers they might be looking at.
The other thing I will mention, Greg, because we really want to talk about the side of risk and if investors feel uneasy with taking on direct exposure through these products, you can do it through funds.
Let's talk about mutual funds for a second and how you can search those. If we go to research, investments, and ETFs, there is actually a section or category of funds where you can just look at high-yield ETFs. If we go down this list, Alphabet's the organize here, we should have it, I have missed it, Pierre. Right here.
High-yield fixed income products.
This way, you can leave it up to the professionals, and money manager to do all the buying and selling. You have a whole slew of different ETF high-yield exposure that you can get and also with the added benefit of diversity.
Some homework for any of our audience members looking at the high-yield. Great stuff as always. Thanks for that.
Anytime, Greg.
Hiren Amin, Senior client education instructor with 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.
All right, we are back with Robert Both, taking your questions about the economy and interest rates.
What is your outlook, Robert, for the US dollar versus the Canadian dollar? The US dollar strength has been a story for a long time.
I think even the US dollar heading into 24, 2024, is going to be what happens to the US data. I think the US dollar is going to follow its data for the direction.
As the US economy starts to turn, as growth cools and the pace of job growth slows and unemployment starts to take higher, we should see the dollar start to come off those highs as markets begin to price and a more aggressive easing profile for the Fed, especially relative to other central banks.
We have already seen some early signs for this in the last couple of top-tier data releases in the US, that October payrolls number and the October inflation report, both of those came in a bit weaker than expected and you did see quite a large pullback in the US dollar on those prints.
So the US dollar is trading around 137 Canadian today. We expect that to get down to 130 by the end of next year.
And get to 125 by the end of 2025. So we do look for that US dollar to soften against CAD and globally.
How about the other side of that equation, any factors here in Canada that could support the Canadian dollar strength against the US dollar?
I think in Canada, it can perform a little bit better than some of the other G 10 currencies. We obviously do you have a very strong macroeconomic driver for population growth that is going to limit the slowdown we see in the economy and should allow the Bank of Canada to ease a little more gradually than the Fed.
But we do look for the Canadian dollar to appreciate against the US over the next two years.
Alright, let's take another question from the audience. As you may have noticed, I am losing my voice. I will let Robert talk. What is the new normal for interest rates?
Yeah, you've been hearing a lot about the new normal or higher for longer from central banks over the last year.
And you know, a lot of that has been driven by some of these global trends that we saw heading into the pandemic which have reversed a little bit. Over the last 20 years heading into the pandemic, you had a very strong affect from globalization, from more digitalization, all of these forces that pushed interest rates lower, some of those are starting to slip into reverse. Supply chains are getting a little bit more complicated as onshoring becomes a little more popular.
All of the investments in the green energy sector and decarbonized in, those are all forces that are going to support higher interest rates going forward as well. So between the financial crisis and COVID 19 when we had that period of extremely low interest rates, we don't expect to get back there. We think the Bank of Canada is actually going to stop cutting when the interest rates are around 3%. That neutral level is a little bit higher than where they had their estimate of neutral heading into the pandemic, but we also never really got to where they want to, the problem enhance the pandemic was too little inflation, not too much.
So we do expect the environment is going to look a little different going forward.
For anyone renewing a mortgage, that might mean that you are going to be very hard-pressed to see a return to those sub 3% fixed rate loans.
If the Bank of Canada stops at 3%, we are going to see higher borrowing rates than what we were used to before the pandemic.
It's a new reality to get used to.
Takes you back to when I bought my first place in 2002. Maybe I have to return to that reality before it's all over.
Let's take another question from the audience paid with your outlook on oil and the energy sector?
Hood West Texas intermediate, American benchmark crude, near $100 US per barrel?
We do not expect benchmark oil prices to get back to this $100 levels, but we do expect oil prices to trade higher into 2024. So our forecast was published in our 2024 global outlook last week, it has WTI trading in an $85-$90 range over the first half of next year. That is a pretty significant increase from where it's trading today and that is going to make central banks jobs more difficult as they try to get inflation all the way back to 2%.
But we do think there is a little bit too much pessimism priced into energy markets right now.
Certainly, the global economy does look a little more fragile heading into 2024, but we are still in an environment with material supply risks to energy production, the Russia Ukraine conflict does not look like it's going away anytime soon, we've also got more tensions in the mid East, so this is, these are factors that can keep oil prices elevated even if the global economy is on a bit of a softer footing next year.
Okay. We will get back to your questions for Robert Both on the economy and interest rates in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
and reminder that you can get tons of 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.
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We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
The holidays are fast approaching.
Shoppers in the United States might be in a mood to spend but all these inflationary pressures are really pressuring the wallet. We'll keep a lid on all the holiday purchases? Anthony Okolie joining us now in the new TD Economics report on the latest US pending trends and what could mean for retailers.
Thanks. TD Economics does not expect that the US holiday sales will match the exceptional sales we saw in the past three years as the economy had adjusted to the spending shock spurred on by the pandemic.
Despite that, spending during the holidays is expected to grow 4 1/2% on a year-over-year basis in the fourth quarter. That is lower than the 6% we saw in 2022 but it also tops the pre-pandemic average, as the chart shows. The big reason behind the solid sales growth that TD Economics is forecasting in the US is in large part due to the US pandemic era savings cushions in the US which will hopefully boost holiday spending during the season. Also a strong US job market as well is also helping to find a strong base to the sales growth. Now, TD Economics has that Americans have growth of $800 billion in excess savings as of the third quarter, that is nearly double TD's previous estimate of just over 470 billion.
When the forecast includes the excess savings via bank deposits, the amount is actually much larger, it's roughly about $1.3 trillion of cash assets, as the chart shows.
Also, the US job market, sorry, the US job market remains pretty strong as well.
Unemployment means a lot which should boost consumer willingness to spend during the holiday season.
And the US labour markets have been supportive of income growth.
That is the most important driver of spending. So far what we are seeing is that average hourly earnings and the employment cost Index showed that US workers are still getting races.
However, there are some headwinds for retailers, US retailers.
While incomes our growing, consumer spendings are outpacing real personal disposable income in recent months as the chart shows.
And with credit availability shrinking, consumers need to reign in that spending in line with their income. At the second biggest thing of course is what we have been hearing about all year, it's inflation.
It is down from its peak in June of last year. It's still relatively high and that could divert Americans spending to necessities like food and housing and away from other discretionary holiday spending items like cell phones, electronics and games. Now, also we are seeing a shift away from goods to services. Things like restaurants, experiences. That could be a drag on holiday spending totals as well.
Finally, more and more consumers are starting their holiday shopping much earlier, in October or even earlier than that as retailers compete to capture consumers wallets. As a result, we are seeing is October and November sales are increasing while December is decreasing.
Nevertheless, TD Economics expects the labour market, the strong labour market, along with the excess savings, should help keep the volumes of US sales going for the season.
It was only a couple of years back that your household was the same way, all of the gifts that came in for the holiday.
Were bought online. Obviously, we are living in a different world now. You can go out and buy in stores. What about that tension there between online and bricks and mortar?
Surprisingly we are seeing a lot of strength in online sales this year and it continues to attract US consumer dollars this season. As the chart shows, non-store retailers, the yellow line, mostly consisting of e-commerce sales, accounted for roughly 28% of sales in the holiday spending category.
Now that surpassed the former peak of 27.7% at the height of the pandemic in April 2020, and it's the highest of all categories with grocery stores, that's the green line, a distant second, at roughly 20%. That's not surprising as increasingly we are becoming more and more dependent on technology and connecting devices, customers what the convenience of purchasing all the smart phone or tablet's. We have also seen the growth of things like subscription-based services like Netflix, Amazon prime, also mobile apps such as Sephora or Amazon make the experience even better for the consumer, allowing more personal and shopping experiences, easy checkouts and updates on deliveries. No surprise that we are seeing strength in online shopping this season.
You have to get off the couch. Boom!
Thanks for that.
You're welcome.
MoneyTalk's Anthony Okolie.
Now, for an update on the markets. We are having a look at TDs Advanced Dashboard, platform designed for active traders through it TD Direct Investing. This is the heat malfunction, giving a view of the market movers. We are screening for the TSX 60 by price and volume. There is the price of gold firming ahead of the Fed minutes being released today.
There is strength in the space there.
That's very much where we will find the green on the skin today.
We can look at the energy bucket. Got some modest downward pressure there across financials and technology as well.
South of the border, let's check in all the S&P 100. So far, it's been a pretty good November.
A bit of a mixed session today. Some of the big tech names including AMD and the tax base and Intel. Of course, we have Nvidia reporting after the close today. We will see what the appetite is.
There are some pretty lofty expectations for sales coming out of Nvidia. Right now they are down about 1.3%. Written on the screen? There some, including Tesla.
That name is up a little more than 2%. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
All right, we are back now with Robert Both from TD Securities, let's get your questions. What are we expecting from Canadian retail sales later this week?
Anthony was just talking about the us but we are going to get a read out of Canada on Friday.
Is probably a little bit early to comment on holiday shopping. We are still getting data from September. But we do expect the report to come in a little bit stronger than it was projected by Statistics Canada. So they provide a flash estimate a month ahead of time. That estimate suggested that retail activity would remain unchanged in September. We are looking for something a little bit stronger than 0.3% month over month, but the underlying details are probably going to remain quite weak so we expect motor vehicles are going to be the main driver of retail sales growth in September and a lot of those auto sales were purchased well ahead of time, given that bottleneck squeeze for new vehicles, there is still a pretty long lead time there. So when you look at a flat print on the XLR's measure and you factor in how quickly goods prices are rising and how quickly the population is growing, the retail picture does look considerably worse on a volume spaces, and when you adjusted to a per capita basis.
So we are seeing that squeeze on Canadian households and we think that is going to continue in September.
Before I let you go, we are white squeeze in one more question. We saved the easiest for loss with the audience.
Are we entering a period of stagflation? I think you told me before that you get this question a lot out in the world.
We have gotten that one a few times.
What we are seeing I think is a version of stagflation but the stagnation is not quite as extreme as some of the previous periods we have seen the like the 1980s and also the inflation backdrop isn't quite as alarming as it was six months ago. So we are in a period of higher inflation and weaker growth so I don't like to get too caught up around the terminology.
I was going to call it stagflation light.
Stagflation light.
But we do expect growth to stabilize over the fourth quarter so I don't think we are in a scenario that you would define as a hard landing even if we do have two very weak quarters of growth.
Always great having you here. Always learn a lot.
Forward to the next conversation.
My pleasure.
Our thanks to Robert Both, macro strategist with TD Securities.
As always, make sure you do your own research before making any investment decisions.
stay tuned for tomorrow show. Ben Gossack, managing director and portfolio manager with TD Asset Management will be our guest, taking your questions about global stocks. A reminder that you get a head start with your questions. Just email moneytalklive@td.com.
That's all the time we have the show today. Thanks for watching.
We'll see you tomorrow.
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