FidelityConnects: Capital Markets playbook

 

 

00:01.001 --> 00:06.573

Subtitles are AI Generated

 

00:07.407 --> 00:09.109

Hello, and welcome to Fidelity Connects.

 

00:09.109 --> 00:12.178

I'm Pamela Richie. Trade heats up this week.

 

00:12.178 --> 00:16.316

A Canadian mission to Japan is set to drum up further trade ties with

 

00:16.316 --> 00:20.453

Asia as CUSMA renegotiations loom large in the minds of

 

00:20.453 --> 00:22.789

business leaders and investors.

 

00:22.789 --> 00:26.960

After a Kevin Warsh led Fed issued its first rate decision to

 

00:26.960 --> 00:31.364

hold managers now invest into our market with apparent guardrails

 

00:31.364 --> 00:35.502

on inflation. Does this rate decision and new leadership

 

00:35.502 --> 00:39.506

around the world guide the market to rein in the AI

 

00:39.506 --> 00:43.510

CapEx spend? On the international stage in the UK leadership change is

 

00:43.510 --> 00:47.680

on its way with Prime Minister Starmer stepping down as well as some perceived

 

00:47.680 --> 00:51.951

overnight progress on the dampening of the war between Iran, Israel,

 

00:51.951 --> 00:55.955

the US, and Lebanon. It's allowed oil prices to drop, sitting around

 

00:55.955 --> 00:57.957

$74 right now.

 

00:57.957 --> 01:01.928

What sort of commodity price risk does the ongoing difficulty in

 

01:01.928 --> 01:04.864

settling the war in the Middle East present for the balance of the summer

 

01:04.864 --> 01:09.102

months? How does that risk flow through to the case for buying Canadian

 

01:09.102 --> 01:13.039

crude? Joining us here today to help align the risks and rewards of this

 

01:13.039 --> 01:16.876

week's trade is Fidelity Director of ETFs, Andrei Bruno.

 

01:16.876 --> 01:18.711

Great to see you, Andrei. Thank you. Second week in a row.

 

01:18.711 --> 01:19.512

Delighted to have you here.

 

01:19.512 --> 01:22.382

Two weeks in a row. Great to see you once again and be chatting with you.

 

01:22.382 --> 01:26.386

I wonder how much has changed, a lot and also a little.

 

01:26.386 --> 01:30.423

We'll begin with the discussions, I think, on the macro level of the oil

 

01:30.423 --> 01:32.559

price itself coming down.

 

01:32.559 --> 01:37.931

Seems to be an interesting spot for both consumers and producers really.

 

01:37.931 --> 01:41.701

That, obviously, big news, you alluded to it in the intro there.

 

01:41.701 --> 01:45.371

Some movements, I know we were here last week and I may have displayed a little

 

01:45.371 --> 01:48.241

bit of skepticism of how far this would go.

 

01:48.241 --> 01:51.344

It seems they've made some good progress and they're inching in the right

 

01:51.344 --> 01:55.248

direction. There's been discussions between Iran and the United States over the

 

01:55.248 --> 01:57.617

weekend  being led by Vice President J.D.

 

01:57.617 --> 01:59.419

Vance.

 

01:59.419 --> 02:03.723

Things to come out of this weekend, they issued kind of a 90-day permit for

 

02:03.723 --> 02:05.458

Iran to sell oil.

 

02:05.492 --> 02:09.596

That's new so new supply coming on the line to oil markets.

 

02:09.596 --> 02:13.266

Price is moving a little bit lower in response now sitting around $74 a barrel.

 

02:13.266 --> 02:18.204

If we think back to April when this all kicked off we got up to about $113

 

02:18.204 --> 02:23.610

a barrel, we're talking about US crude oil here, WTI prices here.

 

02:23.610 --> 02:28.081

Another development as well, Iran seems open to allowing IEAE

 

02:28.081 --> 02:32.352

officials in to kind of monitor

 

02:32.352 --> 02:34.254

their nuclear stockpiles.

 

02:34.254 --> 02:36.089

It's not inked just yet.

 

02:36.122 --> 02:39.893

We are seeing some progressions of moving in the right direction to a potential

 

02:39.893 --> 02:44.731

resolution of the conflict in Iran right now.

 

02:44.731 --> 02:48.301

What I would say for me is who knows if we are gonna see a close to this all

 

02:48.301 --> 02:52.438

but the probability of

 

02:52.438 --> 02:56.976

that happening has inched up for me, I would say, week over week.

 

02:56.976 --> 02:59.779

Again, we talked about oil markets, oil prices coming down.

 

02:59.779 --> 03:04.551

We've gotten some inflation prints recently, very hot, north of 3%.

 

03:04.551 --> 03:08.421

I think what this is going to be able for central banks to do is get a bit of

 

03:08.421 --> 03:12.525

pause in saying this is transitory, energy prices coming back

 

03:12.525 --> 03:17.197

down to sustainable levels. If you take a look at kind of the core numbers

 

03:17.197 --> 03:22.635

they're still a little bit hot but they're sitting around 1.5, 1.7%

 

03:22.635 --> 03:26.072

so well within that 2% margin area.

 

03:26.072 --> 03:28.241

I think there's a lot of argument, the central banks are looking at this and

 

03:28.241 --> 03:32.212

saying if we can sustain we can find a resolution as we see oil

 

03:32.212 --> 03:34.480

prices hover around more reasonable levels.

 

03:34.480 --> 03:37.150

I think there's confidence from the central banks that inflation is going to

 

03:37.150 --> 03:40.720

come back under control. They'll start using the word transitory again and be

 

03:40.720 --> 03:42.488

able to look past it.

 

03:42.488 --> 03:45.391

I mean, the interesting thing with transitory and some of the pushback you'll

 

03:45.391 --> 03:49.429

get from investors is along the lines of we could get

 

03:49.429 --> 03:53.533

back to status quo where demand sits around

 

03:53.533 --> 03:57.470

a reasonable level and is able to be filled by the current sort

 

03:57.470 --> 04:01.474

of global energy map, you might call it.

 

04:01.474 --> 04:05.411

The AI trade is going to necessitate all kinds of

 

04:05.411 --> 04:09.549

new energy and Canada is right in the middle of that discussion to providing

 

04:09.582 --> 04:13.553

that to the world. I'm just curious where you see sort of the

 

04:13.553 --> 04:17.590

returning to normal but blasting off to an AI world demand of

 

04:17.590 --> 04:21.661

oil. How far out is that?

 

04:21.661 --> 04:25.632

The big question marks around that is, obviously, there's been

 

04:25.632 --> 04:29.569

a lot of CapEx spending into AI, into compute, AI compute data centres which

 

04:29.569 --> 04:33.106

use quite a bit of energy both for the compute and for the cooling.

 

04:33.106 --> 04:35.875

It's rather energy intensive.

 

04:35.875 --> 04:39.979

As an overall share of the energy pie AI compute's still relatively

 

04:39.979 --> 04:40.179

low.

 

04:40.179 --> 04:41.614

At this point it is, isn't it? Yeah.

 

04:41.614 --> 04:44.984

But it is growing, to your point. There is still a lot of scheduled CapEx going

 

04:44.984 --> 04:48.388

into AI over the next year or so and couple of years.

 

04:48.388 --> 04:52.525

SpaceX recently announced they intend to put AI compute up into

 

04:52.525 --> 04:54.193

space in 2027 which...

 

04:54.193 --> 04:55.461

That'll need some new capital.

 

04:55.461 --> 04:59.532

New capital but won't need traditional energy, of course, those would

 

04:59.532 --> 05:01.367

be solar powered.

 

05:01.367 --> 05:05.605

It'll be interesting to see that's a potential solution around kind of the

 

05:05.605 --> 05:08.007

energy requirements for AI compute.

 

05:08.007 --> 05:12.478

The question is how long are we going to be doing this CapEx?

 

05:12.478 --> 05:14.681

How much are we gonna continue to do it?

 

05:14.681 --> 05:16.015

Because it's powering the market.

 

05:16.015 --> 05:19.018

Exactly, because ultimately we want to figure out what is the sustained

 

05:19.018 --> 05:22.255

increase in demand for energy going to be as a result of AI.

 

05:22.255 --> 05:25.892

I think there's just so many unknowns right now in terms of growth rates of

 

05:25.892 --> 05:30.697

compute, growth rates of how many more data centres we build.

 

05:30.697 --> 05:34.000

Looking very far out I think it's kind of hard to tell.

 

05:34.000 --> 05:36.569

I'm sure there's some energy analysts who've run the numbers and run the

 

05:36.569 --> 05:39.372

scenarios but there's just so many unknowns right now.

 

05:39.372 --> 05:43.476

What we do know for sure is we expect energy demand to increase as

 

05:43.476 --> 05:46.846

we continue to build more data centres.

 

05:46.846 --> 05:50.583

When you look at the markets and what the markets are composed of, the equity

 

05:50.583 --> 05:54.220

markets, it's very much the AI tech trade, has been for some time.

 

05:54.220 --> 05:58.458

There's nothing new about that. What's new about it is the IPO for SpaceX

 

05:58.458 --> 06:01.661

which is in the market now, has been trading for a little while.

 

06:01.661 --> 06:05.898

Moving around a little bit but certainly sustaining the float that's

 

06:05.932 --> 06:10.203

out there. Just tell us a little about what you've observed thus far.

 

06:10.203 --> 06:12.905

Has it settled down, would you say?

 

06:12.905 --> 06:14.774

I mean, what are you watching for?

 

06:14.774 --> 06:19.379

It's certainly settled ... going off today it's a little bit of pullback on

 

06:19.379 --> 06:21.381

SpaceX shares there in the market.

 

06:21.381 --> 06:24.016

Certainly, there was a lot of euphoria once it came out of the gate.

 

06:24.016 --> 06:28.321

It was the most anticipated IPO in quite

 

06:28.321 --> 06:29.322

some time.

 

06:30.223 --> 06:34.327

There's a lot of other companies out there that are looking at an IPO in

 

06:34.327 --> 06:37.196

the future as well.

 

06:37.196 --> 06:40.299

It is going to be one of the more interesting IPO markets that we've seen in a

 

06:40.299 --> 06:44.771

long while, most of it on the back of the AI trade.

 

06:44.771 --> 06:48.174

I think what's interesting about AI, and we talked about this last week, I'm

 

06:48.174 --> 06:51.778

kind of a secular believer in the AI story and the AI theme.

 

06:51.778 --> 06:54.647

Yeah, it goes on for a long, long time from here.

 

06:54.647 --> 06:58.918

The question that everyone's asking is like, okay, fair enough, even if you buy

 

06:58.918 --> 07:02.722

into that the question is at what price do I want to own these?

 

07:02.722 --> 07:06.692

They've been running fairly hot for quite some time now

 

07:06.692 --> 07:09.862

so generally that's creating some skepticism within the market and saying,

 

07:09.862 --> 07:13.466

okay, do I wanna hold these here, do I wanna wait a bit, is there a potential

 

07:13.466 --> 07:15.168

for a pullback there?

 

07:15.168 --> 07:18.404

Certainly, there is. Obviously, things can only go up and to the right for so

 

07:18.404 --> 07:21.073

long before there's kind of a healthy cool-off period.

 

07:21.073 --> 07:24.210

I think the million dollar question is is that coming and, if so, when is that

 

07:24.210 --> 07:25.178

coming?

 

07:25.178 --> 07:29.515

It really is. What do you think about the companies themselves, the big

 

07:29.515 --> 07:32.952

... we call them hyperscalers, there's lots of different names for them, the

 

07:32.952 --> 07:37.089

world of the buildout of AI has become quite capital

 

07:37.089 --> 07:41.394

intensive in the sense that they are tech companies that used to have

 

07:41.394 --> 07:45.031

... even if you go into sort of the green energy print, had a very small green,

 

07:45.031 --> 07:49.268

now they have to tap power from all over the place and that is physical

 

07:49.302 --> 07:53.906

stuff. There's a changing of those companies themselves.

 

07:53.906 --> 07:58.010

Will it be a drag? They're also the ones pouring the CapEx into

 

07:58.010 --> 08:01.981

the market. Sort of curious how you see the nature of some of those

 

08:01.981 --> 08:06.719

companies changing, leading but changing.

 

08:06.719 --> 08:10.756

Just from the energy consumption perspective?

 

08:10.756 --> 08:15.628

Yeah. They're buying up nuclear plants in certain places.

 

08:15.628 --> 08:19.599

Maybe, maybe this will be kind of the impetus to kind of get more

 

08:19.599 --> 08:22.001

alternative sources of power.

 

08:22.001 --> 08:25.905

I shouldn't say nuclear is an alternative, we've had it for quite some time,

 

08:25.905 --> 08:29.842

but it has been quite some time since we've put

 

08:29.842 --> 08:33.279

a lot of energy into building. China, for example, is putting quite a bit of

 

08:33.279 --> 08:35.381

energy behind building nuclear power plants.

 

08:35.381 --> 08:39.552

The issue with nuclear is it takes a long time to get online, often 10, 20

 

08:39.552 --> 08:41.754

years to even get a plant up and open.

 

08:41.754 --> 08:45.858

It would be really interesting to see if there is a push from these AI players

 

08:45.858 --> 08:50.596

because obviously a big cost input for them is the energy part of the equation.

 

08:50.596 --> 08:53.733

It will be interesting to if there's a potential shift into looking, for

 

08:53.733 --> 08:56.702

example, at nuclear or other alternative sources of energy.

 

08:56.702 --> 08:58.070

They're cleaner, potentially.

 

08:58.070 --> 09:02.375

They're cleaner potentially. Atomic, I don't want to weigh it into the

 

09:02.375 --> 09:07.113

is it clean, is it not clean, but it's

 

09:07.113 --> 09:12.184

certainly a readily available source of energy.

 

09:12.184 --> 09:16.122

Again, the sticking point for getting nuclear, there's regulatory and startup

 

09:16.122 --> 09:21.060

costs, it costs a lot of money to get nuclear up and running.

 

09:21.060 --> 09:25.097

We've had fracking that came to light not too long ago,

 

09:25.097 --> 09:28.968

that was relatively cheap so I think nuclear was kind of put on the back burner

 

09:28.968 --> 09:29.268

there but...

 

09:29.302 --> 09:31.504

You just use nat gas until you get there, yeah.

 

09:31.504 --> 09:33.839

Exactly.

 

09:33.839 --> 09:37.910

In the medium term I think nuclear is a great way to go to kind of

 

09:37.910 --> 09:43.049

power this AI energy needs as demand continues to increase year over year.

 

09:43.049 --> 09:45.885

It's kind of fascinating watching that.

 

09:45.885 --> 09:50.022

Pieces of the market story right now, everyone's trying to figure out secular

 

09:50.022 --> 09:54.060

trend, are there bumps along the way in the CapEx story, you pointed to a

 

09:54.060 --> 09:56.329

couple of different pieces within there.

 

09:56.329 --> 10:00.433

What would you say your read on the stock market AI story

 

10:00.433 --> 10:02.268

is right now in terms of sentiment?

 

10:02.268 --> 10:04.804

There actually seems to be an awful lot of optimism.

 

10:04.804 --> 10:08.841

There's quite a bit of optimism. We, obviously, talk to

 

10:08.841 --> 10:11.310

a lot of clients day in and day out.

 

10:11.310 --> 10:16.582

I think you need to kind of disentangle kind of what

 

10:16.582 --> 10:19.952

you see in the mainstream news, the everyday kind of individual investor.

 

10:19.952 --> 10:22.455

That's why you're here. We need to know what's behind all this.

 

10:22.455 --> 10:27.093

When you talk to financial advisors and portfolio managers there's

 

10:27.093 --> 10:29.495

maybe a disconnect between them.

 

10:29.495 --> 10:33.666

Obviously, if we read the news, you talk to your mom, your brother or whatnot,

 

10:33.666 --> 10:37.737

there is a lot of optimism around these IPOs in AI.

 

10:37.737 --> 10:40.339

I'd say there's probably a little bit more skepticism when we talk to some end

 

10:40.339 --> 10:43.876

clients as well. It's like this is working, it's been doing tremendously well

 

10:43.876 --> 10:43.976

but--

 

10:43.976 --> 10:46.679

We're nervous now.

 

10:46.679 --> 10:48.681

--into when is this not gonna work anymore.

 

10:48.681 --> 10:51.784

At the end of the day kind of the growth engine remains to be AI.

 

10:51.784 --> 10:56.155

There's an argument though, there's

 

10:56.155 --> 10:58.491

some price where I don't want to own this anymore.

 

10:58.491 --> 11:02.061

I think the big question is what price is it?

 

11:02.061 --> 11:04.296

The markets are forecasting in quite a bit of growth.

 

11:04.296 --> 11:09.035

If you take a look at P/E ratios of some of these companies they're quite high.

 

11:09.035 --> 11:13.239

They are quite high but their earnings are great on that particular ratio.

 

11:13.239 --> 11:16.375

That's just it, right? Earnings continue to come in decently strong.

 

11:16.375 --> 11:20.312

Obviously, we'll get Q3 earnings later on in the fall when

 

11:20.312 --> 11:22.314

they start to get posted.

 

11:22.314 --> 11:25.551

Q2 earnings, Q1 earnings were good.

 

11:25.551 --> 11:27.787

We continue to see earnings growth out of these names.

 

11:27.787 --> 11:32.091

As a result, people are still cautiously optimistic but

 

11:32.091 --> 11:34.460

are continuing to be happy to own these names.

 

11:34.460 --> 11:38.664

Back when you were on a bond desk it was 0% interest

 

11:38.664 --> 11:42.902

rates, basically. It was a time where the money was free

 

11:42.902 --> 11:46.939

and you could borrow it and put it to work in all kinds of different ways.

 

11:46.939 --> 11:50.342

A lot of people in Canada plowed that right into the real estate market.

 

11:50.342 --> 11:53.679

In any case, this story was don't fight the Fed.

 

11:53.679 --> 11:57.783

What are you going to do? It's a theme, you've got 0% interest rates, free

 

11:57.783 --> 12:01.420

money to invest the way you want to invest it.

 

12:01.420 --> 12:03.756

Is that the same thing as AI right now?

 

12:03.756 --> 12:07.026

I'll let you coin this because you actually said this a few minutes ago.

 

12:07.026 --> 12:10.529

Right now it seems it's hard to fight the trend.

 

12:10.529 --> 12:13.866

AI is the trend. It's been working in financial markets.

 

12:13.866 --> 12:19.171

It's continuing to be the growth engine with regards to the economy.

 

12:19.171 --> 12:24.009

We talk about valuation but it's also hard to fight that trend.

 

12:24.009 --> 12:27.980

I'm naturally kind of more of a bearish individual coming up in FX

 

12:27.980 --> 12:30.950

and bond markets. You sit next to bond traders long enough you'll think the

 

12:30.950 --> 12:33.119

world's ending every other day.

 

12:33.119 --> 12:36.489

So true. They're so interesting, though.

 

12:36.489 --> 12:38.791

You're always cautiously optimistic.

 

12:38.791 --> 12:40.693

Waiting for the bump in the night.

 

12:40.693 --> 12:42.828

Waiting for the bump in the night, looking for the pointy object.

 

12:42.828 --> 12:49.168

I'm still cautiously optimistic on the space.

 

12:49.168 --> 12:53.305

As earnings continue to come in, as CapEx continues to be there it's

 

12:53.305 --> 12:54.306

hard to fight the trend.

 

12:55.274 --> 12:59.211

Fascinating. If we look around the world a little bit, go into sort of the rate

 

12:59.211 --> 13:03.015

story, some will say actually rates are what's going to power the next little

 

13:03.015 --> 13:07.286

while because if they have to hike them and that ends parts

 

13:07.286 --> 13:09.922

of the party that's its own story.

 

13:09.922 --> 13:13.726

Talk a little about the interest rate differential which used to be a story of

 

13:13.726 --> 13:16.595

let's make sure everyone's pretty close to a line to the US interest rate

 

13:16.595 --> 13:20.633

story. For many reasons it had to be different over the course of getting

 

13:20.633 --> 13:23.002

out of the last inflationary surge.

 

13:23.002 --> 13:24.703

What is it now, would you say?

 

13:24.703 --> 13:27.306

How do you look at that now?

 

13:27.306 --> 13:30.276

Particularly between Canada and the US, obviously there's been a differential

 

13:30.276 --> 13:33.379

there. We've cut more than the Fed.

 

13:33.379 --> 13:37.716

Even after the developments over the weekend

 

13:37.716 --> 13:40.119

we've seen that differential widen a little bit more.

 

13:40.152 --> 13:43.222

If we take a look at kind of interest rate probabilities, what market is

 

13:43.222 --> 13:47.493

expecting out of the BoC and the Fed, still pricing in potential

 

13:47.493 --> 13:51.463

hikes out of the Fed for this year. Almost two hikes are still priced in, about

 

13:51.463 --> 13:53.966

1.7 hikes.

 

13:53.966 --> 13:58.103

There's a full two hikes priced into the curve going out into 2027 for

 

13:58.103 --> 14:02.608

the Fed. In Canada it's just around one hike.

 

14:02.608 --> 14:05.578

The market is suggesting a widening in the interest rate differential.

 

14:05.578 --> 14:09.682

If you take that back to the currencies, Canadian dollar is

 

14:09.682 --> 14:11.817

continuing to weaken against US.

 

14:11.817 --> 14:16.121

We've broken above the 1.40 handle, sitting around 1.41, that is

 

14:16.121 --> 14:19.058

$1.41 Canadian dollar per US dollar.

 

14:19.058 --> 14:22.928

The Canadian dollar continues to weaken here, I personally, think on the back

 

14:22.962 --> 14:26.932

of those interest rate differential expectations.

 

14:26.932 --> 14:31.937

Now, if we think about the US, their growth rates are still hanging in there,

 

14:31.937 --> 14:36.408

employment is decent, unemployment rate is extremely low,

 

14:36.442 --> 14:40.212

sub 5%. I think somewhere around 4.5 or 4.3.

 

14:40.212 --> 14:44.083

In Canada employment numbers aren't bad, we're still hovering at a decent

 

14:44.083 --> 14:45.117

unemployment rate as well.

 

14:45.150 --> 14:48.821

If you look at it over a six-month period it's not as sad as if you go month by

 

14:48.821 --> 14:50.556

month, or euphoric.

 

14:50.556 --> 14:52.291

It's been kind of all over the place.

 

14:52.291 --> 14:54.260

Early on in the year it was a little bit weaker. You looked at full-time

 

14:54.260 --> 14:57.796

numbers here in Canada, not so good. You looked at the last print, it was over

 

14:57.796 --> 15:01.800

100,000 full-time jobs added. To your point, it's hard to kind of read

 

15:01.800 --> 15:04.870

the tea leaves month over month. You kind of have to take a step back and look

 

15:04.870 --> 15:07.172

at a longer term view.

 

15:07.172 --> 15:12.244

The other thing I like to look at in Canada is retail sales, the consumer.

 

15:12.244 --> 15:14.546

The numbers have been pretty decent this year.

 

15:14.546 --> 15:18.851

Even though we are in kind of a technical recession,

 

15:18.851 --> 15:22.821

Q1 and Q4 last year were technically negative which puts us into that

 

15:22.821 --> 15:26.792

technical recession territory, the consumer's still spending,

 

15:26.792 --> 15:28.627

we're not seeing a lot of layoffs.

 

15:28.627 --> 15:33.032

It's very possible we kind of go through this couple quarters and we

 

15:33.032 --> 15:36.769

come back out of it. It'll be really interesting to see what our Q2 numbers

 

15:36.769 --> 15:40.940

are. Under the hood there's nothing that's screaming

 

15:40.940 --> 15:44.977

Great Depression or anything here in Canada, just a bit of a

 

15:44.977 --> 15:46.245

cool-off period from a GDP perspective.

 

15:46.245 --> 15:49.348

Again, as long as employment hangs in there, we're still seeing consumers

 

15:49.348 --> 15:53.585

spend. Ideally if inflation can come off, obviously,

 

15:53.585 --> 15:56.789

a lot of folks spend money on energy whether it's heating their homes, putting

 

15:56.789 --> 16:00.759

gasoline in their cars, as that comes back that does

 

16:00.759 --> 16:03.929

apply a little bit of a pressure release valve for the consumer, putting some

 

16:03.929 --> 16:07.866

more money back in our pockets. All that to say, to circle back to kind of the

 

16:07.866 --> 16:12.004

Iran situation, if we can get a lid on that, we can keep energy prices here

 

16:12.004 --> 16:16.608

around $60 to $74 where we're hanging out right now, that

 

16:16.608 --> 16:18.844

will ultimately be good for the Canadian consumer.

 

16:18.844 --> 16:21.947

We talked about mortgage renewals last year.

 

16:21.947 --> 16:25.951

Ideally if we don't see hikes out of the BoC, if inflation starts to move

 

16:25.951 --> 16:29.355

lower on the back of lower energy price I think that will give them the ability

 

16:29.355 --> 16:32.591

to stay hold where they are right now.

 

16:32.591 --> 16:35.361

Whether or not we'll get cuts, market doesn't seem to think that's going to

 

16:35.361 --> 16:41.200

happen. It's kind of hard to price in cuts when inflation is north of 3%.

 

16:41.200 --> 16:44.803

As far as the Bank of Canada is concerned, I think they really need to see kind

 

16:44.803 --> 16:48.874

of energy prices stay lower, inflation come lower, and at very least they

 

16:48.874 --> 16:51.343

can remain on hold.

 

16:51.343 --> 16:55.481

In my opinion, with this backdrop, slow GDP

 

16:55.481 --> 16:58.317

growth, I really don't think they want to hike interest rates.

 

16:58.317 --> 17:00.986

As well as those renewing of the mortgages, I think that they'd really love for

 

17:00.986 --> 17:05.157

Canadians to renew at current rates and not have to raise rates.

 

17:05.157 --> 17:08.560

Let's look at sort of the story from here, to an extent that's talking about

 

17:08.560 --> 17:12.464

right now which is, as you say, some of the relief that probably consumers

 

17:12.464 --> 17:15.968

could really use right now, and the country and the economy could really use

 

17:15.968 --> 17:19.605

right now. If you take a step and sort of look out to the future of the

 

17:19.605 --> 17:23.242

discussion of countries that do or don't have their energy security or will or

 

17:23.242 --> 17:27.346

won't be selling into global markets, Canada's

 

17:27.346 --> 17:31.150

future seems to be we're going to be able to export more.

 

17:31.150 --> 17:33.152

That seems to be the prevailing thought.

 

17:33.152 --> 17:36.688

There's a lot of pieces that have to come together for that to sort out.

 

17:36.688 --> 17:41.026

Whereas somewhere like we saw the BoE make

 

17:41.026 --> 17:45.230

a decision, we also saw the ECB,

 

17:45.230 --> 17:48.867

they're in a very different situation with a different story on inflation, and

 

17:48.867 --> 17:51.637

they are not energy secure at this time.

 

17:51.637 --> 17:55.207

I'm just kind of curious, from the investor looking forward just talk a little

 

17:55.207 --> 17:58.877

bit about the global rate environment that you see.

 

17:58.877 --> 18:01.246

Just to touch on Canada as well ...

 

18:01.246 --> 18:05.317

I think I'm going to digress here a little bit, I think a

 

18:05.317 --> 18:08.554

good thing at least our current administration here in Canada is doing is kind

 

18:08.554 --> 18:11.857

of looking to the rest of the globe and trying to diversify kind of our exports

 

18:11.857 --> 18:15.527

across the globe. As you know, we've got the July 1 deadline coming up for

 

18:15.527 --> 18:20.466

CUSMA, or the review deadline which is not a real deadline but...

 

18:20.466 --> 18:22.267

It's good to have a deadline though, isn't it?

 

18:22.267 --> 18:24.002

Yes, exactly.

 

18:24.002 --> 18:26.738

We haven't had a ton of talks with the US.

 

18:26.738 --> 18:29.908

Mexico has had a lot more formal talks with regards to CUSMA with the US so

 

18:29.908 --> 18:32.044

they're probably a little further along.

 

18:32.044 --> 18:36.148

The Americans do want some concessions out of Canada.

 

18:36.148 --> 18:40.419

The liquor ban here in Ontario is a sticking point for

 

18:40.452 --> 18:44.089

the Americans. I think those talks are going to start to pick up.

 

18:44.089 --> 18:48.160

I think ideally we can get something in place with two of

 

18:48.160 --> 18:51.363

our larger trading partners, our largest trading partner in the US and Mexico

 

18:51.363 --> 18:54.099

as well.

 

18:54.099 --> 18:57.503

The administration recently did a deal with China with regards to EVs for

 

18:57.503 --> 19:00.339

canola oil and some other products as well.

 

19:00.339 --> 19:03.075

It's really great to see that our current administration is looking around the

 

19:03.075 --> 19:04.776

globe to expand our export capabilities.

 

19:04.776 --> 19:09.681

It was so long we just relied on the US for our exports,

 

19:09.681 --> 19:12.451

I think opening up to the rest of the world for trade is going to be great for

 

19:12.451 --> 19:16.455

Canada. Last week we talked about AI as well, I think

 

19:16.455 --> 19:18.857

we can get some growth there as well.

 

19:18.857 --> 19:21.193

It will be interesting.

 

19:21.193 --> 19:23.662

But now to touch on rates--

 

19:23.662 --> 19:25.397

Kind of the global story, yeah.

 

19:25.397 --> 19:29.301

--rates is certainly an interesting one too.

 

19:29.301 --> 19:34.106

The Bank of Japan raised interest rates for the first time in, I think

 

19:34.106 --> 19:38.076

... I almost want to say forever, it obviously hasn't been forever.

 

19:38.076 --> 19:41.380

Their currency has been weakening off actually quite a bit recently, I think

 

19:41.380 --> 19:45.450

trading around 170 yen per US dollar, which historically

 

19:45.450 --> 19:47.986

kind of sat in that 120 to 140 range.

 

19:47.986 --> 19:49.855

The yen is really getting away from them.

 

19:49.855 --> 19:53.825

Some concern there in the UK. There's obviously a spike in yields earlier,

 

19:53.825 --> 19:55.460

they're coming off a little bit now.

 

19:55.460 --> 19:56.662

They're going to have another new prime minister.

 

19:56.662 --> 20:01.066

A new prime minister. I think that'll be number 7 in the last 10 years, number

 

20:01.066 --> 20:05.070

7 or 8 in the last years so a lot of political

 

20:05.070 --> 20:07.940

turmoil over there.

 

20:07.940 --> 20:11.944

In terms of the globe, the rate differential

 

20:11.944 --> 20:15.747

relative to the US is obviously important for currency exchange rates across

 

20:15.747 --> 20:16.748

the globe.

 

20:17.950 --> 20:21.653

I think what we're going to experience over the next few years is a lot of what

 

20:21.653 --> 20:25.958

we saw over the last few years, continued rates volatility.

 

20:25.958 --> 20:30.329

Particularly, inflation has been yo-yoing a lot more if we think back to

 

20:30.362 --> 20:32.231

the Yellen years, late Greenspan years.

 

20:32.231 --> 20:35.701

You've got a lot of Ys in there, I like that.

 

20:35.701 --> 20:38.704

We could barely get off 1% for the longest time.

 

20:38.704 --> 20:43.508

We've had a period over the last five, six years where we've gone from 1%

 

20:43.542 --> 20:47.279

to 5% back down and back up so...

 

20:47.279 --> 20:49.848

Have we normalized-ish?

 

20:49.848 --> 20:51.984

I don't know if we're gonna be normalized.

 

20:51.984 --> 20:56.088

I would hope so but only time will tell.

 

20:56.088 --> 20:58.790

I can't peer into that crystal ball.

 

20:58.790 --> 21:02.761

Is the rate story, I guess going forward, sort of in the way that

 

21:02.761 --> 21:06.765

it wasn't really modelled for risk ex years ago but has been of

 

21:06.765 --> 21:09.167

late, what form ...

 

21:09.167 --> 21:13.205

if you have to put things sort of in order of risk are rates right up

 

21:13.205 --> 21:16.141

there?

 

21:16.141 --> 21:19.778

Again, in the Yellen years rate risk was, you could pretty much ignore it for

 

21:19.778 --> 21:24.116

the most part. The last five years it's been a big either contributor

 

21:24.116 --> 21:28.053

or it's a detractor in your fixed income portfolio.

 

21:28.053 --> 21:32.057

I think over the next few years it's my opinion you're gonna continue

 

21:32.057 --> 21:34.760

to see quite a bit of rates volatility.

 

21:34.760 --> 21:37.796

It is gonna contribute risk in your portfolio and it's something we're gonna

 

21:37.796 --> 21:40.098

have to be more focused on.

 

21:40.098 --> 21:44.069

Again, in the Yellen years you can just be duration neutral relative

 

21:44.069 --> 21:46.004

to the benchmark and it wouldn't hurt you too much.

 

21:46.004 --> 21:49.308

I think the other risk in our fixed income portfolios right now is how tight

 

21:49.308 --> 21:52.411

credit spreads are.

 

21:52.411 --> 21:53.178

You're basically buying the...

 

21:53.178 --> 21:57.249

Do you find that abnormal considering all of the movements around the

 

21:57.249 --> 21:58.317

world?

 

21:58.317 --> 22:01.420

I don't think it's abnormal because everything else, corporate balance sheets

 

22:01.420 --> 22:05.791

are decent, their capacity to pay back debt is there.

 

22:05.791 --> 22:09.661

The tight credit spreads are warranted to a degree but you're also buying the

 

22:09.661 --> 22:11.496

top of the market.

 

22:11.496 --> 22:15.067

That's something that needs to be factored in. So I think you're taking on a

 

22:15.067 --> 22:18.770

lot of risk on the duration side because I think interest rates can continue to

 

22:18.770 --> 22:20.839

move and you're also buying credit at the top of the market.

 

22:20.839 --> 22:24.776

I think you need to be really cognizant of what you're doing on

 

22:24.776 --> 22:27.012

kind of the 40 side of the portfolio with your fixed income.

 

22:27.012 --> 22:31.717

Given that everything's so tight,

 

22:31.717 --> 22:34.853

obviously, cliché recommendation is be diversified across credit buckets, be

 

22:34.853 --> 22:37.823

diversified across geographies as much as possible, and take a very close look

 

22:37.823 --> 22:41.259

at your duration risk and where it sits.

 

22:41.259 --> 22:45.564

Former Fed Chair Alan Greenspan died recently over

 

22:45.564 --> 22:49.401

the weekend. What would he think of this market, do you think?

 

22:49.401 --> 22:52.070

Actually, he'd probably never tell us because he never really told you

 

22:52.070 --> 22:56.274

anything. I'm curious if there's a little bit of a swing back

 

22:56.274 --> 22:59.711

to the types of communications he had at the Fed.

 

22:59.711 --> 23:01.480

That seems to be a question mark in markets.

 

23:01.480 --> 23:02.481

What do you think?

 

23:02.481 --> 23:05.117

Communications started to build up much after that.

 

23:05.117 --> 23:10.021

They didn't so much do these announcements and conversations.

 

23:10.021 --> 23:14.893

It'll be interesting. I don't know if we can put the genie back in that bottle.

 

23:14.893 --> 23:19.264

I think there'll continue to be communication.

 

23:19.264 --> 23:23.301

Kevin Warsh is pretty early on in his tenure, he

 

23:23.301 --> 23:25.504

can take it in any direction as he wants.

 

23:25.504 --> 23:30.041

I think as investors in the market we've gotten used to Fed talk and

 

23:30.041 --> 23:34.112

reacting to the Fed talk and dissecting the changes in

 

23:34.112 --> 23:37.482

verbiage, taking a look at the dot plots.

 

23:37.482 --> 23:41.420

I don't think that genie is going back in the bottle.

 

23:41.420 --> 23:43.655

I could be wrong and maybe Kevin Worsh is going to take it in a different

 

23:43.655 --> 23:47.793

direction but I get a feeling that once investors get used

 

23:47.793 --> 23:51.463

to certain communications it's hard to go back.

 

23:51.463 --> 23:54.966

Really interesting. In Canada, I was just going to go back to that discussion

 

23:54.966 --> 23:59.070

of investing in this country and taking the

 

23:59.070 --> 24:03.408

new era, if we call it, of energy security seriously

 

24:03.408 --> 24:06.178

and materials security seriously.

 

24:06.178 --> 24:09.114

There's a new development out of the government to try and drive investment,

 

24:09.114 --> 24:11.383

actually, into Canadian businesses.

 

24:11.383 --> 24:13.952

Do you want to tell us a little bit about the offering there and what you think

 

24:13.952 --> 24:15.287

of it, really?

 

24:15.287 --> 24:18.323

I think it's very important for us.

 

24:18.323 --> 24:21.760

We talked about it a little bit last week as well.

 

24:21.760 --> 24:26.064

Ultimately, a part of us accessing different trading partners across

 

24:26.064 --> 24:28.400

the world is getting our resources out of the ground and getting them around

 

24:28.400 --> 24:31.536

the globe. Obviously, there's going to be quite a bit of demand for energy,

 

24:31.536 --> 24:36.608

quite a bit of demand for minerals, base minerals and what have you.

 

24:36.608 --> 24:40.579

I think there's gonna have to be a good marrying

 

24:40.579 --> 24:45.450

of kind of the regulatory environment, easing

 

24:45.450 --> 24:48.186

up regulations of red tape where we can  and reasonable.

 

24:48.186 --> 24:51.556

Obviously, we want to maintain kind of our environmental standards here as best

 

24:51.556 --> 24:55.494

as possible. I think ultimately what we need to do as

 

24:55.494 --> 24:59.231

a country is figure out how to get those resources out of the ground and how to

 

24:59.231 --> 25:02.834

get them to market. If we think about oil, do we need to build pipelines

 

25:02.834 --> 25:06.671

east-west and where have you to get crude oil to where it needs to go.

 

25:06.671 --> 25:09.374

There's gonna be a lot of demand moving forward.

 

25:09.374 --> 25:14.412

We also talked about this kind of last week as well,

 

25:14.412 --> 25:16.481

are we shifting towards this multi-polar world.

 

25:16.481 --> 25:22.687

There's gonna be certain

 

25:22.687 --> 25:26.791

countries looking at other countries to do more business with, are

 

25:26.791 --> 25:27.826

we gonna be well aligned?

 

25:27.826 --> 25:30.929

And will we invest in ourselves. I think that's sort of what ...

 

25:30.929 --> 25:35.066

this is the Maple TFSA, this idea of

 

25:35.066 --> 25:39.204

allowing Canadians more money within their savings but

 

25:39.204 --> 25:42.507

it needs to be directed at Canadian investments.

 

25:42.507 --> 25:46.645

What importance do you put on that and how is it actually speaking to

 

25:46.645 --> 25:48.813

a moment?

 

25:48.813 --> 25:52.851

It seems like the current administration is really looking for ways to be more

 

25:52.851 --> 25:53.985

competitive.

 

25:53.985 --> 25:54.252

In Ottawa.

 

25:54.252 --> 25:58.089

In Ottawa. You mentioned this Maple TFSA, this was an idea that was floated

 

25:58.089 --> 26:02.294

around by industry to the government about

 

26:02.294 --> 26:05.297

allowing kind of a Maple TFSA.

 

26:05.297 --> 26:09.301

Really high level, $1,000 increase contribution limit in this

 

26:09.301 --> 26:14.739

Maple TFSA as long as you invest in Canada, whether that's Canadian stocks,

 

26:14.739 --> 26:18.677

Canadian issued ETFs or mutual funds. It's just

 

26:18.677 --> 26:21.513

little things like this around the margin where they're looking to find ways

 

26:21.513 --> 26:25.951

for folks to invest in Canada and to help the Canadian economy

 

26:25.951 --> 26:29.955

all around. Still early on, I think there's some good

 

26:29.955 --> 26:33.525

movement early on whether it's with trade or whether it's with things such as

 

26:33.525 --> 26:37.495

this along the margin. It looks like at the very least we do have

 

26:37.495 --> 26:40.565

an administration who is trying to jumpstart this Canadian economy.

 

26:40.565 --> 26:42.367

Okay, that's interesting.

 

26:42.367 --> 26:45.170

Investing in ourselves in that sense is a good sign.

 

26:45.170 --> 26:49.307

It's also a pool of assets that could go anywhere and it's driving

 

26:49.307 --> 26:51.443

it back into the economy.

 

26:51.443 --> 26:54.479

We are seeing a lot of this around the world where you'll see the US

 

26:54.479 --> 26:57.048

administration taking direct stakes in certain things.

 

26:57.048 --> 27:00.318

Does it speak to that kind of moment within investing?

 

27:00.318 --> 27:05.290

Yeah, certainly.

 

27:05.290 --> 27:09.361

With this Maple TFSA, it's all on the back of

 

27:09.361 --> 27:14.132

us looking inside as well about our overall economy and trade and figuring out

 

27:14.132 --> 27:17.869

how can we invest more in Canada. There's been a lot of brain drain as well in

 

27:17.869 --> 27:19.604

Canada which has been a big issue for us.

 

27:19.604 --> 27:24.042

A lot of our smart and accomplished folks are heading to other jurisdictions

 

27:24.042 --> 27:28.313

as well. I think it's part of an overarching theme of

 

27:28.313 --> 27:32.584

how do we invest in Canada, whether that's people, whether that's

 

27:32.584 --> 27:35.920

regulations that want people to invest in Canada, whether it's the individual

 

27:35.920 --> 27:39.124

investor, whether that's corporations.

 

27:39.124 --> 27:43.294

I think this administration is taking a good look at that and ideally

 

27:43.294 --> 27:45.830

trying to jumpstart things here in our home country.

 

27:45.830 --> 27:49.501

What are you looking for in these trade talks over the next ...

 

27:49.501 --> 27:52.871

well, they could go on for a very long time, what are the pieces of it that you

 

27:52.871 --> 27:55.640

think are the most important to remember?

 

27:55.640 --> 27:58.076

There are gonna be lots of little details in there.

 

27:58.076 --> 28:00.412

Yeah, for sure.

 

28:00.412 --> 28:04.582

What I'll be taking a close look at is if and when we get to a CUSMA

 

28:04.582 --> 28:07.752

agreement what the changes are there.

 

28:07.752 --> 28:12.490

Ideally we get a win-win-win scenario.

 

28:12.490 --> 28:16.761

Ideally trade barriers are just further removed between Canada, the

 

28:16.761 --> 28:20.532

US and Mexico. Also, what I'd be looking at is more trade deals that we're

 

28:20.532 --> 28:22.400

doing with other parties. I mentioned the one from China.

 

28:22.400 --> 28:23.935

And the ability to do that, right?

 

28:23.935 --> 28:27.238

Exactly. It'd be great if we could do more of those.

 

28:27.238 --> 28:31.042

We also do charge quite a bit of tariffs on our side of the border for external

 

28:31.042 --> 28:34.979

goods as well so it would be great if we could get trade barriers down, whether

 

28:34.979 --> 28:38.249

that's what we're charging and what our trading partners are charging as well.

 

28:38.249 --> 28:41.286

I think net-net that would be great for Canadians.

 

28:41.286 --> 28:44.556

Andrei Bruno, it is great to have you kick off the week with us.

 

28:44.556 --> 28:46.491

Thank you for setting us up for all the trades.

 

28:46.491 --> 28:47.792

There's a lot of things happening this week.

 

28:47.792 --> 28:48.293

Thanks for having me.

 

28:48.293 --> 28:49.194

Have a good week.

 

28:49.194 --> 28:51.830

Thanks for watching or listening to the Fidelity Connects

 

28:51.830 --> 28:56.134

podcast. Now if you haven't done so already, please subscribe to Fidelity

 

28:56.134 --> 28:59.504

Connects on your podcast platform of choice.

 

28:59.504 --> 29:02.340

And if you like what you're hearing, please leave a review or a five-star

 

29:02.340 --> 29:06.311

rating. Fidelity Mutual Funds and ETFs are available by working with

 

29:06.311 --> 29:09.681

a financial advisor or through an online brokerage account.

 

29:09.681 --> 29:13.384

Visit fidelity.ca/howtobuy for more information.

 

29:13.384 --> 29:17.222

While on Fidelity.ca, you can also find more information on future live

 

29:17.222 --> 29:21.359

webcasts. And don't forget to follow Fidelity Canada on YouTube, LinkedIn,

 

29:21.359 --> 29:22.660

and Instagram.

 

29:22.660 --> 29:25.530

We'll end today's show with a short disclaimer.

 

29:25.530 --> 29:29.367

The views and opinions expressed on this podcast are those of the participants,

 

29:29.367 --> 29:33.304

and do not necessarily reflect those of Fidelity Investments Canada ULC or

 

29:33.304 --> 29:37.308

its affiliates. This podcast is for informational purposes only, and should not

 

29:37.308 --> 29:39.844

be construed as investment, tax, or legal advice.

 

29:39.844 --> 29:42.147

It is not an offer to sell or buy.

 

29:42.147 --> 29:46.484

Or an endorsement, recommendation, or sponsorship of any entity or securities

 

29:46.484 --> 29:51.289

cited. Read a fund's prospectus before investing, funds are not guaranteed.

 

29:51.289 --> 29:54.859

Their values change frequently, and past performance may not be repeated.

 

29:54.859 --> 29:57.195

Fees, expenses, and commissions are all associated

 

29:57.195 --> 29:58.997

with fund investments.

 

29:58.997 --> 30:01.599

Thanks again. We'll see you next time.