This week was marked by an early dose of optimism. More specifically, a promising update on a potential coronavirus vaccine and more progress on the easing of restrictions and reopening of economies. Offsetting this to some degree was the ongoing struggle to slow the spread of the virus globally, particularly in the emerging markets. Unfortunately, the week is ending on a sour note on renewed tension between China and Hong Kong, which may have global ramifications.

 

Coronavirus update

At a high level, the trends of the past few weeks have remained in place. Europe continues to broadly improve. As a result, countries in the region are gradually loosening an increasing number of restrictions and reopening more parts of their economies. In Canada, a similar story continues to unfold though new daily cases in Ontario and Quebec simply refuse to meaningfully decelerate. Nevertheless, both have moved forward with their reopening plans. In the U.S., the story remains as mixed as it has been of late, with new daily virus cases that have not changed much. To be clear, in some states, the levels have meaningfully improved but in others, they have risen, essentially offsetting one another. Encouragingly, despite the loosening of restrictions and gradual reopening across Asia, Europe, Canada, and the United States, there have not been signs yet of any acceleration in case counts.

The epicenter of the health crisis is now in the emerging markets where new daily case counts are elevated and some countries are seeing an acceleration. Russia and Brazil now have the unfortunate label of being the second and third countries with the highest number of infections globally. It is hard to anticipate a change in this trend, particularly in Brazil where the approach to containment appears disorderly.

Vaccine hope

We recently highlighted the remote possibility for a vaccine to emerge over time given the unprecedented global efforts by the scientific community. We did not expect an update to come so soon. Earlier this week, a U.S. company provided encouraging results from a Phase I trial. In a nutshell, the vaccine showed the potential to induce the immune system to produce antibodies that could help protect people in a safe and tolerable way. The results spurred an impressive and understandable rally in markets as they priced in an increase in the odds of a best case scenario – immunity from the virus. But, as with most early stage clinical development, there are some important caveats to consider. These include the small sample size of 45 individuals, the lack of disclosure and data for analysis, and the durability of the antibodies among other things. While it remains very early and much more work is left to be done, it was an encouraging update. This is one of nearly 10 human trials and more than 100 pre-clinical trials (stage of research that does not include humans beings) underway globally.

Spotlight on the Canadian banks

The Canadian banks are set to report second quarter results over the next week. This is a particularly important update. First, the banks tend to be a good gage of the health of our overall economy. The results for the period of February through April, and management commentary on the outlook, will offer clues about the extent and trajectory of economic damage in this country. Secondly, the banks represent a meaningful portion of most Canadian investor portfolios. If the U.S. banks, who reported their own results weeks ago, are any indication, the results are not likely to be very good. But, that may already be expected by the market to some degree. Bank stocks trade at valuations that were last seen during the great financial crisis of more than a decade ago. This signals to us that investors already expect the companies to face higher risks in the form of future loan defaults and customer bankruptcies. While these loan issues may not arise immediately, the banks have to effectively budget for them in advance and it is widely expected they will begin to do so with the release of their results. We take some comfort in the strong capital positions they have accumulated in recent years that can help provide some cushion against the credit losses that may come. While earnings may be volatile and balance sheets will be tested, we believe the banks will continue to offer sustainable dividend income for investors.

There has been enough to worry about in recent months. We view China’s announcement of new national laws being imposed on Hong Kong as being yet another potential source of stress in the relationship between China and the U.S. It is a risk we will continue to watch closely.

Elinesky Schuett Speaker Series

SAVE THE DATE! Vision 2020: Economic update featuring Brad Willock, June 11

We are thrilled to announce that our team is planning a series of live online events this year, featuring speakers that will be sharing information on topics that matter to you.

The first in the series will feature Brad Willock, Vice President and Senior Portfolio Manager, U.S. Equities with RBC Global Asset Management. Brad’s presentation will focus on the U.S. market during this global pandemic.

This hour-long presentation will be hosted online on June 11, 2020 at 1 p.m.

Event information and registration details will be posted next week.

10-Minute Take: What’s ahead for the loonie?

The loonie has defied expectations during the recent rout in oil markets, hitching its wagon to another driver. Move over crude, hello equities. But the road ahead still has bumps, with implications for USD/CAD foreign exchange. How will extended travel restrictions affect cross-border investments? And what could snowbird investors expect from the U.S. Fed? George Davis, Chief Technical Strategist in Foreign Exchange Trading at RBC Capital Markets, joins us with the outlook on the Canadian dollar.

You can listen to this 10-Minute Take podcast on our website: The 10-Minute Take.

Financial Wellness: Estate Planning

As The Wealthy Barber author David Chilton says, “Dying without a will can leave your heirs with major stresses precisely when that’s the last thing they need as they grieve.” Learn how having an up-to-date will can help ease the burden on your loved ones.

You can read the article, The Wealthy Barber: Get an up-to-date will!, and watch the video featuring David Chilton online: The Wealthy Barber: Get an up-to-date will!

 

Community Corner

Each week, we like to end our blog posts with a few good news stories from in and around the community. We hope that they brighten your day!

• Hospice Wellington’s new art therapy program paints a community picture
• Guelph women anonymously drop gifts to each other during pandemic
• Retired Georgetown principal brings music to homebound students
• VILLAGE VIDEO: Let these viewer videos put a little 'spring' in your step
• Proud to partner with Meals on Wheels to provide vulnerable Canadians with fresh food delivery
• 'They're superheroes': Nearly $1,000 raised for staff at Georgetown retirement home
• Grand River Conservation Authority reopening more parks, natural areas

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.