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[theme 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, and was likely going to be welcome news by the Bank of Canada report this morning showed the rate of inflation followed last month. Lucky for us, we have Robert Both of TD Security standing by to tell us what this could mean for rates. MoneyTalk's Anthony Okolie will have a look at a report from TD Cowen on pipeline, power and utilities. Their latest earnings results and the outlook for the sector. In today's WebBroker education segment, they are among the most popular types used on the web broker platform. Senior client education instructor Caitlin Cormier is going to tell us about market and limit orders.
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 all that and our guest of the day, let's get you an update on the markets.
I want to start with the TSX Composite Index.
Today it breached 22,500 but it seems to be pulling back from those levels and mellowing out a little. Very modest, down two points at the moment. Among the most actively traded names were uranium plays.
Earlier in the session they were getting a bid, including Denison Mines. At $3.13, it still in positive territory, a little more than 2%.
Some miners were getting a bit earlier but I notice the price of gold was pulling back a little bit. Kinross is holding onto its gains despite movement and the underlying commodity, gold. At $11.09, Kinross is up about 2% right now.
South of the border, I want to check in on the S&P 500. A modest start to the week.
Got Nvidia reporting later, I believe it's tomorrow. Markets are waiting and seeing.
The S&P 500 is up for six. The tech heavy NASDAQ, let's see how it's very. Very modest, three points to the downside. Palo Alto Networks, while we await Nvidia tomorrow we have earnings from Palo Alto and the streets are not impressed. At $313 per share, it is pulling back a little more than 3%. And that's your market update.
Canada's inflation picture got a little clearer today. According to Statistics Canada, the inflation rate for April slowed to 2.7%, compared to a reading of 2.9% in March. What does it mean for the Bank of Canada, interest rates and the battle against inflation?
Robert Both, Senior macro strategist at TD Securities is here with more. Great to have you here. Let's break down the report. What stood out for you?
>> Thanks, Greg. Always a pleasure to be back in the studio.
When we look at the April CPI data, from a high level, things looked to be evolving in line with expectations. Headline inflation came down to 2.7%.
That was in line with market consensus. If you look at what drove that month over month increase, a lot of the strength that we saw between March and April was just gasoline prices.
You strip those out and Victor start to look a lot brighter. Those core measures that the Bank of Canada puts a lot more weight on, those came in lower-than-expected. The two that the Bank of Canada puts the most weight on were about 2.75% on average. That does continue the path forward that we have seen since early spring. The Bank of Canada does want to see more evidence that that deceleration has been sustained. At a high level, they are getting more evidence with this report. It's just perhaps not as decisive as we would have liked to see if we were looking for the BOC to cut rates at the next meeting.
While this is all welcome news, we think they're going to want to see a little more evidence before they are willing to take that next step.
>> That next meeting just around the corner, I think it's June 5, first week of June, whenever that Wednesday falls.
You're saying, perhaps not as decisive.
It's not just inflation, this inflation report is moving in the right direction but some other economic indicators are implying that the economy stronger than we thought.
>> The Bank of Canada has been trying to balance evidence of software inflation pressures with signs that economic activity might be picking up as well.
We sell the April job stayed with much stronger-than-expected, it added 90,000 jobs during the month. I think more importantly than the job numbers which can be volatile is the hours worked was up 0.8% month over month. That suggests that some of the stronger economic momentum that we have seen in the first quarter might be bleeding into cutie was well and while the Bank of Canada is going to be very pleased to see this continued deceleration in both headline and core inflation, if that activity data continues to come in stronger-than-expected, the risk is going to be monitored closely.
>> Jobs are a good indicator of how strong an economy is. We start talking about what the actual GDP number might be, it might be running higher than we thought. It will we get another GDP report before the BOC makes a decision in June?
>> We will, that will be the last major data point recap over the June BOC decision. We will be getting the Q1 GDP report next Friday, during the Bank of Canada's media blackout period, and that is going to tell us whether or not the Canadian economy is still slowing under the weight of higher interest rates or whether we have seen some stabilization there. Certainly, the monthly data for January and February was quite strong. We are expecting that to, off in the month of March but that report is also going to give us insight into April as well. So that will help tell us whether the January February strength is a one-off or whether some of that doom and gloom has been perhaps overstated and perhaps there is a little more momentum in the Canadian economy than we anticipated.
>> I think it's widely agreed upon that where interest rates are right now, where the bank's trendsetting rate is, is restrictive territory.
We have been in restrictive territory for this long but we are still posting these kinds of numbers?
>> Is a little surprised to get a high level. At the same time, we have been putting more and more emphasis on her capital levels of GDP growth over the last year, year and 1/2.
And when you look through the impact of stronger population growth, that true per capita picture does fit with an interest rate environment that is quite restrictive. We are seeing that slowdown materialized on a per capita basis, but certainly the acceleration we have seen over Q1, if that were to continue into Q2, that would raise some alarm at the Bank of Canada that might see them pump the brakes a little bit on easing rates over the near term.
>> We have the June meeting coming up in the first week of June and then a July meeting after that.
How do you see all of this unfolding when you put all of that together?
>> We would have liked to see a more decisive move lower in core inflation for the bank to go in June. That's not to say that there is no risk. It is looking to be a very, very close decision but as we have discussed, there are some signs that near-term growth might be a little stronger than anticipated.
We are also seeing the stronger wage growth, we are seeing changes in inflation expectations that have not returned to those pre-pandemic levels.
Overall, we are looking at this upcoming BOC decision as the bank weighing the risks of going to soon versus going too late. Now, we still think the risk of going to soon is larger given the risk that inflation installs north of the 2% target.
We think that just waiting an extra six weeks until July would give the bank a lot more clarity on where those inflation pressures are headed into the second half of the year and how durable is that increase in activity we have seen over the early months of 2024.
>> Of July becomes the meeting where they deliver an interest rate card, after that, would you expect the trajectory to look like?
>> We are looking for the Bank of Canada to cut rates by 100 basis points over the rest of the year. That's a 25 Basis Point Cut in July, that's a 25 basis point cut in every meeting through to December.
If the US is so strong, there is a limit to how far the Bank of Canada can cut ahead of the Fed.
We think some of those fears might be overblown, especially as we look to upcoming BOC decision, but that will be certainly a topic of discussion for the rest of the year as well.
>> That's the divergence argument, that at some point our two central banks, as implantable as the Americans are, but they can only diverge, from the BOC's point of view, so much.
>> We think there is quite a bit of scope for the Bank of Canada to diverge from the Fed over the near term. Historically, if you look back since the global financial crisis and the period heading into a, the Bank of Canada and the Fed have diverge by as much as 100 basis points to the upper bound of the Fed funds rate.
We are currently operating at about 50 basis points below the Fed so we think the Bank of Canada can cut two more times before that divergence really starts to make its presence felt. At the end of the day, depreciating currency is going to be what determines the banking Canada's ability to diverge as markets price and more divergence between the two, the Canadian dollar is going to come under pressure and that's going to raise the cost of imported goods, it's going to provide a little stimulus to the manufacturing sector. As all of that comes into play, we are going to get a truer picture of just how far the Bank of Canada can move from the Fed.
But in our base case, we have the Bank of Canada cutting four times in the second half of this year, the Fed cutting twice.
We expect that we are going to be up against those historical divergence limits, if you will, from December pretty much all the way through 2025.
>> Fascinating stuff and a great start to the program. We are going to get your questions about the economy for Robert Both and just moments 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.
We've got Nvidia in the spotlight this week. The chipmakers on deck to report earnings tomorrow.
Now, the stock is up some 90% this year and it tripled last year, thanks to that surging demand for artificial intelligence processing power. This AI buzz has also been a key driver behind US markets reaching all-time highs.
So it's a fairly important one tomorrow.
Ahead of that, you got Nvidia a pretty much the slot and the broader US markets pretty much to slot as well. Let's take a look at Lowe's, intending it to be on the top and bottom lines despite an industrywide pullback and home run of spending.
The retailer says sales were down year-over-year as consumers put off those big-ticket purchases and pricey home projects.
Despite all that, Lowe's topped expectations and is standing by its full year forecast. Right now, the stock is down a little less than 3%.
Also want to take a look at Macy's, lifting its profit forecast for the year as the US retailer cuts costs as part of its new turnaround plan. They have a new CEO, Tony Spring, who wants to find $100 million in cost savings this year and it also means that Macy's will be chattering some 150 stores over the next two years.
Macy's, while this is going on, is in her bio talks with an activist investor as well. That stock down about 1.5%.
Quick check in on the markets, we will start on Bay Street with the TSX Composite Index. We started the day with the push higher, broke up 22,500, we are moving in the other direction now, down a modest 14 points. South of the border, the S&P 500 is basically flat, up a whopping one point or two ticks.
We are back with Robert Both, taking your questions about the economy and rate.
First one here for you, Robert. What is driving the change in our trade deficit?
>> The Canadian trade figures have been quite volatile over the last few months but when we look at what drives exports or the trade deficit more broadly, he comes back to energy prices in a country like Canada.
Energy exports are still about 20% of the total and they drive a lot of volatility on the month over month basis.
Simply put, when crude oil prices are high, we generally see trade surpluses and when crude oil prices are low, we are generally looking at a deficit. Now, the other really important driver of where the Canadian trade balance is sitting is the relative strength of the US economy. The US is still between 75 and 80% of exports in any given year despite efforts to diversify that, we are still anchored to the US. And as the US does outperform the rest of the world, that's something that really shows up in our trade figures as well. Even though the overall trade surplus has been declining over the last few months, we still are generating a very large trade surplus from the US given that they have outperformed on the global stage certainly over the last couple of years. I would say those are the two most important drivers and if you do look at how the trade balance with the US is shaping up against the rest of the world, you can certainly see how that benefits Canada as well.
>> When you think about that US outperformance, people call it US exceptionalism, do we have a good handle as to why? The world is going through the same thing, inflation shocks, central banks raising rates to try to bring it under control, and other economies were shakier but the US just powers on.
>> I think one aspect of it over the last year or two had just been the extent to which the US has drawn on some of those household savings relative to countries like Canada, relative to pockets of Europe. The other key advantage that the US has is relative productivity strength.
US productivity growth has been much stronger than Canada for a number of years. That really reflects a number of factors, it reflects an effort to minimize deregulation or regulation, it reflects the ease of attracting capital into their sectors, it reflects the influx of labour supply into hard-to-reach sectors as well, but that is something that probably does have a limit to its that we think while it has outperformed over the last few years, there is scope for the rest of the world to catch up.
>> We will see how that plays out in the months and years ahead. Another audience question.
What would the return of US tariffs mean for Canada? Basically a US presidential election question.
>> It will depend on what the tariffs is, what targets they are targeting or what product they are targeting, which countries and what the rate is.
The US certainly is not importing a ton of electric vehicles and batteries from China quite yet but that certainly would be an area that would be expected to grow without the imposition of tariffs. As tariffs weigh on US imports from China, there is potential opportunity there for Canada to supply some of the growth in the US EV industry. We have made a large investment into battery production, into electric vehicle production in Canada that does provide scope for us to supply the US markets to an extent that some of the countries which have made these investments might not be able to match initially.
>> So there's the China example and obviously, both administrations, whether it's Pres. Biden or Pres. Trump, the incumbent and Trump who we have seen in the office before, with NAFTA being renegotiated, if he ends up taking the White House, what is the deal?
>> If you're talking about the possibility of a Trump White House, the best advice might be to expect the unexpected. It does give me a little relief that we have a new version of NAFTA that was lost renegotiated by the Trump administration, 2017 2018. That is no guarantee that we don't see these trade frictions materialize over the next 4 to 5 years.
Even with the Biden administration, you are seeing a return to some of the protectionist trade policies.
I think it's perhaps a little less important who is in the White House but more important what policies they are looking at and who is going to target.
>> Good stuff.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions 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.
Now, let's get our educational segment of the day.
If you trade on the web broker platform, you are likely familiar with market and limit orders. Senior client education instructor, Caitlin Cormier, here to slay exactly what they are and how they work.
>> Two of the most popular ordered hives with self-directed investors are market and limit orders. Today we will break down the differences between these two types of orders and when you might want to use each one. Let's start it with a market order. A market order is essentially an order that you are going to use when you know that you want to purchase the security that you were looking to buy, COO you are 100% gung ho on that particular security, you definitely want to make sure the purchase goes through or the sale goes through. The prices kind of secondary. So you have an idea of what the price is, you can see the bid and the ask price, you have an idea where it is but you're not really worried about exactly what price that orders going to be filled for, you're okay with it being filled at whatever the best price is at whatever time you execute the trade.
The price isn't guaranteed but the fill is almost guaranteed as long as it's an actively traded security on the market, chances are it's going to be executed almost immediately. It's the price that your little uncertain about.
If we flip over to the limit order, the limit order isn't a guarantee that the Lord is going to be executed but the price is more guaranteed.
So with a limit order, you are basically saying for a purchase, what is the maximum you are willing to pay in order to purchase to security and to sell it, what is the minimum you are willing to accept in order to sell the security?
So your price is guaranteed to be at least whatever that minimum is or above and the execution is not as guaranteed because of course if it never hits the price that you have for your limit, then your order will not be executed.
Let's take a moment to hop into a broker and see how you can actually execute those trades.
I'm going to pull up a buy and sell ticket right here.
We are going to put in an actively traded stock.
When we have this order to get up, let's start with the market order. I'm gonna look on the right-hand side where we can see the bid and ask information about the stock. I have an idea of what the best price is at the moment that I have pulled this quote for this particular stock. I can see how many stocks are available under lots, I can see with the range has been for today and those sorts of things, gives me an idea what price they might get when my orders executed but it's not a guarantee. I will put in the quantity of shares I would like to purchase. Again my price type I'm going to stick with market for today and I'm going to choose good till day because as I mentioned, chances are this order is going to be filled almost immediately out whatever the current best price is so I don't really have to worry about keeping it open past today. Once I'm ready, everything is good, I'm comfortable, I can do one last refresh here to see if the price has changed, if the bid and as has change, which it has, it's gone down a tiny bit. When I am ready I will click preview order and submit.
I don't know what price I'm going to get when this order is executed, I have a general idea, but it could be higher or lower than what I choose.
If there is a sudden move in the market and market spiked up or down, I have no control over that so I could end up executing this order for a lot more or less than I had originally planned. If instead I were to do a limit orders so everything being the same with the exception of the price type, I'm going to go down here and choose limit and said.
Here I need to input the price. The maximum price I'm willing to pay in order to buy the stock.
There are two different ways I could look at it. I could say for example alright I'm good with the current ask price, I'm going to buy the stock for the current ask price and put 191.68. That gives me a pretty good likelihood that my stock might be filled, my order might be filled, and it keeps me close to where I am now.
The other option is I could see if the stock drops down to 185, then I would like to purchase it.
If we see a decrease in price over time, I would like to go ahead and buy 100 shares of Apple.
Either one of these options, I have to choose a good till date. I will choose a period of time that I would like to wait for this order to be filled.
If I choose a price that's really close to the bid and ask, I may be okay with sticking to a short period of time like the current trading day, especially as we are early in the day now. Otherwise, I could choose good till a specific date or good till cancelled and I can also do day plus extended markets if I want to trade outside of regular market hours.
If I were to put good till cancel in this case, it would be open for 180 days which means any time within the next 180 days, if Apple drops down to 185, my order could be either partially or fully filled.
The only thing to keep in mind with that as I mentioned partially. If the price drops down one day under 85 and I get 50 shares and then all of a sudden the price goes back up, I will be charged a commission fee on Monday and then if it dropped again on a future day and filled over another day, I will be charged a fee on that day as well. That's something to keep in mind.
All of that being said, whenever I am ready with this, whatever length of time I choose to put my order in for, I'm going to go ahead and hit preview order and then submit in the new dissent out the market to be filled hopefully at the price I have chosen.
So hopefully the outline of these two order types helps you when you are making a different order choices within a broker and happy trading.
>> That was senior client education structure, Caitlin Cormier. For more educational resources, you can check out the learning centre on web broker or you can use this QR code to navigate to TD Direct Investing's YouTube page. Once it takes you there, you will find more informative videos.
Before you get back your questions about the economy and rates for Robert Both, 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.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.
Okay, we are back with Robert Both, we are taking your questions about the economy and rates. Next one for you Robert.
Someone wants to know why aren't we benefiting more from US economic strength?
We have talked about how exceptional they have been, we are right next to them.
>> That's a tough question to answer but I think the simplest one would be that we are benefiting, it is much harder to see when the rest of the country is doing relatively worse off.
The US trade surplus has been actually increasing over the last few years relative to the monthly trade surpluses we saw between the financial crisis and COVID 19, from 2021 to 2023, our trade surplus with the US was doing $9 billion per month. That is quite large. Over a year, it adds up to about 3-4% of Gross GDP. In a world where the US was not performing as exceptionally, the Canadian economy would be doing far worse. There were periods of last year we thought we might be heading for a recession. We might've actually fallen into a recession. Has that US exceptionalism persists, we see more US demand for Canadian vehicles, those vehicles need to be filled up with gasoline, support housing construction, that's more timber being exported, all of this is helping to offset slowdowns in other parts of the economy, it's just that it hasn't been enough to really match the US performance at a high level. We are not going to look like the US just because we are importing some of that growth.
>> Let's talk about where the US is heading. You are saying you do see two cuts from the Fed before the end of this year. They might start later than us. That would suggest that there economy will slow down and inflation will come back under control.
Is this going to have a dampening effect on us?
>> It is going to have a dampening effect on us.
The BOC is going to cut rates. There will be an offset from easier financial conditions even as that foreign demand for Canadian goods starts to slow. We are also starting to see some of that action materialize in the data. Just last week, we saw one of the first downside surprises on US CPI in several months. It was still 0.3% month over month. We are seeing core inflation and 0.1 in Canada but that is still progress from 0.4. We are also starting to see US job growth slow. We think we are getting closer to that turn in the US economy but, as you mentioned, it is certainly coming much later than the turning Canada.
>> Another question from the audience. How can Canada's productivity be improved? We have heard a lot about this.
>> I think there are two factors that you can look at when you are trying to explain why Canada's productivity growth has been relatively low when contrasted to the US or the parts of the world. The first is that we are not investing enough in research, other development, high growth areas.
That has tailed off in the last few years.
Nonresidential investment as a share of total activity is running at about 8.6, 8.7%. That's down from about 12% in 2014 so you have seen a large pool of investment leave the country or simply fade, so that is weighing on Canadian productivity going forward. The second aspect is tied to the recent increase in population growth and immigration.
When we see these changes over a short period of time, there tends to be… That productivity is going to come when we do see more language training, more skills training, a lot of newcomers need to be certified to work in their chosen field, so that is going to take time and that is going to provide a bit of a tailwind to productivity growth as those newcomers catch up. But we can also improve productivity growth by matching immigration to those pockets of labour supply, so areas like skilled trades, we are trying to build a lot of houses, you need the construction workers there, there are other skilled trades as well where it's very difficult to find someone on short notice. There are the shortages of labour supply and we just need to make sure we are addressing those with immigration flows.
>> I found that interesting, he took us back to 2014, a decade ago, before home prices started taking off in this country.
You use the term nonresidential investment. The criticism of our economy has been we are not taking capital and putting it into places that grow productivity, we are taking capital and putting it in the housing market.
>> You have certainly seen that rotation from nonresidential into residential investment. When you are talking about 2013, 2014, this peak investment years for Canada, a lot of the capital spending was being done in the oil sands as well.
That has tapered off and has not come back and we have really struggled to diversify outside of the energy sector.
There are plenty of opportunities for investments, much more difficult in a higher interest rate environment, but that has been something that's been weighing on productivity growth over the last decade or so. It's just that a relative share has been going to other sectors. We have also seen a slowdown in foreign investment as well so if that were to catch up, that could provide a bit of a tailwind to productivity growth going forward.
>> Interesting stuff. We will get back to questions for Robert Both on the economy and rates 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.
Let's talk about power, pipelines and utilities. Overall in the first quarter, these companies posted generally strong results. Anthony Okolie is going to join us now, break down what drove those results in the first quarter as well as TD Cowen's outlook for the sector.
>> Companies in TD Cowen's coverage universe continue to deliver strong performance in Q1 despite weakness in natural gas prices. When we look at a subsector basis-- coming in above TD Cowen's estimates. TD Cowen said that companies benefited from generally higher volumes across systems while most companies with liquid businesses benefited disproportionately.
The strong performance was partially offset in some instances by higher operating expenses and other maintenance costs. When it comes to utility names in their universe, they are down 1% year-over-year and they are also 1% below TD Cowen's estimates mostly due to higher operating costs, weather and higher interest expenses.
Those factors offset benefits including rate base growth, higher customer rates and some other factors. Meanwhile, TD Cowen said that management teams of the midstream companies in the coverage universe continued to emphasize resilience of core businesses, stable cash flows and steady performance of energy infrastructure. As a result, the majority of companies reaffirmed 2024 gardens, resulting in few TD Cowen target price changes.
Looking ahead, TD Cowen sees expectations as either flat or falling bond yields over the next year which should boost to sector valuations for their coverage universe.
Some other observations by TD Cowen, despite the persistence of softness and great natural gas prices, companies with natural gas exposure continued to show resilience and TD Cowen notes that natural gas futures-- where future prices are greater than spot prices because of some long-term tailwinds from expected demand from LNG exports, coal plant retirements and continued electrification among other factors.
TD Cowen notes that management team shakeups are ongoing with some senior executives retiring with companies on the move to fill those positions. In addition, TD Cowen continues to see management team is being open to strategic merger and acquisition activity as a way to augment both organic growth and to realize increasing economies of scale.
>> Interesting stat. What about some of the risks facing the sectors?
>> Some primary business risks and utilities include unfavourable regulatory and policy changes as well as physical operational risks. TD Cowen notes that political risk, particularly changes in government and shifts in government policy, could impact the utilities industry. When it comes to pipelines and administrative companies, risks include weaker commodity prices, higher power expenses and costs, government regulations and natural disasters.
>> Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the market.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the S&P 100. Has was getting a bid, taking up the most real estate, a little shy of 4%. If you look at the financials Paco, J.P. Morgan, Bank of America, Wells Fargo, Wall Street heavyweights all up modestly on the day contributing some points. I'm more interested in what's not happening on the screen. Nvidia is pretty much just flat, it's up about one quarter of a percent.
Nvidia is reporting tomorrow. This has been a pretty key stock in the whole artificial intelligence boom and it's been a lot of buzz around AR, it's been a driver for the broader markets, for US equity markets, hitting new all-time highs. One of those things that people watch pretty carefully and perhaps there is little caution in the market ahead of what Nvidia gives us tomorrow.
We are back now with Robert Both from TD Securities, we are talking rates and economics. Another question. Will on affordable housing create a brain drain or scare people away from moving here?
>> I think you can look at this from the productivity angle as well. Any time where you have had a prolonged period of flat or negative productivity growth, you're talking about a standard of living that is either declining or maybe not improving relative to other countries and that is something that can force those to look where the grass is greener. Canada has also been a key importer of labour over the last three, four years so I think when we talk about brain drain, there has perhaps been brain drain into Canada when you look at the number of international students and other international migrants that we have attracted over the last three years or so. Is there risk that some of that unwinds with new restrictions on international student permits?
Given some of the relative cost of living differences between Canada and other countries, on affordable housing is actually not necessarily a Canadian phenomenon. Over the last few years, the parts of the world have seen that increasing the cost of housing elusive to income. So I think this is a little bit of a unique environment relative to perhaps the post financial crisis period where there was a sharp difference between Canada and the US. I think you look at this as a factor of the relative productivity between both countries and whether we are able to retain that talent that we have been working to educate and whether we are able to retain those students and integrate them into the Canadian labour markets going forward.
>> When I think about the housing file in this country, it's been a bit of a soft spring from the numbers I have seen.
People say, potential buyers are waiting on the sidelines of the BOC to start cutting rates. It feels like there's a big debate right now is as to whether this round of rate cuts from the BOC could reignite housing or whether we have seen the fire cool.
>> You heard the from the Bank of Canada themselves in their minutes from March and April. They have kind of discussed how perceptions of monetary policy can impact housing market activity. While there is a sense that they were holding back earlier this year, they did not necessarily want to drive new speculative activity in the housing market. The April Bank of Canada minutes were a little more ambiguous as to the impact their rate decisions could have on the housing market. The BOC's perspective is that housing market activity will rise when they cut rates whenever it is.
We will be watching closely over the next couple of months as the Bank of Canada does begin to ease rates as we expect in July, but as you say, it is not materialized to the extent that we have anticipated and that new wave of housing is not necessarily a new supply but supply of the resale market has helped to contain prices as well as sales activity picked up.
>> That's an interesting dynamic there. We have time for one more question from the audience. This one is going to be about our currency. What is your outlook for the loonie?
>> Our outlook for the loonie is that we are going to see the Canadian dollar appreciate as there is more divergence between WC and the Fed.
We think the difference is going to get down to about $0.71 by the end of this year.
That 140 level that we have seen dollar Spike to, we think you will get there by the end of this year. You're also going to see a little bit of a risk premium built into the US dollar because of the election. All that uncertainty can drive safe haven flows and some of that tends to benefit the US dollar. As you mentioned the top the show as well, the Bank of Canada is going to be watching the current sleep quite closely as we do see more and more divergence between those two banks.
So we don't necessarily think that returning to $0.71 is going to set off any alarm bells at the Bank of Canada, but it is going to leave them a little less comfortable. We are going to see that imported inflation through import costs and we think that there's a little more scope for divergence beyond that. We think the Bank of Canada ultimately isn't going to necessarily raise any alarms until we get to something closer to those lows in the Canadian dollar that we saw in 2016, the time when the Canadian dollar is trading at 68, $0.69 versus the US. We are not calling for a return to those levels.
We expected to soften as markets price and more easing from the BOC and less from the Federal Reserve.
>> Before he let you go, we started off as you were talking about today's inflation numbers. What is your take away and what does it mean for markets?
>> Our takeaways from a high level, I think the Bank of Canada has seen everything they need to from the inflation data. Thus inflation itself, we are not talking about inflation or wages, but if we look at three month annualized rates of core inflation, we are at around 1.5%, they were at 1.4 in March and 1.6 in April, that speaks to poor inflation continuing to decelerate on a year-over-year basis, that speaks to the downward momentum in prices. It is really a question of how concerned is the Bank of Canada that those long-term inflation expectations could be at risk given that we've been operating above the inflation target range for about three years now.
And to what extent are our expectations for stronger wage growth going to lead into inflation going forward. You've certainly seen the cost of living increase for renters. That is putting more pressure on firms to pay higher wages. That can all be passed down and from our perspective, we think the risks of cutting too soon and potentially is seeing inflation stall above target still outweigh the benefits or outweigh the costs of waiting another six weeks for more clarity on how those expectations evolve, how inflation evolves over the next few months and very importantly, whether this increase in activity that we have seen in the early part of 2024 is a one-off or is it an indication of stronger underlying momentum that might also put the inflation target at risk. So certainly a lot to watch over the next two weeks until the June BOC decision.
>> Great insights. Appreciate you joining us. Look forward to the next conversation.
>> My pleasure.
>> Our thanks to Robert Both, Senior macro strategist at TD Securities. As always, make sure you do your own research before making any investment decisions.
be sure to tune in for tomorrow show. Joe Bonner of Argus Research will be our guest.
You can get a head start with your questions for us. Just email moneytalklive@td.com. That's all the time we've got for the show today. Thanks for watching. We will see you tomorrow.
[theme 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, and was likely going to be welcome news by the Bank of Canada report this morning showed the rate of inflation followed last month. Lucky for us, we have Robert Both of TD Security standing by to tell us what this could mean for rates. MoneyTalk's Anthony Okolie will have a look at a report from TD Cowen on pipeline, power and utilities. Their latest earnings results and the outlook for the sector. In today's WebBroker education segment, they are among the most popular types used on the web broker platform. Senior client education instructor Caitlin Cormier is going to tell us about market and limit orders.
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 all that and our guest of the day, let's get you an update on the markets.
I want to start with the TSX Composite Index.
Today it breached 22,500 but it seems to be pulling back from those levels and mellowing out a little. Very modest, down two points at the moment. Among the most actively traded names were uranium plays.
Earlier in the session they were getting a bid, including Denison Mines. At $3.13, it still in positive territory, a little more than 2%.
Some miners were getting a bit earlier but I notice the price of gold was pulling back a little bit. Kinross is holding onto its gains despite movement and the underlying commodity, gold. At $11.09, Kinross is up about 2% right now.
South of the border, I want to check in on the S&P 500. A modest start to the week.
Got Nvidia reporting later, I believe it's tomorrow. Markets are waiting and seeing.
The S&P 500 is up for six. The tech heavy NASDAQ, let's see how it's very. Very modest, three points to the downside. Palo Alto Networks, while we await Nvidia tomorrow we have earnings from Palo Alto and the streets are not impressed. At $313 per share, it is pulling back a little more than 3%. And that's your market update.
Canada's inflation picture got a little clearer today. According to Statistics Canada, the inflation rate for April slowed to 2.7%, compared to a reading of 2.9% in March. What does it mean for the Bank of Canada, interest rates and the battle against inflation?
Robert Both, Senior macro strategist at TD Securities is here with more. Great to have you here. Let's break down the report. What stood out for you?
>> Thanks, Greg. Always a pleasure to be back in the studio.
When we look at the April CPI data, from a high level, things looked to be evolving in line with expectations. Headline inflation came down to 2.7%.
That was in line with market consensus. If you look at what drove that month over month increase, a lot of the strength that we saw between March and April was just gasoline prices.
You strip those out and Victor start to look a lot brighter. Those core measures that the Bank of Canada puts a lot more weight on, those came in lower-than-expected. The two that the Bank of Canada puts the most weight on were about 2.75% on average. That does continue the path forward that we have seen since early spring. The Bank of Canada does want to see more evidence that that deceleration has been sustained. At a high level, they are getting more evidence with this report. It's just perhaps not as decisive as we would have liked to see if we were looking for the BOC to cut rates at the next meeting.
While this is all welcome news, we think they're going to want to see a little more evidence before they are willing to take that next step.
>> That next meeting just around the corner, I think it's June 5, first week of June, whenever that Wednesday falls.
You're saying, perhaps not as decisive.
It's not just inflation, this inflation report is moving in the right direction but some other economic indicators are implying that the economy stronger than we thought.
>> The Bank of Canada has been trying to balance evidence of software inflation pressures with signs that economic activity might be picking up as well.
We sell the April job stayed with much stronger-than-expected, it added 90,000 jobs during the month. I think more importantly than the job numbers which can be volatile is the hours worked was up 0.8% month over month. That suggests that some of the stronger economic momentum that we have seen in the first quarter might be bleeding into cutie was well and while the Bank of Canada is going to be very pleased to see this continued deceleration in both headline and core inflation, if that activity data continues to come in stronger-than-expected, the risk is going to be monitored closely.
>> Jobs are a good indicator of how strong an economy is. We start talking about what the actual GDP number might be, it might be running higher than we thought. It will we get another GDP report before the BOC makes a decision in June?
>> We will, that will be the last major data point recap over the June BOC decision. We will be getting the Q1 GDP report next Friday, during the Bank of Canada's media blackout period, and that is going to tell us whether or not the Canadian economy is still slowing under the weight of higher interest rates or whether we have seen some stabilization there. Certainly, the monthly data for January and February was quite strong. We are expecting that to, off in the month of March but that report is also going to give us insight into April as well. So that will help tell us whether the January February strength is a one-off or whether some of that doom and gloom has been perhaps overstated and perhaps there is a little more momentum in the Canadian economy than we anticipated.
>> I think it's widely agreed upon that where interest rates are right now, where the bank's trendsetting rate is, is restrictive territory.
We have been in restrictive territory for this long but we are still posting these kinds of numbers?
>> Is a little surprised to get a high level. At the same time, we have been putting more and more emphasis on her capital levels of GDP growth over the last year, year and 1/2.
And when you look through the impact of stronger population growth, that true per capita picture does fit with an interest rate environment that is quite restrictive. We are seeing that slowdown materialized on a per capita basis, but certainly the acceleration we have seen over Q1, if that were to continue into Q2, that would raise some alarm at the Bank of Canada that might see them pump the brakes a little bit on easing rates over the near term.
>> We have the June meeting coming up in the first week of June and then a July meeting after that.
How do you see all of this unfolding when you put all of that together?
>> We would have liked to see a more decisive move lower in core inflation for the bank to go in June. That's not to say that there is no risk. It is looking to be a very, very close decision but as we have discussed, there are some signs that near-term growth might be a little stronger than anticipated.
We are also seeing the stronger wage growth, we are seeing changes in inflation expectations that have not returned to those pre-pandemic levels.
Overall, we are looking at this upcoming BOC decision as the bank weighing the risks of going to soon versus going too late. Now, we still think the risk of going to soon is larger given the risk that inflation installs north of the 2% target.
We think that just waiting an extra six weeks until July would give the bank a lot more clarity on where those inflation pressures are headed into the second half of the year and how durable is that increase in activity we have seen over the early months of 2024.
>> Of July becomes the meeting where they deliver an interest rate card, after that, would you expect the trajectory to look like?
>> We are looking for the Bank of Canada to cut rates by 100 basis points over the rest of the year. That's a 25 Basis Point Cut in July, that's a 25 basis point cut in every meeting through to December.
If the US is so strong, there is a limit to how far the Bank of Canada can cut ahead of the Fed.
We think some of those fears might be overblown, especially as we look to upcoming BOC decision, but that will be certainly a topic of discussion for the rest of the year as well.
>> That's the divergence argument, that at some point our two central banks, as implantable as the Americans are, but they can only diverge, from the BOC's point of view, so much.
>> We think there is quite a bit of scope for the Bank of Canada to diverge from the Fed over the near term. Historically, if you look back since the global financial crisis and the period heading into a, the Bank of Canada and the Fed have diverge by as much as 100 basis points to the upper bound of the Fed funds rate.
We are currently operating at about 50 basis points below the Fed so we think the Bank of Canada can cut two more times before that divergence really starts to make its presence felt. At the end of the day, depreciating currency is going to be what determines the banking Canada's ability to diverge as markets price and more divergence between the two, the Canadian dollar is going to come under pressure and that's going to raise the cost of imported goods, it's going to provide a little stimulus to the manufacturing sector. As all of that comes into play, we are going to get a truer picture of just how far the Bank of Canada can move from the Fed.
But in our base case, we have the Bank of Canada cutting four times in the second half of this year, the Fed cutting twice.
We expect that we are going to be up against those historical divergence limits, if you will, from December pretty much all the way through 2025.
>> Fascinating stuff and a great start to the program. We are going to get your questions about the economy for Robert Both and just moments 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.
We've got Nvidia in the spotlight this week. The chipmakers on deck to report earnings tomorrow.
Now, the stock is up some 90% this year and it tripled last year, thanks to that surging demand for artificial intelligence processing power. This AI buzz has also been a key driver behind US markets reaching all-time highs.
So it's a fairly important one tomorrow.
Ahead of that, you got Nvidia a pretty much the slot and the broader US markets pretty much to slot as well. Let's take a look at Lowe's, intending it to be on the top and bottom lines despite an industrywide pullback and home run of spending.
The retailer says sales were down year-over-year as consumers put off those big-ticket purchases and pricey home projects.
Despite all that, Lowe's topped expectations and is standing by its full year forecast. Right now, the stock is down a little less than 3%.
Also want to take a look at Macy's, lifting its profit forecast for the year as the US retailer cuts costs as part of its new turnaround plan. They have a new CEO, Tony Spring, who wants to find $100 million in cost savings this year and it also means that Macy's will be chattering some 150 stores over the next two years.
Macy's, while this is going on, is in her bio talks with an activist investor as well. That stock down about 1.5%.
Quick check in on the markets, we will start on Bay Street with the TSX Composite Index. We started the day with the push higher, broke up 22,500, we are moving in the other direction now, down a modest 14 points. South of the border, the S&P 500 is basically flat, up a whopping one point or two ticks.
We are back with Robert Both, taking your questions about the economy and rate.
First one here for you, Robert. What is driving the change in our trade deficit?
>> The Canadian trade figures have been quite volatile over the last few months but when we look at what drives exports or the trade deficit more broadly, he comes back to energy prices in a country like Canada.
Energy exports are still about 20% of the total and they drive a lot of volatility on the month over month basis.
Simply put, when crude oil prices are high, we generally see trade surpluses and when crude oil prices are low, we are generally looking at a deficit. Now, the other really important driver of where the Canadian trade balance is sitting is the relative strength of the US economy. The US is still between 75 and 80% of exports in any given year despite efforts to diversify that, we are still anchored to the US. And as the US does outperform the rest of the world, that's something that really shows up in our trade figures as well. Even though the overall trade surplus has been declining over the last few months, we still are generating a very large trade surplus from the US given that they have outperformed on the global stage certainly over the last couple of years. I would say those are the two most important drivers and if you do look at how the trade balance with the US is shaping up against the rest of the world, you can certainly see how that benefits Canada as well.
>> When you think about that US outperformance, people call it US exceptionalism, do we have a good handle as to why? The world is going through the same thing, inflation shocks, central banks raising rates to try to bring it under control, and other economies were shakier but the US just powers on.
>> I think one aspect of it over the last year or two had just been the extent to which the US has drawn on some of those household savings relative to countries like Canada, relative to pockets of Europe. The other key advantage that the US has is relative productivity strength.
US productivity growth has been much stronger than Canada for a number of years. That really reflects a number of factors, it reflects an effort to minimize deregulation or regulation, it reflects the ease of attracting capital into their sectors, it reflects the influx of labour supply into hard-to-reach sectors as well, but that is something that probably does have a limit to its that we think while it has outperformed over the last few years, there is scope for the rest of the world to catch up.
>> We will see how that plays out in the months and years ahead. Another audience question.
What would the return of US tariffs mean for Canada? Basically a US presidential election question.
>> It will depend on what the tariffs is, what targets they are targeting or what product they are targeting, which countries and what the rate is.
The US certainly is not importing a ton of electric vehicles and batteries from China quite yet but that certainly would be an area that would be expected to grow without the imposition of tariffs. As tariffs weigh on US imports from China, there is potential opportunity there for Canada to supply some of the growth in the US EV industry. We have made a large investment into battery production, into electric vehicle production in Canada that does provide scope for us to supply the US markets to an extent that some of the countries which have made these investments might not be able to match initially.
>> So there's the China example and obviously, both administrations, whether it's Pres. Biden or Pres. Trump, the incumbent and Trump who we have seen in the office before, with NAFTA being renegotiated, if he ends up taking the White House, what is the deal?
>> If you're talking about the possibility of a Trump White House, the best advice might be to expect the unexpected. It does give me a little relief that we have a new version of NAFTA that was lost renegotiated by the Trump administration, 2017 2018. That is no guarantee that we don't see these trade frictions materialize over the next 4 to 5 years.
Even with the Biden administration, you are seeing a return to some of the protectionist trade policies.
I think it's perhaps a little less important who is in the White House but more important what policies they are looking at and who is going to target.
>> Good stuff.
As always, make sure you do your own research before making any investment decisions.
we are going to get back to questions 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.
Now, let's get our educational segment of the day.
If you trade on the web broker platform, you are likely familiar with market and limit orders. Senior client education instructor, Caitlin Cormier, here to slay exactly what they are and how they work.
>> Two of the most popular ordered hives with self-directed investors are market and limit orders. Today we will break down the differences between these two types of orders and when you might want to use each one. Let's start it with a market order. A market order is essentially an order that you are going to use when you know that you want to purchase the security that you were looking to buy, COO you are 100% gung ho on that particular security, you definitely want to make sure the purchase goes through or the sale goes through. The prices kind of secondary. So you have an idea of what the price is, you can see the bid and the ask price, you have an idea where it is but you're not really worried about exactly what price that orders going to be filled for, you're okay with it being filled at whatever the best price is at whatever time you execute the trade.
The price isn't guaranteed but the fill is almost guaranteed as long as it's an actively traded security on the market, chances are it's going to be executed almost immediately. It's the price that your little uncertain about.
If we flip over to the limit order, the limit order isn't a guarantee that the Lord is going to be executed but the price is more guaranteed.
So with a limit order, you are basically saying for a purchase, what is the maximum you are willing to pay in order to purchase to security and to sell it, what is the minimum you are willing to accept in order to sell the security?
So your price is guaranteed to be at least whatever that minimum is or above and the execution is not as guaranteed because of course if it never hits the price that you have for your limit, then your order will not be executed.
Let's take a moment to hop into a broker and see how you can actually execute those trades.
I'm going to pull up a buy and sell ticket right here.
We are going to put in an actively traded stock.
When we have this order to get up, let's start with the market order. I'm gonna look on the right-hand side where we can see the bid and ask information about the stock. I have an idea of what the best price is at the moment that I have pulled this quote for this particular stock. I can see how many stocks are available under lots, I can see with the range has been for today and those sorts of things, gives me an idea what price they might get when my orders executed but it's not a guarantee. I will put in the quantity of shares I would like to purchase. Again my price type I'm going to stick with market for today and I'm going to choose good till day because as I mentioned, chances are this order is going to be filled almost immediately out whatever the current best price is so I don't really have to worry about keeping it open past today. Once I'm ready, everything is good, I'm comfortable, I can do one last refresh here to see if the price has changed, if the bid and as has change, which it has, it's gone down a tiny bit. When I am ready I will click preview order and submit.
I don't know what price I'm going to get when this order is executed, I have a general idea, but it could be higher or lower than what I choose.
If there is a sudden move in the market and market spiked up or down, I have no control over that so I could end up executing this order for a lot more or less than I had originally planned. If instead I were to do a limit orders so everything being the same with the exception of the price type, I'm going to go down here and choose limit and said.
Here I need to input the price. The maximum price I'm willing to pay in order to buy the stock.
There are two different ways I could look at it. I could say for example alright I'm good with the current ask price, I'm going to buy the stock for the current ask price and put 191.68. That gives me a pretty good likelihood that my stock might be filled, my order might be filled, and it keeps me close to where I am now.
The other option is I could see if the stock drops down to 185, then I would like to purchase it.
If we see a decrease in price over time, I would like to go ahead and buy 100 shares of Apple.
Either one of these options, I have to choose a good till date. I will choose a period of time that I would like to wait for this order to be filled.
If I choose a price that's really close to the bid and ask, I may be okay with sticking to a short period of time like the current trading day, especially as we are early in the day now. Otherwise, I could choose good till a specific date or good till cancelled and I can also do day plus extended markets if I want to trade outside of regular market hours.
If I were to put good till cancel in this case, it would be open for 180 days which means any time within the next 180 days, if Apple drops down to 185, my order could be either partially or fully filled.
The only thing to keep in mind with that as I mentioned partially. If the price drops down one day under 85 and I get 50 shares and then all of a sudden the price goes back up, I will be charged a commission fee on Monday and then if it dropped again on a future day and filled over another day, I will be charged a fee on that day as well. That's something to keep in mind.
All of that being said, whenever I am ready with this, whatever length of time I choose to put my order in for, I'm going to go ahead and hit preview order and then submit in the new dissent out the market to be filled hopefully at the price I have chosen.
So hopefully the outline of these two order types helps you when you are making a different order choices within a broker and happy trading.
>> That was senior client education structure, Caitlin Cormier. For more educational resources, you can check out the learning centre on web broker or you can use this QR code to navigate to TD Direct Investing's YouTube page. Once it takes you there, you will find more informative videos.
Before you get back your questions about the economy and rates for Robert Both, 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.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.
Okay, we are back with Robert Both, we are taking your questions about the economy and rates. Next one for you Robert.
Someone wants to know why aren't we benefiting more from US economic strength?
We have talked about how exceptional they have been, we are right next to them.
>> That's a tough question to answer but I think the simplest one would be that we are benefiting, it is much harder to see when the rest of the country is doing relatively worse off.
The US trade surplus has been actually increasing over the last few years relative to the monthly trade surpluses we saw between the financial crisis and COVID 19, from 2021 to 2023, our trade surplus with the US was doing $9 billion per month. That is quite large. Over a year, it adds up to about 3-4% of Gross GDP. In a world where the US was not performing as exceptionally, the Canadian economy would be doing far worse. There were periods of last year we thought we might be heading for a recession. We might've actually fallen into a recession. Has that US exceptionalism persists, we see more US demand for Canadian vehicles, those vehicles need to be filled up with gasoline, support housing construction, that's more timber being exported, all of this is helping to offset slowdowns in other parts of the economy, it's just that it hasn't been enough to really match the US performance at a high level. We are not going to look like the US just because we are importing some of that growth.
>> Let's talk about where the US is heading. You are saying you do see two cuts from the Fed before the end of this year. They might start later than us. That would suggest that there economy will slow down and inflation will come back under control.
Is this going to have a dampening effect on us?
>> It is going to have a dampening effect on us.
The BOC is going to cut rates. There will be an offset from easier financial conditions even as that foreign demand for Canadian goods starts to slow. We are also starting to see some of that action materialize in the data. Just last week, we saw one of the first downside surprises on US CPI in several months. It was still 0.3% month over month. We are seeing core inflation and 0.1 in Canada but that is still progress from 0.4. We are also starting to see US job growth slow. We think we are getting closer to that turn in the US economy but, as you mentioned, it is certainly coming much later than the turning Canada.
>> Another question from the audience. How can Canada's productivity be improved? We have heard a lot about this.
>> I think there are two factors that you can look at when you are trying to explain why Canada's productivity growth has been relatively low when contrasted to the US or the parts of the world. The first is that we are not investing enough in research, other development, high growth areas.
That has tailed off in the last few years.
Nonresidential investment as a share of total activity is running at about 8.6, 8.7%. That's down from about 12% in 2014 so you have seen a large pool of investment leave the country or simply fade, so that is weighing on Canadian productivity going forward. The second aspect is tied to the recent increase in population growth and immigration.
When we see these changes over a short period of time, there tends to be… That productivity is going to come when we do see more language training, more skills training, a lot of newcomers need to be certified to work in their chosen field, so that is going to take time and that is going to provide a bit of a tailwind to productivity growth as those newcomers catch up. But we can also improve productivity growth by matching immigration to those pockets of labour supply, so areas like skilled trades, we are trying to build a lot of houses, you need the construction workers there, there are other skilled trades as well where it's very difficult to find someone on short notice. There are the shortages of labour supply and we just need to make sure we are addressing those with immigration flows.
>> I found that interesting, he took us back to 2014, a decade ago, before home prices started taking off in this country.
You use the term nonresidential investment. The criticism of our economy has been we are not taking capital and putting it into places that grow productivity, we are taking capital and putting it in the housing market.
>> You have certainly seen that rotation from nonresidential into residential investment. When you are talking about 2013, 2014, this peak investment years for Canada, a lot of the capital spending was being done in the oil sands as well.
That has tapered off and has not come back and we have really struggled to diversify outside of the energy sector.
There are plenty of opportunities for investments, much more difficult in a higher interest rate environment, but that has been something that's been weighing on productivity growth over the last decade or so. It's just that a relative share has been going to other sectors. We have also seen a slowdown in foreign investment as well so if that were to catch up, that could provide a bit of a tailwind to productivity growth going forward.
>> Interesting stuff. We will get back to questions for Robert Both on the economy and rates 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.
Let's talk about power, pipelines and utilities. Overall in the first quarter, these companies posted generally strong results. Anthony Okolie is going to join us now, break down what drove those results in the first quarter as well as TD Cowen's outlook for the sector.
>> Companies in TD Cowen's coverage universe continue to deliver strong performance in Q1 despite weakness in natural gas prices. When we look at a subsector basis-- coming in above TD Cowen's estimates. TD Cowen said that companies benefited from generally higher volumes across systems while most companies with liquid businesses benefited disproportionately.
The strong performance was partially offset in some instances by higher operating expenses and other maintenance costs. When it comes to utility names in their universe, they are down 1% year-over-year and they are also 1% below TD Cowen's estimates mostly due to higher operating costs, weather and higher interest expenses.
Those factors offset benefits including rate base growth, higher customer rates and some other factors. Meanwhile, TD Cowen said that management teams of the midstream companies in the coverage universe continued to emphasize resilience of core businesses, stable cash flows and steady performance of energy infrastructure. As a result, the majority of companies reaffirmed 2024 gardens, resulting in few TD Cowen target price changes.
Looking ahead, TD Cowen sees expectations as either flat or falling bond yields over the next year which should boost to sector valuations for their coverage universe.
Some other observations by TD Cowen, despite the persistence of softness and great natural gas prices, companies with natural gas exposure continued to show resilience and TD Cowen notes that natural gas futures-- where future prices are greater than spot prices because of some long-term tailwinds from expected demand from LNG exports, coal plant retirements and continued electrification among other factors.
TD Cowen notes that management team shakeups are ongoing with some senior executives retiring with companies on the move to fill those positions. In addition, TD Cowen continues to see management team is being open to strategic merger and acquisition activity as a way to augment both organic growth and to realize increasing economies of scale.
>> Interesting stat. What about some of the risks facing the sectors?
>> Some primary business risks and utilities include unfavourable regulatory and policy changes as well as physical operational risks. TD Cowen notes that political risk, particularly changes in government and shifts in government policy, could impact the utilities industry. When it comes to pipelines and administrative companies, risks include weaker commodity prices, higher power expenses and costs, government regulations and natural disasters.
>> Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the market.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the S&P 100. Has was getting a bid, taking up the most real estate, a little shy of 4%. If you look at the financials Paco, J.P. Morgan, Bank of America, Wells Fargo, Wall Street heavyweights all up modestly on the day contributing some points. I'm more interested in what's not happening on the screen. Nvidia is pretty much just flat, it's up about one quarter of a percent.
Nvidia is reporting tomorrow. This has been a pretty key stock in the whole artificial intelligence boom and it's been a lot of buzz around AR, it's been a driver for the broader markets, for US equity markets, hitting new all-time highs. One of those things that people watch pretty carefully and perhaps there is little caution in the market ahead of what Nvidia gives us tomorrow.
We are back now with Robert Both from TD Securities, we are talking rates and economics. Another question. Will on affordable housing create a brain drain or scare people away from moving here?
>> I think you can look at this from the productivity angle as well. Any time where you have had a prolonged period of flat or negative productivity growth, you're talking about a standard of living that is either declining or maybe not improving relative to other countries and that is something that can force those to look where the grass is greener. Canada has also been a key importer of labour over the last three, four years so I think when we talk about brain drain, there has perhaps been brain drain into Canada when you look at the number of international students and other international migrants that we have attracted over the last three years or so. Is there risk that some of that unwinds with new restrictions on international student permits?
Given some of the relative cost of living differences between Canada and other countries, on affordable housing is actually not necessarily a Canadian phenomenon. Over the last few years, the parts of the world have seen that increasing the cost of housing elusive to income. So I think this is a little bit of a unique environment relative to perhaps the post financial crisis period where there was a sharp difference between Canada and the US. I think you look at this as a factor of the relative productivity between both countries and whether we are able to retain that talent that we have been working to educate and whether we are able to retain those students and integrate them into the Canadian labour markets going forward.
>> When I think about the housing file in this country, it's been a bit of a soft spring from the numbers I have seen.
People say, potential buyers are waiting on the sidelines of the BOC to start cutting rates. It feels like there's a big debate right now is as to whether this round of rate cuts from the BOC could reignite housing or whether we have seen the fire cool.
>> You heard the from the Bank of Canada themselves in their minutes from March and April. They have kind of discussed how perceptions of monetary policy can impact housing market activity. While there is a sense that they were holding back earlier this year, they did not necessarily want to drive new speculative activity in the housing market. The April Bank of Canada minutes were a little more ambiguous as to the impact their rate decisions could have on the housing market. The BOC's perspective is that housing market activity will rise when they cut rates whenever it is.
We will be watching closely over the next couple of months as the Bank of Canada does begin to ease rates as we expect in July, but as you say, it is not materialized to the extent that we have anticipated and that new wave of housing is not necessarily a new supply but supply of the resale market has helped to contain prices as well as sales activity picked up.
>> That's an interesting dynamic there. We have time for one more question from the audience. This one is going to be about our currency. What is your outlook for the loonie?
>> Our outlook for the loonie is that we are going to see the Canadian dollar appreciate as there is more divergence between WC and the Fed.
We think the difference is going to get down to about $0.71 by the end of this year.
That 140 level that we have seen dollar Spike to, we think you will get there by the end of this year. You're also going to see a little bit of a risk premium built into the US dollar because of the election. All that uncertainty can drive safe haven flows and some of that tends to benefit the US dollar. As you mentioned the top the show as well, the Bank of Canada is going to be watching the current sleep quite closely as we do see more and more divergence between those two banks.
So we don't necessarily think that returning to $0.71 is going to set off any alarm bells at the Bank of Canada, but it is going to leave them a little less comfortable. We are going to see that imported inflation through import costs and we think that there's a little more scope for divergence beyond that. We think the Bank of Canada ultimately isn't going to necessarily raise any alarms until we get to something closer to those lows in the Canadian dollar that we saw in 2016, the time when the Canadian dollar is trading at 68, $0.69 versus the US. We are not calling for a return to those levels.
We expected to soften as markets price and more easing from the BOC and less from the Federal Reserve.
>> Before he let you go, we started off as you were talking about today's inflation numbers. What is your take away and what does it mean for markets?
>> Our takeaways from a high level, I think the Bank of Canada has seen everything they need to from the inflation data. Thus inflation itself, we are not talking about inflation or wages, but if we look at three month annualized rates of core inflation, we are at around 1.5%, they were at 1.4 in March and 1.6 in April, that speaks to poor inflation continuing to decelerate on a year-over-year basis, that speaks to the downward momentum in prices. It is really a question of how concerned is the Bank of Canada that those long-term inflation expectations could be at risk given that we've been operating above the inflation target range for about three years now.
And to what extent are our expectations for stronger wage growth going to lead into inflation going forward. You've certainly seen the cost of living increase for renters. That is putting more pressure on firms to pay higher wages. That can all be passed down and from our perspective, we think the risks of cutting too soon and potentially is seeing inflation stall above target still outweigh the benefits or outweigh the costs of waiting another six weeks for more clarity on how those expectations evolve, how inflation evolves over the next few months and very importantly, whether this increase in activity that we have seen in the early part of 2024 is a one-off or is it an indication of stronger underlying momentum that might also put the inflation target at risk. So certainly a lot to watch over the next two weeks until the June BOC decision.
>> Great insights. Appreciate you joining us. Look forward to the next conversation.
>> My pleasure.
>> Our thanks to Robert Both, Senior macro strategist at TD Securities. As always, make sure you do your own research before making any investment decisions.
be sure to tune in for tomorrow show. Joe Bonner of Argus Research will be our guest.
You can get a head start with your questions for us. Just email moneytalklive@td.com. That's all the time we've got for the show today. Thanks for watching. We will see you tomorrow.
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