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[music] >> Hello, I am Anthony Okolie and for Greg Bonnell and welcome to MoneyTalk Live, which is brought to you by TD Direct Investing.
Every day, we will be joined by guests from across TD, many of whom you will only see here. We'll take you through with moving the markets and answer your questions about investing.
Coming up on today show, we will discuss whether Canadian inflation has cooled enough to keep interest rates on hold with Robert Both, macro strategist with TD Securities.
Moneytalk's Susan Prince will take us through the latest US retail sales report and what it says about the state of the American economy.
And in today's WebBroker education segment, Hiren Amin will show us how to find economic reports on the platform.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get an update on the markets.
We will begin here in Canada where markets open and positive territory. The S&P TSX composite index is currently trading up about 132 points, 0.7%.
It's really been driven by gains in materials and energy as stocks following some positive news in the Canadian inflation picture. Taking a look at some of the big movers, Nutrien, shares of Nutrien actually moving higher today.
The world's biggest fertilizer had previously announced cuts to production during the BC port strike. That's right, of course, and late last week after dockworkers accepted a tentative four-year ways she'll.
And Nutrien is currently up to the tune of 4.7%.
We will move south of the border now, taking a look at Wall Street. Wall Street is trading higher as investors I just the latest corporate earnings news.
The S&P 500 is currently trading up, marginally up. It's up 22 points are about half percent.
What's driving it of course has been what has been a pretty strong start to the earnings season.
Taking a look at the tech heavy NASDAQ composite index, it's currently bucking the positive trend. Right now, it's treating relatively flat, just down about 1.7 points right now, to the tune of 14,243.
Taking a look at some of the big movers today in the US markets, FedEx is moving higher today.
the package delivery company just announced a new CFO on Monday and it also made some other appointments within its finance division.
The stock is currently up just over six points or to the tune of 2.4%.
Some other big movers, Goldman Sachs is also trading higher today.
Shares of Goldman are moving higher on the week of some strong bank earnings that we have seen today, as well as late last week.
Of course, Goldman reports a report this Wednesday. Currently, the stock is up just over 3%.
And that is your market update.
For the first time in more than two years, consumer prices have come back within the Bank of Canada's target range of, sorry, target range as the pace of inflation has cooled to 2.8% in June.
But with core measures remaining sticky, will it be enough to keep interest rates on hold?
Joining us now to go through the report and what it might mean for the Bank of Canada is Robert Both, macro strategist with TD Securities.
Robert, thanks very much for joining us.
>> Thank you very much for having me on the program.
>> We got the latest Canadian inflation numbers this morning. It what's your take?
>> It's not too common where you see headline inflation and core inflation surprising in the opposite direction. Core inflation measures were a little bit stronger than we had expected today, but you did see headline come in much softer at 2.8%. So while it is certainly encouraging to see inflation back inside that target range, like you said, for the first time in over two years, we are really not going to draw too much comfort from that until we do see a little more progressin the core measure coming Lord.
>> Talked to us more about interest costs which is becoming an outsized influence on headline inflation.
>> Sure. That is one of the questions we have been getting quite frequently over the last few months, the growing importance of mortgage interest costs as a driver of headline inflation.
So mortgage interest costs are running at about 30% year-over-year in June.
That's not too different than they were in me, but that is contributing .08 points to the inflation and when it's only running at 2.8% year-over-year, it's a very large share of the overall year-over-year increase.
However, we think that simply excluding mortgage interest cost because the Bank of Canada does impact goes through rate hikes would be the wrong approach here.
We think a little dangerous to simply pick and choose which components you would like to drop.
the Bank of Canada obviously has its own tools for looking past more volatile changes across the individual basket.
Those tools like core inflation measures do a good job of stripping out those larger movements that are may be not moving in the same direction as the rest of the basket. So the BOC is focus on those core inflation measures because we got some of the more volatile changes across the basket.
but as we said, core inflation measures are running quite a bit stronger so there's obviously is something else driving prices here.
>> With this number today, what impact will this inflation data have on the BOC policygoing forward and you think the Canada is done with rate hikes this year?
>> I think the BOC is in a wait-and-see mode after the July policy decision.
Generally when headline and core inflation are surprising in opposite directions, that is an environment where the bank is probably going to want to see a little more evidence of how those are going to develop over the next month or two before it commits to any path on future policy decisions.
The sharp drop in headline along the persistence and core does speak to a couple of larger, one-off factors that weighed on headline CPI in June. One of those was household communications.
So, these have been a bit of a drag on the next for several years but cell phone plans fell quite sharply over May and June. Statistics Canada was a tribute in some of that to new cell phone plans and promotional events for major telecoms.
That's on something that's going to continue declining at 5% month over month going forward.
Similarly, we saw a very large drag in travel services in some of those post-pandemic travel booms subside and prices start to normalize. That is something that might continue to play out over the coming months, but the presence of those large one-off moves does speak to the importance of core inflation and that continued persistence and core inflation is something that's probably going to concern the Bank of Canada or add to their already significant concerns. But September is a long ways off.
Headline inflation is back inside the target range. So I think we are going to have to wait and see how this plays out over the next month or two.
>> Now, September is a long way away, but what will you be watching closely as the BOC considers its next move?
>> The bank is laid out what they are watching as they approach the September policy decision. Those factors are the evolution of excess demand, they are the evolution of corporate pricing behaviour, and wage growth.
That paints a somewhat mixed picture over the last few month.
We've seen wage growth come off. We've seen some progress on inflation expectations. But both wages and inflation expectations remain too high for the bank and to remain higher than precoded norms and we are going to need to see more evidence of those continuing to trade lower to the fall.
Corporate pricing behaviours a little more opaquefor those who do notstudy it as closely.
it is something we will see when inflation subsides. But we are mostly focused on the wage growth metrics and the evolutionof the core inflation numbers.
>> Great start to the discussion.
We'll get to your questions about the economy and interest rates for Robert Both in just a moment. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now here's an update on the top stories in the world of business today in a look at how the markets are trading.
the Canadian mortgage and Housing Corporation said that rates of… Posted the largest month over month increase in a decade. Canadian housing starts jumped 41% in June, driven by work beginning on new multiunit projects. Urban starts climbed 59% month over month where is starts in the single-family sector rose a modest 3%.
Meanwhile, spending at US retailers rose in June for the third straight month, despite higher interest rates, persistent inflation and lingering economic uncertainty. Retail spending edged up to a lower-than-expected 0.2%, that's down from the previously revised .5% increase in me.
Spending at department stores fell during the same period.
Bank of America, the second-largest lender in the US, reported a 19% rise in earnings in the second quarter, topping expectations.
The US lender earn more from customer loan payments while its investment banking business fared better than expected.
Last week, several other big US banks posted results for the latest quarter. And here is how the main benchmark index in Canada is trading. Currently the S&P TSX is up to the tune of 130 points or .6%.
We've got some strong optimism following the Canadian inflation data. We'll take a look at the US where the S&P 500 is up just over 21 points.
all right, we are back with Robert Both, taking your questions about the economy and interest rates. We will start with the first question on immigration.
Is it possible but the record high amount of immigration for this year and plan for the future it makes… Makes to present an unreasonable target for inflation? My apologies there.
>> No problem. I don't think there's anything unreasonable about the 2% target.
The Bank of Canada's mandate is to provide low and stable inflation so that Canadian consumers and businesses can plan accordingly.
And for the last 25 years, 2% has served as a very reliable goalpost for that low and stable inflation.
There has been a lot more debate recently about whether immigration, the strong levels of immigration and population growth are adding to inflation over the short term.
But I think a lot of that discussion is perhaps overblown.
One area where you might be feeling a little impact might be across the housing market and in shelter prices.
The Canadian population rose by over 1 million last year for the first time on record. However, we are building 200 to 250,000 new homes on an annual basis. So regardless of how unaffordable housing is by historical standards, there is always going to be very strong demand for housing if you are not able to provide enough supply to keep up with the population growth.
So I think that the higher immigration levels do provide some backstop under the housing market. They have fuelled housing demand through a period of extremely unaffordable housing.
And I think you would have seen larger price declines over the last year if immigration had been slower and population growth had been softer.
Over the longer term, I think immigration is a positive force. It helps address some of the labour shortages. Immigrants tend to be a little bit younger and traditionally bring their young families with them and that helps to offset some of the natural population aging in Canada.
And as more baby boomers retire, that the larger tax base to pay some of thosecosts for the aging population.
> Immigration is something the Bank of Canada has been aware of when they make monetary policy decisions.
>> I think immigration is something that they incorporate into their analysis, but it's not something they've, they are not a strong advocate for or against it.
> The next question is on the Fed.
What should we expect from the Fed next week? Of course, we have the biggest said meeting. We had the BOC last week. They raised 25 basis points. With your outlook for the meeting last week?
>> We look for the Fed to raise their interest rates by 25 basis points next week. However, we do think that is going to be the last fed hike that we see for the cycle. So in June, the Fed chose not to raise interest rates but they signalled through their dog plot and projections that they do think they will hike twice more before the end of the year.
We think that they are only going to hike once more at next week's meeting.
And after that, the outlook becomes a lot more data dependent, similar to the Bank of Canada's outlook right now.
We have already seen some evidence of slowdown in the US economy.
Some of the survey data, especially across the manufacturing sector, has been quite contractionary for several months now.
And you saw a core inflation moderate quite significantly and the US relative to the strong print we just saw for Canada.
So I think the opportunity for the Fed to continue hiking rates is slowly going to close as the economy starts to cool.
There's going to be a little less evidence that we are going to be less evidence that we need to keep hiking rates.
Great start to the questions. Thank you very much. As always, make sure you do your own research before making any investment decisions. we will get back to your questions for Robert Both on the economy and interest rates in just a moment. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get to today's educational segment.
joining us now is Hiren Amin, senior client education instructor with TD Direct Investing. How can an investor stay up-to-date and WebBrokerwith broader economic data?
>> Yeah, great question, Anthony. Thanks for having me back on again and hello to everyone. We are talking about the economy today and it's important because for a lot of investors, finding information on individual investments doesn't seem to be too challenging but when you're trying to get a read on economic data and what's coming up, that can pose a little bit of difficulty.
But we've got you covered on Webbroker. To find some of the information coming out, we want to guide you to our research page.
If you click on the research portal over here, under our markets page over here, go to the report section and you will find, as you scroll down, the TD Economics page over here. I've already got it loaded up and this is what the page is going to bring you two.
for those of us who want to get into a bit more economics, especially those who take a top-down approach to investing and want to assess some of the more broader economic macro factors that are going to affect some of the factors and industries, perhaps this is the one stop shop you want to look at. On this page, you will see divided between Canadian and US markets, you also want to assess US markets if that is something that's of interest to you.
you also have the forecast section which will give you numbers like CPI, inflation, if you pull up the latest financial forecast here, there is a table of these numbers. The overnight target rate, which is what the BOC is basically raisingas their rates over here and he gives us a little bit of projection into what the future or the next quarters might be looking at.
And then down below, you have the broader read on the economic numbers, the global stock markets and commodity pricing.
Finally, the one thing I did want to mention is that sometimes it's a bit much to make heads or tails of what is happening here.
if you want to peruse into this, you could come in here, get a breakdown of the read of what's happening, where the Bank of Canada is looking towards now with those numbers coming more into light there.
>> Now that we have found some useful reports from TD Economics, is there a place in WebBroker where an investor can get alerted for themselves when major economic announcements are coming?
>> Absolutely. If we switch back to our WebBroker profile page here, we have a fantastical alerts page here.we will click on research, tools, and second lobotomy will see alerts. This is where you can set up alerts for yourself. If you click on it where it says set news and alerts up here and then you want to go back to where it says news and research in this pop-up window.
within here, you want to check off the category section and is going to allow you to choose the category that you want to be alerted to and for investors, you can choose many of them within here but for our discussion today, we are talking about economics.
Click on economics.
You probably already have your emails and up to this and then once you do that, is simple as that and then hit save and you're going to get that economic data coming to you whatever there are new published reports that are going to be sent out so this way you can keep the pulse of the economic numbers coming out.
>> Great information as always.
>> My pleasure.
>> Are things to Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back now with Robert Both taking your questions. How is the housing market dealing with interest rates rising again?
>> I think it's a little too soon to say how the housing market is going to respond to this last 50 basis points rate hikes.
But we saw a pretty serious adjustment across the retail market as a bank with hiking rates over the course of 2022.
now in the bank signalled that it was ready to pause interest rate hikes, we did see a pretty material rebound in both home sales and home prices. Home sales rose quite sharply over April and May. House prices have been rising by about 2% per month for the last two months so what we have been seeing is almost a return to some of those more speculative environments that we saw over 2020 and 2021. That is something the Bank of Canada made note of in their June policy statement. We saw home sales come back a little bit in the month of June after they hiked, but I think it is still a little too early to say exactly what impact the 50 basis points of tightening will have.
Our outlook is that house prices are going to be close to flood.
This is the outlook for TD Economics.
We are looking for a 0.5% increase in house prices for 2023 as a whole.
We think sales activity will be lower.
But most of that is reflected in the declines we saw.
>> Focus the next question on cutting rates.
Are there circumstances where you see the Bank of Canada lowering interest rates before reaching or trending towards the 2% inflation rate?
For example, deflation, residential mortgage defaults, business failures?
>> Our base case is that the Bank of Canada is done hiking rates.
We think 5% will mark the peak. Assuming that growth slows as we expect an inflation continues to moderate over the second half of this year, any discussion of rate cuts is going to require a few criteria being fulfilled. The first condition we would like to see you before we start discussing rate cuts is inflation back inside Canada's target range. We are there in June but we expect inflation is going to move higher in July and August.
The second condition we are looking for is three month core inflation rates much closer to a target which is something that will give the Bank of Canada confidence that we are heading lower even if inflation is 2.
8, 2.9 when they make their first rate cut.
The third criteria is something closer to balance economic conditions.
Right now, we have a lot of excess demand in the economy. We want to see a lot of that subside before we are discussing rate cuts.
We don't necessarily need to be back in excess supply, but we want to be sure that we are headed there before rate hikes take effect. Some of those scenarios that you mentioned do occur if we see residential mortgage defaults or business insolvencies.
Those are certainly downside risks that would speed up the return to 2% inflation.
But they would still be consistent with inflation trending towards the 2% target.
I think the larger differences there would be the pace of rate cuts, once they start to materialize, and the endpoint.
Our base case, we have a soft landing for the Canadian economy which means the Bank of Canada can stop once they get to those longer-term neutral rates which we think are 2.5% and if we were to see a sharper slowdown with some of those downside risks materializing, that would interest the BOC to bring interest rates to below neutral, below 2.5.
>> It's still early to talk about rate cuts?
>> It's still early.
>> We will get back to your questions for Robert Both on the economy and just a moment. As always, make sure you do your own research before making any investment decisions.
>> 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.
>> US retail sales climbed in June but not enough to match analyst expectations.
Moneytalk's Susan Prince joins us now with more.
Susan, where was the weakness in the inflation report?
> There were a couple of things.
There were things that people look at like restaurants which barely rose compared to about 8.4% a year ago. We know that a year ago, there is a lot of pent-up demand.
Post-COVID, people were socializing and being out again.
That was one area that people were surprised at. Building materials and garden equipment were also down. We are seeing the kind of spending in the past where households would look at what they could do to improve their homes.
The other area that's interesting is sporting-goods, hobbies and musical instruments are also down.
I was speaking to someone who posts on Twitter regularly in one of the things that he noted was that when he goes up to the cottage, people were not out on the lake on their boats.
People are still spending but thinking about where they spend. A family member with the cottage that they book out over the summer is seeing soft bookings this year.
Spending is up a little bit.
It was up about 1/4 of a percent when people expected it to be up about half percent in the states and they were expecting… Those numbers are now what people are paying attention to. That little bit of softness where they weren't expecting it.
>> Where are the mixed messages in this report?
> There are a couple of things.
Car manufacturers said that spending was up but auto dealership said there was softening in sales.
So you want to look at those. Is it pent-up demand going for the system?
Where is the spending coming there?
Another area that was interesting was lower spending on the gas pump.
Some of that is because gasoline prices have declined but are people curtailing their leisure activities in the summer?
>> There is lots to absorb in this report.
What makes this information useful?
>> It's useful for a couple of reasons.
One is to get a sense of household finances.
What are people spending on?
That's part of this kind of data where we think that the economic data is dry and not interesting but if you pay attention to how your own household and those of your friends, you can start to see, our people worried, a lot worried, not worried at all?
This kind of report says that household finances, people are a little worried but they are still doing some spending. The other thing that's interesting is where the Federal Reserve and central bankers look at this data and if we take a look, core retail sales, which is without automobiles, gasoline, building materials and food services, the numbers correspond to consumer spending in the GDP and that number may be slowing a bit.
That's a number the Federal Reserve pays attention to. Would like to have a sense about whether or not we should be worried as we make decisions about leisure activities, investment activities, outlook for our job, all of those things, and we also want to look at the numbers for how central banks look at it and when the numbers slow down, it has people thinking that maybe the Federal Reserve is ready to pause after the July numbers.
>> Of course, that meeting is coming up next week. We'll have to wait to see what they have to say. Susan, thank you very much.
>> Thanks, Anthony.
>> Our thanks to Moneytalk's Susan Prince.
Now, for an update on the markets.
Right now we are having a look at TD's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the heat map function here which gives you a view of market moves on the TSX by price and volume and taking a look… There is a lot of green on the screen, primarily with some of the big Canadian energy needs.
Suncor is up to the tune of more than 2%.
Cenovus has also seen some bids as well.
All the material side, we are seeing some bids from ABX, which is the gold miner, Barrick Gold.
In the red, some tech names.
Shopify is seeing some selling here, down just over 2%.
Let's move over to the S&P 100.
Here, we are seeing again some green on the screen with some of the big US banks.
Bank of America is up.
Some tech names are also up as well, Microsoft.
We are seeing some bid in there as well.
Nvidia, the chipmaker, is seeing some strong buying there.
On the downside, Amazon, Tesla are seeing a bit of selling today.
And of course, you can find more information on the TD advanced dashboard by visiting TD.com/advanced dashboard.
Now, we are back with Robert Both from TD Securities with more questions from our viewers.
This one is on inflation accuracy.
Just how accurate is inflation data when food prices are so high?
Of course, grocery prices have been very high. What is your take on this question?
> My take would be that we don't really have any reason todoubt the accuracy of the data. I think groceries in particular are pretty easy one to go in and measure.
Obviously, there are some components that are measured less frequently. It does cost money to administer these data collection programs.
But we don't have any reason to doubt the inflation data in food prices or anywhere else.
I would just make the point that even though food prices are so high, we have seen a much lower pace of month over month increases over the last couple of months.
In fact, grocery prices actually declined by 0.1% month over month in June. So even though they are running close to 9% year-over-year, much of that reflects the increase as we saw over the second half of 2022 in the early months of 2023 as well.
So we do expect that those to continue to come off for the rest of the year.
Certainly, we have seen a little bit of a rebound in the loonie and that's taking some pressure off of imported food components. We don't have any reason to doubt the data, but we do expect food prices to continue coming lower on a year-over-year basis.
>> You mentioned the loonie. The next question is on the Canadian dollar. What's your view on the loonie?
>> We think the loonie has already paid for 2023.
That is, dollars CAD has already peaked.
We expect the loonie to continue appreciating into the end of this year and into next year as well.
So we are looking at 130 as the level of dollars CAD to get to by the end of the year. It could get towards 125 by the end of next year, so it's a pretty material rally at what's going to drive that is a change in stance by the Federal Reserve.
We do look for them to hike next week, to hike 25, but we think that's going to the last height of the cycle and we are seeing more signs of slowing growth in the US economy despite higher household leverage in Canada. Households depleted a lot more of those excess savings that were accumulated during the pandemic. We are seeing more signs of slowdown in the manufacturing sector. We expect that more tightening from potential banking regulatory changes there.
So with all of that, we do expect the Federal Reserve to begin cutting sooner and that is going to lead to some depreciation of the Canadian dollar into next year.
>> Let's go to the next few or question on a recession. Is there still a chance of a recession that here? Coming into this year, there was a lot of talk that we were going to see a penitential slowdown, a contraction, but we haven't really seen that on the data. We have seen strong numbers in the data and inflation remain strong, retail sales as well.
What are your thoughts on a potential recession for this year?
>> We have been surprised by the resiliency across the Canadian economy.
We thought we would see more evidence of slowing in Q1. The second quarter is also proving to be a little bit stronger and then, you know, when you talk about a recession requiring two quarters of negative growth, we are running out of runway to have a recession in 2023. We could see the economy slow in the fourth quarter and signs of recession into the next year. That's not our base case. We think we are going to continue to see positive growth but negative on a per capita basis so it's really stronger population growth that's fuelling inflation growth.
I don't want to say there is no risk of recession but we have been quite surprised by the resilience and we do expect that to persisteven if growth is considerably weaker on a GDP per capita basis. Back to our base case is not calling for a recession this year?
>> Our base case is for a 1.7% GDP growth this year and 1.2% in 2024.
So that's what we would consider a soft landing.
And again, if you look at this on a per family or a per capita basis, we do have several quarters of negative GDP per capita growth but we don't actually expect to meet the technical threshold for a recession.
>> Robert, thanks very much.
>> It's my pleasure, Anthony.
>> Our thanks to Robert Both, macro strategist with TD Securities. Always do your own research before making any investment decisions. Stay tuned on Wednesday. John Ide, president of Argus Research, will be our guest taking your questions about market trends. A reminder that you get a head start. Just email moneytalklive@td.com. That's all for our show today. Take care. See you tomorrow.
[music]
Every day, we will be joined by guests from across TD, many of whom you will only see here. We'll take you through with moving the markets and answer your questions about investing.
Coming up on today show, we will discuss whether Canadian inflation has cooled enough to keep interest rates on hold with Robert Both, macro strategist with TD Securities.
Moneytalk's Susan Prince will take us through the latest US retail sales report and what it says about the state of the American economy.
And in today's WebBroker education segment, Hiren Amin will show us how to find economic reports on the platform.
Here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get our guest today, let's get an update on the markets.
We will begin here in Canada where markets open and positive territory. The S&P TSX composite index is currently trading up about 132 points, 0.7%.
It's really been driven by gains in materials and energy as stocks following some positive news in the Canadian inflation picture. Taking a look at some of the big movers, Nutrien, shares of Nutrien actually moving higher today.
The world's biggest fertilizer had previously announced cuts to production during the BC port strike. That's right, of course, and late last week after dockworkers accepted a tentative four-year ways she'll.
And Nutrien is currently up to the tune of 4.7%.
We will move south of the border now, taking a look at Wall Street. Wall Street is trading higher as investors I just the latest corporate earnings news.
The S&P 500 is currently trading up, marginally up. It's up 22 points are about half percent.
What's driving it of course has been what has been a pretty strong start to the earnings season.
Taking a look at the tech heavy NASDAQ composite index, it's currently bucking the positive trend. Right now, it's treating relatively flat, just down about 1.7 points right now, to the tune of 14,243.
Taking a look at some of the big movers today in the US markets, FedEx is moving higher today.
the package delivery company just announced a new CFO on Monday and it also made some other appointments within its finance division.
The stock is currently up just over six points or to the tune of 2.4%.
Some other big movers, Goldman Sachs is also trading higher today.
Shares of Goldman are moving higher on the week of some strong bank earnings that we have seen today, as well as late last week.
Of course, Goldman reports a report this Wednesday. Currently, the stock is up just over 3%.
And that is your market update.
For the first time in more than two years, consumer prices have come back within the Bank of Canada's target range of, sorry, target range as the pace of inflation has cooled to 2.8% in June.
But with core measures remaining sticky, will it be enough to keep interest rates on hold?
Joining us now to go through the report and what it might mean for the Bank of Canada is Robert Both, macro strategist with TD Securities.
Robert, thanks very much for joining us.
>> Thank you very much for having me on the program.
>> We got the latest Canadian inflation numbers this morning. It what's your take?
>> It's not too common where you see headline inflation and core inflation surprising in the opposite direction. Core inflation measures were a little bit stronger than we had expected today, but you did see headline come in much softer at 2.8%. So while it is certainly encouraging to see inflation back inside that target range, like you said, for the first time in over two years, we are really not going to draw too much comfort from that until we do see a little more progressin the core measure coming Lord.
>> Talked to us more about interest costs which is becoming an outsized influence on headline inflation.
>> Sure. That is one of the questions we have been getting quite frequently over the last few months, the growing importance of mortgage interest costs as a driver of headline inflation.
So mortgage interest costs are running at about 30% year-over-year in June.
That's not too different than they were in me, but that is contributing .08 points to the inflation and when it's only running at 2.8% year-over-year, it's a very large share of the overall year-over-year increase.
However, we think that simply excluding mortgage interest cost because the Bank of Canada does impact goes through rate hikes would be the wrong approach here.
We think a little dangerous to simply pick and choose which components you would like to drop.
the Bank of Canada obviously has its own tools for looking past more volatile changes across the individual basket.
Those tools like core inflation measures do a good job of stripping out those larger movements that are may be not moving in the same direction as the rest of the basket. So the BOC is focus on those core inflation measures because we got some of the more volatile changes across the basket.
but as we said, core inflation measures are running quite a bit stronger so there's obviously is something else driving prices here.
>> With this number today, what impact will this inflation data have on the BOC policygoing forward and you think the Canada is done with rate hikes this year?
>> I think the BOC is in a wait-and-see mode after the July policy decision.
Generally when headline and core inflation are surprising in opposite directions, that is an environment where the bank is probably going to want to see a little more evidence of how those are going to develop over the next month or two before it commits to any path on future policy decisions.
The sharp drop in headline along the persistence and core does speak to a couple of larger, one-off factors that weighed on headline CPI in June. One of those was household communications.
So, these have been a bit of a drag on the next for several years but cell phone plans fell quite sharply over May and June. Statistics Canada was a tribute in some of that to new cell phone plans and promotional events for major telecoms.
That's on something that's going to continue declining at 5% month over month going forward.
Similarly, we saw a very large drag in travel services in some of those post-pandemic travel booms subside and prices start to normalize. That is something that might continue to play out over the coming months, but the presence of those large one-off moves does speak to the importance of core inflation and that continued persistence and core inflation is something that's probably going to concern the Bank of Canada or add to their already significant concerns. But September is a long ways off.
Headline inflation is back inside the target range. So I think we are going to have to wait and see how this plays out over the next month or two.
>> Now, September is a long way away, but what will you be watching closely as the BOC considers its next move?
>> The bank is laid out what they are watching as they approach the September policy decision. Those factors are the evolution of excess demand, they are the evolution of corporate pricing behaviour, and wage growth.
That paints a somewhat mixed picture over the last few month.
We've seen wage growth come off. We've seen some progress on inflation expectations. But both wages and inflation expectations remain too high for the bank and to remain higher than precoded norms and we are going to need to see more evidence of those continuing to trade lower to the fall.
Corporate pricing behaviours a little more opaquefor those who do notstudy it as closely.
it is something we will see when inflation subsides. But we are mostly focused on the wage growth metrics and the evolutionof the core inflation numbers.
>> Great start to the discussion.
We'll get to your questions about the economy and interest rates for Robert Both in just a moment. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now here's an update on the top stories in the world of business today in a look at how the markets are trading.
the Canadian mortgage and Housing Corporation said that rates of… Posted the largest month over month increase in a decade. Canadian housing starts jumped 41% in June, driven by work beginning on new multiunit projects. Urban starts climbed 59% month over month where is starts in the single-family sector rose a modest 3%.
Meanwhile, spending at US retailers rose in June for the third straight month, despite higher interest rates, persistent inflation and lingering economic uncertainty. Retail spending edged up to a lower-than-expected 0.2%, that's down from the previously revised .5% increase in me.
Spending at department stores fell during the same period.
Bank of America, the second-largest lender in the US, reported a 19% rise in earnings in the second quarter, topping expectations.
The US lender earn more from customer loan payments while its investment banking business fared better than expected.
Last week, several other big US banks posted results for the latest quarter. And here is how the main benchmark index in Canada is trading. Currently the S&P TSX is up to the tune of 130 points or .6%.
We've got some strong optimism following the Canadian inflation data. We'll take a look at the US where the S&P 500 is up just over 21 points.
all right, we are back with Robert Both, taking your questions about the economy and interest rates. We will start with the first question on immigration.
Is it possible but the record high amount of immigration for this year and plan for the future it makes… Makes to present an unreasonable target for inflation? My apologies there.
>> No problem. I don't think there's anything unreasonable about the 2% target.
The Bank of Canada's mandate is to provide low and stable inflation so that Canadian consumers and businesses can plan accordingly.
And for the last 25 years, 2% has served as a very reliable goalpost for that low and stable inflation.
There has been a lot more debate recently about whether immigration, the strong levels of immigration and population growth are adding to inflation over the short term.
But I think a lot of that discussion is perhaps overblown.
One area where you might be feeling a little impact might be across the housing market and in shelter prices.
The Canadian population rose by over 1 million last year for the first time on record. However, we are building 200 to 250,000 new homes on an annual basis. So regardless of how unaffordable housing is by historical standards, there is always going to be very strong demand for housing if you are not able to provide enough supply to keep up with the population growth.
So I think that the higher immigration levels do provide some backstop under the housing market. They have fuelled housing demand through a period of extremely unaffordable housing.
And I think you would have seen larger price declines over the last year if immigration had been slower and population growth had been softer.
Over the longer term, I think immigration is a positive force. It helps address some of the labour shortages. Immigrants tend to be a little bit younger and traditionally bring their young families with them and that helps to offset some of the natural population aging in Canada.
And as more baby boomers retire, that the larger tax base to pay some of thosecosts for the aging population.
> Immigration is something the Bank of Canada has been aware of when they make monetary policy decisions.
>> I think immigration is something that they incorporate into their analysis, but it's not something they've, they are not a strong advocate for or against it.
> The next question is on the Fed.
What should we expect from the Fed next week? Of course, we have the biggest said meeting. We had the BOC last week. They raised 25 basis points. With your outlook for the meeting last week?
>> We look for the Fed to raise their interest rates by 25 basis points next week. However, we do think that is going to be the last fed hike that we see for the cycle. So in June, the Fed chose not to raise interest rates but they signalled through their dog plot and projections that they do think they will hike twice more before the end of the year.
We think that they are only going to hike once more at next week's meeting.
And after that, the outlook becomes a lot more data dependent, similar to the Bank of Canada's outlook right now.
We have already seen some evidence of slowdown in the US economy.
Some of the survey data, especially across the manufacturing sector, has been quite contractionary for several months now.
And you saw a core inflation moderate quite significantly and the US relative to the strong print we just saw for Canada.
So I think the opportunity for the Fed to continue hiking rates is slowly going to close as the economy starts to cool.
There's going to be a little less evidence that we are going to be less evidence that we need to keep hiking rates.
Great start to the questions. Thank you very much. As always, make sure you do your own research before making any investment decisions. we will get back to your questions for Robert Both on the economy and interest rates in just a moment. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get to today's educational segment.
joining us now is Hiren Amin, senior client education instructor with TD Direct Investing. How can an investor stay up-to-date and WebBrokerwith broader economic data?
>> Yeah, great question, Anthony. Thanks for having me back on again and hello to everyone. We are talking about the economy today and it's important because for a lot of investors, finding information on individual investments doesn't seem to be too challenging but when you're trying to get a read on economic data and what's coming up, that can pose a little bit of difficulty.
But we've got you covered on Webbroker. To find some of the information coming out, we want to guide you to our research page.
If you click on the research portal over here, under our markets page over here, go to the report section and you will find, as you scroll down, the TD Economics page over here. I've already got it loaded up and this is what the page is going to bring you two.
for those of us who want to get into a bit more economics, especially those who take a top-down approach to investing and want to assess some of the more broader economic macro factors that are going to affect some of the factors and industries, perhaps this is the one stop shop you want to look at. On this page, you will see divided between Canadian and US markets, you also want to assess US markets if that is something that's of interest to you.
you also have the forecast section which will give you numbers like CPI, inflation, if you pull up the latest financial forecast here, there is a table of these numbers. The overnight target rate, which is what the BOC is basically raisingas their rates over here and he gives us a little bit of projection into what the future or the next quarters might be looking at.
And then down below, you have the broader read on the economic numbers, the global stock markets and commodity pricing.
Finally, the one thing I did want to mention is that sometimes it's a bit much to make heads or tails of what is happening here.
if you want to peruse into this, you could come in here, get a breakdown of the read of what's happening, where the Bank of Canada is looking towards now with those numbers coming more into light there.
>> Now that we have found some useful reports from TD Economics, is there a place in WebBroker where an investor can get alerted for themselves when major economic announcements are coming?
>> Absolutely. If we switch back to our WebBroker profile page here, we have a fantastical alerts page here.we will click on research, tools, and second lobotomy will see alerts. This is where you can set up alerts for yourself. If you click on it where it says set news and alerts up here and then you want to go back to where it says news and research in this pop-up window.
within here, you want to check off the category section and is going to allow you to choose the category that you want to be alerted to and for investors, you can choose many of them within here but for our discussion today, we are talking about economics.
Click on economics.
You probably already have your emails and up to this and then once you do that, is simple as that and then hit save and you're going to get that economic data coming to you whatever there are new published reports that are going to be sent out so this way you can keep the pulse of the economic numbers coming out.
>> Great information as always.
>> My pleasure.
>> Are things to Hiren Amin, Senior client education instructor at TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
We are back now with Robert Both taking your questions. How is the housing market dealing with interest rates rising again?
>> I think it's a little too soon to say how the housing market is going to respond to this last 50 basis points rate hikes.
But we saw a pretty serious adjustment across the retail market as a bank with hiking rates over the course of 2022.
now in the bank signalled that it was ready to pause interest rate hikes, we did see a pretty material rebound in both home sales and home prices. Home sales rose quite sharply over April and May. House prices have been rising by about 2% per month for the last two months so what we have been seeing is almost a return to some of those more speculative environments that we saw over 2020 and 2021. That is something the Bank of Canada made note of in their June policy statement. We saw home sales come back a little bit in the month of June after they hiked, but I think it is still a little too early to say exactly what impact the 50 basis points of tightening will have.
Our outlook is that house prices are going to be close to flood.
This is the outlook for TD Economics.
We are looking for a 0.5% increase in house prices for 2023 as a whole.
We think sales activity will be lower.
But most of that is reflected in the declines we saw.
>> Focus the next question on cutting rates.
Are there circumstances where you see the Bank of Canada lowering interest rates before reaching or trending towards the 2% inflation rate?
For example, deflation, residential mortgage defaults, business failures?
>> Our base case is that the Bank of Canada is done hiking rates.
We think 5% will mark the peak. Assuming that growth slows as we expect an inflation continues to moderate over the second half of this year, any discussion of rate cuts is going to require a few criteria being fulfilled. The first condition we would like to see you before we start discussing rate cuts is inflation back inside Canada's target range. We are there in June but we expect inflation is going to move higher in July and August.
The second condition we are looking for is three month core inflation rates much closer to a target which is something that will give the Bank of Canada confidence that we are heading lower even if inflation is 2.
8, 2.9 when they make their first rate cut.
The third criteria is something closer to balance economic conditions.
Right now, we have a lot of excess demand in the economy. We want to see a lot of that subside before we are discussing rate cuts.
We don't necessarily need to be back in excess supply, but we want to be sure that we are headed there before rate hikes take effect. Some of those scenarios that you mentioned do occur if we see residential mortgage defaults or business insolvencies.
Those are certainly downside risks that would speed up the return to 2% inflation.
But they would still be consistent with inflation trending towards the 2% target.
I think the larger differences there would be the pace of rate cuts, once they start to materialize, and the endpoint.
Our base case, we have a soft landing for the Canadian economy which means the Bank of Canada can stop once they get to those longer-term neutral rates which we think are 2.5% and if we were to see a sharper slowdown with some of those downside risks materializing, that would interest the BOC to bring interest rates to below neutral, below 2.5.
>> It's still early to talk about rate cuts?
>> It's still early.
>> We will get back to your questions for Robert Both on the economy and just a moment. As always, make sure you do your own research before making any investment decisions.
>> 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.
>> US retail sales climbed in June but not enough to match analyst expectations.
Moneytalk's Susan Prince joins us now with more.
Susan, where was the weakness in the inflation report?
> There were a couple of things.
There were things that people look at like restaurants which barely rose compared to about 8.4% a year ago. We know that a year ago, there is a lot of pent-up demand.
Post-COVID, people were socializing and being out again.
That was one area that people were surprised at. Building materials and garden equipment were also down. We are seeing the kind of spending in the past where households would look at what they could do to improve their homes.
The other area that's interesting is sporting-goods, hobbies and musical instruments are also down.
I was speaking to someone who posts on Twitter regularly in one of the things that he noted was that when he goes up to the cottage, people were not out on the lake on their boats.
People are still spending but thinking about where they spend. A family member with the cottage that they book out over the summer is seeing soft bookings this year.
Spending is up a little bit.
It was up about 1/4 of a percent when people expected it to be up about half percent in the states and they were expecting… Those numbers are now what people are paying attention to. That little bit of softness where they weren't expecting it.
>> Where are the mixed messages in this report?
> There are a couple of things.
Car manufacturers said that spending was up but auto dealership said there was softening in sales.
So you want to look at those. Is it pent-up demand going for the system?
Where is the spending coming there?
Another area that was interesting was lower spending on the gas pump.
Some of that is because gasoline prices have declined but are people curtailing their leisure activities in the summer?
>> There is lots to absorb in this report.
What makes this information useful?
>> It's useful for a couple of reasons.
One is to get a sense of household finances.
What are people spending on?
That's part of this kind of data where we think that the economic data is dry and not interesting but if you pay attention to how your own household and those of your friends, you can start to see, our people worried, a lot worried, not worried at all?
This kind of report says that household finances, people are a little worried but they are still doing some spending. The other thing that's interesting is where the Federal Reserve and central bankers look at this data and if we take a look, core retail sales, which is without automobiles, gasoline, building materials and food services, the numbers correspond to consumer spending in the GDP and that number may be slowing a bit.
That's a number the Federal Reserve pays attention to. Would like to have a sense about whether or not we should be worried as we make decisions about leisure activities, investment activities, outlook for our job, all of those things, and we also want to look at the numbers for how central banks look at it and when the numbers slow down, it has people thinking that maybe the Federal Reserve is ready to pause after the July numbers.
>> Of course, that meeting is coming up next week. We'll have to wait to see what they have to say. Susan, thank you very much.
>> Thanks, Anthony.
>> Our thanks to Moneytalk's Susan Prince.
Now, for an update on the markets.
Right now we are having a look at TD's advanced dashboard, a platform designed for active traders available through TD Direct Investing.
We are looking at the heat map function here which gives you a view of market moves on the TSX by price and volume and taking a look… There is a lot of green on the screen, primarily with some of the big Canadian energy needs.
Suncor is up to the tune of more than 2%.
Cenovus has also seen some bids as well.
All the material side, we are seeing some bids from ABX, which is the gold miner, Barrick Gold.
In the red, some tech names.
Shopify is seeing some selling here, down just over 2%.
Let's move over to the S&P 100.
Here, we are seeing again some green on the screen with some of the big US banks.
Bank of America is up.
Some tech names are also up as well, Microsoft.
We are seeing some bid in there as well.
Nvidia, the chipmaker, is seeing some strong buying there.
On the downside, Amazon, Tesla are seeing a bit of selling today.
And of course, you can find more information on the TD advanced dashboard by visiting TD.com/advanced dashboard.
Now, we are back with Robert Both from TD Securities with more questions from our viewers.
This one is on inflation accuracy.
Just how accurate is inflation data when food prices are so high?
Of course, grocery prices have been very high. What is your take on this question?
> My take would be that we don't really have any reason todoubt the accuracy of the data. I think groceries in particular are pretty easy one to go in and measure.
Obviously, there are some components that are measured less frequently. It does cost money to administer these data collection programs.
But we don't have any reason to doubt the inflation data in food prices or anywhere else.
I would just make the point that even though food prices are so high, we have seen a much lower pace of month over month increases over the last couple of months.
In fact, grocery prices actually declined by 0.1% month over month in June. So even though they are running close to 9% year-over-year, much of that reflects the increase as we saw over the second half of 2022 in the early months of 2023 as well.
So we do expect that those to continue to come off for the rest of the year.
Certainly, we have seen a little bit of a rebound in the loonie and that's taking some pressure off of imported food components. We don't have any reason to doubt the data, but we do expect food prices to continue coming lower on a year-over-year basis.
>> You mentioned the loonie. The next question is on the Canadian dollar. What's your view on the loonie?
>> We think the loonie has already paid for 2023.
That is, dollars CAD has already peaked.
We expect the loonie to continue appreciating into the end of this year and into next year as well.
So we are looking at 130 as the level of dollars CAD to get to by the end of the year. It could get towards 125 by the end of next year, so it's a pretty material rally at what's going to drive that is a change in stance by the Federal Reserve.
We do look for them to hike next week, to hike 25, but we think that's going to the last height of the cycle and we are seeing more signs of slowing growth in the US economy despite higher household leverage in Canada. Households depleted a lot more of those excess savings that were accumulated during the pandemic. We are seeing more signs of slowdown in the manufacturing sector. We expect that more tightening from potential banking regulatory changes there.
So with all of that, we do expect the Federal Reserve to begin cutting sooner and that is going to lead to some depreciation of the Canadian dollar into next year.
>> Let's go to the next few or question on a recession. Is there still a chance of a recession that here? Coming into this year, there was a lot of talk that we were going to see a penitential slowdown, a contraction, but we haven't really seen that on the data. We have seen strong numbers in the data and inflation remain strong, retail sales as well.
What are your thoughts on a potential recession for this year?
>> We have been surprised by the resiliency across the Canadian economy.
We thought we would see more evidence of slowing in Q1. The second quarter is also proving to be a little bit stronger and then, you know, when you talk about a recession requiring two quarters of negative growth, we are running out of runway to have a recession in 2023. We could see the economy slow in the fourth quarter and signs of recession into the next year. That's not our base case. We think we are going to continue to see positive growth but negative on a per capita basis so it's really stronger population growth that's fuelling inflation growth.
I don't want to say there is no risk of recession but we have been quite surprised by the resilience and we do expect that to persisteven if growth is considerably weaker on a GDP per capita basis. Back to our base case is not calling for a recession this year?
>> Our base case is for a 1.7% GDP growth this year and 1.2% in 2024.
So that's what we would consider a soft landing.
And again, if you look at this on a per family or a per capita basis, we do have several quarters of negative GDP per capita growth but we don't actually expect to meet the technical threshold for a recession.
>> Robert, thanks very much.
>> It's my pleasure, Anthony.
>> Our thanks to Robert Both, macro strategist with TD Securities. Always do your own research before making any investment decisions. Stay tuned on Wednesday. John Ide, president of Argus Research, will be our guest taking your questions about market trends. A reminder that you get a head start. Just email moneytalklive@td.com. That's all for our show today. Take care. See you tomorrow.
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