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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, we discussed the potential opportunity in fixed income, I believe as the US inflation report coming out cooler than expected. Scott Colbourne from TD Asset Management will be our guest.
MoneyTalk's Anthony Okolie is going to have a look at the state of small business confidence. And in today's WebBroker education segment, Hiren Amin is going to take us through how you can use trailing stocks on the WebBroker platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to the guest of the day, let's get you an update on the markets.
We've got some green on the screen. Let's start with the TSX composite index.
Right now, we are up 218 points, 1.6% in gains. We are seeing strength really across a lot of the big sectors. Let's check out some of the most actively traded names on the TSX. A big rally in technology on both sides of the border, benefiting Shopify today. At 89 bucks and $0.71 per share, they are up a little more than 4%. Gold rallying as bond yields pulled back on the cooler than expected US inflation report. Kinross at 731 per share, of almost 3%. South of the border, the rally is even further to the upside.
The S&P 500 has been in excess of 2% to the upside throughout the session. A little off the highs right now but still up a strong 1.8%. The tech heavy NASDAQ, how is it pacing the broader market? It might be outpacing it. Indeed, up to and 1/4% and then some.
A lot of names in the green today. Let's show you some Wall Street banks. Bank of America. A nice rally on our hands across the board.
2918, you've got BAC up 5 1/3%. And that's your market update.
Only a few weeks ago, the US 10 year treasury yield was cracking the 5% level.
But it currently sits well below that. The latest inflation report showing that consumer prices in the states stayed flat in October and were cooler than expected in their showing. How does that affect the bond market going forward? Here to discuss is Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management. Always good to have you on the program.
It feels like we've been waiting for this report for some time now.
>> It's a good news day for all investors, whether fixed income or equities. It's a bit of a reinforcement of a Goldilocks scenario, modest growth in cooling inflation. A big sigh of relief. The market was expecting a little bit more.
Actually, they were expecting 3/10, 4/10 of month over month inflation, 2.2. So that relief has fed through into a huge rally, as you know, today, across the border.
From an inflation story, that takes the burden off any imminent hike from the Fed.
So we will see how growth plays out through the next quarter or so, but for the near term, this is a big tailwind for the asset market.
>> Sometimes when we take a look at a piece of economic data, and inflation report, they will say, beneath the headline, here is what I didn't like her here's what we need to pay attention to.
Beneath the headline numbers here in the flat reading month over month, was there anything that gave you pause or concern or to the rate hike seemed to be doing the work to bring inflation down gradually?
>> I think you'll see a bit of a push back by central bankers. This is a good news story for the most part. The details are very good.
Even the shelter which popped up last month has come back down.
Maybe super core inflation, you can really slice and dice inflation here, is a little bit higher-than-expected which is sort of the focus on the labour market. Both the Bank of Canada and the Fed have said they want to see further evidence of cooling on the wage front and the job market.
I think there will be a natural push back a little bit by central bankers here. They are not interested in hiking in my personal opinion.
They are going to be patient and let the data come to them.
As the Fed chair did say, we are prepared to over tighten or stay on the tightening side more so than bringing about a change in the markets.
So it'll be a dilemma. How much do pricing in terms of cuts in the market? Do you start in the second quarter of next year or do you move it more to the second half of the year?
Right now, we are starting to Pres. in the second quarter so that's maybe where the tension will show up between the market and the central bankers but I do think we are done. And right now, it's a Goldilocks story because inflation has come down and grosses okay. But if we see growth go down and inflation go down, that's going to be a little bit more concerning for asset markets.
>> Is the feds or the BOC's dilemma going forward not so much what they are seeing in the data but how we react to it as investors, how consumers react to it? I think back to the spring when the Bank of Canada said, we are not going to go this time. Everyone said game on, the housing market ramped up. Then they said, wait a minute, we are back in again.
>> Absolutely. There is an element of expectations here. We've had inflation expectations that came out last week that were a little bit higher than markets expected.
So there's managing expectations, right?
Let the labour market cool off.
We've had one nonfarm payroll that has been sought.
We need probably a string of that. We need this to feed through. We need softening on the labour side. We have seen continuous claims creep up so there is evidence of increasing labour supply but not really maybe real softness in the labour market.
So be prepared to let central bankers wait here in the market is going to have to deal with that sort of push and pull attitude from the central bankers here.
>> I wanted to ask you but an interesting headline I saw pass a while ago. A bond auction in the state. There was concern about issuance earlier in the year they had a messy one recently.
>> The supply is sort of a bit of hair on the bond market. What we have seen is short-term rates higher than long-term rates and that's consistent with the Fed tightening. As we move towards the Fed on gold and ultimately pricing and cutting, you are going to get a dis higher rate staying above longer-term rates is supply.
Last week, we had three options. We had a three year, a 10 year and a 30 year. The first he went well, the 30 year was a big dead. It led to a big selloff in her rates. I think that is going to be a loggerhead.
I think rates in the long and can still come down but it's that headwind. Lots of supplies going to impact the bond market and fiscal spending isn't going away anytime soon, so they need to be careful.
>> Talking the fiscal spending not going away anytime soon, rating agencies have not been pleased in the last several months about what's happening on Capitol Hill.
Moody's, was at the latest to come out with a downgrade for the Outlook?
>> They put a downgrade on the Outlook.
Yeah.
It's not a ratings chain, but it is just another warning sign and the markets are doing a bit of that work too, right?
Putting in play more of a term premium and putting more of a premium on being, buying the longer end because of the supply.
Yeah, that is a huge issue.
I think this is not going to go away. I think politicians our comfortable post-COVID spending. They may rein it in a bid, but I don't think this is going away.
I think this is going to contribute to a stickiness or an upward bias in the longer and relative to the shorter end.
>> What does it mean for fixed income investors? It was a top 2022. It hasn't been the 2023 that we thought it would have been. How we turn the corner?
>> I believe we have turned a corner but I am measured in my enthusiasm.
We can see long-term rates, tenure rates, and the U.S. Navy converge to four, 4 1/4.
I don't think we are going to see short-term policy rates get back quickly to the 0 to 2% range that maybe we were comfortable with in the pre-COVID era. It so it's more of a measured enthusiasm but I think we have nipped the inflation challenge. It's going to take a little bit of time to wring out the expectations in the labour market on wages.
There are crosswinds at play, de-globalization, aging demographics, excess spending.
So is going to measure or limit how much we can see a rally in so I am enthused for the moment and I think you're going to get a nice risk rally into the end of the year with lower bond yields and probably good returns on risk assets as well. We will see how 2024 plays out.
>> All right. Fascinating times. We got a full show ahead of us was Scott Colbourne from TD Asset Management. We are talking fixed income and Scott wants to take your questions.
That will all happen in just a moment's time. A reminder that you can get in touch with us with those questions 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.
Teck Resources is selling its coal business in a deal valued at $8.9 billion US. Commodity trying Glencore will take a 77% stake in the steelmaking coal unit while two Asian steelmakers already hold minority stakes will take the rest. The deal is subject to approval by Canadian regulators. Right now, you got tech up about 3%.
Let's take a look at Home Depot. It is warning investors that homeowners are scaling back on renovation projects.
The company says higher borrowing costs and the housing market slowdown are weighing on consumer appetite for big rhinos. Consumers apparently opting for smaller projects. The example he gave was instead of doing the full kitchen, maybe some of their consumers are just doing the backsplash in the kitchen. Right now, the stock up 6 1/2% because despite that warning, Home Depot managed to beat earnings expectations for its latest quarter.
Sun Life financial is raising its dividend payout to shareholders on the heels of its latest earnings report. In a note to clients, TD Cowen says strong results in Asia offset a weaker performance in Sun Life US business. Right now, Sun Life up 3 1/4%. A quick check in on the markets.
We will start on Bay Street with the TSX Composite Index.
We are up 319 Points in Toronto for a gain of 1.6%.
South of the border, let's check in on the S&P 500, that brought a read of the American market, up 1.8%, 80 points on the board.
We are back was Scott Colbourne, take your questions about fixed income. First one off is a currency question.
Where do you see the Canadian dollar versus the US dollar going?
>> We are going to see the Canadian dollar likely improve here. We've got a lower yield structure going on and so the US dollar is weakening off. Today is a perfect example of that.
Most global currencies are performing the US dollar. Canada has some challenges. I think it's a bit of a more modest rally.
I treated this way. I traded one 37 1/2 today is the Canadian dollar. I think we can get down to 135 is a likely in the next couple of weeks. And then, I think there are a lot of currencies that outperform the Canadian dollar outside of the US. Some emerging market currencies, for example, the Australian dollar, for example, there are some currencies I think will outperform the Canadian dollar but it's all, we are in a bias to a weaker US dollar here.
>> On the other side of that is the US dollar. Let's talk about it. We have seen that incredible US dollar strength that people thought was going to abate but it just kept grinding higher. Was that really just a central bank policy story now that we might be turning the corner, that story changes?
>> I think there's a lot to it.
The US dollar's strengths and the US central bank, it's good growth as well.
The US it's been as an exceptional performer relative to the global economy and there is an attractive asset market to be invested in.
So there's been a lot of positives at the tailwind. I think at the margin, the fact that we are likely to see a pause by the central bank and even starting to price and cuts next year, it just going to take a bit of the edge off the US dollar so we might see some weakness, a couple percent on the US dollar.
>> One headline I haven't seen lately that was popping up several months ago is writing about dedollarization, the end of the supremacy of the US back. I think we discussed that before but no one seems to be writing about it anymore.
>> No one seems to be writing about it.
It's a very complicated question. If you sell the US dollar, what are you buying?
And I don't know what people are proposing to replace the US dollar in that size.
Diversification happens, but it's not the Chinese or NIMBY. It's not the Japanese yen, the euro, certainly not bitcoin.
So I'm at a loss to say is you sell something you have to buy something. A currency market, there are two sides. It's not one-sided. So what are you buying to replace it? I just don't see the wholesale undermining of the US dollar. Do I say diversification? Sure.
>> Let's get to another question now from the audience. Of your want to know what you're going to be watching for in the fall physical update now that we have a date from the federal government here in Canada.
>> The federal government hasn't exactly shined on its debt management program.
They pulled the real return bond program.
So a program that institutional investors absolutely wanted and used extensively in a lot of the liability driven investing.
But now, they've killed that market.
They've talked about ending the CNB market, which is the Canadian housing trust market.
Investors are at a bit of a loss to understand the motivations by the Department of Finance as to what to expect and so we are waiting to hear what they decide on the CNB market, whether they will kill that as well. So in addition to normal funding and the distribution of data and how to finance that, the auctions, we are certainly waiting to find out what they want to do with those programs.
>> It was a year ago in Britain when they came out with ideas about a bunch of cuts that were going to be funded and then the bond market reacted quite vigourously, to put it politely. Do you think they have in mind in Ottawa right now that if we go too far in any direction, the bond market might tell us we've gone too far?
>> I think lessons learned. That would be a combination of the debt management issue announcement as well as program spending.
>> That's a concern, there would be measures that were inflationary that might undo some progress that was me.
>> I think the sense that I get is there is not new spending. In fact, I think there are some cuts.
How they finance what they propose to spend on his what I'm interested in.
>> That will be something to watch for in the coming days.
Another question now, more about the bond market. What is your view on corporate bonds right now?
>> There are a lot of positives for corporate bonds.
Big picture, the all in yields for corporate bonds are very attractive.
While we talk about a spread relative to government bonds is how corporate bonds are price, and they historically are I would say just average levels. They are not very attractive or very expensive. On an all in yield basis, a lot of investors by all in yield basis particularly south of the border and it's very attractive.
You combine that with relatively less supply over the course of this year, and no wall of maturity is expected imminently in youth are that in and fundamentals, broadly speaking, on the corporate bond market, equities have been good this year.
So I think it's all in all a good place to be. Obviously, just do your homework to pick which ones.
>> What about this idea that, as you said at the top of the show, it seems you have a Goldilocks situation. We are getting inflation under control, the US economy is holding up, the labour market is and adding many jobs but people aren't losing their jobs to a certain degree. What if we get a rougher landing for the US economy?
Is that where we have to take a closer look at the corporate?
In the end, it's all about the health of the consumer.
>> In the near term, I think it's Goldilocks and I think it's a reasonable risk to price and so what would happen in the bond market if we had further deterioration on the downside in the economy, I think what you would see is continued decreasing bond yields and a widening and spreads. So maybe I'll yields don't rally as much as say government bond yields as the risk premium is done in order to compensate for the weaker economy. So I still think it's a reasonable place to be. High quality, investment-grade debt. You can buy it in the front end of the yield curve. If you are worried about duration, there some great yields, both investment-grade and below investment grade there.
You take out the vast majority of duration in that part of the curve or you can buy some yield and some duration in a pooled solution, for example.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Scott Colbourne on fixed income in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
There are different types of stop orders available on the WebBroker platform. Here to walk us through how trailing stops work is Hiren Amin, senior client education instructor with TD Direct Investing.
Herein, always great to see. Let's start with talking about the difference between a regular stop order and a trailing stop order.
>> Absolutely, Greg. Great to be back.
Let's talk about a stop order first.
Stop orders, as you know, are commonly used in the case of selling equities and they are used to protect profits or minimize losses. To really get into the difference, I want to show you a visual which will really capture and explain this and I will put some colour onto how it works.
We can roll bad and I will show you. But you have over here is when you are setting your stop, you have to set up below the market price. This case, we assume the stock is at 10 and we set a stop at nine dollars.
If the stock falls, you get sold out at the nine dollar price. So again, protecting profits and minimizing losses.
However, when you are doing a trailing stop order, you are setting a differential. In this case, we are using one dollar, as you can see.
So it's taking one dollar off the current market price and then the trailing part of that order means that it is going to follow that stop on its way up so that means it is adjusting that stop price by one dollar each time based on the current market price and changing it for us. And now as it goes up, it will continue following up but it does not feel it on the way down.
If it happens to fall more than one dollar, then we will be stopped on that price there and that is going to be the key difference there, that it follows that on its way up but on the way down it doesn't follow it any longer and it will leave it at the last high stop price and then exit us out of that trade at that point there.
So that just a little bit about the differences.
>> I'm a big fan of that graph. I like that visual representation of what's going on. It drives it home in my head. Now we know how it works and why you use one, how do you actually enter a trailing stop in WebBroker?
>> Great question.
We are going to open a buy or sell to get here. I'm going to use Dollarama for example.
When it loads up here, I might have to refresh my screen, just give me one moment and I will give this another cake here and then we will show you how that goes. Let's give this another go.
Let's try Dollarama here. All right.
We are taking some time to think here.
>> Testing your wits today, Hiren.
>> We are. We are.
Seems to be a little slow on my end. I'm hoping I can bring that up for you in just a moment's time here.
But very similar to what we did there, once we do bring up the trade ticket, we might even have just a visual there.
If this doesn't work, then we will just queue it onto the visual. I think we lost our screen here for a moment.
So if we do have a visual, if we can bring that up, essentially let me just try to refresh it one last time and we will see if we can get this rolling over here.
>> Everything works perfectly until you needed to work perfectly. That's the rule of everything.
>> Just when you need it, we were just testing this before we came live on air here.
All right. We are not having any luck here today.
I don't know if we do have a visual but we will cue the series. So we will show the order essentially when the system comes up, we… I am not having any luck over here.
I apologize for this.
>> This is going to be called a cliffhanger hit because we are going to come back and make sure that we do show the audience how to actually enter a trailing stop into a broker. But we understand what they are and now you whet the appetite of the audience to find out more.
>> Thanks, Hiren.
>> Thanks, Greg.
>> Hiren Amin, senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we get back your questions on fixed income for Scott Colbourne, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Scott Colbourne, and taking your questions. What is your opinion on new offer extendable notes offered by the banking industry?
>> This is really into the weeds. It's a type of corporate bond issued in Canada and it's issued by the banks. Insurance companies also issue them. Basically, they are replacing the traditional retail preferred share market.
As of now, one of the challenges with this is that it's not in any Canadian bond index. So people buying this, the sponsorship of this issue is institutional but it's not broad-based, it's not in Canadian or fixed income indexes. It's attractive because it offers investors a very attractive yield and when they were first issued, they were issued with the intention of being called by the financial institution for about five years. We are coming up so that in the first sort of iteration of these but they were issued with a reset. And so is it attractive to call these bonds and issue new capital for the financial institution or are these very cheap and they just don't call them?
That's the risk to the investor. They become extended. And it's very complicated and you have to do a lot of homework.
So the big difference I think for investors take a look at right now is whether you have, you buy low reset bonds which may not be called or higher reset bonds which are likely to be called in the future. So complicated, very technical, in the weeds, corporate bonds. It plays a very important role. I think it's an attractive investment to have. Canadian banks are very attractive, good corporate capital stocks.
So it's the riskier end of Canadian banks bonds but you've got to do a lot of homework.
>> I had no idea about the space. That was a great explanation of what's going on.
Definitely, at home, do your homework if you're looking at that space. But thanks the question because I learned something new today. Here's the next one. A viewer wants to know, what's the new normal rate?
The central bank was setting its new overnight rate without trying to tamp down the economy but not trying to juice it up.
What can we expect?
>> The dot plots tell us that the Fed is thinking about 2 1/2% is the long-run expectation. So 2% inflation +0 to 50 basis points and real rates. That's the long-run expectation. I think there are lots of debate that we are in a different environment than may be the new normal is maybe 3 1/2% or something like that, in that range. If you look at what's priced into the markets over the next let's just call it two years, you sort of see the markets gravitating towards that initial landing spot, if you will. So I think the market at this point in time is still sort of debating as to whether believe the feds long-run expectations for Fed funds or are we going to a new landing spot to reassess the school, reassess credit risk, reassess the de-globalization and the higher costs of decarbonisation, all sorts of things may contribute to a higher Fed funds rate then we have had in the past.
>> The natural second part of that question would be, whenever we feel that the rate is, how quickly we get back down to it. One the central banks are cutting?
Will they be gradual?
>> I have a mentor to many cycles that have been gradual. For the time being, the cycle has been abnormal.
Maybe the pace of cutting is more modest this time around. But there has not been many cycles where it doesn't get going.
>> So once the job is done, the job is done.
>> There is a reason and the evidence is pretty clear on that.
>> Interesting stuff. Another question from the audience. What would you suggest in this current environment? Should I be holding an ultra short-term Canadian bond mutual fund?
Here on the platform, we cannot give you investing advice but we can definitely talk about the question and some of the pros and cons around it.
>> I like to think of these types of questions in portfolio construction. If you are thinking about on the equity side, you just buy one equity, just Canadian equities. Or do by some US, some global?
Do by growth? Do by value? There's a lot of different ways to express your investments on the equity side. It's no different on the other side. If you have no tolerance for any volatility in your portfolio, then you can see the attraction of being in money market and GICs. A flat line, they give you a yield. But there are other opportunities in the credit market, investment grade, he got a lot more yield but a little bit more price volatility.
If you think that there is a risk that the economy may deteriorate and go from a soft landing to a hard landing, he wants emotionality for substantially lower longer-term rates, and you get that in a longer term bond, for instance.
This is a portfolio construction. What type of exposures do you want in your portfolio?
We all, whether it's our asset allocation programs at TD Asset Management or even personally, you have two balanced portfolios based on what makes sense for you.
>> Let's get to another question here.
This takes us a bit global. What are Scott's thoughts on emerging-market bonds and which ones?
And, hey, we like Scott's haircut.
>> Trimmed it a little bit. Yes, thank you. I would say that emerging markets at the moment, I'm shying away from.
There are two ways of investing in emerging markets. There is hard currency which is more like investing in corporate markets. As Malik local bonds. For example, Mexico. Local tenure rates are around 9 1/2, 10%.
So when do you buy it?
Right now, I think the Canadian bond market is outperforming the Mexican bond market so I'm waiting. I think you are going to get a nice opportunity by the end of this year to start investing in some of those markets. I think that South Africa's market we are looking at, Indonesia is a market we are looking at, Mexico is definitely a market we are looking at. So on the lighter side in terms of what we want to be in at the moment or historically have been in but we think an opportunity is coming in the next few months.
>> For retail investor if they are looking at emerging markets, they might be looking at bond funds. You mentioned this earlier.
When it comes to emerging markets, is there a note of caution there in terms of what's in the fund? I can imagine all of these countries are on an equal plane when it comes to investing.
>> That's one of the challenges of buying an index of local emerging-market bonds.
The largest component is always the group that issues the most. Historically, that was Argentina. That was a market you didn't want to be in. Right now, one of the largest bond funds is in China and yields are really low over there. So maybe that's not what you want.
The advantage of being in a pool solution by an investor like myself as you get to pick and choose the markets which makes more sense.
>> We are going to get back to your questions or Scott Colbourne on fixed income 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.
October marked the third consecutive monthly decline in US small business confidence.
Anthony Okolie has been digging into a new TD Economics report on the numbers.
>> Results in weakness. There was a slight weakness.
The small business optimism index for the US edged down less than… In October, that came in slightly above expectations.
Historically, it's on the low side. Small business confidence stayed relatively stable over the last 17 months within a range between 89 to 92 points but it does mark the 22nd consecutive month of deteriorating mood among US small businesses with optimism below the 49 year average of 98 points.
Some of the key takeaways, we did see small business owners still say inflation and labour quality are top of mine. That's a change from the previous month. When you break it down by subcomponents, we saw a really big decline in one of the key indicators, specifically firms earnings trends drop sizable he with reports of positive profits down about eight points, to -13%. Sales growth slowed and the bottom line was squeezed from many small businesses. Meanwhile, on the job market front, it was relatively stable but they still remain at historically high levels and again a little bit more pressure on many of the small businesses despite the cooling US October payroll part that we saw. The share of firms with unfulfilled positions remained unchanged at about 43%.
Amid job openings, the quality of labour concerns were unchanged. That's slightly higher than the inflation concerns which edged lower in October.
That sort of alliance with the latest US EPA report which showed some good news on both the headline and the core inflation numbers. In addition to that, the share of firms increasing compensation held steady as well. But the share of firms passing prices to consumers rose in October, indicating at least for small businesses there is still some upside pressure to inflation that remains.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat malfunction, giving us a view of the market movers.
Let's green through the TSX 60 by price and volume.
We have a nice rally on our hands today, the US inflation report coming in cooler than expected.
We are seeing yields pull back dramatically in the bond market. A lot of the yield sensitives are getting a bid today. I'm looking at some telecom companies like BCE, up to the tune of almost 2% and particularly a lot of the utilities are rallying and the financials.
Why are we not seeing as much green on the screen?
You got the price of gold up about the same percentage wise as the price of crude oil and you're seeing a nice rally and some of those materials and mining's names penultimate in the energy space. CNQ is standing out a little bit more than 1% from its energy brethren.
South of the border, got a pretty strong rally on our hands. A lot of technology names. We showed Shopify earlier in the show on the side of the border. You could take a picture of the different tech names.
It seems chipmakers are leading the pack there, including AMD, up about 3 1/2%.
Tesla rallying today, some of the automakers and financials on Wall Street as well. Pretty interesting day in the markets with inflation showing signs of scolding a little quicker than the streets expectations. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back to Scott Colbourne from TD Asset Management, we are talking fixed income. If you are wants to know, are we in a stagflationary environment?
>> No. No.
I don't believe we are in a stagflationary environment.
You can look at brought inflation across the globe and developed markets, there are 10 of them, the median CPI, core CPI is now at the present and that's excluding today's US number. On the emerging-market side, there's 18 of them and it's about the same. So 3%, while higher than we've been used to on a core basis, you're talking about 20 countries globally. That is not really, really inflationary. We went through an inflationary shock. It is coming down. It is normalizing, it is taking time. We are in parts of the world seeing slower growth.
So two examples of that, Canada and the UK. We have had two quarters of basically flat growth and there is a debate, is it a technical recession or not, but I don't think that's the point. So slow growth, higher than we are used to inflation doesn't equal the stagflation that was part of the 70s.
So it's something that the market is patiently or policymakers are patiently trying to deal with and it's definitely not the case in the US.
>> Another question now on the economy overall. It is a recession likely in the next year?
I guess it depends which market we are talking about.
>> Look, at the moment the probabilities are low.
The evidence is suggesting that the economy globally is slowing.
Let's say we had a recession, I talked about the possibility of the UK and Canada having a technical recession, the likelihood is more modest. In those countries, both the UK and Canada, our countries that have higher sensitivity to housing markets and so we likely see a modest recession in those countries as a headwind. The United States, they have definitely de-leveraged posts 2008 on the household balance sheet side as well they turn down a lot of their debt during the pandemic so they are in much better shape and are probably not going to have a recession.
But globally, slow growth. That's a likely scenario and that would be another reason to own fixed income.
>> Let slip in another question here before you run out of time on the show.
US politics. Could the US election cycle have an impact on bonds? We are going to really start getting into the thick of it in 2024.
>> Yeah, the new cycle is picking up and often the races one year away from the US presidential election so anything goes.
For the time being, the markets are just going to be… Accept what comes but obviously have a profound impact on the nature of a transition. If it was bumpy, the plans for spending, yeah, lots to discuss and we will be debating that into next year.
>> Plenty more appearances on the show next year to talk about that. Before I let you go today, I'm looking at the US 10 year treasury yield.
It's below 4.5, it pulled back dramatically this morning on the US inflation report coming in cooler than expected.
What do we need to be mindful of in the next couple of months? It's been a rough go in the past year and 1/2. How we turn the corner?
>> I think we have.
5% is the top. Is it a one-way drop to 3 1/2? No. I think we likely go down to 4 1/4, 4% is my trajectory but I think we're going to land there for a little while and consolidate up to this huge adjustment from 5% to current levels.
>> Scott, always great to have you.
Fascinating conversation. Look forward to the next one.
>> Thanks, Greg.
>> Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management. As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show. Caitlin Cormier, client education instructor with TD Direct Investing will be our guest answering your questions about the WebBroker platform. A reminder, of course, you can get a head start with this question. Just email moneytalklive@td.com. That's a time you have the show today. Thanks for watching.
We will 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, we discussed the potential opportunity in fixed income, I believe as the US inflation report coming out cooler than expected. Scott Colbourne from TD Asset Management will be our guest.
MoneyTalk's Anthony Okolie is going to have a look at the state of small business confidence. And in today's WebBroker education segment, Hiren Amin is going to take us through how you can use trailing stocks on the WebBroker platform.
So here's how you can get in touch with us.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before we get to the guest of the day, let's get you an update on the markets.
We've got some green on the screen. Let's start with the TSX composite index.
Right now, we are up 218 points, 1.6% in gains. We are seeing strength really across a lot of the big sectors. Let's check out some of the most actively traded names on the TSX. A big rally in technology on both sides of the border, benefiting Shopify today. At 89 bucks and $0.71 per share, they are up a little more than 4%. Gold rallying as bond yields pulled back on the cooler than expected US inflation report. Kinross at 731 per share, of almost 3%. South of the border, the rally is even further to the upside.
The S&P 500 has been in excess of 2% to the upside throughout the session. A little off the highs right now but still up a strong 1.8%. The tech heavy NASDAQ, how is it pacing the broader market? It might be outpacing it. Indeed, up to and 1/4% and then some.
A lot of names in the green today. Let's show you some Wall Street banks. Bank of America. A nice rally on our hands across the board.
2918, you've got BAC up 5 1/3%. And that's your market update.
Only a few weeks ago, the US 10 year treasury yield was cracking the 5% level.
But it currently sits well below that. The latest inflation report showing that consumer prices in the states stayed flat in October and were cooler than expected in their showing. How does that affect the bond market going forward? Here to discuss is Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management. Always good to have you on the program.
It feels like we've been waiting for this report for some time now.
>> It's a good news day for all investors, whether fixed income or equities. It's a bit of a reinforcement of a Goldilocks scenario, modest growth in cooling inflation. A big sigh of relief. The market was expecting a little bit more.
Actually, they were expecting 3/10, 4/10 of month over month inflation, 2.2. So that relief has fed through into a huge rally, as you know, today, across the border.
From an inflation story, that takes the burden off any imminent hike from the Fed.
So we will see how growth plays out through the next quarter or so, but for the near term, this is a big tailwind for the asset market.
>> Sometimes when we take a look at a piece of economic data, and inflation report, they will say, beneath the headline, here is what I didn't like her here's what we need to pay attention to.
Beneath the headline numbers here in the flat reading month over month, was there anything that gave you pause or concern or to the rate hike seemed to be doing the work to bring inflation down gradually?
>> I think you'll see a bit of a push back by central bankers. This is a good news story for the most part. The details are very good.
Even the shelter which popped up last month has come back down.
Maybe super core inflation, you can really slice and dice inflation here, is a little bit higher-than-expected which is sort of the focus on the labour market. Both the Bank of Canada and the Fed have said they want to see further evidence of cooling on the wage front and the job market.
I think there will be a natural push back a little bit by central bankers here. They are not interested in hiking in my personal opinion.
They are going to be patient and let the data come to them.
As the Fed chair did say, we are prepared to over tighten or stay on the tightening side more so than bringing about a change in the markets.
So it'll be a dilemma. How much do pricing in terms of cuts in the market? Do you start in the second quarter of next year or do you move it more to the second half of the year?
Right now, we are starting to Pres. in the second quarter so that's maybe where the tension will show up between the market and the central bankers but I do think we are done. And right now, it's a Goldilocks story because inflation has come down and grosses okay. But if we see growth go down and inflation go down, that's going to be a little bit more concerning for asset markets.
>> Is the feds or the BOC's dilemma going forward not so much what they are seeing in the data but how we react to it as investors, how consumers react to it? I think back to the spring when the Bank of Canada said, we are not going to go this time. Everyone said game on, the housing market ramped up. Then they said, wait a minute, we are back in again.
>> Absolutely. There is an element of expectations here. We've had inflation expectations that came out last week that were a little bit higher than markets expected.
So there's managing expectations, right?
Let the labour market cool off.
We've had one nonfarm payroll that has been sought.
We need probably a string of that. We need this to feed through. We need softening on the labour side. We have seen continuous claims creep up so there is evidence of increasing labour supply but not really maybe real softness in the labour market.
So be prepared to let central bankers wait here in the market is going to have to deal with that sort of push and pull attitude from the central bankers here.
>> I wanted to ask you but an interesting headline I saw pass a while ago. A bond auction in the state. There was concern about issuance earlier in the year they had a messy one recently.
>> The supply is sort of a bit of hair on the bond market. What we have seen is short-term rates higher than long-term rates and that's consistent with the Fed tightening. As we move towards the Fed on gold and ultimately pricing and cutting, you are going to get a dis higher rate staying above longer-term rates is supply.
Last week, we had three options. We had a three year, a 10 year and a 30 year. The first he went well, the 30 year was a big dead. It led to a big selloff in her rates. I think that is going to be a loggerhead.
I think rates in the long and can still come down but it's that headwind. Lots of supplies going to impact the bond market and fiscal spending isn't going away anytime soon, so they need to be careful.
>> Talking the fiscal spending not going away anytime soon, rating agencies have not been pleased in the last several months about what's happening on Capitol Hill.
Moody's, was at the latest to come out with a downgrade for the Outlook?
>> They put a downgrade on the Outlook.
Yeah.
It's not a ratings chain, but it is just another warning sign and the markets are doing a bit of that work too, right?
Putting in play more of a term premium and putting more of a premium on being, buying the longer end because of the supply.
Yeah, that is a huge issue.
I think this is not going to go away. I think politicians our comfortable post-COVID spending. They may rein it in a bid, but I don't think this is going away.
I think this is going to contribute to a stickiness or an upward bias in the longer and relative to the shorter end.
>> What does it mean for fixed income investors? It was a top 2022. It hasn't been the 2023 that we thought it would have been. How we turn the corner?
>> I believe we have turned a corner but I am measured in my enthusiasm.
We can see long-term rates, tenure rates, and the U.S. Navy converge to four, 4 1/4.
I don't think we are going to see short-term policy rates get back quickly to the 0 to 2% range that maybe we were comfortable with in the pre-COVID era. It so it's more of a measured enthusiasm but I think we have nipped the inflation challenge. It's going to take a little bit of time to wring out the expectations in the labour market on wages.
There are crosswinds at play, de-globalization, aging demographics, excess spending.
So is going to measure or limit how much we can see a rally in so I am enthused for the moment and I think you're going to get a nice risk rally into the end of the year with lower bond yields and probably good returns on risk assets as well. We will see how 2024 plays out.
>> All right. Fascinating times. We got a full show ahead of us was Scott Colbourne from TD Asset Management. We are talking fixed income and Scott wants to take your questions.
That will all happen in just a moment's time. A reminder that you can get in touch with us with those questions 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.
Teck Resources is selling its coal business in a deal valued at $8.9 billion US. Commodity trying Glencore will take a 77% stake in the steelmaking coal unit while two Asian steelmakers already hold minority stakes will take the rest. The deal is subject to approval by Canadian regulators. Right now, you got tech up about 3%.
Let's take a look at Home Depot. It is warning investors that homeowners are scaling back on renovation projects.
The company says higher borrowing costs and the housing market slowdown are weighing on consumer appetite for big rhinos. Consumers apparently opting for smaller projects. The example he gave was instead of doing the full kitchen, maybe some of their consumers are just doing the backsplash in the kitchen. Right now, the stock up 6 1/2% because despite that warning, Home Depot managed to beat earnings expectations for its latest quarter.
Sun Life financial is raising its dividend payout to shareholders on the heels of its latest earnings report. In a note to clients, TD Cowen says strong results in Asia offset a weaker performance in Sun Life US business. Right now, Sun Life up 3 1/4%. A quick check in on the markets.
We will start on Bay Street with the TSX Composite Index.
We are up 319 Points in Toronto for a gain of 1.6%.
South of the border, let's check in on the S&P 500, that brought a read of the American market, up 1.8%, 80 points on the board.
We are back was Scott Colbourne, take your questions about fixed income. First one off is a currency question.
Where do you see the Canadian dollar versus the US dollar going?
>> We are going to see the Canadian dollar likely improve here. We've got a lower yield structure going on and so the US dollar is weakening off. Today is a perfect example of that.
Most global currencies are performing the US dollar. Canada has some challenges. I think it's a bit of a more modest rally.
I treated this way. I traded one 37 1/2 today is the Canadian dollar. I think we can get down to 135 is a likely in the next couple of weeks. And then, I think there are a lot of currencies that outperform the Canadian dollar outside of the US. Some emerging market currencies, for example, the Australian dollar, for example, there are some currencies I think will outperform the Canadian dollar but it's all, we are in a bias to a weaker US dollar here.
>> On the other side of that is the US dollar. Let's talk about it. We have seen that incredible US dollar strength that people thought was going to abate but it just kept grinding higher. Was that really just a central bank policy story now that we might be turning the corner, that story changes?
>> I think there's a lot to it.
The US dollar's strengths and the US central bank, it's good growth as well.
The US it's been as an exceptional performer relative to the global economy and there is an attractive asset market to be invested in.
So there's been a lot of positives at the tailwind. I think at the margin, the fact that we are likely to see a pause by the central bank and even starting to price and cuts next year, it just going to take a bit of the edge off the US dollar so we might see some weakness, a couple percent on the US dollar.
>> One headline I haven't seen lately that was popping up several months ago is writing about dedollarization, the end of the supremacy of the US back. I think we discussed that before but no one seems to be writing about it anymore.
>> No one seems to be writing about it.
It's a very complicated question. If you sell the US dollar, what are you buying?
And I don't know what people are proposing to replace the US dollar in that size.
Diversification happens, but it's not the Chinese or NIMBY. It's not the Japanese yen, the euro, certainly not bitcoin.
So I'm at a loss to say is you sell something you have to buy something. A currency market, there are two sides. It's not one-sided. So what are you buying to replace it? I just don't see the wholesale undermining of the US dollar. Do I say diversification? Sure.
>> Let's get to another question now from the audience. Of your want to know what you're going to be watching for in the fall physical update now that we have a date from the federal government here in Canada.
>> The federal government hasn't exactly shined on its debt management program.
They pulled the real return bond program.
So a program that institutional investors absolutely wanted and used extensively in a lot of the liability driven investing.
But now, they've killed that market.
They've talked about ending the CNB market, which is the Canadian housing trust market.
Investors are at a bit of a loss to understand the motivations by the Department of Finance as to what to expect and so we are waiting to hear what they decide on the CNB market, whether they will kill that as well. So in addition to normal funding and the distribution of data and how to finance that, the auctions, we are certainly waiting to find out what they want to do with those programs.
>> It was a year ago in Britain when they came out with ideas about a bunch of cuts that were going to be funded and then the bond market reacted quite vigourously, to put it politely. Do you think they have in mind in Ottawa right now that if we go too far in any direction, the bond market might tell us we've gone too far?
>> I think lessons learned. That would be a combination of the debt management issue announcement as well as program spending.
>> That's a concern, there would be measures that were inflationary that might undo some progress that was me.
>> I think the sense that I get is there is not new spending. In fact, I think there are some cuts.
How they finance what they propose to spend on his what I'm interested in.
>> That will be something to watch for in the coming days.
Another question now, more about the bond market. What is your view on corporate bonds right now?
>> There are a lot of positives for corporate bonds.
Big picture, the all in yields for corporate bonds are very attractive.
While we talk about a spread relative to government bonds is how corporate bonds are price, and they historically are I would say just average levels. They are not very attractive or very expensive. On an all in yield basis, a lot of investors by all in yield basis particularly south of the border and it's very attractive.
You combine that with relatively less supply over the course of this year, and no wall of maturity is expected imminently in youth are that in and fundamentals, broadly speaking, on the corporate bond market, equities have been good this year.
So I think it's all in all a good place to be. Obviously, just do your homework to pick which ones.
>> What about this idea that, as you said at the top of the show, it seems you have a Goldilocks situation. We are getting inflation under control, the US economy is holding up, the labour market is and adding many jobs but people aren't losing their jobs to a certain degree. What if we get a rougher landing for the US economy?
Is that where we have to take a closer look at the corporate?
In the end, it's all about the health of the consumer.
>> In the near term, I think it's Goldilocks and I think it's a reasonable risk to price and so what would happen in the bond market if we had further deterioration on the downside in the economy, I think what you would see is continued decreasing bond yields and a widening and spreads. So maybe I'll yields don't rally as much as say government bond yields as the risk premium is done in order to compensate for the weaker economy. So I still think it's a reasonable place to be. High quality, investment-grade debt. You can buy it in the front end of the yield curve. If you are worried about duration, there some great yields, both investment-grade and below investment grade there.
You take out the vast majority of duration in that part of the curve or you can buy some yield and some duration in a pooled solution, for example.
>> As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Scott Colbourne on fixed income in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now let's get our educational segment of the day.
There are different types of stop orders available on the WebBroker platform. Here to walk us through how trailing stops work is Hiren Amin, senior client education instructor with TD Direct Investing.
Herein, always great to see. Let's start with talking about the difference between a regular stop order and a trailing stop order.
>> Absolutely, Greg. Great to be back.
Let's talk about a stop order first.
Stop orders, as you know, are commonly used in the case of selling equities and they are used to protect profits or minimize losses. To really get into the difference, I want to show you a visual which will really capture and explain this and I will put some colour onto how it works.
We can roll bad and I will show you. But you have over here is when you are setting your stop, you have to set up below the market price. This case, we assume the stock is at 10 and we set a stop at nine dollars.
If the stock falls, you get sold out at the nine dollar price. So again, protecting profits and minimizing losses.
However, when you are doing a trailing stop order, you are setting a differential. In this case, we are using one dollar, as you can see.
So it's taking one dollar off the current market price and then the trailing part of that order means that it is going to follow that stop on its way up so that means it is adjusting that stop price by one dollar each time based on the current market price and changing it for us. And now as it goes up, it will continue following up but it does not feel it on the way down.
If it happens to fall more than one dollar, then we will be stopped on that price there and that is going to be the key difference there, that it follows that on its way up but on the way down it doesn't follow it any longer and it will leave it at the last high stop price and then exit us out of that trade at that point there.
So that just a little bit about the differences.
>> I'm a big fan of that graph. I like that visual representation of what's going on. It drives it home in my head. Now we know how it works and why you use one, how do you actually enter a trailing stop in WebBroker?
>> Great question.
We are going to open a buy or sell to get here. I'm going to use Dollarama for example.
When it loads up here, I might have to refresh my screen, just give me one moment and I will give this another cake here and then we will show you how that goes. Let's give this another go.
Let's try Dollarama here. All right.
We are taking some time to think here.
>> Testing your wits today, Hiren.
>> We are. We are.
Seems to be a little slow on my end. I'm hoping I can bring that up for you in just a moment's time here.
But very similar to what we did there, once we do bring up the trade ticket, we might even have just a visual there.
If this doesn't work, then we will just queue it onto the visual. I think we lost our screen here for a moment.
So if we do have a visual, if we can bring that up, essentially let me just try to refresh it one last time and we will see if we can get this rolling over here.
>> Everything works perfectly until you needed to work perfectly. That's the rule of everything.
>> Just when you need it, we were just testing this before we came live on air here.
All right. We are not having any luck here today.
I don't know if we do have a visual but we will cue the series. So we will show the order essentially when the system comes up, we… I am not having any luck over here.
I apologize for this.
>> This is going to be called a cliffhanger hit because we are going to come back and make sure that we do show the audience how to actually enter a trailing stop into a broker. But we understand what they are and now you whet the appetite of the audience to find out more.
>> Thanks, Hiren.
>> Thanks, Greg.
>> Hiren Amin, senior client education instructor with TD Direct Investing.
And make sure to check out the learning centre in WebBroker for more educational videos, live, interactive master classes and upcoming webinars.
Before we get back your questions on fixed income for Scott Colbourne, a reminder of how you can get in touch with us.
Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back with Scott Colbourne, and taking your questions. What is your opinion on new offer extendable notes offered by the banking industry?
>> This is really into the weeds. It's a type of corporate bond issued in Canada and it's issued by the banks. Insurance companies also issue them. Basically, they are replacing the traditional retail preferred share market.
As of now, one of the challenges with this is that it's not in any Canadian bond index. So people buying this, the sponsorship of this issue is institutional but it's not broad-based, it's not in Canadian or fixed income indexes. It's attractive because it offers investors a very attractive yield and when they were first issued, they were issued with the intention of being called by the financial institution for about five years. We are coming up so that in the first sort of iteration of these but they were issued with a reset. And so is it attractive to call these bonds and issue new capital for the financial institution or are these very cheap and they just don't call them?
That's the risk to the investor. They become extended. And it's very complicated and you have to do a lot of homework.
So the big difference I think for investors take a look at right now is whether you have, you buy low reset bonds which may not be called or higher reset bonds which are likely to be called in the future. So complicated, very technical, in the weeds, corporate bonds. It plays a very important role. I think it's an attractive investment to have. Canadian banks are very attractive, good corporate capital stocks.
So it's the riskier end of Canadian banks bonds but you've got to do a lot of homework.
>> I had no idea about the space. That was a great explanation of what's going on.
Definitely, at home, do your homework if you're looking at that space. But thanks the question because I learned something new today. Here's the next one. A viewer wants to know, what's the new normal rate?
The central bank was setting its new overnight rate without trying to tamp down the economy but not trying to juice it up.
What can we expect?
>> The dot plots tell us that the Fed is thinking about 2 1/2% is the long-run expectation. So 2% inflation +0 to 50 basis points and real rates. That's the long-run expectation. I think there are lots of debate that we are in a different environment than may be the new normal is maybe 3 1/2% or something like that, in that range. If you look at what's priced into the markets over the next let's just call it two years, you sort of see the markets gravitating towards that initial landing spot, if you will. So I think the market at this point in time is still sort of debating as to whether believe the feds long-run expectations for Fed funds or are we going to a new landing spot to reassess the school, reassess credit risk, reassess the de-globalization and the higher costs of decarbonisation, all sorts of things may contribute to a higher Fed funds rate then we have had in the past.
>> The natural second part of that question would be, whenever we feel that the rate is, how quickly we get back down to it. One the central banks are cutting?
Will they be gradual?
>> I have a mentor to many cycles that have been gradual. For the time being, the cycle has been abnormal.
Maybe the pace of cutting is more modest this time around. But there has not been many cycles where it doesn't get going.
>> So once the job is done, the job is done.
>> There is a reason and the evidence is pretty clear on that.
>> Interesting stuff. Another question from the audience. What would you suggest in this current environment? Should I be holding an ultra short-term Canadian bond mutual fund?
Here on the platform, we cannot give you investing advice but we can definitely talk about the question and some of the pros and cons around it.
>> I like to think of these types of questions in portfolio construction. If you are thinking about on the equity side, you just buy one equity, just Canadian equities. Or do by some US, some global?
Do by growth? Do by value? There's a lot of different ways to express your investments on the equity side. It's no different on the other side. If you have no tolerance for any volatility in your portfolio, then you can see the attraction of being in money market and GICs. A flat line, they give you a yield. But there are other opportunities in the credit market, investment grade, he got a lot more yield but a little bit more price volatility.
If you think that there is a risk that the economy may deteriorate and go from a soft landing to a hard landing, he wants emotionality for substantially lower longer-term rates, and you get that in a longer term bond, for instance.
This is a portfolio construction. What type of exposures do you want in your portfolio?
We all, whether it's our asset allocation programs at TD Asset Management or even personally, you have two balanced portfolios based on what makes sense for you.
>> Let's get to another question here.
This takes us a bit global. What are Scott's thoughts on emerging-market bonds and which ones?
And, hey, we like Scott's haircut.
>> Trimmed it a little bit. Yes, thank you. I would say that emerging markets at the moment, I'm shying away from.
There are two ways of investing in emerging markets. There is hard currency which is more like investing in corporate markets. As Malik local bonds. For example, Mexico. Local tenure rates are around 9 1/2, 10%.
So when do you buy it?
Right now, I think the Canadian bond market is outperforming the Mexican bond market so I'm waiting. I think you are going to get a nice opportunity by the end of this year to start investing in some of those markets. I think that South Africa's market we are looking at, Indonesia is a market we are looking at, Mexico is definitely a market we are looking at. So on the lighter side in terms of what we want to be in at the moment or historically have been in but we think an opportunity is coming in the next few months.
>> For retail investor if they are looking at emerging markets, they might be looking at bond funds. You mentioned this earlier.
When it comes to emerging markets, is there a note of caution there in terms of what's in the fund? I can imagine all of these countries are on an equal plane when it comes to investing.
>> That's one of the challenges of buying an index of local emerging-market bonds.
The largest component is always the group that issues the most. Historically, that was Argentina. That was a market you didn't want to be in. Right now, one of the largest bond funds is in China and yields are really low over there. So maybe that's not what you want.
The advantage of being in a pool solution by an investor like myself as you get to pick and choose the markets which makes more sense.
>> We are going to get back to your questions or Scott Colbourne on fixed income 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.
October marked the third consecutive monthly decline in US small business confidence.
Anthony Okolie has been digging into a new TD Economics report on the numbers.
>> Results in weakness. There was a slight weakness.
The small business optimism index for the US edged down less than… In October, that came in slightly above expectations.
Historically, it's on the low side. Small business confidence stayed relatively stable over the last 17 months within a range between 89 to 92 points but it does mark the 22nd consecutive month of deteriorating mood among US small businesses with optimism below the 49 year average of 98 points.
Some of the key takeaways, we did see small business owners still say inflation and labour quality are top of mine. That's a change from the previous month. When you break it down by subcomponents, we saw a really big decline in one of the key indicators, specifically firms earnings trends drop sizable he with reports of positive profits down about eight points, to -13%. Sales growth slowed and the bottom line was squeezed from many small businesses. Meanwhile, on the job market front, it was relatively stable but they still remain at historically high levels and again a little bit more pressure on many of the small businesses despite the cooling US October payroll part that we saw. The share of firms with unfulfilled positions remained unchanged at about 43%.
Amid job openings, the quality of labour concerns were unchanged. That's slightly higher than the inflation concerns which edged lower in October.
That sort of alliance with the latest US EPA report which showed some good news on both the headline and the core inflation numbers. In addition to that, the share of firms increasing compensation held steady as well. But the share of firms passing prices to consumers rose in October, indicating at least for small businesses there is still some upside pressure to inflation that remains.
>> Interesting stuff. Thanks.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now, for an update on the markets.
We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. This is the heat malfunction, giving us a view of the market movers.
Let's green through the TSX 60 by price and volume.
We have a nice rally on our hands today, the US inflation report coming in cooler than expected.
We are seeing yields pull back dramatically in the bond market. A lot of the yield sensitives are getting a bid today. I'm looking at some telecom companies like BCE, up to the tune of almost 2% and particularly a lot of the utilities are rallying and the financials.
Why are we not seeing as much green on the screen?
You got the price of gold up about the same percentage wise as the price of crude oil and you're seeing a nice rally and some of those materials and mining's names penultimate in the energy space. CNQ is standing out a little bit more than 1% from its energy brethren.
South of the border, got a pretty strong rally on our hands. A lot of technology names. We showed Shopify earlier in the show on the side of the border. You could take a picture of the different tech names.
It seems chipmakers are leading the pack there, including AMD, up about 3 1/2%.
Tesla rallying today, some of the automakers and financials on Wall Street as well. Pretty interesting day in the markets with inflation showing signs of scolding a little quicker than the streets expectations. You can get more information on TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
We are back to Scott Colbourne from TD Asset Management, we are talking fixed income. If you are wants to know, are we in a stagflationary environment?
>> No. No.
I don't believe we are in a stagflationary environment.
You can look at brought inflation across the globe and developed markets, there are 10 of them, the median CPI, core CPI is now at the present and that's excluding today's US number. On the emerging-market side, there's 18 of them and it's about the same. So 3%, while higher than we've been used to on a core basis, you're talking about 20 countries globally. That is not really, really inflationary. We went through an inflationary shock. It is coming down. It is normalizing, it is taking time. We are in parts of the world seeing slower growth.
So two examples of that, Canada and the UK. We have had two quarters of basically flat growth and there is a debate, is it a technical recession or not, but I don't think that's the point. So slow growth, higher than we are used to inflation doesn't equal the stagflation that was part of the 70s.
So it's something that the market is patiently or policymakers are patiently trying to deal with and it's definitely not the case in the US.
>> Another question now on the economy overall. It is a recession likely in the next year?
I guess it depends which market we are talking about.
>> Look, at the moment the probabilities are low.
The evidence is suggesting that the economy globally is slowing.
Let's say we had a recession, I talked about the possibility of the UK and Canada having a technical recession, the likelihood is more modest. In those countries, both the UK and Canada, our countries that have higher sensitivity to housing markets and so we likely see a modest recession in those countries as a headwind. The United States, they have definitely de-leveraged posts 2008 on the household balance sheet side as well they turn down a lot of their debt during the pandemic so they are in much better shape and are probably not going to have a recession.
But globally, slow growth. That's a likely scenario and that would be another reason to own fixed income.
>> Let slip in another question here before you run out of time on the show.
US politics. Could the US election cycle have an impact on bonds? We are going to really start getting into the thick of it in 2024.
>> Yeah, the new cycle is picking up and often the races one year away from the US presidential election so anything goes.
For the time being, the markets are just going to be… Accept what comes but obviously have a profound impact on the nature of a transition. If it was bumpy, the plans for spending, yeah, lots to discuss and we will be debating that into next year.
>> Plenty more appearances on the show next year to talk about that. Before I let you go today, I'm looking at the US 10 year treasury yield.
It's below 4.5, it pulled back dramatically this morning on the US inflation report coming in cooler than expected.
What do we need to be mindful of in the next couple of months? It's been a rough go in the past year and 1/2. How we turn the corner?
>> I think we have.
5% is the top. Is it a one-way drop to 3 1/2? No. I think we likely go down to 4 1/4, 4% is my trajectory but I think we're going to land there for a little while and consolidate up to this huge adjustment from 5% to current levels.
>> Scott, always great to have you.
Fascinating conversation. Look forward to the next one.
>> Thanks, Greg.
>> Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management. As always, make sure you do your own research before making any investment decisions. stay tuned for tomorrow show. Caitlin Cormier, client education instructor with TD Direct Investing will be our guest answering your questions about the WebBroker platform. A reminder, of course, you can get a head start with this question. Just email moneytalklive@td.com. That's a time you have the show today. Thanks for watching.
We will see you tomorrow.
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