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[music] >> Hello I'm Greg Bonnell and welcome to MoneyTalk Live, brought to you by TD Direct Investing.
every day will be joined by guests from across TD many of them will only see here. We we'll take you through with moving the markets and answer your questions about investing. Coming up on today show, will get a reaction to the latest Bank of Canada rate decision and what it means for the fixed income space with Scott Colbourne from TD Asset Management. And in today's WebBroker education segment, Bryan Rogers will show us how you can find out what companies make up an index using the platform.
Hearsay can get in touch with us, just email moneytalklive@td.com or Philip at your response box right here under the video player on WebBroker. Before we get to our guest of the day let's get to an update on the markets.
Obviously we've been feeling the weight in recent sessions of recession fears. Today's been a bit of a choppy day on Bay and Wall Street. We will start here at home with the TSX as it finds its way into modest positive territory.
We are modestly back in positive territory up about 35 points, a little shy of the fifth of a percent. Some firming and the price of gold today. Let's check on Barrick Gold up a little more than 2%. Nothing too dramatic.
Tech has been a choppy trade today, a bit weak south of the border.
Here on Bay Street as well. We have Shopify, a bit of pressure but modest. Coming off the lows of the session.
Down a little more than a percent.
Let's check in on the broader REIT of the American market, the S&P 500 as traders try to figure out where this economy is heading in the face of all these aggressive rate hikes. And what we might get next from the Fed.
back modestly in positive territory. The NASDAQ, the breakeven line pretty much sitting right on top of it.
We noticed some weakness in the travel line is, some of the cruises including carnival crew down about a modest 2%. And that's your market update.
The Bank of Canada raised interest rates another 50 basis points today marking its seventh hike rate in a row and while our central bank did flag inflation is can a continuing issue, they also signalled that this hiking cycle may be coming to a close soon.
Joining us now is Scott Colbourne, Managing Director for Active Fixed Income at TD Asset Management.
Great to have you.
>> It's great to be here.
>> That seems to be the read on the market now there is a clear indication that they are coming to the end soon. Is this the way we should be reading today's announcement?
>> Everything in the market today for both the Hawks and the dogs, split between 225 and 50 basis points, a little bit more hawkish with 50.
But the language is changed to your point.
Now, it's a question of they were going to raise rates, they will raise rates and now we will consider whether we will raise rates going forward. So there's an option alley, there's a date of dependency that the Bank of Canada is focusing on now. The question is whether the next one is zero? The end of the rate cycle? Or is a 25? This is the trajectory that a lot of central banks have taken.
It was a focus on pace, rapidly frontloading rate hikes and we are getting towards the end of that. Whether it's the Fed or the Bank of Canada or the RBA or others.
Now it's like "where we can end up?" What's the terminal rate and how long will they stay there? That's the trajectory.
>> The whole point of raising rates like this to try to tame inflation is to be restrictive right? To try to put the brakes on the economy to a certain degree? I imagine a 4 1/4% were fully restrictive.
I guess an argument can be made that we are at the point where we think we can cool inflation with a rate like this?
>> I think that's the debate.
Monetary policy works with a lag.
So were starting to see, and the last GDP, we saw domestic demand soften both of the housing side and the consumption. So there's evidence that the rate increases, this rapid rate increases starting to seed with the economy. But as it was pointed out, by the Bank of Canada, inflation is high, peeking but still unacceptably high. There is still a lot of uncertainty.
So we have to let things sort of feedthrough, trickle through.
And see how monetary policies impact is going to feed into the domestic and the global economy. So at the time to reflect, a time to step back from these rapid increases and focus more on, maybe we just need a pause here.
We will assess the data over the next… In January, the market now, going forward into January a sort of split between zero and 25 so it sort of like today except less of a note.
>> Best case scenario is of course, you said frontloading a lot of pretty big rate hikes this year.
You get inflation under control, you get it moving in the right direction and not too much damage to the economy about you slow it down. Let's talk of the yield curve.
The inversion we are seeing on the Canadian curve and what it tells us?
>> The most dangerous words in the investing language is "it's different this time". A lot of people pushing back on the concept of a recession both domestically, the Canadian bond market as well as the US market, it's very inverted.
It's been a reliable indicator, not a great timing indicator. So we don't know when. But I would bank on the fact that there is going to be a recession in both Canada and the United States.
We can discuss how severe and how deep and whether it's a shallow or a modest recession.
But I think we are definitely taking the signal from the bond market that we are going to have a recession.
And that's the lag impact of these rapid rate increases.
It makes sense, therefore, for the Bank of Canada step back and assess here.
>> Is the bond market telling us something about the nature of the recession? Best case scenario, you have a modest recession fairly quickly and get the job done.
But of course worst-case scenario is mass unemployment.
You see the things that happened during a deep recession. Can we avoid that scenario?
>> I think one of the keys to that is the employment market and it still, I would say, in both Canada and the United States, still a solid job market.
To the extent that that is a harbinger of the extent of the recession, we have definitely seen employment growth slowed down but wages are still solid. A solid number out of the US.
You know, I think that so far, the indications are, as the employment market tells us that the slowdowns will be more modest.
> Is there an element, maybe, of surprise of how resilient? Even the Bank of Canada had to admit today that economies were a little more resilient in the face of the what they've been doing.
We were not anticipating this year but the labour market is resilient. GDP also.
There seems to be more strength there than most people bet on.
>> I think that's a consistent theme globally. Both Canada and the United States, North American economies have demonstrated the resiliency that initially, the models, the forecasting, the policy expectations would be for more of an impact and whether it was the policy's fiscal policies, the policies directed to us during the pandemic… You know, savings have been good, there's been a solid labour market adjustment.
Commodity markets were a tailwind for Canada. So, the unwind of this is taking a lot longer than perhaps you know, the policymakers would've thought. So, to me that underscores a bit of a resiliency in the global economy and the domestic economy.
So the more likely scenario is that we start to see a rate pause rather than a rapid turn towards cuts.
Which, the market always flirts with.
Okay central banks are done and now they will cut.
Maybe in the circumstance, given the resiliency in the market, given the resiliency in the economy, the right response would be to pause and really assess on the inflation front.
>> You mentioned the global economy. What about the global situation with central banks.
We are wrath with the Bank of Canada signalling that we are done.
Maybe more modest next time around. But we have different factors. We think of the housing market : what about some of the other central banks?
>> We have a message this week from the Bank of Australia. Some similarities with Canada.
You know, commodity-based economy. They raised rates 25 basis points but their messaging was a little more hawkish.
There likely more rate hikes to come.
So going back to that sort of, tiered approach to policy that I sort of laid out, the pace of rate hikes and Australia also sort of lessened. Now it's "where do we get the rates down?" Both the Fed and the Bank of Canada, the RBA and other central banks are still saying there is a little ways to go.
We may be in the seventh or eighth inning of rate hikes but we are closer towards the end and then it's like "how long do we stay there?
How does inflation play out?
How does the employment market play out? How sticky is inflation?" We know inflation will fall next year especially given the commodity price declined and the supply chain adjustments.
You know, is it going to come down and back towards the 2% level?
Or is it going to be stickier around three more?
>> A lot of big issues remain. Great start the program.
We will get your questions about fixed income with Scott Colbourne in just a moment's time.
A reminder of course that you can email us anytime@moneytalklivent.com or Phil at that viewer response box under the video player here on WebBroker.
Now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Shifting consumer habits in the face of high inflation appear to be benefiting Dollarama. The discount retailer is posting same-store sales growth of almost 11% of its most recent quarter compared to the same period last year.
Dollarama says it doesn't expect consumer to sway from discretionary spending to continue driving sales this quarter. Home Improvement retailer Lowe's is reaffirming its full-year forecast despite inflationary pressures and it's announcing a new $15 billion share buyback program.
Low store also reiterated its expected the sale of its Canadian business to private equity firm Sycamore Partners to close by early next year.
The return to air travel is putting the industry on a better footing with Southwest Airlines, announcing today it's reinstating the dividend. The payout to shareholders will resume at the end of January.
In a release, Southwestern CEO Bob Jordan said the move reflects the strong return to demand for air travel.
Pandemic aid has prohibited US airlines from paying out dividends until recently. And here's how the main benchmark index in Canada is trading.
Not sure if we can throw the TSX up on the screen, we will probably tell you from my own WebBroker account, we are modestly in positive territory now on the TSX.
All right.
We are back now with Scott Colbourne taking your questions about fixed income so let's get to them.
First one on the list: can we get Scott's view on the corporate bond space for the year ahead?
That's an interesting one if were talking about a recession. What we think about corporate bonds?
> I'm generally constructive on fixed income. Let's start with that.
We've been on the show, some of my colleagues have as well.
Generally speaking we become more constructive about fixed income. Late-summer, in the fall, it's played out.
I think we will continue to see rates particularly, you know, in the 10 year space, move down from here.
So with that in mind, all in yield is attractive both for governments and then for corporate bonds. I would say that corporate bond markets will face a bit of a push me/pull me sort of forces next year.
I did talk about, we talked about the recession. I think we will have something.
With the recession, that's going to be putting pressure on corporate sprints.
So, you know, likelihood is that we start off in the first quarter of next year with a little bit of pressure on corporate spreads widening.
I'm not vastly negative because I think the all in yield is constructive.
I might say something a little more controversial that I think corporate bonds will probably outperform equities next year. My equity guys don't like when I say that.
> Really?
>> Equities for the long run but I think you were still talking about really good all in yields.
I think there will be a little bit of a pressure in the first quarter, first half of next year on corporate spreads.
So I would be leading into those broad investment great debt over the course of next year and I think, you know, it's made sense to reallocate in your portfolio as fixed income this fall.
Into next year.
>> I think a lot of people understand what they're doing your homework on an equity investment what they are sort of looking for in terms of "is this a growth name?
What I need to see in terms of sales?
" If you're doing your research on fixed income investments, corporate bonds, what should you be looking at?
>> What I think at the end of the day, the key is does the company pay money back?
It's a little different than investing in the equity side but broad fundamentals make a lot of sense, the cash flow is generating the ability to service debt.
The extent of leverage.
These are all metrics that both equity and fixed income investors look at.
But we tend to look at the balance sheet a little differently to pay it back. I would say, broadly speaking, what you're looking at is most investment, Canadian investment rates, corporate bonds, they are pretty high quality.
And I would stick to high quality next year.
In the investment great bond market. I would stick to generally speaking the front end of the market.
I think there's also advantages, given the rapid change in interest rates that we have seen.
A lot of corporate bonds are trading at discount.
So it's a nice investment. You buy and you get that pole to par as it moves closer to maturity.
So there's a lot of advantages to that. You know, I would just stick on the higher in quality for 2023.
> This in a segue into our next question.
Someone wants to know but the riskier part of the bond market. For high yield.
>> I'm a little more cautious on high yield. The all in yield is very attractive.
We talked about 1/2% for the All in.
But I would say that the likelihoodof increasing at the margin defaults in the credit market. Leaning towards higher quality rather than the lower quality. I think that you will get a chance to invest in the high-yield market at better levels.
Then the 8%. And I think it's a great long-term investment. It's just timing and so I lean towards me with the second half of next year. Something to look at in the high yield market.
>> Some people saying, probably you will the show, recent appearances, if you're looking into this space, thinking in terms of companies that fair… Everyone sort of did well when money was free right?
Not to worry about it now. But money is not free anymore and it's something we need to consider what some of these names.
>> That's absolutely the case.
The ripple effect of monetary policy tightening… We see in the private debt markets right?
Negating some of the private credit markets.
You know, it's just not gonna go away and I don't expect the Fed or any other central bank to rapidly lower rates.
So the cost of money has a big impact and, you know, it has a cascading effect on where you are in the investment world.
The further you go down, the harder it is to access capital, especially when it scares which is a tight monetary policy.
>> Let's get to another question now. At the time a year for tax loss selling. Does it have an impact on fixed income?
That's an interesting question.
>> I suspect that this year, given the negative absolutely turns.
It will happen. But what I understand, in many cases is the understanding is that fixed income makes a lot of sense to be investing in, increasing your allocation, rebalancing. So a bit of a wash. Yes, some tax loss selling into the year-end and then buying into the new year and reestablishing those positions at a new cost base.
But from a broad aggregate market, the impacts of people doing tax loss selling at a retailer or an advisor level is pretty minimum on the market. It's much larger and is certainly not something that broadly speaking, affects institutional investors. You know, it's not a substantial enough impact on the market.
>> Really?
Even in year like this?
In the previous years you thought who would go along for the ride… But this year?
>> You have so many different investors. Central-bank investors investing the reserves. They are not affected by tax loss selling.
You have, for example, the bond market, the institutional bond market. You have liability. They won't be affected at the turn of the year. They are managing their liabilities against assets. The fact that the gains and losses are not going to be causing them to do something in the year-end. Right?
Sometimes you have a little bit of an impact on retail mutual funds but you know, trumping other parts of the bond market is not going to be larger than the sum of the other players in the market. So, I don't like it's a big impact. I don't think it will be a market moving impact on bond yields.
>> Fascinating stuff as always make sure you do your own research before you make any investment decisions.
We'll get back to your questions for Scott Colbourne on fixed income in just a moment's time. Of course a reminder that you can get in touch with us any time by emailing moneytalklive@td.com.
Now let's get to our educational segment of the day.
we talk a lot about various stock indices like the S&P 500 on the show.
If you're interested in what companies actually make up an index WebBroker has tools which can help.
Joining us now for Maurice Bryan Rogers, Senior Client Education Instructor with TD Direct Investing. So Scott how can we find out what makes up an index?
>> Yes. Nice to see you Greg.
In an indexing WebBroker, you can search this pretty quickly. I almost equated to a quick scan. I think it's something that's pretty valuable for even experienced investors and especially those who are new to investing. So if we jump over to WebBroker, we take a look here, we can see that in the platform, we will go to our own old friend the research tab. If you click on "research", then go to "indices", what I want to focus on today is that you can scroll down and you can see index names. So a lot of popular North American indexes available.
You have the Dow Jones, industrial average, some of those narrow based indexes that will be there as well of the broad-based if you're looking at the S&P 500.
And you can see down here with the TSX compensate.
Someone may not have all the members listed. But all those smaller ones like the S&P 500 and down to the NASDAQ 100, the Dow Jones and so on, if you click on this link, if you left click, you will get a listing that shows a graph and some other information. Down at the bottom, you're going to click on "members". Now, that automatically takes to a page which I absolutely love. I use the several, several times.
The fact that now I can see all the 30 stocks in the Dow and a lot of people may not know that there are only 30 stocks listed on the Dow Jones.
Now I can filter it by number of different things. By the name, if I want to go in reverse and go from ascending or descending order, you can actually filter a certain way. I'll get into that in a little bit later on. But if we actually see on this drop-down, you can now look at some, even more specific, indices such as if you're looking at preferred stock.
You can click on that. If you want to see what might be an S&P TSX small-cap listing. So I can click there and I'm getting a whole different listing of stock that I can, once again I can do this filter. But will go into further detail later on. What I wanted to show as well is how you can continue to scroll down. What you're looking for is sort of a market segment or an industry or something like that. If you're interested, let's say with Banks or consumer products… In the US, you're gonna probably be able to find it here. They can get an idea as a starting point to look at what other stocks are in those indices that you can then explore even further.
>> Lots of information there.
Great to have a lot of information at your fingertips.
Once you start digging a little bit deeper in filtering through things, how do you do that?
>> Yeah.
So if we jump back into WebBroker one more time, Greg, I want to dig a little bit deeper into that idea of filtering.
The reason I said that or rather show that off the bat and got excited about it is because you can have a number of things you can look at that are pretty valuable. So let's say we jump back to… I'll do one familiar everyone like a broader base index like the S&P 500.
It's showing all 500 stocks but not all in one page.
You have to go down to the bottom and you can go to these other tabs.
But if you want to search and filter something really quickly, let's say you're looking for a stock by volume. If you look at really high volume stocks, you can click there and you can see a quick scan.
If I click that top call in, now flexible click again my apologies, the other way around.
We have 49.3 million is kind of the highest. You can see the stock showing that, Amazon, now you can look at something more high-volume stock. You can do a percentage change, you can do market As well. So if you click on "market", you want to see the largest and right now we are looking at Apple, it goes down to Microsoft and the current market.
One of my favourites to you is if you're looking at dividend yield, this is something pretty broad and the S&P 500 but you can go into some of those more specific indices or industries or sectors and kind and narrow things down as to what would have the highest dividend yield.
You can see names listed here.
So then you can click on the one itself and go into its overview and details on WebBroker you can actually do a quick review of performance right here and see what the one week performances… You can even filter these as well. So if you want to know which ones are the top performers, you can click that top link filter again.
Then you can go from there if it's something you're interested in pursuing further.
>> All right. Lots of great stuff as always. Bryan thanks for that.
>> Thanks Greg.
> Our thanks to Bryan Rogers, Senior Client Education Instructor a TD Direct Investing. Make sure to check out the learning centre a WebBroker for live interactive master classes and five strategies to help lower taxes before the end of December 15. Now before we get back to your questions about investing with Scott Colbourne, a reminder of how you can get in touch with us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back now with Scott Colbourne taking your questions about fixed income.
The next one for Scott, our government bonds generally looking attractive right now? What about the government space?
> Yes, they continue to be attractive on an asset allocation basis for sure. You are adding yields that are attractive and we haven't had these levels in a long time.
So that makes sense. You talk about a 60/40 portfolio, I think there are advantages given the uncertainty as we go into 2023.
We may have a shower recession but I could be wrong.
We would like some assurance I think.
Having some insurance in the market, the one of the best places to get it is by buying government debt.
Historically that's been safe haven of a flight to quality when the markets are more turbulent. So, it makes sense even if that doesn't come to play.
You are clipping a better income, a better yield than you have in a long time. It provides you with a tremendous amount of liquidity to rebalance your portfolio. So there is definitely advantages of being invested and just where you want to invest.
>> Let's talk about the question. I've been taking a look at the platform of government bonds lately. The finances are interesting.
>> Yeah. I think you're being compensated to you know, take on the risk that the monetary policy decisions have given you.
Right?
So fine and is very attractive. The reason the yields are a lot higher is because the market is telling us where they think growth is going, where the economy is going. So ultimately, at some point, the curve inversion will disappear over time.
You know, I think that given the stickiness and the shock that we have had on inflation and the, sort of, persistent underlying resilience in the domestic and global economy, we are going to be, the finance rather the front and will be higher for a little longer.
Ultimately that will go in at some point the Bank of Canada will start to cut rates.
So you can clip a nice coupon by being in the front end of the curve.
It works really well for the investment rate market.
The horizon, you can buy short-term corporate bonds and take advantage of the ultimate maturity in two years and three years.
But, longer and gives you that insurance right? So, if, you know, things really go south next year… The long and will rally and you know, as we found out, duration, long-duration assets can give you a great return if yields fall and prices will rise a lot.
>> There's a good reason why current bonds, benchmark because they have taxation power right?
In a big developed nation, you sort of don't worry as much about their ability to pay you back your money.
Once you've loaned it to them. In a deep recessionary environment, to the government bonds get rattled a bit?
Or do people say that they had that taxation power?
>> It's an interesting year for B rattled right? We had the UK debacle on spending.
>> That's true.
> I don't think any government is immune.
Most parts of the economy pullback, you get the corporate sector pulling back in a recession. You get other sectors going back, households pullback.
So who steps in? It's the government in the economy.
And so, to the extent of their filling that gap of that part rather those parts of the economy, the pullback makes sense.
As long as it's not ridiculous. I think for the first time in a long time, we saw the resurgence of the bond vigilante, you know, it's not only in the developed market but we also saw that happen in the emerging markets base as well.
So it is good and they will ultimately pay back. I'm not worried about government of Canada or the US government defaulting on their debt. But they have to be sensible about it as well.
>> Let's get to another question. This one about geography.
Talking about fixed income and what parts of the world might be more interesting right now?
>> The behaviour that I'm suggesting is the corporate bond market, I think globally, there are spots that make sense. Interestingly enough, you can look into emerging markets, some of the local markets. You know, they offer attractive yields. A lot of these countries got out ahead of the developed central banks and raised rates a lot so, a market that I like is Mexico. So yields are very high.
Let's call it 10%.
You know, a government, policymaker is a lease there steady and being in line with what the Fed and the Bank of Canada are doing.
So I think it offers a very attractive yield of the currency is good and to the extent that we believe in the French shoring argument, we will be focusing on corporations and resiliency more on the domestic market, the Mexican market might benefit from the restoring of businesses in the North American market.
So I think it's a good place to invest but there's also Brazil, the front end of the Brazilian market is very attractive.
A little bit more esoteric as you can hedge out some of the developed government bond markets like Australia or the UK or Germany and bring that currency risk back to Canada and you pick up an ice pick up relative to the Canadian tenure market so for example, something a little more harder for individual investors to do but there's definitely opportunities out there to pick up yield relative to Canada.
>> Almost looking at it Mexico or Brazil in looking at their bonds.
Will be the biggest risk in 2023 to weigh against some of the opportunities?
>> I think the biggest risk when you're investing in for emerging markets generally speaking as most of the time you're taking a currency risk in there. So, to the extent that, you know, the Mexican peso or the Brazilian… Really decline relative to say the Canadian dollar, that's your biggest risk. So let's say you're making 10% or you're making 12%. How much is the currency going to move? If you think it's going to be steady then that's a very attractive 10% yield but if you are getting a 10% depreciation or a 12% depreciation of the Canadian dollar, it's something for sophisticated and active investor but it's definitely worth looking at. Canada has outperformed a lot of global bond markets and I think, you know, next year might be enough to invest outside of Canada and take advantage of those yields.
>> Very interesting stuff.
All this currency risk.
On my screen, the next question coming in is not about currency. It's all about the US buck.
Has the US dollar run finally out of gas? If so what does it mean for the loonie, our currency?
>> I think we've had a bit of choppiness right?
I think that we are seeing a behaviour that suggests that, you know, the US dollars topping.
Likely next year, the tailwind will be against other currencies. Other global economies.
Maybe the fact that the US and the Canadian economy growth will slow down to levels that are elsewhere in the global economy.
As a consequent, you see the euro or other currencies appreciate against the US dollar.
But, you know these trades and transitions… They never really go rapidly.
So I think were the process of topping on the US dollar.
I think some currencies will benefit but, you know, we are also seeing commodity headwinds right? That takes the window to the sale of the Canadian dollar and other commodity-based currencies.
So it's not uniformly one size, all boats are going to benefit versus the US dollar.
But I definitely think that the US dollar is in the process of peeking.
>> Right now we had 7320 against the US buck. Is the sort of the level we feel is going to be at for a while? For some reason in my mind, the last several years, 78 sort of sticks in my head where the Canadian dollar naturally lived for a while.
I don't do that anymore.
>> Look, I think, you know, the positive for the Canadian dollar is the fact that we've got a relatively resilient economy. We have a commodity tailwind that have that has been supportive for our economy.
Effect of monetary policy has been out there, for me, if you're asking me as an investor over the next 1 to 3 months, I am, I'd rather take my money outside of Canada and invest in other currencies because I think of the currencies are going to outperform the Canadian dollar. I think we've gotten some short-term headwinds that we are confronting and we are already seeing evidence that the housing market is biting domestically and the commodity market is sort of stabilizing.
In the short term, I see some headwinds for the Canadian dollar whether it's against the Euro or Sterling, Yen, other currencies… Against the US dollar, it's a little hard to say. But I think, you know, in the short term, we might underperform a little over the next 1 to 3 months.
>> Interesting stuff. We will get back to your questions with Scott Colbourne on fixed income and just moments time. Always make sure to do your own research before making any investment decisions and a reminder that you get in touch with us at any time.
Do you have a question about investing or what is driving the markets? Are guests are eager to hear what's on your mind so send us your questions.
Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
>… A nine-month high in October, US vehicle sales are these signs of a long-term trend? Our Anthony Okolie is been digging in on all of it and brings the details Anthony.
>> Yes Greg US vehicle sales fell 6% versus October to about 14 million units on an annualized basis. That's well below consensus forecasts with a modest pullback.
It suggests that US consumer demand for new cars seems to be on the wane amid rising interest rates, recession fears and high vehicle prices.
According to JD Power, the average interest rate on their new vehicle finance contract in the US should reach about 6.27%. That's at 238 basis point jump from November of last year.
And interest rates are, of course, poised to rise even higher before the end of the year with the Fed expected to boost rates next week.
Raising of the data, the biggest decline in US sales was concentrated in the light truck segment. It dropped over 7% month over month.
In fact, light trucks which include the SUVs, accounted for nearly 80% of last month's sales. That's down .8% from November 2021.
The passenger vehicles only saw modest decline of just under 2% month over month.
And, with dealership inventories improving from last summers lows, we also saw an improvement in the average daily savings rate which rose to approximately 44,000 cars sold over 25 days. That's up slightly from about 42000 Back in November of 2021, now, TD Economics says while we have seen an improvement in inventories, they know that the stock of vehicles currently available is mostly skewed towards base models and higher priced vehicles. Overall, TD Economics says that the pullback was not totally unexpected because October is games was lightly boosted by the increased deliveries from the delays that we saw over summertime due to supply chain issues as well as the replacement of vehicles damaged during hurricane Ian. Greg?
>> So you going to look for a new car and you will either see the base model or the completely tricked out car.
Not a lot left in the middle.
What is TD Economics think of the sales prospects going forward?
>> TD Economics says they need to see more normalization in the supplies.
They don't think it's unlikely to happen until mid-2023. Until then, they think that sales will be constrained. When it comes to US consumer spending, TD Economics says that even accounting for the pullback that we saw in November sales, Q4 sales are tracking rather consumer sales is tracking about 3% on an annualized basis.
But the only thing that this above trend pays a sustainable in the long term and they expect him meaningful deceleration and activity over the coming months as the effects of interest rate hikes continue to filter throughout the economy.
>> Alright. Interesting stuff as always. Thanks Anthony.
>> Thanks Greg.
>> MoneyTalk Live's Anthony Okolie. And now let's look at the markets with the fear on recession.
Right now up modestly on Bay Street, the TSX compass index. 16 1/2 16 is fair rather.
Now with Kinross Gold, still about five bucks and $0.81 a share, almost 3%.
Dollarama, as we told with the top of the show, managed to increase store sales and that is a key metric in retail sales. Stores open for more than a year.
Saying the shift in consumer behaviour because of inflation will continue to benefit them going forward.
You have Dollarama shares up a little more than 4%.
South of the border, the S&P 500, let's see what it's up to you.
Sliding back below the breakeven line down about nine points, a little shy of a court of a percent and the NASDAQ, let's put that up against the broader market right now, a little more than 1/3 of a percent down. As we told you a bit of weakness in some of the travel -related names.
.
We are back out with Scott Colbourne of TD Asset Management talking fixed income.
Let's talk about the R word.
What impact would a recession have on fixed income?
>> At the end of the day, it's a positive. Yields will go lower. At some point to putting on the extent the downturn, central banks will indicate that the likeliest next move will be to cut rates and so that's a positive. Obviously, yields can go lower than where they are and you know, it's definitely a part of your portfolio. It makes sense. When you think about what bonds are for in a portfolio?
You know, the first one is income. For the first time in a long time we are getting income.
It also provides you with liquidity. So to the extent that we go into a recession, the price of your portfolio can go down at some point and you will want to buy cheap right? You will buy the assets and bond markets will give you that nice liquidity. For the first time in a long time there is some diversification. For a recession, bonds will outperform, especially government bonds will outperform relative to sort of credit investment rate credits.
So you definitely want… Your portfolio.
>> This is been on my mind for a while is how long they will stay there. They will deftly find that terminal rate. Closer to the end. This rate hiking cycle than we were in the beginning may be seventh or eighth inning.
Once they get there, the thought is they will stay there. But the whole point of staying there is to inflict pain.
I know I can say that I can take a lot of pain but please make the pain stop.
Is that the thing we are trying to figure out for 2023?
How long they will have the resolve to stay there?
>> I think that's a great question.
I don't think any policymaker would like to be described as inflicting pain. But in essence, there is a rebalancing of the supply and demand of the economy.
A demand that is way in excess of the supply side of the economy. So it's a rebalancing process that is going to play out.
So to the extent that you know, it's sticky.
That is, you know, the man size stays sticky the labour market is more resilient, the wages stay higher. Yes we get inflation back. Let's say 3%.
But it can become a dilemma and then to your point, they are sticky. They're going to stick with rates and the much more hoped-for pivot and cuts may be a little bit harder to play out.
So, you know, it's really important, we are pivoting.
We are at that inflection point and we are going to focus on the data.
The data dependency. We don't know. We haven't had an inflation chocolate this in a long, long time.
It's highly uncertain for investors and it's highly uncertain for policymakers going forward.
>> Scott, always a pleasure to have you here. I always enjoy the conversation.
>> Thank you.
>> Our thanks to Scott Colbourne, managing director for fixed income at TD Asset Management. Stay tuned on tomorrow show, Jimmy Zhu, Portfolio Manager at TD Asset Management will be our guest take your questions about asset allocation. A reminder that you can get a head start by emailing us your questions at moneytalklive@td.
com. That's all for our show. Take care.
[music] Ong
every day will be joined by guests from across TD many of them will only see here. We we'll take you through with moving the markets and answer your questions about investing. Coming up on today show, will get a reaction to the latest Bank of Canada rate decision and what it means for the fixed income space with Scott Colbourne from TD Asset Management. And in today's WebBroker education segment, Bryan Rogers will show us how you can find out what companies make up an index using the platform.
Hearsay can get in touch with us, just email moneytalklive@td.com or Philip at your response box right here under the video player on WebBroker. Before we get to our guest of the day let's get to an update on the markets.
Obviously we've been feeling the weight in recent sessions of recession fears. Today's been a bit of a choppy day on Bay and Wall Street. We will start here at home with the TSX as it finds its way into modest positive territory.
We are modestly back in positive territory up about 35 points, a little shy of the fifth of a percent. Some firming and the price of gold today. Let's check on Barrick Gold up a little more than 2%. Nothing too dramatic.
Tech has been a choppy trade today, a bit weak south of the border.
Here on Bay Street as well. We have Shopify, a bit of pressure but modest. Coming off the lows of the session.
Down a little more than a percent.
Let's check in on the broader REIT of the American market, the S&P 500 as traders try to figure out where this economy is heading in the face of all these aggressive rate hikes. And what we might get next from the Fed.
back modestly in positive territory. The NASDAQ, the breakeven line pretty much sitting right on top of it.
We noticed some weakness in the travel line is, some of the cruises including carnival crew down about a modest 2%. And that's your market update.
The Bank of Canada raised interest rates another 50 basis points today marking its seventh hike rate in a row and while our central bank did flag inflation is can a continuing issue, they also signalled that this hiking cycle may be coming to a close soon.
Joining us now is Scott Colbourne, Managing Director for Active Fixed Income at TD Asset Management.
Great to have you.
>> It's great to be here.
>> That seems to be the read on the market now there is a clear indication that they are coming to the end soon. Is this the way we should be reading today's announcement?
>> Everything in the market today for both the Hawks and the dogs, split between 225 and 50 basis points, a little bit more hawkish with 50.
But the language is changed to your point.
Now, it's a question of they were going to raise rates, they will raise rates and now we will consider whether we will raise rates going forward. So there's an option alley, there's a date of dependency that the Bank of Canada is focusing on now. The question is whether the next one is zero? The end of the rate cycle? Or is a 25? This is the trajectory that a lot of central banks have taken.
It was a focus on pace, rapidly frontloading rate hikes and we are getting towards the end of that. Whether it's the Fed or the Bank of Canada or the RBA or others.
Now it's like "where we can end up?" What's the terminal rate and how long will they stay there? That's the trajectory.
>> The whole point of raising rates like this to try to tame inflation is to be restrictive right? To try to put the brakes on the economy to a certain degree? I imagine a 4 1/4% were fully restrictive.
I guess an argument can be made that we are at the point where we think we can cool inflation with a rate like this?
>> I think that's the debate.
Monetary policy works with a lag.
So were starting to see, and the last GDP, we saw domestic demand soften both of the housing side and the consumption. So there's evidence that the rate increases, this rapid rate increases starting to seed with the economy. But as it was pointed out, by the Bank of Canada, inflation is high, peeking but still unacceptably high. There is still a lot of uncertainty.
So we have to let things sort of feedthrough, trickle through.
And see how monetary policies impact is going to feed into the domestic and the global economy. So at the time to reflect, a time to step back from these rapid increases and focus more on, maybe we just need a pause here.
We will assess the data over the next… In January, the market now, going forward into January a sort of split between zero and 25 so it sort of like today except less of a note.
>> Best case scenario is of course, you said frontloading a lot of pretty big rate hikes this year.
You get inflation under control, you get it moving in the right direction and not too much damage to the economy about you slow it down. Let's talk of the yield curve.
The inversion we are seeing on the Canadian curve and what it tells us?
>> The most dangerous words in the investing language is "it's different this time". A lot of people pushing back on the concept of a recession both domestically, the Canadian bond market as well as the US market, it's very inverted.
It's been a reliable indicator, not a great timing indicator. So we don't know when. But I would bank on the fact that there is going to be a recession in both Canada and the United States.
We can discuss how severe and how deep and whether it's a shallow or a modest recession.
But I think we are definitely taking the signal from the bond market that we are going to have a recession.
And that's the lag impact of these rapid rate increases.
It makes sense, therefore, for the Bank of Canada step back and assess here.
>> Is the bond market telling us something about the nature of the recession? Best case scenario, you have a modest recession fairly quickly and get the job done.
But of course worst-case scenario is mass unemployment.
You see the things that happened during a deep recession. Can we avoid that scenario?
>> I think one of the keys to that is the employment market and it still, I would say, in both Canada and the United States, still a solid job market.
To the extent that that is a harbinger of the extent of the recession, we have definitely seen employment growth slowed down but wages are still solid. A solid number out of the US.
You know, I think that so far, the indications are, as the employment market tells us that the slowdowns will be more modest.
> Is there an element, maybe, of surprise of how resilient? Even the Bank of Canada had to admit today that economies were a little more resilient in the face of the what they've been doing.
We were not anticipating this year but the labour market is resilient. GDP also.
There seems to be more strength there than most people bet on.
>> I think that's a consistent theme globally. Both Canada and the United States, North American economies have demonstrated the resiliency that initially, the models, the forecasting, the policy expectations would be for more of an impact and whether it was the policy's fiscal policies, the policies directed to us during the pandemic… You know, savings have been good, there's been a solid labour market adjustment.
Commodity markets were a tailwind for Canada. So, the unwind of this is taking a lot longer than perhaps you know, the policymakers would've thought. So, to me that underscores a bit of a resiliency in the global economy and the domestic economy.
So the more likely scenario is that we start to see a rate pause rather than a rapid turn towards cuts.
Which, the market always flirts with.
Okay central banks are done and now they will cut.
Maybe in the circumstance, given the resiliency in the market, given the resiliency in the economy, the right response would be to pause and really assess on the inflation front.
>> You mentioned the global economy. What about the global situation with central banks.
We are wrath with the Bank of Canada signalling that we are done.
Maybe more modest next time around. But we have different factors. We think of the housing market : what about some of the other central banks?
>> We have a message this week from the Bank of Australia. Some similarities with Canada.
You know, commodity-based economy. They raised rates 25 basis points but their messaging was a little more hawkish.
There likely more rate hikes to come.
So going back to that sort of, tiered approach to policy that I sort of laid out, the pace of rate hikes and Australia also sort of lessened. Now it's "where do we get the rates down?" Both the Fed and the Bank of Canada, the RBA and other central banks are still saying there is a little ways to go.
We may be in the seventh or eighth inning of rate hikes but we are closer towards the end and then it's like "how long do we stay there?
How does inflation play out?
How does the employment market play out? How sticky is inflation?" We know inflation will fall next year especially given the commodity price declined and the supply chain adjustments.
You know, is it going to come down and back towards the 2% level?
Or is it going to be stickier around three more?
>> A lot of big issues remain. Great start the program.
We will get your questions about fixed income with Scott Colbourne in just a moment's time.
A reminder of course that you can email us anytime@moneytalklivent.com or Phil at that viewer response box under the video player here on WebBroker.
Now let's get you updated on some of the top stories in the world of business and take a look at how the markets are trading.
Shifting consumer habits in the face of high inflation appear to be benefiting Dollarama. The discount retailer is posting same-store sales growth of almost 11% of its most recent quarter compared to the same period last year.
Dollarama says it doesn't expect consumer to sway from discretionary spending to continue driving sales this quarter. Home Improvement retailer Lowe's is reaffirming its full-year forecast despite inflationary pressures and it's announcing a new $15 billion share buyback program.
Low store also reiterated its expected the sale of its Canadian business to private equity firm Sycamore Partners to close by early next year.
The return to air travel is putting the industry on a better footing with Southwest Airlines, announcing today it's reinstating the dividend. The payout to shareholders will resume at the end of January.
In a release, Southwestern CEO Bob Jordan said the move reflects the strong return to demand for air travel.
Pandemic aid has prohibited US airlines from paying out dividends until recently. And here's how the main benchmark index in Canada is trading.
Not sure if we can throw the TSX up on the screen, we will probably tell you from my own WebBroker account, we are modestly in positive territory now on the TSX.
All right.
We are back now with Scott Colbourne taking your questions about fixed income so let's get to them.
First one on the list: can we get Scott's view on the corporate bond space for the year ahead?
That's an interesting one if were talking about a recession. What we think about corporate bonds?
> I'm generally constructive on fixed income. Let's start with that.
We've been on the show, some of my colleagues have as well.
Generally speaking we become more constructive about fixed income. Late-summer, in the fall, it's played out.
I think we will continue to see rates particularly, you know, in the 10 year space, move down from here.
So with that in mind, all in yield is attractive both for governments and then for corporate bonds. I would say that corporate bond markets will face a bit of a push me/pull me sort of forces next year.
I did talk about, we talked about the recession. I think we will have something.
With the recession, that's going to be putting pressure on corporate sprints.
So, you know, likelihood is that we start off in the first quarter of next year with a little bit of pressure on corporate spreads widening.
I'm not vastly negative because I think the all in yield is constructive.
I might say something a little more controversial that I think corporate bonds will probably outperform equities next year. My equity guys don't like when I say that.
> Really?
>> Equities for the long run but I think you were still talking about really good all in yields.
I think there will be a little bit of a pressure in the first quarter, first half of next year on corporate spreads.
So I would be leading into those broad investment great debt over the course of next year and I think, you know, it's made sense to reallocate in your portfolio as fixed income this fall.
Into next year.
>> I think a lot of people understand what they're doing your homework on an equity investment what they are sort of looking for in terms of "is this a growth name?
What I need to see in terms of sales?
" If you're doing your research on fixed income investments, corporate bonds, what should you be looking at?
>> What I think at the end of the day, the key is does the company pay money back?
It's a little different than investing in the equity side but broad fundamentals make a lot of sense, the cash flow is generating the ability to service debt.
The extent of leverage.
These are all metrics that both equity and fixed income investors look at.
But we tend to look at the balance sheet a little differently to pay it back. I would say, broadly speaking, what you're looking at is most investment, Canadian investment rates, corporate bonds, they are pretty high quality.
And I would stick to high quality next year.
In the investment great bond market. I would stick to generally speaking the front end of the market.
I think there's also advantages, given the rapid change in interest rates that we have seen.
A lot of corporate bonds are trading at discount.
So it's a nice investment. You buy and you get that pole to par as it moves closer to maturity.
So there's a lot of advantages to that. You know, I would just stick on the higher in quality for 2023.
> This in a segue into our next question.
Someone wants to know but the riskier part of the bond market. For high yield.
>> I'm a little more cautious on high yield. The all in yield is very attractive.
We talked about 1/2% for the All in.
But I would say that the likelihoodof increasing at the margin defaults in the credit market. Leaning towards higher quality rather than the lower quality. I think that you will get a chance to invest in the high-yield market at better levels.
Then the 8%. And I think it's a great long-term investment. It's just timing and so I lean towards me with the second half of next year. Something to look at in the high yield market.
>> Some people saying, probably you will the show, recent appearances, if you're looking into this space, thinking in terms of companies that fair… Everyone sort of did well when money was free right?
Not to worry about it now. But money is not free anymore and it's something we need to consider what some of these names.
>> That's absolutely the case.
The ripple effect of monetary policy tightening… We see in the private debt markets right?
Negating some of the private credit markets.
You know, it's just not gonna go away and I don't expect the Fed or any other central bank to rapidly lower rates.
So the cost of money has a big impact and, you know, it has a cascading effect on where you are in the investment world.
The further you go down, the harder it is to access capital, especially when it scares which is a tight monetary policy.
>> Let's get to another question now. At the time a year for tax loss selling. Does it have an impact on fixed income?
That's an interesting question.
>> I suspect that this year, given the negative absolutely turns.
It will happen. But what I understand, in many cases is the understanding is that fixed income makes a lot of sense to be investing in, increasing your allocation, rebalancing. So a bit of a wash. Yes, some tax loss selling into the year-end and then buying into the new year and reestablishing those positions at a new cost base.
But from a broad aggregate market, the impacts of people doing tax loss selling at a retailer or an advisor level is pretty minimum on the market. It's much larger and is certainly not something that broadly speaking, affects institutional investors. You know, it's not a substantial enough impact on the market.
>> Really?
Even in year like this?
In the previous years you thought who would go along for the ride… But this year?
>> You have so many different investors. Central-bank investors investing the reserves. They are not affected by tax loss selling.
You have, for example, the bond market, the institutional bond market. You have liability. They won't be affected at the turn of the year. They are managing their liabilities against assets. The fact that the gains and losses are not going to be causing them to do something in the year-end. Right?
Sometimes you have a little bit of an impact on retail mutual funds but you know, trumping other parts of the bond market is not going to be larger than the sum of the other players in the market. So, I don't like it's a big impact. I don't think it will be a market moving impact on bond yields.
>> Fascinating stuff as always make sure you do your own research before you make any investment decisions.
We'll get back to your questions for Scott Colbourne on fixed income in just a moment's time. Of course a reminder that you can get in touch with us any time by emailing moneytalklive@td.com.
Now let's get to our educational segment of the day.
we talk a lot about various stock indices like the S&P 500 on the show.
If you're interested in what companies actually make up an index WebBroker has tools which can help.
Joining us now for Maurice Bryan Rogers, Senior Client Education Instructor with TD Direct Investing. So Scott how can we find out what makes up an index?
>> Yes. Nice to see you Greg.
In an indexing WebBroker, you can search this pretty quickly. I almost equated to a quick scan. I think it's something that's pretty valuable for even experienced investors and especially those who are new to investing. So if we jump over to WebBroker, we take a look here, we can see that in the platform, we will go to our own old friend the research tab. If you click on "research", then go to "indices", what I want to focus on today is that you can scroll down and you can see index names. So a lot of popular North American indexes available.
You have the Dow Jones, industrial average, some of those narrow based indexes that will be there as well of the broad-based if you're looking at the S&P 500.
And you can see down here with the TSX compensate.
Someone may not have all the members listed. But all those smaller ones like the S&P 500 and down to the NASDAQ 100, the Dow Jones and so on, if you click on this link, if you left click, you will get a listing that shows a graph and some other information. Down at the bottom, you're going to click on "members". Now, that automatically takes to a page which I absolutely love. I use the several, several times.
The fact that now I can see all the 30 stocks in the Dow and a lot of people may not know that there are only 30 stocks listed on the Dow Jones.
Now I can filter it by number of different things. By the name, if I want to go in reverse and go from ascending or descending order, you can actually filter a certain way. I'll get into that in a little bit later on. But if we actually see on this drop-down, you can now look at some, even more specific, indices such as if you're looking at preferred stock.
You can click on that. If you want to see what might be an S&P TSX small-cap listing. So I can click there and I'm getting a whole different listing of stock that I can, once again I can do this filter. But will go into further detail later on. What I wanted to show as well is how you can continue to scroll down. What you're looking for is sort of a market segment or an industry or something like that. If you're interested, let's say with Banks or consumer products… In the US, you're gonna probably be able to find it here. They can get an idea as a starting point to look at what other stocks are in those indices that you can then explore even further.
>> Lots of information there.
Great to have a lot of information at your fingertips.
Once you start digging a little bit deeper in filtering through things, how do you do that?
>> Yeah.
So if we jump back into WebBroker one more time, Greg, I want to dig a little bit deeper into that idea of filtering.
The reason I said that or rather show that off the bat and got excited about it is because you can have a number of things you can look at that are pretty valuable. So let's say we jump back to… I'll do one familiar everyone like a broader base index like the S&P 500.
It's showing all 500 stocks but not all in one page.
You have to go down to the bottom and you can go to these other tabs.
But if you want to search and filter something really quickly, let's say you're looking for a stock by volume. If you look at really high volume stocks, you can click there and you can see a quick scan.
If I click that top call in, now flexible click again my apologies, the other way around.
We have 49.3 million is kind of the highest. You can see the stock showing that, Amazon, now you can look at something more high-volume stock. You can do a percentage change, you can do market As well. So if you click on "market", you want to see the largest and right now we are looking at Apple, it goes down to Microsoft and the current market.
One of my favourites to you is if you're looking at dividend yield, this is something pretty broad and the S&P 500 but you can go into some of those more specific indices or industries or sectors and kind and narrow things down as to what would have the highest dividend yield.
You can see names listed here.
So then you can click on the one itself and go into its overview and details on WebBroker you can actually do a quick review of performance right here and see what the one week performances… You can even filter these as well. So if you want to know which ones are the top performers, you can click that top link filter again.
Then you can go from there if it's something you're interested in pursuing further.
>> All right. Lots of great stuff as always. Bryan thanks for that.
>> Thanks Greg.
> Our thanks to Bryan Rogers, Senior Client Education Instructor a TD Direct Investing. Make sure to check out the learning centre a WebBroker for live interactive master classes and five strategies to help lower taxes before the end of December 15. Now before we get back to your questions about investing with Scott Colbourne, a reminder of how you can get in touch with us.
Do you have a question about investing, or what is driving the markets? Our guests are eager to answer your questions so send them to us here at MoneyTalk Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
We are back now with Scott Colbourne taking your questions about fixed income.
The next one for Scott, our government bonds generally looking attractive right now? What about the government space?
> Yes, they continue to be attractive on an asset allocation basis for sure. You are adding yields that are attractive and we haven't had these levels in a long time.
So that makes sense. You talk about a 60/40 portfolio, I think there are advantages given the uncertainty as we go into 2023.
We may have a shower recession but I could be wrong.
We would like some assurance I think.
Having some insurance in the market, the one of the best places to get it is by buying government debt.
Historically that's been safe haven of a flight to quality when the markets are more turbulent. So, it makes sense even if that doesn't come to play.
You are clipping a better income, a better yield than you have in a long time. It provides you with a tremendous amount of liquidity to rebalance your portfolio. So there is definitely advantages of being invested and just where you want to invest.
>> Let's talk about the question. I've been taking a look at the platform of government bonds lately. The finances are interesting.
>> Yeah. I think you're being compensated to you know, take on the risk that the monetary policy decisions have given you.
Right?
So fine and is very attractive. The reason the yields are a lot higher is because the market is telling us where they think growth is going, where the economy is going. So ultimately, at some point, the curve inversion will disappear over time.
You know, I think that given the stickiness and the shock that we have had on inflation and the, sort of, persistent underlying resilience in the domestic and global economy, we are going to be, the finance rather the front and will be higher for a little longer.
Ultimately that will go in at some point the Bank of Canada will start to cut rates.
So you can clip a nice coupon by being in the front end of the curve.
It works really well for the investment rate market.
The horizon, you can buy short-term corporate bonds and take advantage of the ultimate maturity in two years and three years.
But, longer and gives you that insurance right? So, if, you know, things really go south next year… The long and will rally and you know, as we found out, duration, long-duration assets can give you a great return if yields fall and prices will rise a lot.
>> There's a good reason why current bonds, benchmark because they have taxation power right?
In a big developed nation, you sort of don't worry as much about their ability to pay you back your money.
Once you've loaned it to them. In a deep recessionary environment, to the government bonds get rattled a bit?
Or do people say that they had that taxation power?
>> It's an interesting year for B rattled right? We had the UK debacle on spending.
>> That's true.
> I don't think any government is immune.
Most parts of the economy pullback, you get the corporate sector pulling back in a recession. You get other sectors going back, households pullback.
So who steps in? It's the government in the economy.
And so, to the extent of their filling that gap of that part rather those parts of the economy, the pullback makes sense.
As long as it's not ridiculous. I think for the first time in a long time, we saw the resurgence of the bond vigilante, you know, it's not only in the developed market but we also saw that happen in the emerging markets base as well.
So it is good and they will ultimately pay back. I'm not worried about government of Canada or the US government defaulting on their debt. But they have to be sensible about it as well.
>> Let's get to another question. This one about geography.
Talking about fixed income and what parts of the world might be more interesting right now?
>> The behaviour that I'm suggesting is the corporate bond market, I think globally, there are spots that make sense. Interestingly enough, you can look into emerging markets, some of the local markets. You know, they offer attractive yields. A lot of these countries got out ahead of the developed central banks and raised rates a lot so, a market that I like is Mexico. So yields are very high.
Let's call it 10%.
You know, a government, policymaker is a lease there steady and being in line with what the Fed and the Bank of Canada are doing.
So I think it offers a very attractive yield of the currency is good and to the extent that we believe in the French shoring argument, we will be focusing on corporations and resiliency more on the domestic market, the Mexican market might benefit from the restoring of businesses in the North American market.
So I think it's a good place to invest but there's also Brazil, the front end of the Brazilian market is very attractive.
A little bit more esoteric as you can hedge out some of the developed government bond markets like Australia or the UK or Germany and bring that currency risk back to Canada and you pick up an ice pick up relative to the Canadian tenure market so for example, something a little more harder for individual investors to do but there's definitely opportunities out there to pick up yield relative to Canada.
>> Almost looking at it Mexico or Brazil in looking at their bonds.
Will be the biggest risk in 2023 to weigh against some of the opportunities?
>> I think the biggest risk when you're investing in for emerging markets generally speaking as most of the time you're taking a currency risk in there. So, to the extent that, you know, the Mexican peso or the Brazilian… Really decline relative to say the Canadian dollar, that's your biggest risk. So let's say you're making 10% or you're making 12%. How much is the currency going to move? If you think it's going to be steady then that's a very attractive 10% yield but if you are getting a 10% depreciation or a 12% depreciation of the Canadian dollar, it's something for sophisticated and active investor but it's definitely worth looking at. Canada has outperformed a lot of global bond markets and I think, you know, next year might be enough to invest outside of Canada and take advantage of those yields.
>> Very interesting stuff.
All this currency risk.
On my screen, the next question coming in is not about currency. It's all about the US buck.
Has the US dollar run finally out of gas? If so what does it mean for the loonie, our currency?
>> I think we've had a bit of choppiness right?
I think that we are seeing a behaviour that suggests that, you know, the US dollars topping.
Likely next year, the tailwind will be against other currencies. Other global economies.
Maybe the fact that the US and the Canadian economy growth will slow down to levels that are elsewhere in the global economy.
As a consequent, you see the euro or other currencies appreciate against the US dollar.
But, you know these trades and transitions… They never really go rapidly.
So I think were the process of topping on the US dollar.
I think some currencies will benefit but, you know, we are also seeing commodity headwinds right? That takes the window to the sale of the Canadian dollar and other commodity-based currencies.
So it's not uniformly one size, all boats are going to benefit versus the US dollar.
But I definitely think that the US dollar is in the process of peeking.
>> Right now we had 7320 against the US buck. Is the sort of the level we feel is going to be at for a while? For some reason in my mind, the last several years, 78 sort of sticks in my head where the Canadian dollar naturally lived for a while.
I don't do that anymore.
>> Look, I think, you know, the positive for the Canadian dollar is the fact that we've got a relatively resilient economy. We have a commodity tailwind that have that has been supportive for our economy.
Effect of monetary policy has been out there, for me, if you're asking me as an investor over the next 1 to 3 months, I am, I'd rather take my money outside of Canada and invest in other currencies because I think of the currencies are going to outperform the Canadian dollar. I think we've gotten some short-term headwinds that we are confronting and we are already seeing evidence that the housing market is biting domestically and the commodity market is sort of stabilizing.
In the short term, I see some headwinds for the Canadian dollar whether it's against the Euro or Sterling, Yen, other currencies… Against the US dollar, it's a little hard to say. But I think, you know, in the short term, we might underperform a little over the next 1 to 3 months.
>> Interesting stuff. We will get back to your questions with Scott Colbourne on fixed income and just moments time. Always make sure to do your own research before making any investment decisions and a reminder that you get in touch with us at any time.
Do you have a question about investing or what is driving the markets? Are guests are eager to hear what's on your mind so send us your questions.
Live. You can send your questions two ways: you can send us an email any time at moneytalklive@td.com or you can use the question box at the bottom screen right here on WebBroker just type your question and hit "send". We will see if one of our guests can get you the answer right here at MoneyTalk Live.
>… A nine-month high in October, US vehicle sales are these signs of a long-term trend? Our Anthony Okolie is been digging in on all of it and brings the details Anthony.
>> Yes Greg US vehicle sales fell 6% versus October to about 14 million units on an annualized basis. That's well below consensus forecasts with a modest pullback.
It suggests that US consumer demand for new cars seems to be on the wane amid rising interest rates, recession fears and high vehicle prices.
According to JD Power, the average interest rate on their new vehicle finance contract in the US should reach about 6.27%. That's at 238 basis point jump from November of last year.
And interest rates are, of course, poised to rise even higher before the end of the year with the Fed expected to boost rates next week.
Raising of the data, the biggest decline in US sales was concentrated in the light truck segment. It dropped over 7% month over month.
In fact, light trucks which include the SUVs, accounted for nearly 80% of last month's sales. That's down .8% from November 2021.
The passenger vehicles only saw modest decline of just under 2% month over month.
And, with dealership inventories improving from last summers lows, we also saw an improvement in the average daily savings rate which rose to approximately 44,000 cars sold over 25 days. That's up slightly from about 42000 Back in November of 2021, now, TD Economics says while we have seen an improvement in inventories, they know that the stock of vehicles currently available is mostly skewed towards base models and higher priced vehicles. Overall, TD Economics says that the pullback was not totally unexpected because October is games was lightly boosted by the increased deliveries from the delays that we saw over summertime due to supply chain issues as well as the replacement of vehicles damaged during hurricane Ian. Greg?
>> So you going to look for a new car and you will either see the base model or the completely tricked out car.
Not a lot left in the middle.
What is TD Economics think of the sales prospects going forward?
>> TD Economics says they need to see more normalization in the supplies.
They don't think it's unlikely to happen until mid-2023. Until then, they think that sales will be constrained. When it comes to US consumer spending, TD Economics says that even accounting for the pullback that we saw in November sales, Q4 sales are tracking rather consumer sales is tracking about 3% on an annualized basis.
But the only thing that this above trend pays a sustainable in the long term and they expect him meaningful deceleration and activity over the coming months as the effects of interest rate hikes continue to filter throughout the economy.
>> Alright. Interesting stuff as always. Thanks Anthony.
>> Thanks Greg.
>> MoneyTalk Live's Anthony Okolie. And now let's look at the markets with the fear on recession.
Right now up modestly on Bay Street, the TSX compass index. 16 1/2 16 is fair rather.
Now with Kinross Gold, still about five bucks and $0.81 a share, almost 3%.
Dollarama, as we told with the top of the show, managed to increase store sales and that is a key metric in retail sales. Stores open for more than a year.
Saying the shift in consumer behaviour because of inflation will continue to benefit them going forward.
You have Dollarama shares up a little more than 4%.
South of the border, the S&P 500, let's see what it's up to you.
Sliding back below the breakeven line down about nine points, a little shy of a court of a percent and the NASDAQ, let's put that up against the broader market right now, a little more than 1/3 of a percent down. As we told you a bit of weakness in some of the travel -related names.
.
We are back out with Scott Colbourne of TD Asset Management talking fixed income.
Let's talk about the R word.
What impact would a recession have on fixed income?
>> At the end of the day, it's a positive. Yields will go lower. At some point to putting on the extent the downturn, central banks will indicate that the likeliest next move will be to cut rates and so that's a positive. Obviously, yields can go lower than where they are and you know, it's definitely a part of your portfolio. It makes sense. When you think about what bonds are for in a portfolio?
You know, the first one is income. For the first time in a long time we are getting income.
It also provides you with liquidity. So to the extent that we go into a recession, the price of your portfolio can go down at some point and you will want to buy cheap right? You will buy the assets and bond markets will give you that nice liquidity. For the first time in a long time there is some diversification. For a recession, bonds will outperform, especially government bonds will outperform relative to sort of credit investment rate credits.
So you definitely want… Your portfolio.
>> This is been on my mind for a while is how long they will stay there. They will deftly find that terminal rate. Closer to the end. This rate hiking cycle than we were in the beginning may be seventh or eighth inning.
Once they get there, the thought is they will stay there. But the whole point of staying there is to inflict pain.
I know I can say that I can take a lot of pain but please make the pain stop.
Is that the thing we are trying to figure out for 2023?
How long they will have the resolve to stay there?
>> I think that's a great question.
I don't think any policymaker would like to be described as inflicting pain. But in essence, there is a rebalancing of the supply and demand of the economy.
A demand that is way in excess of the supply side of the economy. So it's a rebalancing process that is going to play out.
So to the extent that you know, it's sticky.
That is, you know, the man size stays sticky the labour market is more resilient, the wages stay higher. Yes we get inflation back. Let's say 3%.
But it can become a dilemma and then to your point, they are sticky. They're going to stick with rates and the much more hoped-for pivot and cuts may be a little bit harder to play out.
So, you know, it's really important, we are pivoting.
We are at that inflection point and we are going to focus on the data.
The data dependency. We don't know. We haven't had an inflation chocolate this in a long, long time.
It's highly uncertain for investors and it's highly uncertain for policymakers going forward.
>> Scott, always a pleasure to have you here. I always enjoy the conversation.
>> Thank you.
>> Our thanks to Scott Colbourne, managing director for fixed income at TD Asset Management. Stay tuned on tomorrow show, Jimmy Zhu, Portfolio Manager at TD Asset Management will be our guest take your questions about asset allocation. A reminder that you can get a head start by emailing us your questions at moneytalklive@td.
com. That's all for our show. Take care.
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