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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, with the pace of inflation cooling, we will discuss what's next for the Bank of Canada with TD Securities Robert Both.
MoneyTalk Susan Prince is going to have a look at a new TD Economics report forecasting a slowdown in the housing market.
And in today's WebBroker education segment, Caitlin Cormier is going to be answering a couple of viewer questions about the platform that we have received recently, including how to sell GICs.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We have some green on the screen. We will start here at home with the TSX Composite Index.
74 points we will call that to the upside, a little more than 1/3 of a percent.
There's been some positive momentum recently and the airline stocks. You had Delta again today talking about strong demand heading forward for the year.
So here at home we have a name like Air Canada to the upsideto the tune of about 3%.
23 bucks and $0.57 per share.
Let's take a look at another name, I believe it's First Quantum that I had cued up on this one and indeed it is. First Quantum minerals at 31 bucks and seven cents per share, it's down about 2%. South of the border, lest I and the S&P 500, that brought a read of the American market.
Green on the screen again, though it is modest. 29 points to the upside, a little better than two thirds of a percent.
The tech heavy NASDAQ, how is it sharing today? It's been a bit of a bumpy ride Intact lately after that real winning streak it had for several weeks.
Today it's got the momentum to the upside, 127 points, just less than 1%.
With Meta, you're 286 bucks and change per share, up about 3%. And that is your market update.
Headline inflation in Canada cooled significantly and may on a big drop in gasoline prices compared to last year, but as we dig into the details of the report, will it be enoughto put the Bank of Canada back on hold? Joining us now to discuss is Robert Both, macro strategist with TD Securities. This is the big question. We have another right decision in a couple weeks time. It what does the BOC do with an inflation print like this?
> Thank you for inviting me back on, Greg.
As you mentioned, inflation moved quite a bit lower in me. It fell a full percentage point to 3.4%.
So for a lot of us, at the surface level, that is very welcome news, for especially anyone who's had a little more difficult time with the rising cost of living over the last couple of years.
If you do spend a little more time looking at the data, the drop in year-over-year inflation shouldn't have come as too much of a surprise.
As you mention, gasoline prices were a key driver of that decline from last year, but if you look at the changing gas prices between April and May, they didn't move too much.
And prices overall rose by 0.4% month over month. Now, that was roughly in line with where the market expected.
So it's not going to be too much of a shock for the Bank of Canada relative to their assumptions heading into this morning's report. But inflation is still much too high for comfort, especially when you look at those core inflation measures.
So there are two measures that the BOC looks most closely, those are the trimmed and weighted medians.
Those fell by pretty large percentage points from 2.5% to 3.5%.
We are moving in the right direction. If you look atannualized rates of core inflation there still at around 3.7%.
It's too high to be comfortable at these levels. The Bank of Canada wants to see those get closer to 2% and so long as prices are rising by 0.4% month over month, we are going to need to see more progress before we can really feel comfortable that there are no more rate hikes to come down the pipeline.
>> I found it curious in this report, is pretty well telegraphed, you didn't need to be a genius to know that you are paying less at the gas pump this year than we were at this time last year. But the mortgage interest cost, you have to be a genius to figure out, they are higher this year than they were last year at this time because of the rate hikes.
But if you strip those out, inflation was roughly around what, 2 1/2%? To me, that struck me as a curiosity because this is something the Bank of Canada has done is raised rates.
Did they take that into account that all or are they happy to see a pullback?
>> That's why the Bank of Canada likes to focus on those core inflation measures that do remove some of the more volatile components such as mortgage interest costs.
This is not necessarily anything new over the last month, but it's been something over the last six months that mortgage interest cost have been contributing more and more to the year-over-year increase in inflation.
However, there are other components of the CPI basket that have also traditionally done well when the bank is cutting rates, things like homeowner replacement costs or anything else that's directly tied to house prices.
Those have always been looked at together with the rest of the index. It is so we wouldn't expect the Bank of Canada to be looking explicitly passed those mortgage interest cost.
They do have their core measures for a bit of an operational guide and they will put a little more weight on those when there is one component that's bringing a lot of volatility but those core inflation measures are still running at a rate that is not quite consistent with a return to that 2% target.
So we do need to see some more evidence of demand slowing and the economy coming back into balance to get all the way back to 2%.
>> In the early innings when inflation started to gather steam and we were told it was transitory, which seems like a million years ago, it was all largely about the goods, because we had some real problems in terms of supply chains coming out of the pandemic.
Services is what a lot of people have been talking about lately. I think we can show the audience the difference now between core goods and services as measures of what's happening in inflation right now.
Is this something that's troubling to the bank, the fact that services are, they are coming off but not all that dramatically?
>> I would say it's a little troubling for the bank.
And it's something they've been watching for a few months now and we do expect that To continue to widen over the next few months because service prices do tend to be a little more sticky than goods prices and they are especially a little more closely tied to the labour market outcomes.
So until we see the labour market move a little closer to balance, until wage growth is running well below 5%, I think we can expect some of that persistence and services to continue and especially in the shelter component as well, which is a little less tied to those labour market outcomes.
We would expect that to remain a source of upward pressure on inflation over the next year, year and 1/2.
>> The labour reports have always been important but it felt like once we got into this battle against inflation, the jobs report got pushed to the side. We still paid attention but it was the inflation report that was stealing the headlines.
Now we are at the stage in the inflation fight, does that labour market report become all the more important to us?
>> I think we will be looking at the labour market data a little more closely for kind of insight into how we expect services inflation to develop. I think inflation is still first and foremost what the Bank of Canada is looking at. It is their sole mandate in Canada. They are determined to get back to 2%.
And the labour market is a little bit secondary to that. Obviously, the growth data is very important.
We need to see growth slow up from those above trend rates we have seen over the past year or so.
We saw quite strong growth in the first quarter of this year and that also has us a little more concernedthat some of these inflation pressures could take a little bit longer to fit a lot.
>> So we do have a Bank of Canada rate decision on July 12.
That's only a couple of weeks away. Coming out of that one, would you expect that perhaps after that, they could go back to the sidelines, says further where we are headed or are there signs here that maybe they keep going?
>> Right, I guess we need to get through July 1, but that was one of the questions we had going into today's CPI report was a July rate hike looks extremely likely.
I think it would take a significant disappointment on the inflation data to move the bank away from a hike in July and we didn't get that. There's not too many other major data points that might move the needle between now and July 12, so I do think they are going to raise rates one more time and then once you get past July, I think it's going to be a bit more of a data dependent approach going forward, so there's a lot of economic data before we get to September and I think you're going to need to see more concrete evidence of that slowdown in economic activity.
You are also going to need to see inflation continue to moderate and especially those core inflation numbers.
And we've got three months before we get there, so that's what we will be watching. But for now, we do look for the rates to peak at 5%.
>> My favourite summer pastime, the central bank watching. We'll get to your questions about the economy and interest rates for Robert Both in just a moment's time.
And a reminder that you can get in touch with us at 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.
Delta Airlines raising its forecast for full-year profit and free cash flow on strong travel demand.
The air carrier says customers are also trading up to more expensive fare classes when they travel.
This news comes ahead of Delta's quarterly report which is expected next month.
We also have shares of Walgreens Boots Alliance on our radar. They are under some pressure today.
That to the tune of almost 10% to the downside. The US-based pharmacy chain is cutting its full-year earnings forecast, saying it seeing a slowdown in consumer spending. Walgreens is also seeing a drop in customer demand for COVID tests and COVID vaccines.
We've got Thomson Reuters making an acquisition to bolster its artificial intelligence offerings. The company has a deal to buy California-based Casetext for $650 million in cash. Now Casetext products use AI and machine learning to assist the legal industry.
A quick check in on the market. We will start on Bay Street with the TSX Composite Index. Right now he got some green on the screen, 75 points to the upside, a little more than 1/3 of a percent.
South of the border, the S&P 500, we are seeing a bit of a rally in some of the tech names that's lifting this broader read of the American market by about 30 points, a little more than two thirds of a percent.
We are back with Robert Both, taking your questions about the economy and interest rates. Let's start getting to them.
On a day when we are talking about another rate hike from the BOC on the heels of an inflation report, we have someone who wants to know, when does your guest see the Fed or the BOC lowering interest rates?
>> Right, so from the Bank of Canada's perspective, I think there's a lot more uncertainty in the near term just where interest rates are going to end up at their peak.
We need to get past that before we can really have much confidence on the timing of rate cuts. As I said, there are a number of things we need to see for the Bank of Canada to move back to the sidelines in September and beyond.
We need to see core inflation continue to grind lower, especially when you look at it over a three-month period.
We need to see GDP growth come back below its potential rate of growth, so our economy is coming closer to balance and not pushing further into overheated territory. So in our forecast, we do have the Bank of Canada stopping at 5% and we do expect the growth outlook is going to shift into a lower gear over the second half of this year.
So we think that should bring the economy closer into balance by the end of this year and we are looking at the second quarter of next year as the date at which the Bank of Canada is going to begin cutting back on some of the tightening that's in the system now.
Obviously, we need to see the data cool to be able to stop at 5%, but if it plays out like we are expecting, we would be looking at Q2. Now things look a little bit weaker in the United States right now. So the Federal Reserve actually said they expect to lift rates up to two more times this year. We think the window might have already closed for rate hikes in the US.
>> Really?
>> And that's because we expected it is to get significantly worse over the second half of this year.
If we do see a much softer print on core inflation in the US in BC smaller growth in nonfarm payrolls, we think the Fed is actually going to hold rates unchanged at their next meeting and actually keep them at 525 until the fourth quarter of this year.
The US economy is on a slightly weaker footing right now.
Some of the ISM gauges that look at business conditions and the goods and services sector, those have really come under pressure in the last few months. The US is also, has a dual mandate. So when growth does come under pressure, they have to give a little more weight to the labour market then you would expect in pure inflation targeting bank like the Bank of Canada. As a result, we do look for the Fed to begin easing rates as soon as the fourth quarter of this year.
Now compared to the Bank of Canada, the Fed easing cycle is also likely to be a little bit more frontloaded than what we expect the BOC. So because growth is coming under pressure, we do actually expect a modest recession in the United States beginning in Q4 this year of a kind of going to the first half of next year as well.
We expect those first rate hikes will come a little quicker and will be a little bit larger… >> In the before times, for the most part, I was getting used to 25 basis points in either direction, 1/4 of a point. Of course, those rules got thrown out the window when they cut aggressively to confront the pandemic and then went the other direction to fight inflation.
>> In the United States at least, I think there's a quicker timeline to get back to what we consider a neutral interest rate where you're neither stimulating nor actively trying to slow the economy.
So we look for a smaller rate cut to start, just 25 Basis Points in December but once we get into those Q1 meetings next year, we do look to the Federal Reserve to cut and 50 basis point increments, similar to the rate hikes over the first part of the second quarter last year.
>> Interesting stuff. This one actually we are talking about divergent paths for central banks next year, maybe it has a currency effect.
where does your guest see the loonie heading?
>> There is a difference there. With that BOC expected to hold rates at current levels and cut a little bit more slowlythen the Federal Reserve, we are shaping up for a period over the first half of next year, at least, where you have significantly higher interest rates in Canada than the US on the front-end. So that should support a stronger Canadian dollar. We've already seen markets move pretty quickly over the last two months or so to reflect this, the Canadian dollar strength materially. We do look for that move to continue into year-end and so we are looking at 130 is a level for the Canadian dollar or the US dollar expressed in Canadian dollars, that's about $0.77, and we think that it'll get back to 125 or about $0.80 by the end of 2024.
So that is diverging the central bank view is going to be something that continues to strengthen the loonie.
And from the Bank of Canada's perspective, I don't think they would have many issues with a stronger dollar in this context because that is something that shouldhelp slow import prices a little bit and reduce inflation through that channel.
>> Interesting stuff. Another question here from the audience. They want to know if the employment cycle has become disconnected from the interest rate cycle?
Basically, why is the labour market remaining strong despite all these rate hikes?
>> Well, I don't think it's just the labour market.
I think the Canadian economy in general has proven to be quite resilient torate hikes. I remember in 2018 and 2019, it felt like the slowdown came quite a bit quicker once we got to 150, 175. We certainly have not slowed too much over the last six months or so when you look at the pace of consumer spending in the first quarter. If you look at what the housing market has done over the last 3 to 4 months, it does still speak to quite a robust, underlying momentum here.
So there does appear to be a little bit of a decoupling between interest rates and the real economy. But I think one thing that explains part of that is just the extent to which excess savings have accrued to the household sector to the last three years.
Obviously, during the pandemic, we were not able to go out and spend on goods and services to the extent that we might have been a more typical environment.
And at the same time, even though many people lost their jobs, there were a lot of government programs to support lost wages throughout that period.
Overall, a lot of people had a lot more money to spend and nothing to spend it on.
So we ended up kind of banking these savings for three years now and I think we are going to be able to ride that for a period before things really slow down.
So we have been a little surprised by it, the resilience, especially when you look at the first quarter of this year. Household consumption drove economic growth and that was something that did not go unnoticed by the Bank of Canada. They actually pointed to the strong consumption numbers and the bit of the rebound in the housing market conditions and their June policy statement as kind of a rationale for why they moved off the sidelines in June.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Robert Both on the economy and interest rates in just a moment time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Let's get to our educational segment of the day.on last Tuesday's MoneyTalk Live, we had a couple of your questions about WebBroker that we didn't have time to get you. We will cover them today with Caitlin Cormier, client education sector with TD Direct Investing. Good to see you again. We have two questions here. This is coming from the audience. I was able to buy a cashable GIC by the platform, but how can I sell it when I need to use the fund since it's cashable?
>> great question. The term cell isn't quite accurate.
Even though some GICs have the future to cash them in, get money part with the term, you're not selling it to someone else, you're basically just using one of the features of the contract that you have with the GIC. So we typically call it cashing in your GIC or breaking the term of the GIC, just for some clarity there.
So with GICs, I will quickly show you on the trading platform where you can actually find this type of GIC, which is a cashable GIC. If we go in and click on research, we are going to click on the GIC rate sheet here and then once we get here, we are going to see the different types of GICs. We will click on cashable and here's where we can see the different options that are available for cashable GICs.
In order to take advantage of the cash ability, you will have to contact the trading desk.
That's not something you were able to do yourself within the WebBroker platform.
You have to contact and investment are presented. The phone number is on the top right hand side of the screen where it says contact us.
Click there and here you will see the TD Direct Investing number and you can give them a quick phone call, talk to the people in the GIC department and they will be able to walk you through the process and what that looks like.
>> I've been through that process myself and found it pretty easy.
Here's the second one for you. Someone is trying to find information on TDB8150.
let's talk about what that is.
>> Yeah, for sure. So it TDB8150 sounds like kind of a bizarre name.
>> A droid name, Star Wars.
>> So exactly what's called an investment savings account.
It's kind of equivalent to a savings account, it's not a money market fund or anything like that, it's an investment savings account and you're absolutely right, you can't really find much information other than the yield of this particular investment on WebBroker. So if you want to find more about it, you can go to TD Asset Management's website and I have it up on the screen.
This website, it's under TD Asset Management, and it's under additional solutions, under mutual funds, you just click additional solutions and will get you to this page, TD investment savings account, so gives you some details. It is a deposit for Canadian residents only. We can see here what the different rates are.
There is one US and therefore different issuers the Canadian side. The current rate is listed on the right hand side. Keep in mind, this is a variable rate which changes with the BOC rates.
It can change at any time. Keep that in mind, it's not like a locked-in rate or anything like that.
I tug plated daily and payable at the end of the month by way of interest credit. The series here, you're gonna see the series. I know it looks great because there's a little bit higher interest rate, unfortunately these are only available to advisors so we wouldn't be able to access this through TD Direct Investing and then at the bottom here, you can see it's actually covered by CDIC, so this because it is like a savings account, it does count under the Canada Deposit Insurance Corporation.
If you want to learn more about that, you know to the CDIC website understand that a bit better. So it's a little bit different from some of the other products we have but definitely option available to investors.
You just have to jump outside of the trading platform to get the details on that.
>> I appreciate you taking those two questions for us.
I know the audience appreciates it I will.
>> No problem at all. Happy to help.
>> Our thanks to Caitlin Cormier, client education sector with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before you get back to your questions on the economy for Robert Both, a reminder of how you 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.
We are back with Robert Both, taking your questions about the economy and interest rates.
Here's one of we are talking about interest rates, talking about Canadian realist market. We had a surprise rate hike, anticipating another one.
What impact do you think this might have?
>> So the last four months have been a rather remarkable. For the Canadian housing market.
We've seen four months of consecutive increases in home sales.
Over the last two months, prices have gone back to rising 1 to 2% per month and it's starting to feel like that. From the early stages of the pandemic where things are starting to get away from us here.
It's a little bit difficult to say whether 50 basis points will be enough to really grind things to a halt but I do think it's going to help stifle some of the recent rebound we've seen.
You start to sound like a broken record talking about housing affordability in Canada. It was quite poor in 2016, 2017, when those foreign buyer taxes were introduced.
It was poor heading into the pandemic. It's only gotten worse. But with mortgage rates at current levels and what we saw during the early stages of the BOC's hiking cycle, housing affordability is about as poor as it's ever been when you look at the percentage of household income that would be required to make your payment on a new home.
So we think it's going to be a more difficult environment for the housing market, but at the same time, it's difficult to see prices correcting out right when the population is rising by 1 million people per year on the back of extremely strong immigration and we are only building 200 to 250,000 that new home so our outlook is that we are going to see pricesgrind higher over the rest of 2023 and 2024, but we are going to see much more moderate price growth than what we've seen over the last four years.
Or four months, I should say.
>> That would be the TD Securities you, right?
>> That is the TD House view, yeah.
>> A bit later in the show, a couple minutes away, our very own Susan Prince will join us with the new TD Economics report about where they think the housing market may be headed.
We will get another question.
A viewer wants to know if you can discuss the differences or similarities between the Consumer Price Index, that's inflation reports, and the PCE, personal consumption expenditure report?
>> The main differences the waiting between the two measures. The Consumer Price Index in Canada at least is weighted to reflect household spending patterns from the previous year. In the United States, they look at PCE deflator's which are essentially just all of those goods and services that go into household spending and GDP and they have their own deflator for that and they look at that as an alternative measure to core inflation versus the CPI. I would say that the other RPC deflator for Canada don't get as much attention in Canada as they do in the US because they are only released quarterly with the GDP results and they are not looked at as closely by the Bank of Canada.
So it's really a measurement ratio, but it's something that doesn't come into play in Canada to the same extent that it does in the US.
>> In the states, how much of a different picture is it?
How does it way out?
>> They have diverged in certain periods and it's largely due to you with the weights and how they calculate both the shelter components and healthcare services as well.
So depending on what those two are doing, that can open up a bit of a gap between the two measures but the Federal Reserve has shown a preference to words the PCE deflator's.
Again, they do have monthly data in the US where is in Canada you would only have those quarterly and they are in the background for anyone who likes to look at them.
>> Interesting stuff.
A question here about our central bank. What other tools does the Bank of Canada how to lower inflation other than just interest rates?
>> Interest rates are their primary and best tool. The other tools they have in hand and that they have been employing for a bit over a year now is quantitative tightening. So during the pandemic, the Bank of Canada began buying large quantities of Government of Canada securities, along with smaller amounts ofprovincial bonds and corporate bonds. And they've been holding those on their balance sheet for the last three years or so.
Starting last spring, they began to let those roll off the balance sheetin a process known as quantitative tightening. It's really the opposite of QE.
As the size of their balance sheet shrinks and the Canadian securities get directed towards the market, that is something that's going to help tighten financial conditions further and that reduces the pressure for interest rates to do everything.
Now it has been going on in the background for over a year now. It's going to remain ongoing until at least the second half of 2024 of the first half of 2025.
But they're really not too many other levers that the BOC can pull from its side to slow the economyor bring down inflation.
The BOC is limited by its toolset. Obviously, they have control over monetary stimulus but fiscal stimulus is an important part of demand as well. So if the federal government were to reduce spending, that would also have some downward pressure on inflation, but obviously their mandate differs from the Bank of Canada and they are there to support other pockets of the economy as well.
>> Will get back to your questions for Robert Both on the economy 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.
A new report from TD Economics is seeing a slowdown in housing activity coming for the second half of the year.
Joining us now with more is MoneyTalk DIY editor, Susan Prince. So this is from Rishi Sondhi, he's been a guest on the show before. What is he seeing in all of this?
>> What he looked at was the surprise in the June housing numbers. What we are seeing is two things.
Home sales were higher than anticipated. So price was higher, value was higher and so that's the volume number.
And then home prices were higher.
So value and volume were both higher. And unexpected in the marketplace.
So that was the first point of taking a look at the numbers that TD had been estimating that it come in higher than anticipated.
>> A bit of a surprise for Mr. Sondhi in terms of those two numbers.
>> Yeah, it was a surprise and basically it says that what the problem is is we are kicking the numbers down the road.
If you look at the chart, you can see that the numbers for the second quarter were substantially higher than anticipated in a percentage basis. So what you are looking at ispercentage change month over month in sales and in value of homes.
But if you look at the third quarter, which is what we are focusing on now, is that the results look like those are going to slow down over the next few months, so the numbers are actually in the negative.
So there are a couple of things that happen here that have an impact on it. So third quarter estimate still see tight supply in both volume and new homes coming to the market, but the other side of it that's really interesting is people are doing things like saying, you know, I'm going to put off moving up.
The value proposition isn't there.
So when you're not moving up, you're not seeing as many homes come on the market, and so those are the kind of things that we will be paying attention to you as we move into the third quarter.
>> Loss to be attention to their and a great breakdown of that.
But what do investors do with that kind of information?
>> A couple of things. It's a real opportunity to pay attention to companies that might be impacted by these changes.
If you're an investor, you might look at companies that are building companies or home-improvement companies or banks to take a look at what the trends are.
If your home buyer or seller, you're in that market, you might be looking at these numbers to figure out what trends you might be able to take advantage of, whether you want to come in and buy or whether you want to wait to put your house on the market. Those are the kinds of things that these numbers give you an opportunity to start thinking about.
>> Always love talking about housing on the program.
Really appreciate that.
MoneyTalk's Susan Prince.
Now for an update on the markets.
we are taking a look at TD's Advanced Dashboard, platform designed foractive traders available through TD Direct Investing. We are looking at the heat map function here, which gives you a view of the market movers on the TSX 60, the 60 biggest names on the TSX Composite Index.
We are taking a look at price and volume. Green on the screen. We are going to start down in the financials.
These are some of the banking names, the big banks making modest gains. Manulife the leader of the group, up about 1 1/2%.
Brookfield doing well.
Bit of a down day for the energy names. Up in the corner you got Shopify up to the tune of about 1/2%. We are seeing our rally and some tech name south of the border that seems to be playing out here as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with Robert Both from TD Securities, talking the economy, talking rates. He is the big question.
Is there still a risk of a recession this year, and if so, how bad could it be?
>> I think it's very difficult to rule out the risk of recession when you're in an environment with interest rates roughly 200 basis points above their neutral range, especially in an economy where debt to income ratios at the highest we've seen in decades.
But our base case is still that we are going to see what we would phrase as a soft landing. Our forecast, our base case has positive growth over the rest of 2023 and 2024, but growth is likely to be much weaker than what you would consider a neutral or a trend like rate.
So as Gross underperforms a natural rate, we would expect that degree of overheating in the Canadian economy to lessen and eventually sometime around the end of this year or early next year, we would actually expect a bit of slack to open up and that's what should help us get inflation back to 2% and pave the way for the BOC to begin cutting rates. Going back to your question, it's very difficult to rule out the natural contraction in economic activity, given the household leverage and interest rate backdrop. Couple reasons.
We don't think a recession is likely to materialize is the degree of excess savings, which I referenced earlier.
If you just look at the savings were recruited from 2022 2022, versus a more typical environment, from 2015 to 2019, say, that excess component is about $200 billion, so it's an extremely large savings cushion that Canadian households are sitting on right now.
And even through the first quarter of this year, we hadn't really seen households deploy any of those savings yet, so there is still a bit of dry powder there to get us through the next year or two.
Other countries like the United States or parts of Europe, they've seen some of those savings already been drained from the system, so they've already been supporting growth over the last year. I think in Canada but something that's factored into the resilience a little bit but something that's also going to help reduce those recession risks over the next year or two.
The other factor that is helping us to avoid a recession is the tailwind we are getting for population growth.
So Canadian population growth is at its highest level… >> It was something like 40 million a couple of days ago.
>> We just crossed 40 million and we expect that to continue at least through the next two or three years, given the federal government's immigration targets.
So simply, it's a little tougher to see activity contract when you are addingthat much demand from immigration and not just simply raises the bar a little bit to get those quarter over quarter contractions in real GDP. So if you look at GDP on a per capita basis, our growth outlook looks considerably weaker. We actually have negative GDP per capita for at least 6/4 to the end of next year.
That is going to feel a little bit more like a recession perhaps for some households and firms but from a high level perspective, we do you think a soft landing is still the base case.
>> You mentioned some people perhaps haven't fully deployed their savings.
This is my situation, we are going to have two kidsin University this fall, I'm going to be deploying my savings in a big way.
The last question.
We have an inflation report today, headline came down dramatically. Obviously there are other details for the bank to consider. What should we be thinking heading into the second half of the year?
>> I think heading into the second half of the year, we are going to be keeping focus on those three-month rates of core inflation. We want to see, they've been in a sort of 3.5 to 4% range for about six or seven months now, so we've really been treading water on the perspective and we want to see those get below 3%, get back into the target range.
We also need to see the economic data slow, we need to see the growth data slow in particular and so until those to materialize, it's a little difficult to have superhigh conviction that we really have reached the end point for rate hikes.
I think to characterize, we are still in a very data dependent environment so relative to last year when the rate hikes were more or less on autopilot and we are just adjusting the magnitude of them every few months, the date is becoming increasingly important and that's what's going to determine both the end point of this hiking cycle and the timing of the rate cuts. That always great to have you here, Robert, always great hearing your insight. I look forward to the next time.
>> My pleasure.
>> Robert Both, macro strategist at TD Securities. We thank him for his time today.
As always, make sure you do your own research before making any investment decisions. stay tuned on tomorrow show. Ben Gossack, portfolio manager at TD Asset Management is going to be our guest, taking your questions about global stocks. One of our viewers said something today about the banks. Let's see if we can throw that one to Ben tomorrow.
You can get a head start with your question. Just email moneytalklive@td.com.
That's all the time here for the show today. Thanks for watching. See you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, with the pace of inflation cooling, we will discuss what's next for the Bank of Canada with TD Securities Robert Both.
MoneyTalk Susan Prince is going to have a look at a new TD Economics report forecasting a slowdown in the housing market.
And in today's WebBroker education segment, Caitlin Cormier is going to be answering a couple of viewer questions about the platform that we have received recently, including how to sell GICs.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest of the day, let's get you an update on the markets. We have some green on the screen. We will start here at home with the TSX Composite Index.
74 points we will call that to the upside, a little more than 1/3 of a percent.
There's been some positive momentum recently and the airline stocks. You had Delta again today talking about strong demand heading forward for the year.
So here at home we have a name like Air Canada to the upsideto the tune of about 3%.
23 bucks and $0.57 per share.
Let's take a look at another name, I believe it's First Quantum that I had cued up on this one and indeed it is. First Quantum minerals at 31 bucks and seven cents per share, it's down about 2%. South of the border, lest I and the S&P 500, that brought a read of the American market.
Green on the screen again, though it is modest. 29 points to the upside, a little better than two thirds of a percent.
The tech heavy NASDAQ, how is it sharing today? It's been a bit of a bumpy ride Intact lately after that real winning streak it had for several weeks.
Today it's got the momentum to the upside, 127 points, just less than 1%.
With Meta, you're 286 bucks and change per share, up about 3%. And that is your market update.
Headline inflation in Canada cooled significantly and may on a big drop in gasoline prices compared to last year, but as we dig into the details of the report, will it be enoughto put the Bank of Canada back on hold? Joining us now to discuss is Robert Both, macro strategist with TD Securities. This is the big question. We have another right decision in a couple weeks time. It what does the BOC do with an inflation print like this?
> Thank you for inviting me back on, Greg.
As you mentioned, inflation moved quite a bit lower in me. It fell a full percentage point to 3.4%.
So for a lot of us, at the surface level, that is very welcome news, for especially anyone who's had a little more difficult time with the rising cost of living over the last couple of years.
If you do spend a little more time looking at the data, the drop in year-over-year inflation shouldn't have come as too much of a surprise.
As you mention, gasoline prices were a key driver of that decline from last year, but if you look at the changing gas prices between April and May, they didn't move too much.
And prices overall rose by 0.4% month over month. Now, that was roughly in line with where the market expected.
So it's not going to be too much of a shock for the Bank of Canada relative to their assumptions heading into this morning's report. But inflation is still much too high for comfort, especially when you look at those core inflation measures.
So there are two measures that the BOC looks most closely, those are the trimmed and weighted medians.
Those fell by pretty large percentage points from 2.5% to 3.5%.
We are moving in the right direction. If you look atannualized rates of core inflation there still at around 3.7%.
It's too high to be comfortable at these levels. The Bank of Canada wants to see those get closer to 2% and so long as prices are rising by 0.4% month over month, we are going to need to see more progress before we can really feel comfortable that there are no more rate hikes to come down the pipeline.
>> I found it curious in this report, is pretty well telegraphed, you didn't need to be a genius to know that you are paying less at the gas pump this year than we were at this time last year. But the mortgage interest cost, you have to be a genius to figure out, they are higher this year than they were last year at this time because of the rate hikes.
But if you strip those out, inflation was roughly around what, 2 1/2%? To me, that struck me as a curiosity because this is something the Bank of Canada has done is raised rates.
Did they take that into account that all or are they happy to see a pullback?
>> That's why the Bank of Canada likes to focus on those core inflation measures that do remove some of the more volatile components such as mortgage interest costs.
This is not necessarily anything new over the last month, but it's been something over the last six months that mortgage interest cost have been contributing more and more to the year-over-year increase in inflation.
However, there are other components of the CPI basket that have also traditionally done well when the bank is cutting rates, things like homeowner replacement costs or anything else that's directly tied to house prices.
Those have always been looked at together with the rest of the index. It is so we wouldn't expect the Bank of Canada to be looking explicitly passed those mortgage interest cost.
They do have their core measures for a bit of an operational guide and they will put a little more weight on those when there is one component that's bringing a lot of volatility but those core inflation measures are still running at a rate that is not quite consistent with a return to that 2% target.
So we do need to see some more evidence of demand slowing and the economy coming back into balance to get all the way back to 2%.
>> In the early innings when inflation started to gather steam and we were told it was transitory, which seems like a million years ago, it was all largely about the goods, because we had some real problems in terms of supply chains coming out of the pandemic.
Services is what a lot of people have been talking about lately. I think we can show the audience the difference now between core goods and services as measures of what's happening in inflation right now.
Is this something that's troubling to the bank, the fact that services are, they are coming off but not all that dramatically?
>> I would say it's a little troubling for the bank.
And it's something they've been watching for a few months now and we do expect that To continue to widen over the next few months because service prices do tend to be a little more sticky than goods prices and they are especially a little more closely tied to the labour market outcomes.
So until we see the labour market move a little closer to balance, until wage growth is running well below 5%, I think we can expect some of that persistence and services to continue and especially in the shelter component as well, which is a little less tied to those labour market outcomes.
We would expect that to remain a source of upward pressure on inflation over the next year, year and 1/2.
>> The labour reports have always been important but it felt like once we got into this battle against inflation, the jobs report got pushed to the side. We still paid attention but it was the inflation report that was stealing the headlines.
Now we are at the stage in the inflation fight, does that labour market report become all the more important to us?
>> I think we will be looking at the labour market data a little more closely for kind of insight into how we expect services inflation to develop. I think inflation is still first and foremost what the Bank of Canada is looking at. It is their sole mandate in Canada. They are determined to get back to 2%.
And the labour market is a little bit secondary to that. Obviously, the growth data is very important.
We need to see growth slow up from those above trend rates we have seen over the past year or so.
We saw quite strong growth in the first quarter of this year and that also has us a little more concernedthat some of these inflation pressures could take a little bit longer to fit a lot.
>> So we do have a Bank of Canada rate decision on July 12.
That's only a couple of weeks away. Coming out of that one, would you expect that perhaps after that, they could go back to the sidelines, says further where we are headed or are there signs here that maybe they keep going?
>> Right, I guess we need to get through July 1, but that was one of the questions we had going into today's CPI report was a July rate hike looks extremely likely.
I think it would take a significant disappointment on the inflation data to move the bank away from a hike in July and we didn't get that. There's not too many other major data points that might move the needle between now and July 12, so I do think they are going to raise rates one more time and then once you get past July, I think it's going to be a bit more of a data dependent approach going forward, so there's a lot of economic data before we get to September and I think you're going to need to see more concrete evidence of that slowdown in economic activity.
You are also going to need to see inflation continue to moderate and especially those core inflation numbers.
And we've got three months before we get there, so that's what we will be watching. But for now, we do look for the rates to peak at 5%.
>> My favourite summer pastime, the central bank watching. We'll get to your questions about the economy and interest rates for Robert Both in just a moment's time.
And a reminder that you can get in touch with us at 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.
Delta Airlines raising its forecast for full-year profit and free cash flow on strong travel demand.
The air carrier says customers are also trading up to more expensive fare classes when they travel.
This news comes ahead of Delta's quarterly report which is expected next month.
We also have shares of Walgreens Boots Alliance on our radar. They are under some pressure today.
That to the tune of almost 10% to the downside. The US-based pharmacy chain is cutting its full-year earnings forecast, saying it seeing a slowdown in consumer spending. Walgreens is also seeing a drop in customer demand for COVID tests and COVID vaccines.
We've got Thomson Reuters making an acquisition to bolster its artificial intelligence offerings. The company has a deal to buy California-based Casetext for $650 million in cash. Now Casetext products use AI and machine learning to assist the legal industry.
A quick check in on the market. We will start on Bay Street with the TSX Composite Index. Right now he got some green on the screen, 75 points to the upside, a little more than 1/3 of a percent.
South of the border, the S&P 500, we are seeing a bit of a rally in some of the tech names that's lifting this broader read of the American market by about 30 points, a little more than two thirds of a percent.
We are back with Robert Both, taking your questions about the economy and interest rates. Let's start getting to them.
On a day when we are talking about another rate hike from the BOC on the heels of an inflation report, we have someone who wants to know, when does your guest see the Fed or the BOC lowering interest rates?
>> Right, so from the Bank of Canada's perspective, I think there's a lot more uncertainty in the near term just where interest rates are going to end up at their peak.
We need to get past that before we can really have much confidence on the timing of rate cuts. As I said, there are a number of things we need to see for the Bank of Canada to move back to the sidelines in September and beyond.
We need to see core inflation continue to grind lower, especially when you look at it over a three-month period.
We need to see GDP growth come back below its potential rate of growth, so our economy is coming closer to balance and not pushing further into overheated territory. So in our forecast, we do have the Bank of Canada stopping at 5% and we do expect the growth outlook is going to shift into a lower gear over the second half of this year.
So we think that should bring the economy closer into balance by the end of this year and we are looking at the second quarter of next year as the date at which the Bank of Canada is going to begin cutting back on some of the tightening that's in the system now.
Obviously, we need to see the data cool to be able to stop at 5%, but if it plays out like we are expecting, we would be looking at Q2. Now things look a little bit weaker in the United States right now. So the Federal Reserve actually said they expect to lift rates up to two more times this year. We think the window might have already closed for rate hikes in the US.
>> Really?
>> And that's because we expected it is to get significantly worse over the second half of this year.
If we do see a much softer print on core inflation in the US in BC smaller growth in nonfarm payrolls, we think the Fed is actually going to hold rates unchanged at their next meeting and actually keep them at 525 until the fourth quarter of this year.
The US economy is on a slightly weaker footing right now.
Some of the ISM gauges that look at business conditions and the goods and services sector, those have really come under pressure in the last few months. The US is also, has a dual mandate. So when growth does come under pressure, they have to give a little more weight to the labour market then you would expect in pure inflation targeting bank like the Bank of Canada. As a result, we do look for the Fed to begin easing rates as soon as the fourth quarter of this year.
Now compared to the Bank of Canada, the Fed easing cycle is also likely to be a little bit more frontloaded than what we expect the BOC. So because growth is coming under pressure, we do actually expect a modest recession in the United States beginning in Q4 this year of a kind of going to the first half of next year as well.
We expect those first rate hikes will come a little quicker and will be a little bit larger… >> In the before times, for the most part, I was getting used to 25 basis points in either direction, 1/4 of a point. Of course, those rules got thrown out the window when they cut aggressively to confront the pandemic and then went the other direction to fight inflation.
>> In the United States at least, I think there's a quicker timeline to get back to what we consider a neutral interest rate where you're neither stimulating nor actively trying to slow the economy.
So we look for a smaller rate cut to start, just 25 Basis Points in December but once we get into those Q1 meetings next year, we do look to the Federal Reserve to cut and 50 basis point increments, similar to the rate hikes over the first part of the second quarter last year.
>> Interesting stuff. This one actually we are talking about divergent paths for central banks next year, maybe it has a currency effect.
where does your guest see the loonie heading?
>> There is a difference there. With that BOC expected to hold rates at current levels and cut a little bit more slowlythen the Federal Reserve, we are shaping up for a period over the first half of next year, at least, where you have significantly higher interest rates in Canada than the US on the front-end. So that should support a stronger Canadian dollar. We've already seen markets move pretty quickly over the last two months or so to reflect this, the Canadian dollar strength materially. We do look for that move to continue into year-end and so we are looking at 130 is a level for the Canadian dollar or the US dollar expressed in Canadian dollars, that's about $0.77, and we think that it'll get back to 125 or about $0.80 by the end of 2024.
So that is diverging the central bank view is going to be something that continues to strengthen the loonie.
And from the Bank of Canada's perspective, I don't think they would have many issues with a stronger dollar in this context because that is something that shouldhelp slow import prices a little bit and reduce inflation through that channel.
>> Interesting stuff. Another question here from the audience. They want to know if the employment cycle has become disconnected from the interest rate cycle?
Basically, why is the labour market remaining strong despite all these rate hikes?
>> Well, I don't think it's just the labour market.
I think the Canadian economy in general has proven to be quite resilient torate hikes. I remember in 2018 and 2019, it felt like the slowdown came quite a bit quicker once we got to 150, 175. We certainly have not slowed too much over the last six months or so when you look at the pace of consumer spending in the first quarter. If you look at what the housing market has done over the last 3 to 4 months, it does still speak to quite a robust, underlying momentum here.
So there does appear to be a little bit of a decoupling between interest rates and the real economy. But I think one thing that explains part of that is just the extent to which excess savings have accrued to the household sector to the last three years.
Obviously, during the pandemic, we were not able to go out and spend on goods and services to the extent that we might have been a more typical environment.
And at the same time, even though many people lost their jobs, there were a lot of government programs to support lost wages throughout that period.
Overall, a lot of people had a lot more money to spend and nothing to spend it on.
So we ended up kind of banking these savings for three years now and I think we are going to be able to ride that for a period before things really slow down.
So we have been a little surprised by it, the resilience, especially when you look at the first quarter of this year. Household consumption drove economic growth and that was something that did not go unnoticed by the Bank of Canada. They actually pointed to the strong consumption numbers and the bit of the rebound in the housing market conditions and their June policy statement as kind of a rationale for why they moved off the sidelines in June.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Robert Both on the economy and interest rates in just a moment time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Let's get to our educational segment of the day.on last Tuesday's MoneyTalk Live, we had a couple of your questions about WebBroker that we didn't have time to get you. We will cover them today with Caitlin Cormier, client education sector with TD Direct Investing. Good to see you again. We have two questions here. This is coming from the audience. I was able to buy a cashable GIC by the platform, but how can I sell it when I need to use the fund since it's cashable?
>> great question. The term cell isn't quite accurate.
Even though some GICs have the future to cash them in, get money part with the term, you're not selling it to someone else, you're basically just using one of the features of the contract that you have with the GIC. So we typically call it cashing in your GIC or breaking the term of the GIC, just for some clarity there.
So with GICs, I will quickly show you on the trading platform where you can actually find this type of GIC, which is a cashable GIC. If we go in and click on research, we are going to click on the GIC rate sheet here and then once we get here, we are going to see the different types of GICs. We will click on cashable and here's where we can see the different options that are available for cashable GICs.
In order to take advantage of the cash ability, you will have to contact the trading desk.
That's not something you were able to do yourself within the WebBroker platform.
You have to contact and investment are presented. The phone number is on the top right hand side of the screen where it says contact us.
Click there and here you will see the TD Direct Investing number and you can give them a quick phone call, talk to the people in the GIC department and they will be able to walk you through the process and what that looks like.
>> I've been through that process myself and found it pretty easy.
Here's the second one for you. Someone is trying to find information on TDB8150.
let's talk about what that is.
>> Yeah, for sure. So it TDB8150 sounds like kind of a bizarre name.
>> A droid name, Star Wars.
>> So exactly what's called an investment savings account.
It's kind of equivalent to a savings account, it's not a money market fund or anything like that, it's an investment savings account and you're absolutely right, you can't really find much information other than the yield of this particular investment on WebBroker. So if you want to find more about it, you can go to TD Asset Management's website and I have it up on the screen.
This website, it's under TD Asset Management, and it's under additional solutions, under mutual funds, you just click additional solutions and will get you to this page, TD investment savings account, so gives you some details. It is a deposit for Canadian residents only. We can see here what the different rates are.
There is one US and therefore different issuers the Canadian side. The current rate is listed on the right hand side. Keep in mind, this is a variable rate which changes with the BOC rates.
It can change at any time. Keep that in mind, it's not like a locked-in rate or anything like that.
I tug plated daily and payable at the end of the month by way of interest credit. The series here, you're gonna see the series. I know it looks great because there's a little bit higher interest rate, unfortunately these are only available to advisors so we wouldn't be able to access this through TD Direct Investing and then at the bottom here, you can see it's actually covered by CDIC, so this because it is like a savings account, it does count under the Canada Deposit Insurance Corporation.
If you want to learn more about that, you know to the CDIC website understand that a bit better. So it's a little bit different from some of the other products we have but definitely option available to investors.
You just have to jump outside of the trading platform to get the details on that.
>> I appreciate you taking those two questions for us.
I know the audience appreciates it I will.
>> No problem at all. Happy to help.
>> Our thanks to Caitlin Cormier, client education sector with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before you get back to your questions on the economy for Robert Both, a reminder of how you 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.
We are back with Robert Both, taking your questions about the economy and interest rates.
Here's one of we are talking about interest rates, talking about Canadian realist market. We had a surprise rate hike, anticipating another one.
What impact do you think this might have?
>> So the last four months have been a rather remarkable. For the Canadian housing market.
We've seen four months of consecutive increases in home sales.
Over the last two months, prices have gone back to rising 1 to 2% per month and it's starting to feel like that. From the early stages of the pandemic where things are starting to get away from us here.
It's a little bit difficult to say whether 50 basis points will be enough to really grind things to a halt but I do think it's going to help stifle some of the recent rebound we've seen.
You start to sound like a broken record talking about housing affordability in Canada. It was quite poor in 2016, 2017, when those foreign buyer taxes were introduced.
It was poor heading into the pandemic. It's only gotten worse. But with mortgage rates at current levels and what we saw during the early stages of the BOC's hiking cycle, housing affordability is about as poor as it's ever been when you look at the percentage of household income that would be required to make your payment on a new home.
So we think it's going to be a more difficult environment for the housing market, but at the same time, it's difficult to see prices correcting out right when the population is rising by 1 million people per year on the back of extremely strong immigration and we are only building 200 to 250,000 that new home so our outlook is that we are going to see pricesgrind higher over the rest of 2023 and 2024, but we are going to see much more moderate price growth than what we've seen over the last four years.
Or four months, I should say.
>> That would be the TD Securities you, right?
>> That is the TD House view, yeah.
>> A bit later in the show, a couple minutes away, our very own Susan Prince will join us with the new TD Economics report about where they think the housing market may be headed.
We will get another question.
A viewer wants to know if you can discuss the differences or similarities between the Consumer Price Index, that's inflation reports, and the PCE, personal consumption expenditure report?
>> The main differences the waiting between the two measures. The Consumer Price Index in Canada at least is weighted to reflect household spending patterns from the previous year. In the United States, they look at PCE deflator's which are essentially just all of those goods and services that go into household spending and GDP and they have their own deflator for that and they look at that as an alternative measure to core inflation versus the CPI. I would say that the other RPC deflator for Canada don't get as much attention in Canada as they do in the US because they are only released quarterly with the GDP results and they are not looked at as closely by the Bank of Canada.
So it's really a measurement ratio, but it's something that doesn't come into play in Canada to the same extent that it does in the US.
>> In the states, how much of a different picture is it?
How does it way out?
>> They have diverged in certain periods and it's largely due to you with the weights and how they calculate both the shelter components and healthcare services as well.
So depending on what those two are doing, that can open up a bit of a gap between the two measures but the Federal Reserve has shown a preference to words the PCE deflator's.
Again, they do have monthly data in the US where is in Canada you would only have those quarterly and they are in the background for anyone who likes to look at them.
>> Interesting stuff.
A question here about our central bank. What other tools does the Bank of Canada how to lower inflation other than just interest rates?
>> Interest rates are their primary and best tool. The other tools they have in hand and that they have been employing for a bit over a year now is quantitative tightening. So during the pandemic, the Bank of Canada began buying large quantities of Government of Canada securities, along with smaller amounts ofprovincial bonds and corporate bonds. And they've been holding those on their balance sheet for the last three years or so.
Starting last spring, they began to let those roll off the balance sheetin a process known as quantitative tightening. It's really the opposite of QE.
As the size of their balance sheet shrinks and the Canadian securities get directed towards the market, that is something that's going to help tighten financial conditions further and that reduces the pressure for interest rates to do everything.
Now it has been going on in the background for over a year now. It's going to remain ongoing until at least the second half of 2024 of the first half of 2025.
But they're really not too many other levers that the BOC can pull from its side to slow the economyor bring down inflation.
The BOC is limited by its toolset. Obviously, they have control over monetary stimulus but fiscal stimulus is an important part of demand as well. So if the federal government were to reduce spending, that would also have some downward pressure on inflation, but obviously their mandate differs from the Bank of Canada and they are there to support other pockets of the economy as well.
>> Will get back to your questions for Robert Both on the economy 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.
A new report from TD Economics is seeing a slowdown in housing activity coming for the second half of the year.
Joining us now with more is MoneyTalk DIY editor, Susan Prince. So this is from Rishi Sondhi, he's been a guest on the show before. What is he seeing in all of this?
>> What he looked at was the surprise in the June housing numbers. What we are seeing is two things.
Home sales were higher than anticipated. So price was higher, value was higher and so that's the volume number.
And then home prices were higher.
So value and volume were both higher. And unexpected in the marketplace.
So that was the first point of taking a look at the numbers that TD had been estimating that it come in higher than anticipated.
>> A bit of a surprise for Mr. Sondhi in terms of those two numbers.
>> Yeah, it was a surprise and basically it says that what the problem is is we are kicking the numbers down the road.
If you look at the chart, you can see that the numbers for the second quarter were substantially higher than anticipated in a percentage basis. So what you are looking at ispercentage change month over month in sales and in value of homes.
But if you look at the third quarter, which is what we are focusing on now, is that the results look like those are going to slow down over the next few months, so the numbers are actually in the negative.
So there are a couple of things that happen here that have an impact on it. So third quarter estimate still see tight supply in both volume and new homes coming to the market, but the other side of it that's really interesting is people are doing things like saying, you know, I'm going to put off moving up.
The value proposition isn't there.
So when you're not moving up, you're not seeing as many homes come on the market, and so those are the kind of things that we will be paying attention to you as we move into the third quarter.
>> Loss to be attention to their and a great breakdown of that.
But what do investors do with that kind of information?
>> A couple of things. It's a real opportunity to pay attention to companies that might be impacted by these changes.
If you're an investor, you might look at companies that are building companies or home-improvement companies or banks to take a look at what the trends are.
If your home buyer or seller, you're in that market, you might be looking at these numbers to figure out what trends you might be able to take advantage of, whether you want to come in and buy or whether you want to wait to put your house on the market. Those are the kinds of things that these numbers give you an opportunity to start thinking about.
>> Always love talking about housing on the program.
Really appreciate that.
MoneyTalk's Susan Prince.
Now for an update on the markets.
we are taking a look at TD's Advanced Dashboard, platform designed foractive traders available through TD Direct Investing. We are looking at the heat map function here, which gives you a view of the market movers on the TSX 60, the 60 biggest names on the TSX Composite Index.
We are taking a look at price and volume. Green on the screen. We are going to start down in the financials.
These are some of the banking names, the big banks making modest gains. Manulife the leader of the group, up about 1 1/2%.
Brookfield doing well.
Bit of a down day for the energy names. Up in the corner you got Shopify up to the tune of about 1/2%. We are seeing our rally and some tech name south of the border that seems to be playing out here as well.
You can find more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back with Robert Both from TD Securities, talking the economy, talking rates. He is the big question.
Is there still a risk of a recession this year, and if so, how bad could it be?
>> I think it's very difficult to rule out the risk of recession when you're in an environment with interest rates roughly 200 basis points above their neutral range, especially in an economy where debt to income ratios at the highest we've seen in decades.
But our base case is still that we are going to see what we would phrase as a soft landing. Our forecast, our base case has positive growth over the rest of 2023 and 2024, but growth is likely to be much weaker than what you would consider a neutral or a trend like rate.
So as Gross underperforms a natural rate, we would expect that degree of overheating in the Canadian economy to lessen and eventually sometime around the end of this year or early next year, we would actually expect a bit of slack to open up and that's what should help us get inflation back to 2% and pave the way for the BOC to begin cutting rates. Going back to your question, it's very difficult to rule out the natural contraction in economic activity, given the household leverage and interest rate backdrop. Couple reasons.
We don't think a recession is likely to materialize is the degree of excess savings, which I referenced earlier.
If you just look at the savings were recruited from 2022 2022, versus a more typical environment, from 2015 to 2019, say, that excess component is about $200 billion, so it's an extremely large savings cushion that Canadian households are sitting on right now.
And even through the first quarter of this year, we hadn't really seen households deploy any of those savings yet, so there is still a bit of dry powder there to get us through the next year or two.
Other countries like the United States or parts of Europe, they've seen some of those savings already been drained from the system, so they've already been supporting growth over the last year. I think in Canada but something that's factored into the resilience a little bit but something that's also going to help reduce those recession risks over the next year or two.
The other factor that is helping us to avoid a recession is the tailwind we are getting for population growth.
So Canadian population growth is at its highest level… >> It was something like 40 million a couple of days ago.
>> We just crossed 40 million and we expect that to continue at least through the next two or three years, given the federal government's immigration targets.
So simply, it's a little tougher to see activity contract when you are addingthat much demand from immigration and not just simply raises the bar a little bit to get those quarter over quarter contractions in real GDP. So if you look at GDP on a per capita basis, our growth outlook looks considerably weaker. We actually have negative GDP per capita for at least 6/4 to the end of next year.
That is going to feel a little bit more like a recession perhaps for some households and firms but from a high level perspective, we do you think a soft landing is still the base case.
>> You mentioned some people perhaps haven't fully deployed their savings.
This is my situation, we are going to have two kidsin University this fall, I'm going to be deploying my savings in a big way.
The last question.
We have an inflation report today, headline came down dramatically. Obviously there are other details for the bank to consider. What should we be thinking heading into the second half of the year?
>> I think heading into the second half of the year, we are going to be keeping focus on those three-month rates of core inflation. We want to see, they've been in a sort of 3.5 to 4% range for about six or seven months now, so we've really been treading water on the perspective and we want to see those get below 3%, get back into the target range.
We also need to see the economic data slow, we need to see the growth data slow in particular and so until those to materialize, it's a little difficult to have superhigh conviction that we really have reached the end point for rate hikes.
I think to characterize, we are still in a very data dependent environment so relative to last year when the rate hikes were more or less on autopilot and we are just adjusting the magnitude of them every few months, the date is becoming increasingly important and that's what's going to determine both the end point of this hiking cycle and the timing of the rate cuts. That always great to have you here, Robert, always great hearing your insight. I look forward to the next time.
>> My pleasure.
>> Robert Both, macro strategist at TD Securities. We thank him for his time today.
As always, make sure you do your own research before making any investment decisions. stay tuned on tomorrow show. Ben Gossack, portfolio manager at TD Asset Management is going to be our guest, taking your questions about global stocks. One of our viewers said something today about the banks. Let's see if we can throw that one to Ben tomorrow.
You can get a head start with your question. Just email moneytalklive@td.com.
That's all the time here for the show today. Thanks for watching. See you tomorrow.
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