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[music] >> Hello, I'm Greg Bonnell.
Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you will only see here.
We are going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, after a run of strong economic reports, we will discuss what that could mean for interest rates this year with TD Securities Robert Both.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from Canadian bank earnings season. And in today's WebBroker education segment, Hiren Amin will show us how you can find after-hours trading information on the platform.
Here's how you get in touch with us. Just email moneytalklive@td.com or Phil at the viewer response box under the video player here on WebBroker.
Before we get to all that, let's get you an update on the markets. Got a bit of a bat down day on both sides of the borders.
Fairly modest on the TSX, it's down to the tune of 44 points, a face of a percent. We are in the thick of earnings season.
Have a few names moving up in the news.
Tech resources had a pop at the open this morning based on unconfirmed reports. They are looking at all the options on the table for that business.
Up 8%, 60 bucks and $0.76 per share.
Cenovus Energy announced a new CEO. Right now the stock at 25 bucks and change, down about 1.8%.South of the border,wholesale sales coming in hotter than expected but downward pressure.
we are going to have the discussion a moment's time.
24 points to the downside for the S&P 500, a little more than half a percent.
The tech heavy NASDAQ, how's it cheering against the broader market? It's almost in lockstep, down a bit more than half a percent as well. Cisco Systems reporting after the bells yesterday, the sales and profit be, boosting their guidance. That's one of the bright spots on the market today, 51.29 cents per share, up almost 6%. That's your market update.
A recent string of strong economic reports may have some investors wondering how much farther central banks will have to go to tame inflation. Joining us now for more, Robert Both, macro strategist with TD Securities. Great to have you back.
>> Thanks. Is my pleasure to be here.
>> This morning we got another indication that perhaps inflation is a little bit stubborn and is not retreating as fast as some investors may have hoped. The market has been, I feel, changing his mind in recent days as to where we might end up this year.
What is the landscape right now?
>> So I think coming into this year, we started to see a more dovish tone from both the Bank of Canada and the Federal Reserverelative to what we had been hearing from them over the last quarter of the last year. From the Bank of Canada, we saw them deliver a 25 Basis Point Hike in January, but the more surprising elements of that was that it did signal that they are ready to pause rate hikes from here going forward if the outlook does evolve in line with their production. Now, we do look for the Bank of Canada's remain at 4.5% for the rest of the year, but we didn't necessarily expect them to take rate hikes off the table at this stage of the cycle. Similarly in the US, following the last Fed decision in early February, you started to hear a more dovish tone come from chairman Jerome Powell and other Fed officials. Neither Powell nor the other Fed governors and presidents had been necessarily struggling to defend the projections from December was showed the Fed funds rate reaching 5.25% this year.
They started to if not walk back not strongly defend those projections and that had markets guessing whether they would continue to follow along that path or if they were prepared to potentially stop a little earlier.
But over the last two weeks, we have started to see some of that B walked back and what really kicked all of this off was the nonfarm payrolls report for January.
So that was released the first week of February. We saw another 500,000 jobs added in the US.
We saw a new multi deck are low for the unemployment rate and that speaks to a labour market that is continually growing tighter in an economy that is moving further into excess demand.
After that, we got a little bit of déjà vu last Friday with the Canadian jobs figures.
We saw one of the strongest reports on record outside of the COVID period, 150,000 jobs added and pretty strong wage pressures as well.
we are now going to find out whether the economy is unfolding in light of did BOC'sprojections or whether they may come back off the sidelines later on this year.
>> Some of the commentary you will see when we get these reports is one month isn't a trend maker.
Last month was much stronger than expected US and Canadian jobs.
Headline inflation in the states continues to come off but it doesn't seem to be in a rush to get back to 2%.
Today he wholesale prices are .7% in January. We are starting to get a body of work suggesting that the fight against inflation might take a little bit longer than expected.
>> From the Bank of Canada's perspective, they are going to want to see more data to confirm that jobs report.
They are going to want to see GDP coming a little bit stronger than it had projected for the fourth quarter in the first quarter before they start to second-guess their own outlook.
Canadian employment data is notoriously volatile.
Some people have called into question the accuracy of that 150,000 increase.
> You done some work on that recently, right?
What did you find out as he started digging below the headline number?
>> Yeah, we had question whether there was any abnormal effects from seasonal adjustment or if whether potentially plaited impact here.
And what we found is that it's really difficult to attribute the strength to any one single factor.
Certainly in the last couple of years, in 2021 and 2022, we saw significant job losses in the month of January because that was when the economy was entering waves of COVID and you saw more social distancing policies put into place. But if you look at the nonseasonally adjusted numbers, we still saw a much stronger performance this January than any January over the last 20 years.
So it's difficult to really blame seasonal adjustment here.
Likewise, there wasn't a really strong case that weather played an abnormal effect here.
Overall, there were some one offs but it's very difficult toaccount for this report entirely, especially given the performance of the last few months as well, we added 165,000 jobs over the fourth quarter, so if you look at a longer time period, we are averaging 50,000 a month to over the last five months and that's harder to ignore because it's about double the rate that is required to keep the unemployment rateand participation rate stable.
So it does speak to the labour market continuing to tighten and the economy moving further into excess demand.
> This sets the stage, and I think the market is even pricing and the possibility now that even though you said the Bank of Canada said, here's the hike, we are going to pause and take a look at where we need to be.
Now the market is thinking based on some of the data we've been getting, maybe get another hike before the fall. How likely is that?
>> Well, like I said off the top, I do think we need to see a little more data just to confirm that growth is trending about those latest projections from the Bank of Canada.
The Bank of Canada has also just released a summary of deliberations from the January policy meeting.
This is the first time we've ever gotten a glimpse behind the curtain of what they are discussed saying and what drove them to that decision in January.
One of the points they made was that to move off the sidelines, they would need to see an accumulation of evidence that the outlook has deviated from the projection.
That's why think that there is a very high bar to move off the sidelines at the next meeting.
As we get further into 2023, it stated does continue to come in stronger and inflation proves to be more persistent, then I think there is a chance the Bank of Canada would have to go again. It's not our base case.
We still look for 4.
5%, but it's going to put a little more pressure on the bank and put a little more importance on the data going forward.
>> Think next week we are going to get the latest read on Canadian inflation.
Any expectations there in terms of what we might see?
>> I think we are going to see inflation move lower again in January.
We are already seeing it come from 8.1% to 6.3%.
I think you're probably going to see inflation lower to somewhere around 6% but the complicating factor is that energy prices which have largely driven the deceleration of the highest last year have been moving higher in the US numbers.
Even though inflation is lower, it was still rising on a month over month basis.
We also saw a bit of a rebound in core goods prices in the US. Now services inflation has proved a little more sticky so far.
The core data has contributed to the disinflation we have seen in the last few months.
But if those prices start rising again that will create some risks for the outlook on terminal rates in Canada and the US.
>> Interesting times indeed. A great start to the show. We'll get to your questions about the economy and interest rates in a moment's time, including the outlook for housing in this country and whether a recession could be on the horizon.
A reminder that you contact us any time.
Email moneytalklive@td.
com or float the viewer response box under the video player on Whataburger. Note that you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Shopify are in the spotlight today. The e-commerce software firm is providing a sales forecast below the streets expectationsfollowing a stronger-than-expected quarterly result.
Shopify of course grew its business pretty rapidly during the pandemic but it has embarked on cost-cutting measures in recent months. That forecast not sitting well with the street, the stock is at 60 bucks and $0.12 per share, it is down almost 16%.
Manulife Financials raising its dividend payout by 11% after handing in an earnings beat.
The LIFO also plans to buy back up to 3% of its common shares. While sales in North America were weaker than expected, new business gains in Asia improved quarter over quarter. That stock up 3 1/2% pure let's take a look at Canadian Tire, one of the leaders on the TSX Composite Index today, at least the last time I checked.
They beat earnings estimates despite consumers struggling with a higher cost of living. The retailer posted solid growth across its various banners across its most recent quarter.
It's gross margins improved compared to the same period last year. That stock up 4.7%. A quick check in on the market. We will take a look at the TSX Composite Index here at home on Bay Street.
We are in negative territory. It's pretty modest though, 56 point deficit, dental quarter of a percent.
South of the border, as investors continue to digest all of these economic reports, corporate earnings, trying to figure out the path for this year, 23 points down on the S&P 500, a little more than half a percent.
We are back now with Robert Both, taking your questions about the economy and interest rates.
Let's get to them.
Right off the top, housing market. How long do you think the drop in residential prices will continue?
>> Well, we are certainly hopeful that we are starting to see a bottom in the housing market.
We look for prices to bottom out over the first quarter over 2023. Over the last few months, we've seen both sales and prices start to decline at more modest rates. I think the key source of uncertainty going forward is how the housing market response to some of the more typical seasonal trends.
Certainly one thing that has prevented prices from falling further is that there have been fewer people listing their homes over the last 12 months.
Traditionally, Q2 is a very big. Four new listings and if those do you rise in line with seasonal trends, that could put a little more pressure if demand isn't there to lift those off the market.
So the labour market is still healthy. The Bank of Canada has signalled that it's ready to pause rate hikes going forward.
So we think both of those are supportive for the outlook for Canadian housing.
But we will be watching those seasonal factors play at the next few months and see how much supply comes on the market and how it that is absorbed.
>> Because of the aggressive hike and borrowing costs, you get people being forced to sell.
I'm not hearing anyone tell me that there is much evidence that homeowners are saying, I have to sell my property.
>> So we have not seen much evidence of for selling either. We'll be watching those renewals closely going forward, not only for their impact on house prices and home sales and whether prices fall further but also just how much pressure Canadian household consumption is going to be under going forward.
So over the last 8 to 12 months, you've arty seen a lot of pressure from those who hold a variable rate mortgage.
They have been seeing interest rate payments go up every month with the Bank of Canada's rate hiking cycle.
2023 should be a much more stable environment for that but you are going to see denser ratios as debt payments continue to rise as those fixed rate mortgages continue to renew over the next year or two.
In some cases, those renewal premiums will be quite large, especially for those who might've taken out shorter fixed rate mortgages over the last couple years will start to see some of those,.
So that will be something we are watching to see how those borrowers respond.
>> I imagine the Bank of Canada is watching it as well in terms of it as an indication of the pause.
We have a bit of a different debt profile and housing profile as opposed to the Americans.
>> We do, we have significantly higher levels of household leverage in Canada relative to the US. That's one of the reasons we think the Bank of Canada is ultimately going to have to stop hiking before the Fed does.
It's one of the reasons that we do look for growth to slow quite significantly over the coming year, largely through the consumption channel, household consumption is about 55% of total GDP in Canada.
As households are putting a larger share of their disposable incomes towards debt payments, that does leave less left over to put towards discretionary spending.
So I think that something the Bank of Canada is going to be watching very closely as it relates to the growth outlook.
If households do prove a little more resilient, that could tilt the odds towards further rate hikes. If we do start to see a significant impact on the outlook for consumption, that something that could increase the likelihood of a recession over 2023.
>> That's a beautiful segue into our next question.
If you want to know, is a recession inevitable or can we get a soft landing?
I start to hear the phrase that no landing as well.
Could we run those down to the audience?
>> So we have been looking for a shallow recession over the first half of 2023, but I think there is one theme from the last few months, it's that Canadians and Canadian households have proven very resilient to higher interest rates over the early stages of the BOC's tightening cycle at least.
We have certainly seen that in the labour market of the last six months and I think when you look at that six months of labour market data, a recession over the first couple of quarters of 2023 is looking a little less likely than it did a couple of months ago.
So I think we are still in for a very challenging growth outlook.
We expect several quarters of below trend growth through the end of next year into 2024.
But I don't know if we will actually see the recession come to pass now. With the January jobs report, a key one contraction looks less likely. We do think the Canadian economy could contract in the second quarter of this year, but we should bounce back and see more slow growth over the coming quarters as well. One factor that's helping to reduce the odds of a recession is that population growth has remained very strong and is actually accelerated over the last few quarters.
In Q4, population growth was over 2% year-over-year which is the strongest we have seen it in decades.
So our growth outlook does look significantly weaker on a per capita or per household basis, I think you will see per capita GDP decline for several quarters, but in terms of the technical definition of a recession, which is two consecutive quarters of real GDP decrease, though.
We continue growing at a healthy pace and the Bank of Canada is going to have to keep hiking rates.
It looks pretty unlikely.
>> Another one about I think some viewers have heard on the show, some people thinking that perhaps there could be a commodity Super Bowl market in the making.
If that happened, would be good for Canada and the loonie?
>> I think yes.
A lot of the speculation around the bull market for commodities is tied around the reopening we have seen in China.
So with China dropping most of its COVID containment measures, you're going to add significantly to global demand over the next year or two.
As it pertains to Canada, that is going to support GDP growth through higher commodity prices and commodity exports.
Most Canadian exports to China our natural resources, whether they be metals, timber, agricultural goods, and relieves the one thing we don't export a lot of is oil and that's because there's a lot of export capacity on our West Coast.
But if stronger Chinese demand does lift globally, that will change.
The Bank of Canada is terminal rate model points to a 0.2% increase in real GDP from 10% commodity prices so I think that's the type of impact we could be seeing if that Chinese reopening does drive a bit of a bull market in the commodity space.
>> If that happens, thinking about inflation-- >> Inflation is a global concern.
The Bank of Canada pointed to this in the Januaryreport. Part of this was energy pushing inflation higher above its trajectory. We have seen gas prices rise a little bit over the month of January.
It's certainly not as dramatic as the declineof the six months before that or what we saw in the early parts of 2022, but that is not only removing a downward pressure on inflation but also adding some upward pressure as well.
We saw that in US data a couple of days ago. We will see that in the Canadian report next week.
That is a key source of uncertainty surrounding the outlook of core inflation and monetary policy. If it is just energy prices, that does give the Bank of Canada a little more flex ability to work through it.
But if it starts to filter into the price of other goods, that is going to put inflation above its trajectory and increase the likelihood of further rate hikes.
>> As always at home, make sure you do your own research before you make any investment decisions. Back to your questions for Robert Both on the economy and interest rates in just a moment's time. And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.
com.
Now let's get our educational segment of the day.
While the closing bells marked the end of the day's trading session, there can be some big moves in the after-hours market.
If you're interested in keeping track of the action, WebBroker has tools which can help.
Hiren Amin, Senior client education instructor TD Direct Investing has more.
>> Welcome. In today's education section, we are going to be chatting about pre-and post-market trading.
See, we are right in the mix of earnings season ends can present opportunities, but often, with news breaking before and after markets.
In this highly connected world of ours, investors require a way to be able to react right when these market moving events are happening. That's when after-hours trading comes into the picture.
It lets investors act quickly on news and events when exchanges are close, making it an excellent indicator for the opening market direction. Simply put, extended training refers to training that occurs before and after regular trading hours and the duration of the session does vary between markets and trading venues.
The majority of these trades or volume which we like to say tends to happen right around the regular trading hours.
This is because most of the news and events that affects these investors occur shortly before or shortly after the exchange is open and close.
Here at TD, direct investing clients can start trading as early as 8 AM in the morning right up until the opening session at 930. Similarly, investors can also trade that post-market session starting at 4 PM which is the close of the regular session right up until 7 PM Eastern time.
When you are trading these extended hours, they come with additional risks we need to make sure investors are aware. First is lower liquidity. Extended trading has less volume then regular hours which could make it difficult to execute trades.
It also often translates to having larger, wider bid and ask spreads which can affect the price which investors get their orders filled out.
You also have higher volatility to contend with. This simply means that the big variances in the price of the security.
During trading hours, this is due to the fact that there is a smaller number of participants that are trading in these hours resulting in these why volatility swings there. Finally, you can also be partially executed order or not executed at all and some socks since they don't have extended trading sessions.
Now, how do you place an extended trade?
Let's go ahead and get into a burger here and look at how to place this trade. We are going to open up our order ticket first.
Now there are a few guidelines we want to make sure our investors are aware. So when you are placing extended orders, they are only going to be valid for stocks and ETFs listed on major US exchanges.
They will not be available for penny stocks or anything that trades on the OTC or over-the-counter markets.
Also, they are not going to be available for any security is listed on Canadian exchanges. That's important to know.
Let's go ahead and start to pick our first US security.
We are going to pick the SP Y which is an ETF that tracks the broader market, the index of the S&P 500.
The rules that we need to follow with these orders are a couple of them.
First, when you are entering the order, when it comes to price type, the only price type that's valid is a limit order for extended session.
This is the only price type that you will be able to select. We can go ahead and input the price that we want we will match it up close to the current price here.
Second, the timeframe that you want to choose also when you open up the menu, you will notice that there is a new timeframe that opens up under the limit order and that day EXT markets, which stands for extended market sessions. This gives you coverage of both the regular session plus the after-hours session as well. Once you have submitted that, you are going to go ahead proceed with the order and send it through.
One final note we would like to mention as well with this order is that there are no extra charges or fees on this trade.
They are just your standard commission that you will have with it.
So there you have it with extended order trades. Keep in mind, this is just another tool to add to your investing toolkit to make you a more agile investor.
To learn more about investing, please visit our learning centre on WebBroker.
> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing.
Before you back your questions about the economy and interest 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, to 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 writing your question and hit send. We will see if one of our guest can get you the answer right here MoneyTalk Live.
We are back with Robert Both, taking your questions about the economy and interest rates.
This is an interesting one.
when does Robert think that the Fed or the BOC will begin to lower interest rates? I find this one fascinating because on the market, bets have changed in recent days and weeks as to when this could happen.
>> They have.
If we go back just a few weeks, markets were already starting to price BOC rate cuts in for the fourth quarter of this year.
But the response to the last month of employment data and also US inflation has pushed that pricing for rate cuts a little further back.
In addition to that, markets are also pricing in a higher terminal rate in both the US and Canada. We are now seeing a 60% chance of a rate hike in April of the BOC meeting. Markets are fully priced for rate hike somewhere around June or July.
There has been a bit of a wedge gap between the forecasting community and what markets are pricing.
So I think what you see from those forecasters is we want to see a little bit more evidence that the outlook has in fact shifted.
We are not making these decisions based on what could be a very volatile employment situation. Markets are little more quick to respond more quickly than we are ready to change our forecast. So we think rate cuts will be observed in the first quarter of 2024.
We have the Bank of Canada holding at 4.5% over the course of this year.
In the US, we think there's going to be two more rate hikes.
And similarly, a period at a rate of 5.25% before the Fed starts to cut at the end of 2023.
>> I guess if anyone out there was sort of banking on aggressive rate hikes from the central banks, the base condition under normal circumstances would be a pretty bad economic outlook.
So if you're thinking, okay, they are getting aggressive on rate cuts, it would be for good reason.
>> No, it certainly wouldn't.
If the bank or the Fed were forced to go a little higher than is currently expected, that is something that's going to have a more significant impact on growth and something that could potentially move forward with the timing between the last rate hike and the first rate cut.
In Canada, we think that's going to be about a year. But if the bank were to go again sometime later this year, they may not go in January anymore but I think you would see a shorter period between the last hike in the first cut.
So everything has been a shifted a little since those last two employment reports.
But I think you do need to wait for a little more detail before we get more confidence in the outlook.
>> Let's take another question, this one about the US dollar and what a run it had last year.
Now everyone is wondering what the future holds for it. Is that strength going to return?
Obviously, the dollar came off its highs from last year.
>> I think in the longer term, it's hard to see the US dollar reaching some of those highs that we saw over the last year.
Over a shorter term, as we were discussing the likelihood of more Fed tightening and higher terminal rates, that is something that can pull some strength towards the dollar.
Obviously, if the Fed has to go further, that's going to tighten conditions.
We have also seen risk sentiment respond rather poorly to expectations for more Fed tightening you and that something that could bring some strength to the US dollar.
But I think we already priced in a higher terminal rate on the back of the stronger data from the last couple of weeks. It's a little harder to see that persist for an extended period.
So I think this is probably going to be a short-lived rebound in the US dollar before we move back to a downward trajectory may be in the second quarter or so.
>> What would be the biggest risk to that sort of outlook?
>> I think the biggest risk would be a more persistent inflation outlook for the US.
So that could come from stronger global demand on the back of Chinese reopening.
It could come from further disruptions to global supply, whether it be in Europe or elsewhere.
But any… Annie move that increases the likelihood of a higher terminal rate or a longer pause and the Federal Reserve is going to have to pull little more strength towards the US dollar.
>> A lot of nice segues here. We have a viewer with a question about supply chains.
We've heard about the evolution of supply chains, reassuring, onshoring, that continues to rise in Canada. What sectors will be affected by?
>> I think when you are talking about re-shoring in global supply chains, you are largely talking about the manufacturing sector.
So this is something that has evolved from the COVID pandemic with the importance of having supply chains a little closer to home to shore in those supply chains where you can.
That has unwind did some of the globalization that we had seen over the last two decades.
Now, I have a much harder time seeing Canada replace China as a powerhouse in manufacturing, but I think what's more likely is that some of that Chinese are the global production is brought back to North America, probably in lower range manufacturing hub said in Canada, but a rising tide does lift all boats.
If we do see a significant increase in industrial production at the border in Mexico or Latin America, that something that's going to raise demand for Canadian goods as well. There's some components that go into goods made across North America and another sector that can benefit from some of these global shifts is probably natural resources.
Again, this is something that's been playing out over the last year. When Russia invaded Ukraine, we saw a little bit more of an emphasis on the importance of reliable trading partners, especially when it comes to the sometimes critical raw materials and natural resources.
So Canada overlaps with Ukraine and Russia as one of the top global producers for several important commodities, whether it be fertilizer, uranium or different metals or agricultural goods. So that's something where Canada can help make up for some of the lost production or the lost exports to other D10 countries.
>> Interesting stuff and we will get back to your questions for Robert Both on interest rates and the economy and just a moment.
As always, make sure you do your own research before you make any investment decisions. And a reminder that you 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@moneytalklive@td.
com or you can use the question box right below the screen it here on WebBroker.
Just writing your question and hit send.
We will see one of our guests can get you the answer right here at MoneyTalk Live.
Big Canadian banks are getting set to begin releasing their latest earnings reports next week. Anthony Okolie has been digging into a preview of what we might get from them. Anthony?
>> Thanks very much. Big banks are reporting Q1 results between February 24 and March 1 and they are coming off a mixed bag last quarter as provisioning, higher compensation costs and expenses hurt results for a few banks, while others beat on estimates.
In Q1, TD Securities expects the big banks to report lower earnings-per-share. With earnings-per-share down 8% year-over-year but up 8.6% quarter over quarter.
TD Securities expects banks to report higher provisions for… Bad loans are excited to increase as well but still remain fairly low versus historical levels. Of course, Canadians have been dealing with higher interest rates over the past year.
Now, TD Securities expects the focus to stay on net interest income and net interest margins for the first quarter.
In terms of net interest income, they are forecasting it to rise from 21% year-over-year and that will be the strongest year-over-year gain in over a decade.
We also expect asset sensitive banks to deliver materially better net interest income and net interest margin results during the quarter. Remember, TD Securities believes that the benefit of rising rates will moderate as early as the second quarter or third quarter of this year, reflecting a shift to higher cost deposits, competition for deposits and loans, as well as a jump in wholesale funding costs and more modest increases in security fields. Regarding credit where risk, TD Securities expects impaired loan losses to rise in the first quarter reflecting higher losses across all personal and commercial sectors.
Of course, the big banks have been shoring up their provisions as the economic cycle has turned.
Finally, TD Securities believes that valuations are reasonable but not attractive amid uncertainty over the timing and severity of the next credit cycle as well as add moderating pretax pre-provision numbers.
>> There is the outlook from TD Securities.
What are some of the key risks to that outlook?
>> Yeah, they highlight some key risks for their target prices which include adverse changes in the housing and credit markets.
That could lead to banks increasing their bad loan provisions going forward. Other risks include foreign exchange fluctuations, interest rates, funding available any, economic growth and market liquidity.
>> Interesting stuff.
We will get more details next week.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
Let's check in on the markets now. We will start with the TSX Composite Index. We have a down day on Bay Street and Wall Street. Nothing too dramatic. Right now you're down and 33 point in Toronto, more than 1/10 of a percent.
Shopify is clearly one of the names under pressure today.
The earnings beat for the quarter that was reportedbut apparently analysts on the street aren't too pleased with the forecast going forward.
You got 60 bucks and $0.40 right now the shares, you're down a little bit more than 15%. Manulife on the other hand raising the dividend and the street seems pleased with what they got in the quarterly earnings warning.
They are at 2715 per share, up we will call at 4%.
So the border, less chicken on the S&P 500, the broader read of the American market, down 14 points, 1/3 of a percent.
Another report today, wholesale prices in that fight against inflation, it's going to take some time.
Tech heavy NASDAQ, pretty much… Weakening a little bit now. Down 92 points, three quarters of a percent.
And Boston Beer, haven't looked at this name for a while but a surprise loss for Boston Beer as though shares under pressure to the tune of almost 14% to the downside.
We are back now with Robert Both from TD Securities, getting back to your questions now.
Will the Bank of Canada hike rates again or will they really be on hold?
>> So yeah, that is the question.
Like I said, those BOC deliberations that give a little glimpse into their thinking, they do seem to set a rather high bar for hiking in the near term.
We are in a more data -dependent environment going forward.
The bank stress that that guidance for the pause was conditional with the outlook evolving in line with their projections of this projection show that the Canadian economy has seen very little expansion of the first three quarters of 2023.
We think fourth-quarter activity is looking a little bit stronger than the bank had its latest projections, but we really want to see how Q1 involves before we can definitively declare that the Bank of Canada will be reading hike going forward.
So we are looking for the overnight rate to stay unchanged at 4.5%.
But that is… That would require growth to slow quite significantly from its recent trend to keep the bank and change.
>> We are still early in the year right now.
We are going to have to wait a little while longer and see how all of this unfolds and be patient as we try to bring inflation down for interest rate hikes and try not to do too much damage to the economy.
It's going to take a bit of time.
>> We will.
The bank has delivered 425 basis points of hiking of this year. Monetary policy takes 60 quarters to work for the economy. We really haven't seen how those rate hikes are fully affecting Canadian households and businesses quite yet.
We will be getting Q4 GDP in a couple of weeks now.
We are going to start getting more data on economic activity in January and I think that will give us a better picture of where we are relative to the BOC's projections but in any case, I think we are well past the environment where they would be looking to hike every meeting.
we need to see more than one month of data. When we get closer to April, if the data remains strong, the 25 basis point rate hike could be something that they would be looking at. But we don't expect they will actually have to follow through.
We think growth is going to continue to slow and that should allow them to keep their current policy standards.
>> Before you join us today, you are keeping an eye on the fact that the Bank of Canada governor Tiff Macklem had to go testify before the House Finance committee.
He said that the Canadian economy remains overheated.
It's clearly an excess demand which continues to put upward pressure on domestic prices. A bit of flavoured air from our central bank president.
We are just going to have to wait and find out.
>> That's right.
These parliamentary testimonies rarely move the needle in terms of what the governor unveils on the policy a lot.
What we saw over the first hour of this questioning at least with a lot of his responses were tied back to those January projections. He really hasn't given us much insight into how the bank is treating that very large jobs report in January.
I think he's going to continue to keep his cards close to the chest going forward.
>> Fascinating stuff.
Great to have you here.
>> My pleasure.
>> Our thanks to Robert Both, macro strategist with TD Securities.
At home, do your own research before making investment decisions.
We will be back tomorrow with an update on the markets and highlights from interviews from the week. And on a programming no, we will be off on Monday. Markets here in Canada will close for the family day holiday.
Make sure to tune in on Tuesday when Alex Gorewicz joins us, or polio manager with TD Asset Management. We will be taking your questions about fixed income. You can get a head start on this question for Alex. You can email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
[music]
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 will only see here.
We are going to take you through what's moving the markets and answer your questions about investing.
Coming up on today show, after a run of strong economic reports, we will discuss what that could mean for interest rates this year with TD Securities Robert Both.
MoneyTalk's Anthony Okolie is going to give us a preview of what to expect from Canadian bank earnings season. And in today's WebBroker education segment, Hiren Amin will show us how you can find after-hours trading information on the platform.
Here's how you get in touch with us. Just email moneytalklive@td.com or Phil at the viewer response box under the video player here on WebBroker.
Before we get to all that, let's get you an update on the markets. Got a bit of a bat down day on both sides of the borders.
Fairly modest on the TSX, it's down to the tune of 44 points, a face of a percent. We are in the thick of earnings season.
Have a few names moving up in the news.
Tech resources had a pop at the open this morning based on unconfirmed reports. They are looking at all the options on the table for that business.
Up 8%, 60 bucks and $0.76 per share.
Cenovus Energy announced a new CEO. Right now the stock at 25 bucks and change, down about 1.8%.South of the border,wholesale sales coming in hotter than expected but downward pressure.
we are going to have the discussion a moment's time.
24 points to the downside for the S&P 500, a little more than half a percent.
The tech heavy NASDAQ, how's it cheering against the broader market? It's almost in lockstep, down a bit more than half a percent as well. Cisco Systems reporting after the bells yesterday, the sales and profit be, boosting their guidance. That's one of the bright spots on the market today, 51.29 cents per share, up almost 6%. That's your market update.
A recent string of strong economic reports may have some investors wondering how much farther central banks will have to go to tame inflation. Joining us now for more, Robert Both, macro strategist with TD Securities. Great to have you back.
>> Thanks. Is my pleasure to be here.
>> This morning we got another indication that perhaps inflation is a little bit stubborn and is not retreating as fast as some investors may have hoped. The market has been, I feel, changing his mind in recent days as to where we might end up this year.
What is the landscape right now?
>> So I think coming into this year, we started to see a more dovish tone from both the Bank of Canada and the Federal Reserverelative to what we had been hearing from them over the last quarter of the last year. From the Bank of Canada, we saw them deliver a 25 Basis Point Hike in January, but the more surprising elements of that was that it did signal that they are ready to pause rate hikes from here going forward if the outlook does evolve in line with their production. Now, we do look for the Bank of Canada's remain at 4.5% for the rest of the year, but we didn't necessarily expect them to take rate hikes off the table at this stage of the cycle. Similarly in the US, following the last Fed decision in early February, you started to hear a more dovish tone come from chairman Jerome Powell and other Fed officials. Neither Powell nor the other Fed governors and presidents had been necessarily struggling to defend the projections from December was showed the Fed funds rate reaching 5.25% this year.
They started to if not walk back not strongly defend those projections and that had markets guessing whether they would continue to follow along that path or if they were prepared to potentially stop a little earlier.
But over the last two weeks, we have started to see some of that B walked back and what really kicked all of this off was the nonfarm payrolls report for January.
So that was released the first week of February. We saw another 500,000 jobs added in the US.
We saw a new multi deck are low for the unemployment rate and that speaks to a labour market that is continually growing tighter in an economy that is moving further into excess demand.
After that, we got a little bit of déjà vu last Friday with the Canadian jobs figures.
We saw one of the strongest reports on record outside of the COVID period, 150,000 jobs added and pretty strong wage pressures as well.
we are now going to find out whether the economy is unfolding in light of did BOC'sprojections or whether they may come back off the sidelines later on this year.
>> Some of the commentary you will see when we get these reports is one month isn't a trend maker.
Last month was much stronger than expected US and Canadian jobs.
Headline inflation in the states continues to come off but it doesn't seem to be in a rush to get back to 2%.
Today he wholesale prices are .7% in January. We are starting to get a body of work suggesting that the fight against inflation might take a little bit longer than expected.
>> From the Bank of Canada's perspective, they are going to want to see more data to confirm that jobs report.
They are going to want to see GDP coming a little bit stronger than it had projected for the fourth quarter in the first quarter before they start to second-guess their own outlook.
Canadian employment data is notoriously volatile.
Some people have called into question the accuracy of that 150,000 increase.
> You done some work on that recently, right?
What did you find out as he started digging below the headline number?
>> Yeah, we had question whether there was any abnormal effects from seasonal adjustment or if whether potentially plaited impact here.
And what we found is that it's really difficult to attribute the strength to any one single factor.
Certainly in the last couple of years, in 2021 and 2022, we saw significant job losses in the month of January because that was when the economy was entering waves of COVID and you saw more social distancing policies put into place. But if you look at the nonseasonally adjusted numbers, we still saw a much stronger performance this January than any January over the last 20 years.
So it's difficult to really blame seasonal adjustment here.
Likewise, there wasn't a really strong case that weather played an abnormal effect here.
Overall, there were some one offs but it's very difficult toaccount for this report entirely, especially given the performance of the last few months as well, we added 165,000 jobs over the fourth quarter, so if you look at a longer time period, we are averaging 50,000 a month to over the last five months and that's harder to ignore because it's about double the rate that is required to keep the unemployment rateand participation rate stable.
So it does speak to the labour market continuing to tighten and the economy moving further into excess demand.
> This sets the stage, and I think the market is even pricing and the possibility now that even though you said the Bank of Canada said, here's the hike, we are going to pause and take a look at where we need to be.
Now the market is thinking based on some of the data we've been getting, maybe get another hike before the fall. How likely is that?
>> Well, like I said off the top, I do think we need to see a little more data just to confirm that growth is trending about those latest projections from the Bank of Canada.
The Bank of Canada has also just released a summary of deliberations from the January policy meeting.
This is the first time we've ever gotten a glimpse behind the curtain of what they are discussed saying and what drove them to that decision in January.
One of the points they made was that to move off the sidelines, they would need to see an accumulation of evidence that the outlook has deviated from the projection.
That's why think that there is a very high bar to move off the sidelines at the next meeting.
As we get further into 2023, it stated does continue to come in stronger and inflation proves to be more persistent, then I think there is a chance the Bank of Canada would have to go again. It's not our base case.
We still look for 4.
5%, but it's going to put a little more pressure on the bank and put a little more importance on the data going forward.
>> Think next week we are going to get the latest read on Canadian inflation.
Any expectations there in terms of what we might see?
>> I think we are going to see inflation move lower again in January.
We are already seeing it come from 8.1% to 6.3%.
I think you're probably going to see inflation lower to somewhere around 6% but the complicating factor is that energy prices which have largely driven the deceleration of the highest last year have been moving higher in the US numbers.
Even though inflation is lower, it was still rising on a month over month basis.
We also saw a bit of a rebound in core goods prices in the US. Now services inflation has proved a little more sticky so far.
The core data has contributed to the disinflation we have seen in the last few months.
But if those prices start rising again that will create some risks for the outlook on terminal rates in Canada and the US.
>> Interesting times indeed. A great start to the show. We'll get to your questions about the economy and interest rates in a moment's time, including the outlook for housing in this country and whether a recession could be on the horizon.
A reminder that you contact us any time.
Email moneytalklive@td.
com or float the viewer response box under the video player on Whataburger. Note that you updated on the top stories in the world of business and take a look at how the markets are trading.
Shares of Shopify are in the spotlight today. The e-commerce software firm is providing a sales forecast below the streets expectationsfollowing a stronger-than-expected quarterly result.
Shopify of course grew its business pretty rapidly during the pandemic but it has embarked on cost-cutting measures in recent months. That forecast not sitting well with the street, the stock is at 60 bucks and $0.12 per share, it is down almost 16%.
Manulife Financials raising its dividend payout by 11% after handing in an earnings beat.
The LIFO also plans to buy back up to 3% of its common shares. While sales in North America were weaker than expected, new business gains in Asia improved quarter over quarter. That stock up 3 1/2% pure let's take a look at Canadian Tire, one of the leaders on the TSX Composite Index today, at least the last time I checked.
They beat earnings estimates despite consumers struggling with a higher cost of living. The retailer posted solid growth across its various banners across its most recent quarter.
It's gross margins improved compared to the same period last year. That stock up 4.7%. A quick check in on the market. We will take a look at the TSX Composite Index here at home on Bay Street.
We are in negative territory. It's pretty modest though, 56 point deficit, dental quarter of a percent.
South of the border, as investors continue to digest all of these economic reports, corporate earnings, trying to figure out the path for this year, 23 points down on the S&P 500, a little more than half a percent.
We are back now with Robert Both, taking your questions about the economy and interest rates.
Let's get to them.
Right off the top, housing market. How long do you think the drop in residential prices will continue?
>> Well, we are certainly hopeful that we are starting to see a bottom in the housing market.
We look for prices to bottom out over the first quarter over 2023. Over the last few months, we've seen both sales and prices start to decline at more modest rates. I think the key source of uncertainty going forward is how the housing market response to some of the more typical seasonal trends.
Certainly one thing that has prevented prices from falling further is that there have been fewer people listing their homes over the last 12 months.
Traditionally, Q2 is a very big. Four new listings and if those do you rise in line with seasonal trends, that could put a little more pressure if demand isn't there to lift those off the market.
So the labour market is still healthy. The Bank of Canada has signalled that it's ready to pause rate hikes going forward.
So we think both of those are supportive for the outlook for Canadian housing.
But we will be watching those seasonal factors play at the next few months and see how much supply comes on the market and how it that is absorbed.
>> Because of the aggressive hike and borrowing costs, you get people being forced to sell.
I'm not hearing anyone tell me that there is much evidence that homeowners are saying, I have to sell my property.
>> So we have not seen much evidence of for selling either. We'll be watching those renewals closely going forward, not only for their impact on house prices and home sales and whether prices fall further but also just how much pressure Canadian household consumption is going to be under going forward.
So over the last 8 to 12 months, you've arty seen a lot of pressure from those who hold a variable rate mortgage.
They have been seeing interest rate payments go up every month with the Bank of Canada's rate hiking cycle.
2023 should be a much more stable environment for that but you are going to see denser ratios as debt payments continue to rise as those fixed rate mortgages continue to renew over the next year or two.
In some cases, those renewal premiums will be quite large, especially for those who might've taken out shorter fixed rate mortgages over the last couple years will start to see some of those,.
So that will be something we are watching to see how those borrowers respond.
>> I imagine the Bank of Canada is watching it as well in terms of it as an indication of the pause.
We have a bit of a different debt profile and housing profile as opposed to the Americans.
>> We do, we have significantly higher levels of household leverage in Canada relative to the US. That's one of the reasons we think the Bank of Canada is ultimately going to have to stop hiking before the Fed does.
It's one of the reasons that we do look for growth to slow quite significantly over the coming year, largely through the consumption channel, household consumption is about 55% of total GDP in Canada.
As households are putting a larger share of their disposable incomes towards debt payments, that does leave less left over to put towards discretionary spending.
So I think that something the Bank of Canada is going to be watching very closely as it relates to the growth outlook.
If households do prove a little more resilient, that could tilt the odds towards further rate hikes. If we do start to see a significant impact on the outlook for consumption, that something that could increase the likelihood of a recession over 2023.
>> That's a beautiful segue into our next question.
If you want to know, is a recession inevitable or can we get a soft landing?
I start to hear the phrase that no landing as well.
Could we run those down to the audience?
>> So we have been looking for a shallow recession over the first half of 2023, but I think there is one theme from the last few months, it's that Canadians and Canadian households have proven very resilient to higher interest rates over the early stages of the BOC's tightening cycle at least.
We have certainly seen that in the labour market of the last six months and I think when you look at that six months of labour market data, a recession over the first couple of quarters of 2023 is looking a little less likely than it did a couple of months ago.
So I think we are still in for a very challenging growth outlook.
We expect several quarters of below trend growth through the end of next year into 2024.
But I don't know if we will actually see the recession come to pass now. With the January jobs report, a key one contraction looks less likely. We do think the Canadian economy could contract in the second quarter of this year, but we should bounce back and see more slow growth over the coming quarters as well. One factor that's helping to reduce the odds of a recession is that population growth has remained very strong and is actually accelerated over the last few quarters.
In Q4, population growth was over 2% year-over-year which is the strongest we have seen it in decades.
So our growth outlook does look significantly weaker on a per capita or per household basis, I think you will see per capita GDP decline for several quarters, but in terms of the technical definition of a recession, which is two consecutive quarters of real GDP decrease, though.
We continue growing at a healthy pace and the Bank of Canada is going to have to keep hiking rates.
It looks pretty unlikely.
>> Another one about I think some viewers have heard on the show, some people thinking that perhaps there could be a commodity Super Bowl market in the making.
If that happened, would be good for Canada and the loonie?
>> I think yes.
A lot of the speculation around the bull market for commodities is tied around the reopening we have seen in China.
So with China dropping most of its COVID containment measures, you're going to add significantly to global demand over the next year or two.
As it pertains to Canada, that is going to support GDP growth through higher commodity prices and commodity exports.
Most Canadian exports to China our natural resources, whether they be metals, timber, agricultural goods, and relieves the one thing we don't export a lot of is oil and that's because there's a lot of export capacity on our West Coast.
But if stronger Chinese demand does lift globally, that will change.
The Bank of Canada is terminal rate model points to a 0.2% increase in real GDP from 10% commodity prices so I think that's the type of impact we could be seeing if that Chinese reopening does drive a bit of a bull market in the commodity space.
>> If that happens, thinking about inflation-- >> Inflation is a global concern.
The Bank of Canada pointed to this in the Januaryreport. Part of this was energy pushing inflation higher above its trajectory. We have seen gas prices rise a little bit over the month of January.
It's certainly not as dramatic as the declineof the six months before that or what we saw in the early parts of 2022, but that is not only removing a downward pressure on inflation but also adding some upward pressure as well.
We saw that in US data a couple of days ago. We will see that in the Canadian report next week.
That is a key source of uncertainty surrounding the outlook of core inflation and monetary policy. If it is just energy prices, that does give the Bank of Canada a little more flex ability to work through it.
But if it starts to filter into the price of other goods, that is going to put inflation above its trajectory and increase the likelihood of further rate hikes.
>> As always at home, make sure you do your own research before you make any investment decisions. Back to your questions for Robert Both on the economy and interest rates in just a moment's time. And a reminder that you can get in touch with us at any time.
Just email moneytalklive@td.
com.
Now let's get our educational segment of the day.
While the closing bells marked the end of the day's trading session, there can be some big moves in the after-hours market.
If you're interested in keeping track of the action, WebBroker has tools which can help.
Hiren Amin, Senior client education instructor TD Direct Investing has more.
>> Welcome. In today's education section, we are going to be chatting about pre-and post-market trading.
See, we are right in the mix of earnings season ends can present opportunities, but often, with news breaking before and after markets.
In this highly connected world of ours, investors require a way to be able to react right when these market moving events are happening. That's when after-hours trading comes into the picture.
It lets investors act quickly on news and events when exchanges are close, making it an excellent indicator for the opening market direction. Simply put, extended training refers to training that occurs before and after regular trading hours and the duration of the session does vary between markets and trading venues.
The majority of these trades or volume which we like to say tends to happen right around the regular trading hours.
This is because most of the news and events that affects these investors occur shortly before or shortly after the exchange is open and close.
Here at TD, direct investing clients can start trading as early as 8 AM in the morning right up until the opening session at 930. Similarly, investors can also trade that post-market session starting at 4 PM which is the close of the regular session right up until 7 PM Eastern time.
When you are trading these extended hours, they come with additional risks we need to make sure investors are aware. First is lower liquidity. Extended trading has less volume then regular hours which could make it difficult to execute trades.
It also often translates to having larger, wider bid and ask spreads which can affect the price which investors get their orders filled out.
You also have higher volatility to contend with. This simply means that the big variances in the price of the security.
During trading hours, this is due to the fact that there is a smaller number of participants that are trading in these hours resulting in these why volatility swings there. Finally, you can also be partially executed order or not executed at all and some socks since they don't have extended trading sessions.
Now, how do you place an extended trade?
Let's go ahead and get into a burger here and look at how to place this trade. We are going to open up our order ticket first.
Now there are a few guidelines we want to make sure our investors are aware. So when you are placing extended orders, they are only going to be valid for stocks and ETFs listed on major US exchanges.
They will not be available for penny stocks or anything that trades on the OTC or over-the-counter markets.
Also, they are not going to be available for any security is listed on Canadian exchanges. That's important to know.
Let's go ahead and start to pick our first US security.
We are going to pick the SP Y which is an ETF that tracks the broader market, the index of the S&P 500.
The rules that we need to follow with these orders are a couple of them.
First, when you are entering the order, when it comes to price type, the only price type that's valid is a limit order for extended session.
This is the only price type that you will be able to select. We can go ahead and input the price that we want we will match it up close to the current price here.
Second, the timeframe that you want to choose also when you open up the menu, you will notice that there is a new timeframe that opens up under the limit order and that day EXT markets, which stands for extended market sessions. This gives you coverage of both the regular session plus the after-hours session as well. Once you have submitted that, you are going to go ahead proceed with the order and send it through.
One final note we would like to mention as well with this order is that there are no extra charges or fees on this trade.
They are just your standard commission that you will have with it.
So there you have it with extended order trades. Keep in mind, this is just another tool to add to your investing toolkit to make you a more agile investor.
To learn more about investing, please visit our learning centre on WebBroker.
> Our thanks to Hiren Amin, Senior client education instructor at TD Direct Investing.
Before you back your questions about the economy and interest 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, to 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 writing your question and hit send. We will see if one of our guest can get you the answer right here MoneyTalk Live.
We are back with Robert Both, taking your questions about the economy and interest rates.
This is an interesting one.
when does Robert think that the Fed or the BOC will begin to lower interest rates? I find this one fascinating because on the market, bets have changed in recent days and weeks as to when this could happen.
>> They have.
If we go back just a few weeks, markets were already starting to price BOC rate cuts in for the fourth quarter of this year.
But the response to the last month of employment data and also US inflation has pushed that pricing for rate cuts a little further back.
In addition to that, markets are also pricing in a higher terminal rate in both the US and Canada. We are now seeing a 60% chance of a rate hike in April of the BOC meeting. Markets are fully priced for rate hike somewhere around June or July.
There has been a bit of a wedge gap between the forecasting community and what markets are pricing.
So I think what you see from those forecasters is we want to see a little bit more evidence that the outlook has in fact shifted.
We are not making these decisions based on what could be a very volatile employment situation. Markets are little more quick to respond more quickly than we are ready to change our forecast. So we think rate cuts will be observed in the first quarter of 2024.
We have the Bank of Canada holding at 4.5% over the course of this year.
In the US, we think there's going to be two more rate hikes.
And similarly, a period at a rate of 5.25% before the Fed starts to cut at the end of 2023.
>> I guess if anyone out there was sort of banking on aggressive rate hikes from the central banks, the base condition under normal circumstances would be a pretty bad economic outlook.
So if you're thinking, okay, they are getting aggressive on rate cuts, it would be for good reason.
>> No, it certainly wouldn't.
If the bank or the Fed were forced to go a little higher than is currently expected, that is something that's going to have a more significant impact on growth and something that could potentially move forward with the timing between the last rate hike and the first rate cut.
In Canada, we think that's going to be about a year. But if the bank were to go again sometime later this year, they may not go in January anymore but I think you would see a shorter period between the last hike in the first cut.
So everything has been a shifted a little since those last two employment reports.
But I think you do need to wait for a little more detail before we get more confidence in the outlook.
>> Let's take another question, this one about the US dollar and what a run it had last year.
Now everyone is wondering what the future holds for it. Is that strength going to return?
Obviously, the dollar came off its highs from last year.
>> I think in the longer term, it's hard to see the US dollar reaching some of those highs that we saw over the last year.
Over a shorter term, as we were discussing the likelihood of more Fed tightening and higher terminal rates, that is something that can pull some strength towards the dollar.
Obviously, if the Fed has to go further, that's going to tighten conditions.
We have also seen risk sentiment respond rather poorly to expectations for more Fed tightening you and that something that could bring some strength to the US dollar.
But I think we already priced in a higher terminal rate on the back of the stronger data from the last couple of weeks. It's a little harder to see that persist for an extended period.
So I think this is probably going to be a short-lived rebound in the US dollar before we move back to a downward trajectory may be in the second quarter or so.
>> What would be the biggest risk to that sort of outlook?
>> I think the biggest risk would be a more persistent inflation outlook for the US.
So that could come from stronger global demand on the back of Chinese reopening.
It could come from further disruptions to global supply, whether it be in Europe or elsewhere.
But any… Annie move that increases the likelihood of a higher terminal rate or a longer pause and the Federal Reserve is going to have to pull little more strength towards the US dollar.
>> A lot of nice segues here. We have a viewer with a question about supply chains.
We've heard about the evolution of supply chains, reassuring, onshoring, that continues to rise in Canada. What sectors will be affected by?
>> I think when you are talking about re-shoring in global supply chains, you are largely talking about the manufacturing sector.
So this is something that has evolved from the COVID pandemic with the importance of having supply chains a little closer to home to shore in those supply chains where you can.
That has unwind did some of the globalization that we had seen over the last two decades.
Now, I have a much harder time seeing Canada replace China as a powerhouse in manufacturing, but I think what's more likely is that some of that Chinese are the global production is brought back to North America, probably in lower range manufacturing hub said in Canada, but a rising tide does lift all boats.
If we do see a significant increase in industrial production at the border in Mexico or Latin America, that something that's going to raise demand for Canadian goods as well. There's some components that go into goods made across North America and another sector that can benefit from some of these global shifts is probably natural resources.
Again, this is something that's been playing out over the last year. When Russia invaded Ukraine, we saw a little bit more of an emphasis on the importance of reliable trading partners, especially when it comes to the sometimes critical raw materials and natural resources.
So Canada overlaps with Ukraine and Russia as one of the top global producers for several important commodities, whether it be fertilizer, uranium or different metals or agricultural goods. So that's something where Canada can help make up for some of the lost production or the lost exports to other D10 countries.
>> Interesting stuff and we will get back to your questions for Robert Both on interest rates and the economy and just a moment.
As always, make sure you do your own research before you make any investment decisions. And a reminder that you 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@moneytalklive@td.
com or you can use the question box right below the screen it here on WebBroker.
Just writing your question and hit send.
We will see one of our guests can get you the answer right here at MoneyTalk Live.
Big Canadian banks are getting set to begin releasing their latest earnings reports next week. Anthony Okolie has been digging into a preview of what we might get from them. Anthony?
>> Thanks very much. Big banks are reporting Q1 results between February 24 and March 1 and they are coming off a mixed bag last quarter as provisioning, higher compensation costs and expenses hurt results for a few banks, while others beat on estimates.
In Q1, TD Securities expects the big banks to report lower earnings-per-share. With earnings-per-share down 8% year-over-year but up 8.6% quarter over quarter.
TD Securities expects banks to report higher provisions for… Bad loans are excited to increase as well but still remain fairly low versus historical levels. Of course, Canadians have been dealing with higher interest rates over the past year.
Now, TD Securities expects the focus to stay on net interest income and net interest margins for the first quarter.
In terms of net interest income, they are forecasting it to rise from 21% year-over-year and that will be the strongest year-over-year gain in over a decade.
We also expect asset sensitive banks to deliver materially better net interest income and net interest margin results during the quarter. Remember, TD Securities believes that the benefit of rising rates will moderate as early as the second quarter or third quarter of this year, reflecting a shift to higher cost deposits, competition for deposits and loans, as well as a jump in wholesale funding costs and more modest increases in security fields. Regarding credit where risk, TD Securities expects impaired loan losses to rise in the first quarter reflecting higher losses across all personal and commercial sectors.
Of course, the big banks have been shoring up their provisions as the economic cycle has turned.
Finally, TD Securities believes that valuations are reasonable but not attractive amid uncertainty over the timing and severity of the next credit cycle as well as add moderating pretax pre-provision numbers.
>> There is the outlook from TD Securities.
What are some of the key risks to that outlook?
>> Yeah, they highlight some key risks for their target prices which include adverse changes in the housing and credit markets.
That could lead to banks increasing their bad loan provisions going forward. Other risks include foreign exchange fluctuations, interest rates, funding available any, economic growth and market liquidity.
>> Interesting stuff.
We will get more details next week.
Thanks.
>> My pleasure.
>> Money talks Anthony Okolie.
Let's check in on the markets now. We will start with the TSX Composite Index. We have a down day on Bay Street and Wall Street. Nothing too dramatic. Right now you're down and 33 point in Toronto, more than 1/10 of a percent.
Shopify is clearly one of the names under pressure today.
The earnings beat for the quarter that was reportedbut apparently analysts on the street aren't too pleased with the forecast going forward.
You got 60 bucks and $0.40 right now the shares, you're down a little bit more than 15%. Manulife on the other hand raising the dividend and the street seems pleased with what they got in the quarterly earnings warning.
They are at 2715 per share, up we will call at 4%.
So the border, less chicken on the S&P 500, the broader read of the American market, down 14 points, 1/3 of a percent.
Another report today, wholesale prices in that fight against inflation, it's going to take some time.
Tech heavy NASDAQ, pretty much… Weakening a little bit now. Down 92 points, three quarters of a percent.
And Boston Beer, haven't looked at this name for a while but a surprise loss for Boston Beer as though shares under pressure to the tune of almost 14% to the downside.
We are back now with Robert Both from TD Securities, getting back to your questions now.
Will the Bank of Canada hike rates again or will they really be on hold?
>> So yeah, that is the question.
Like I said, those BOC deliberations that give a little glimpse into their thinking, they do seem to set a rather high bar for hiking in the near term.
We are in a more data -dependent environment going forward.
The bank stress that that guidance for the pause was conditional with the outlook evolving in line with their projections of this projection show that the Canadian economy has seen very little expansion of the first three quarters of 2023.
We think fourth-quarter activity is looking a little bit stronger than the bank had its latest projections, but we really want to see how Q1 involves before we can definitively declare that the Bank of Canada will be reading hike going forward.
So we are looking for the overnight rate to stay unchanged at 4.5%.
But that is… That would require growth to slow quite significantly from its recent trend to keep the bank and change.
>> We are still early in the year right now.
We are going to have to wait a little while longer and see how all of this unfolds and be patient as we try to bring inflation down for interest rate hikes and try not to do too much damage to the economy.
It's going to take a bit of time.
>> We will.
The bank has delivered 425 basis points of hiking of this year. Monetary policy takes 60 quarters to work for the economy. We really haven't seen how those rate hikes are fully affecting Canadian households and businesses quite yet.
We will be getting Q4 GDP in a couple of weeks now.
We are going to start getting more data on economic activity in January and I think that will give us a better picture of where we are relative to the BOC's projections but in any case, I think we are well past the environment where they would be looking to hike every meeting.
we need to see more than one month of data. When we get closer to April, if the data remains strong, the 25 basis point rate hike could be something that they would be looking at. But we don't expect they will actually have to follow through.
We think growth is going to continue to slow and that should allow them to keep their current policy standards.
>> Before you join us today, you are keeping an eye on the fact that the Bank of Canada governor Tiff Macklem had to go testify before the House Finance committee.
He said that the Canadian economy remains overheated.
It's clearly an excess demand which continues to put upward pressure on domestic prices. A bit of flavoured air from our central bank president.
We are just going to have to wait and find out.
>> That's right.
These parliamentary testimonies rarely move the needle in terms of what the governor unveils on the policy a lot.
What we saw over the first hour of this questioning at least with a lot of his responses were tied back to those January projections. He really hasn't given us much insight into how the bank is treating that very large jobs report in January.
I think he's going to continue to keep his cards close to the chest going forward.
>> Fascinating stuff.
Great to have you here.
>> My pleasure.
>> Our thanks to Robert Both, macro strategist with TD Securities.
At home, do your own research before making investment decisions.
We will be back tomorrow with an update on the markets and highlights from interviews from the week. And on a programming no, we will be off on Monday. Markets here in Canada will close for the family day holiday.
Make sure to tune in on Tuesday when Alex Gorewicz joins us, or polio manager with TD Asset Management. We will be taking your questions about fixed income. You can get a head start on this question for Alex. You can email moneytalklive@td.com.
That's all the time we have for the show today. Thanks for watching. We will see you tomorrow.
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