Scott Colbourne

[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, TD Asset Management Scott Colbourne is going to give us his outlook for fixed income with the Fed still signalling to us that it sees three rate cuts this year. And in today's WebBroker education segment, Ryan Massad is going to shows how you can find analyst ratings are on the platform. Here's how you get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker. Before we get to all that and our guest of the day, let's get you an update on the markets. We are seeing new all-time highs on Bay Street and Wall Street. We will start her at home with the TSX Composite Index, up a healthy 97 points, a little shy of half a percent. Among the most actively traded names include Barrick Gold. Seeing the price of gold and higher today, lifting some of the gold names with it. That's Couche-Tard, moving in a different direction, Alimentation Couche-Tard is down 3 1/2%. Disappointing quarter for the name. We will tell you a little bit more about that later in the show. South of the border, the S&P 500, the Dow and the NASDAQ closing at new all-time highs yesterday. The US Federal Reserve's staying the course. The NASDAQ is up 117 points, three quarters of a percent. S&P 500 got some green on my screen. Micron is up more than 15%. Not only are investors pleased with the board behind them but also the forecast. This plays into the whole demand for AI technologies. And Apple, want to check in on this name, the tech behemoth, the Department of Justice saying it is suing Apple for iPhone monopoly in an antitrust case. Apple shares in the wake of that news down almost 4%. And that's your market update. It's been a big week for central bank action with the US Federal Reserve for its part signalling that it still expects three rate cuts this year. So what does it all mean for fixed income? Joining us now to discuss his Scott Colbourne, Managing Director and head of active fixed income at TD Asset Management. >> Happy to be here. >> Let's start with the big one, the Fed coming out, obviously not changing their headline expectations but assurance that what we think is what they think, three rate cuts this year. >> The Fed gave us I would say a mildly bullish feeling for fixed income. They reinforce that the median dot plot for this year's three rate cuts. Rates backed up this year, they rallied extensively to the end of last year and moved up about 40 or 50 basis points across the yield curve in both Canada and the United States. We have better growth numbers, we had hotter than expected inflation numbers, so I think leading into yesterday's meeting markets were hawkish. They expected perhaps to cuts this year, an adjustment on the dot plot, and they were surprised and I think the Fed Gov. Powell just said, look, the trajectory of inflation, we are still comfortable with where it's going, the trajectory to do percent, it's a bumpy ride. It was sort of a mixed bag though. They raised the dot plots and 2025 and 2026, the long run, so it was a bit of a mixed bag but the focus was that the near-term expectation was confirmed. So the central thing the markets have taken away is that the Fed is looking at starting to cut in June, maybe June, September, December, both the Bank of Canada and the Fed. You get those cuts and the American example because the Fed also had to recognize the US economy has been strong, inflation is taking a bit longer to come back down, labour market is tight. Do they need to start seeing some sort of sign that the US consumer is not falling to pieces but at least we can? >> There is a sense that they are very focused on the labour market and that is going to be something they are keenly focusing in on, any deterioration on that side, and you are seeing a modest adjustment going on. Today we had a slight increase in jobless claims. I would characterize it as a normalization of the US job market. Not something to be overly concerned about what the trajectory is slightly weaker and that's what the Fed is absolutely looking for. It said, look, we can accommodate stronger growth but we do expect that the disinflationary trend will continue to play out. They are going to see a lot of data between now and June, so they've got three CPI prints and three job prints. They did start by saying it's very data depending, it's uncertain. These near-term bumps have not changed our confidence in the trajectory, maybe just the timing. >> That was a message from the Fed. The markets are happy with that message. Let's talk about some of the other central banks. Did you hear anything else from the banks around the world to change your ideas? >> There was a barbell. We had six developed markets this week and seven emerging markets. Really no surprises out of the emerging-market side. Cuts out of that side. But I would see on the developed market side, we start with Japan, they change their policy. They had a negative interest-rate policy, they moved away from control in they started this process of normalization. That being said, I would've described it as a very soft to tightening if you will. That was one side. The other side this morning we had the first developed markets to cut rates, that was the Swiss central bank. Software inflation. They surprise the market. You have it on both sides that I would describe all the central banks, the Bank of England, the Swiss central bank, DOJ, the Fed, all of the broadly speaking I would say have described it slightly dovish and on the mildly dovish side, leading into the sense that ultimately the trajectory is to cut sometime this year. When you look at what's priced and no cross markets, pretty much everybody is penciled in for the first cut in June. >> All right, taking it all together, what does it mean for fixed income this year? >> Then I sat back and I say we've had this huge adjustment number of 40 to 50 basis points off those high levels and yes, we had a positive reaction. It's going to mean that the likely scenario when you look back over rate cutting cycles, whether modest or large, leading into that first cut, it's a good time to be in fixed income. There is a range of outcomes obviously. I would describe what we are in as more of an adjustment as opposed to the beginning of a huge rate cutting cycle so unconstructive over the next three months into that first cut which I think it's hard to bet against. The Fed says June, okay, I'm not going to bet against it. But I will watch the data as it comes out. At that point, we will see. After that first rate cut, we will see. >> I guess a question for investors about the asset classes we have an expectation. Is it already fully priced into the market or as you seem to be suggesting in the bond market, there is still room to run? >> Yeah, we perhaps overshot it at the end of last year, six cuts, now we are back to three. I think there is room to say, look, if the data cooperates, we will at least get three and then see where we go in the new year and there is scope for longer-term it to come down and that will benefit fixed income investors are sure. >> It's a big, complicated world. There are always risks. We don't know what's around the corner. If the central banks, the Fed, if they don't cut it all this year, what would have to happen for them to say, 2024 just wasn't here for it? >> Data dependency. The data continues to turn. That being said, when you step away from the US, the data is consistently showing us that inflation is slowing. Canada, we had CPI on Tuesday and was definitely, it caught the markets attention, it was lower than expected. Today's decision, will they Hold, the Hawks That Were Calling for Rate Hikes, They Move to More of a Dovish Stance. When He Sat Back beyond This Exceptional Engine That Is the US, the Trend Is to a modest adjustment down. It will have to be a surprise on the west side that we don't get any adjustment on inflation. Right now, the trajectory is there. Be mindful of the fact that the Fed focuses on PCE rather than CPI and that is trending softer than CPI at this moment. >> Fascinating stuff and a great start to the program. We will get back to your questions on fixed income for Scott Colbourne in just a moment's time. And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker. Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading. Shares of Alimentation Couche-Tard are in the spotlight today. The convenience store and gas bar operator is reporting a 15% drop in net earnings for its most recent quarter. Couche-Tard says the bottom line was pressured by fuel margins and challenging economic conditions. We see Couche-Tard at this hour down about 3 1/2%. Checking in on shares of Micron, they are moving higher. That's after the chipmaker handed in an earnings beat with a strong sales forecast. Micron says it's chip offerings used for developing AI applications were sold out for this year and the majority of its 2025 supply is already spoken for. Micron counts Nvidia among its hardware customers. Put it all together, you gotta stock up almost 16% at this hour. Social media company Reddit is making its public market debut today. The offering price was in the high range of $34 per share, that is valuing Reddit at $6.4 billion. I want to take a look right now. We have not had that first trade just yet. We are waiting for that trade. The thing about this IPO and why is being watch so carefully, some people are interested in Reddit but investors in the tech community are likely trying to gauge the broader appetite for such offer. If it goes well, who knows what we might see in its wake. We are still waiting for the first grade on Reddit. Quick check in on the stock market. On the TSX we are up half a percent, on the S&P 500 Europe about half a percent. We are back with your questions or Scott Colbourne on fixed income. What should we expect from the BOC in April? >> We don't believe that they are going to cut that soon. June is the focus across the globe. We'll get our first taste of how they are thinking. Growth is on the modest side here in Canada. Now we are seeing inflation come down. I think the bank will take the opportunity to share what it thinks about the rate cutting cycle. >> Whether it's June or July for the first rate cut-- [video skipped] >> There will be a cut, a pause. One of the big governors indicated there will be a cut, pause and reevaluate. Given the stickiness that we've seen on the trajectory of inflation and other things, it's a prudent way of adjusting monetary policy. >> Talking about other governors at the BOC, not TIFF, they gave a speech today saying they see the end of quantitative tightening in 2025. We talk about whether that rate is going to stay, go higher or lower, but what about the quantitative tightening? What is the significance of that? >> The quantitative tightening program has been unwinding the balance sheet adjustment which they used to support the markets and it has been a very disciplined process in Canada. They could see that the adjustment to the appropriate level of the balance sheet, the level of reserves that the domestic economy needs is on track can be expected to wind down in 2025 and they have the tools. If there is any pressure in the overnight funding market to meet those pressures and move overnight funding back to their target levels. We also got a taste of that from the Fed as well, right, and they are on a quantitative tightening program as well and they are looking to step back from quantitative tightening. Gov. Powell just indicated that probably at the next meeting and an indication of what that adjustment is, adjusting the cap so that ultimately it will be consistent. >> Once we start getting those rate cuts from the Bank of Canada and we are looking at the fixed income market, what kind of reactions are we looking for? >> What has an impact? Duration. We would expect yields to come down. The direction of that yield curve we would expect steeper yield curve. The front end, typically the middle part of the yield curve outperforms the wings of the yield curve so that would be directional. Credit, the Allin yields are fabulous. Government bond yield plus the spread, hundred to 150 basis points. Very attractive. Yes, spreads are tight relative to history but there is no obvious clouds on the horizon that would lead one to go away from credit so it still favoured. Investment grade credit will benefit from slightly lower rates. >> Another question from monetary policy to fiscal policy. Can your guests discuss the Canadian government's upcoming budget, specifically what would make it inflationary? This is a big conversation last year when the budget was presented. >> Two levers, monetary policy, fiscal policy. Monetary policy is driven by two actors, the federal government and the provincial government. You have to think about both actors. The amount of discretion of the federal government has, excluding transfers, commitments, interest and other things is about 20% of the budget so you are looking at what actions the federal government and the provincial governments that do on the three main actors in the economy: the consumer, business and the government side. And I would say that household, broadly speaking, are somewhat budget constrained because of the balance sheets and so they are looking for more relief from the Bank of Canada than anything else. Investments, if we could do policies that support productivity, business investment, that's a positive. That's a positive for the supply side of the economy. It allows us to grow a greater potential and increase demand without being inflationary so I would look for that. That would be positive. The government in and of itself could be contributing to inflation but broadly speaking, the degrees of freedom are more modest. So at this time, it's not a big concern. That being said, governments aren't in the business these days of cutting back. So it will continue to be a tailwind for the economy but it is subject to the balance between supply and demand. If those policies to stimulate demand without adjusting supply, that ultimately is inflationary and something to watch. >> When it comes to the budget, the headlines of that day will be this is the size of the deficit, is there a plan to get back to balance or not? From a fixed income point of view, how do you view all of that? >> It's obviously something we are concerned about and I think in the big picture, one of the issues is how much debt has to be issued and that has an influence. To the extent that there is no cutback longer-term in debt relative to the economy, that will put pressure, particularly on the longer end of the yield curve so that will reinforce that steepness in the yield curve. So yes, it does matter, but it matters from an issuance point of view, the shade of the yield curve, and it also influences demand and supply. >> It'll be interesting to watch next Monday. Another question from the audience. Your outlook for the US and Canadian dollar right now? >> Generally speaking, as we begin this rate adjustment cycle south of the border, one typically believes it's a weaker US dollar story. That is supportive for local currencies and the Canadian dollar should benefit from that, should benefit from any lift in commodities. So I'm leaning towards a slightly bearish US dollar outlook. That being said, I don't think we are getting in the near term a big rate cutting cycle anywhere in particular so it will be a relative game, how much does Canada have to cut relative to the US versus Europe and so on and so forth. To start off with, my premise with the US dollar is at the Canadian dollar should unbalance. >> The key thing to watch there is it the degree of divergence between the US monetary policy in our monetary policy? They are sort of seen the same tune that we will have cuts this year. >> If you look at what's pricing, it's literally almost carbon copy US and Canada, three rate cuts, September, June, December. That's what we are expecting. There is not a lot of divergence. >> As always, make sure you do your own research before making any investment decisions. We will get back to your questions for Scott Colbourne in just a moment's time. And reminder that you get in touch with us at any time. Just email moneytalklive@td.com. Now let's get to our educational segment of the day. Joining us now to show us where we can find analyst ratings will platform is Ryan Assad, senior client education instructor with TD Direct Investing. Great to see you. Let's talk about where clients can go to find more information about stocks and analyst recommendations. >> Definitely. It's always nice and an interesting perspective to get that perspective from analysts so let's go into a broker and show you we can get that information. In WebBroker, under the research tab, the markets analyst centre. You will get a lot of information, including the price target of where the analysts see this particular stock in the coming months. Also on the left side, if you wanted to filter this out, you could. The analysts do have their own readings. If you wanted to see just the highest rated analysts you could click and filter through that. If you wanted to see just to buy or hold or sell ratings on their own, you could click and filter through that as well as country and market capitalization. So there's a lot of different things that you can do here just to see with the most recent ones are. As well, if you wanted to see it may be what the majority of analysts are looking at, what they have changed in regards to their rating, you can click on the trending stocks. You will see a list of those as well. You can look at the best rated or worst rated or the most rated which is what we are looking at right now in the filter as well to see you which ones we've had in the last 72 hours, seven days or 30 days. A lot of information there to get some ideas from analysts as to what to do next. >> Say there is a particular stock we are interested in, what information is available in WebBroker? >> So once you've found something that you really like and you are in the analyst centre, let's go back into that section here in WebBroker and when you are in the analyst centre, you have a stock, you do have several areas where you can click on here so in WebBroker, you can click on the actual symbol itself. It's going to then bring you into the overview page. Within that stop, right now we have used Nvidia. If you click on analysts, the analysts tab, we are going to zero in on all the information that has to do with the specific stock. If you scroll down, you will see a bunch of things. What has happened here as they have taken all of these analysts comments and ratings and put them all in 1 Nice Pl. for this one security, the buy-and-hold, as well as the price targets for the coming months. If you scroll down a little bit more, you will see the individual analyst ratings here and how they see this particular stock. If you want to follow any of these analysts, just click on this + to go back and see what these analysts are all about. Quite nice and detailed. All of these come from the industry not necessarily from TD. If you want to know more about any of them, click on their names and they will give you a win loss rate or even an average return of what they might have. So a great way to get some ideas of what you can do in this kind of thing. Just like anything else, any other investment data, you have to do your own research. Just because it's what an analyst says to do doesn't mean that you don't have to do your own research. Look into a bit further. But an excellent tool in WebBroker to help you with those ideas. >> Great stuff there. Thanks for that. >> Thanks again. >> Ryan Massad, 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. Now before you get back your questions about 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. Okay, we are back with Scott Colbourne, taking your questions about fixed income. This one just coming in the past couple of moments. Scott will take part one. We will leave part two for another guest on another day. Yield curve of tenure went up after the Fed talk yesterday, what happened? >> The expectation this year was to pare back the number of rate cuts from 6 to 3 and so going into the meeting, markets were leaning slightly more to the fact that probably there were going to be to cuts. Surprise, it's three cuts. When you think about a rate cuts cycle, it's the front end of the yield curve, so we saw yesterday was basically a steepening of the yield curve. Front and yields went down a lot more than longer and yields. It was a modest adjustment in the long and. It was up or down a couple basis points. Consistent with the sense that we have repriced the market to three from six, yields have studied out. The Fed has said we are probably on track for three cuts depending on the data. So it took some of the pressure out of the front-end of the yield curve, the steepness laid out yesterday and as the data plays out over the next little while, we will see the long and come down with the front end but still with a steepening by us as we move closer to the rate cutting period of time. >> Let's take another question now from the audience, this one about the US election this fall. What are you thinking about the potential impact of the US election? >> It's tough to handicap at this point in time. You can look at the betting markets to see where things are leaning. There is a focus on the key states. It's too early to say. I would say that both candidates probably spend, so there is concern on that side but the practical reality of passing something through all the branches ultimately, you have to. So there's a lot to go but in the meantime, I think markets are leaning towards Trump but we will see what happens. Obviously, volatility, we look at the options market, there is volatility around the election. >> That will be one to watch and I know we put the question to you every time you are on the show. We'll have some clarity on the other side of it. Someone wants to get your view on high yield right now. >> Credit and the fixed income market is an area that has been really hot, both high-yield and investment-grade. We continue to be, we continue to like it. Lots of people are focused on the absolute spread relative to governments and pointing out it's on the tighter side of things and indeed it is, based on history, but one of the big factors right now and the sort of expectation of a stable to cutting cycle is the all and yields are very attractive, so this new issuance supply in both the US and Canada has been moving up and continues to be attractive so all in yields in the high-yield market are still attractive, but 7 1/2 to 8%. Obviously higher quality has done really well. There is a lot of risk in triple C's but the broad market for high-yield has been very attractive in the low market based off the floating rate still offers rates higher than the high-yield market. >> I wanted to ask about the risk, that's the reason why yields are higher because they are paying for risk. In a soft landing scenario, does that spell good things for high-yield? >> That is the risk. >> That you get the hard landing. >> You had a hard landing, spreads wide now. You get a bond rally, yields collapse, you will see spread start to widen out again just because of the huge rally in all and yields have come down. You've got to be mindful of the cycle. Refinancing has already started for 25 and 26 so a number of companies are already ahead of the March so that's a positive. There is more tailwinds than there are headwinds but yes, obviously, in any market there is risk that if things are shocked that spreads will widen out. >> Let's talk Bank of Japan now. We mentioned earlier on the show. The viewer wants to know if the big moves by the Bank of Japan makes Japanese assets look more interesting? >> This is the beginning of a change in Japan. It was a big shift out of the negative interest rate policy and yield curve control, the purchase of ETFs. Everything doesn't happen overnight but it's the beginning of a change and one of the things I'm focusing on is the attractiveness of Japanese bonds relative to bonds hedging back into Japan. Japan has been a big buyer of global debt and if you take that currency, hedge that currency risk out, you by US Treasury yields and he mentioned back in Japan, it's a negative yield, 75, 85 basis points. That behaviour will change over time. It's not a rapid seachange but in typical Japanese fashion, it's a very gradual exit, they didn't want to make big waves. If sustained over a longer period of time… >> We are going to back your questions for Scott Colbourne and just moments 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. We are having look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are looking at the heat map function giving a view of the market movers. We are looking at the TSX 60 by Price and volume. What's going on? We will start with the green on the screen which contributes to the upside. We've got some of the banks, it's not huge, but Bank of Nova Scotia a little shy of 1%. As I get closer, that would be a Brookfield, one of the Brookfield companies, up a little more than 2%. We told you about Alimentation Couche-Tard earlier in the program. Disappointed the street with all its corners so that stock is down about 3.8%. We do have a bit into Cameco, the uranium play. It's up about 2 1/2% today. South of the border, also record highs for the American markets in the wake of the Fed. We got the S&P 100 on the screen and we've got Apple, we told you earlier about the Department of Justice taking Apple to court. Apple shares are down 3 1/2%. Across the rest of the space, there is some modest green contributing to the rally today, whether it's with the chipmakers like Nvidia or Intel or some of the financials including Bank of America which is up a little shy of 2%. You can get more information on TD Advanced Dashboard by visiting TD.com/advanceddashboard. We are back now a Scott Colbourne from TD Asset Management, talking fixed income. We talked about bonds and we are to talk about GIC rates. What's the outlook? Have they peaked? GIC rates are a function primarily what the central banks are up to. >> Absolutely. If I am arguing that we have likely seen the Pecan rates and at the next step is to lower rates, yes, absolutely. GIC rates will have peaked and the next step is lower. Longer-term, where is the ultimate trajectory? I'm firmly in the camp that we are not going back to zero, absolute low rates, but that's consistent with government bond yields as well. >> Perhaps heading until we have been through in the past couple of years people weren't paying attention to GICs because they were not making all that much in terms of return. Do people need to be mindful that a GIC does not behave like a fixed income instrument in the sense that your money is your money in a coupon is a coupon and that say? >> You have to be aware of the differences. There is tax differences, there is liquidity differences, there is not the option all he of gaining from price appreciation that's available in the market if rates move a lot lower and bond yields benefit from that. It plays a different role in your portfolio. Some people think it gets locked in and does nothing and there is no volatility but it has a lot of different characteristics. >> Always important to do your homework when looking at investment avenues. Are China's economic problems having any impact on the bond market? >> I would say that broadly speaking, the fact that post-COVID the reopening has sort of disappointed. There has been more of a disinflationary impulse coming out of China. It's not the global engine that was. It's got a lot of issues. Policymakers have taken a different tack over there so it's been a bit of a positive lift for, a downward shift for inflation that you don't have that inflation contributing to global demand and driving inflation higher. From an inflation point of view and a bond market point of view, ultimately, I think it's positive. There is long-term yields have come down a lot. They have rallied a tremendous amount. It's one of the markets where bond yields in the developed world are going up, trying to they're going down so it's converse. >> That's a great point to what's advantageous to an investor is not to another and vice versa. Do we need to keep an eye on China? It hasn't shown up yet, right? Where is the stimulus? >> You have to be mindful of it. I think they're very mindful and how they are trying to implement policy. It's not just a broad-based throwing money at it to raise the engine ahead. There are a lot of issues. So it appears that… There's a lot of global chatter that this could be the bottom in Chinese equities but the path here underscores the fact that they can't rely on policymakers to do what we are perhaps used to in the developed world to address this. There are Paluku pressures and other pressures. Maybe the cycle is more muted over there. >> We are out of time for questions but before let you go, we will take you back to the top of the conversation. We have a strong US economy defying expectations but they still say they are penciling in three cuts for the year. What kind of atmosphere, mood, what kind of market set up is this giving? >> This is Goldilocks, the soft landing and Goldilocks, immaculate disinflation. This is an amazing playbook that we have been able to achieve. We are watching closely. There is a lot of uncertainty in data dependency. Inflation is coming down in the path is not as neat as everybody wants, including the Fed, but the path is towards lower inflation. The economy is great. It has been lifted on the supply side, there is a supply side an adjustment in the expansion of the economy as well as the demand-side and is obviously good for other assets as well. >> The Bank of Canada, April, it's coming up fast. What we think? >> June is the time but we will probably get hits out of their April discussion. >> All right. Always a pleasure. Looking forward to the next time. >> Thanks. >> Our thanks to Scott Colbourne, managing Dir. and head of active fixed income at TD Asset Management. Always be sure to do your own research before making any investment decisions. We will be back tomorrow with news from the markets and highlights of our best interviews of the week. Coming up on Monday, Nicole Ewing, director of tax and estate planning the TD Wealth will be taking your questions about tax and estate planning. These questions can be a bit more complex so it helps Nicole out if you get a head start. Just email them to moneytalklive@td.com. That's all the time we have to show today. Thanks for watching and we will see you tomorrow. [music]