It was a holiday-shortened week in North America with Canada Day and the U.S. Independence Day celebrations naturally diverting some investor attention. Nevertheless, that didn’t stop the coronavirus from continuing to spread. Surprisingly, global markets have been resilient in the face of this recent escalation. We provide our rundown of the situation below.

Coronavirus update

Some parts of the world – Canada, large parts of Western Europe, and China for example – continue to see generally stable or lower numbers of new daily cases. Governments in these regions have to this point, successfully enabled their societies and economies to safely adjust to living and functioning with a virus that is still present but under control.

Elsewhere, the story remains much more challenging. Trends continue to be troubling in parts of Central and South America, the Middle East, parts of Africa, and large swaths of South and Southeast Asia. But the region that has seen the most disconcerting deterioration is the U.S. Just a week ago, the country was averaging close to 35,000 new daily cases, nearly double the level of about a month ago. That figure has risen yet again, to well more than 50,000 new daily cases this week. It has forced a number of states to scale back their reopening plans, with some reintroducing restrictive measures and mandating the wearing of masks. We expect more may be needed in the weeks to come.

Positive economic momentum…. for now

One would expect global markets to have responded poorly in the face of the concerning virus trends of late. But, that has not necessarily been the case. It has been much more resilient compared to when the virus first emerged earlier this year. The question is why?

There may be a host of reasons, ranging from the virus being less of a surprise, to the extensive work and progress on vaccines and therapeutics, better preparedness to help the more vulnerable population, lower odds of full scale lockdowns in the future, and the very significant amount of government aid that is in place, helping businesses and consumers, at least to some extent. But, we believe one of the most important factors at play is the positive economic momentum that continues to be on display. This week, the U.S. announced it added more than 4.7 million jobs in June, adding to the 2.7 million jobs gained in May. U.S. employment remains well below the pre-pandemic level as there were more than 20 million jobs lost between March and April. Nevertheless, it’s a meaningful change in trend from earlier this year. Furthermore, this week’s readings of manufacturing activity for the month of June across the U.S., Canada, Europe, and China add additional evidence that suggests the worst may have passed for now.

The question is whether this recovery can be self-sustaining? We think it is too early to make this case, particularly given the resurgence of the virus in the U.S. Furthermore, we are not sure it matters just yet given the unprecedented actions being undertaken by governments around the world. The U.S. government is expected to negotiate and deliver another round of stimulus that may extend some of the aid programs for businesses and the unemployed, just as the Canadian government did a few weeks ago. These programs continue to buy more time for economies to heal, and should serve to reassure investors.

While we recognize the need for such aid at this juncture, we look forward to the time when such assistance is no longer needed and the basic drivers of long-term sustainable economic growth – a healthy population, businesses that are free to open, and consumers that are willing to spend - are more firmly in place.

Should you have any questions or concerns, please feel free to reach out.

Connor Ryan, MBA

connor.ryan@rbc.com

905-895-4102