A week in review

Aug 28, 2020 | Elinesky Schuett Private Wealth Management


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The recent announcement by the U.S. Federal Reserve and the third quarter results for the Canadian banks are the features of this week's blog post.

RBC Tower in Toronto

Our featured economic update is below, focusing on a recent announcement by the U.S. Federal Reserve and the third quarter results for Canadian banks. The latest #MacroMemo from Eric Lascelles podcast is included below, along with two technology focused articles:

  • Five Cyberfraud Survival Tips to Protect Your Business in a Digital Workplace
  • Technology is Disrupting the Brain. Here’s What To Do About It

Finally, don’t forget to RSVP for the next event in the Elinesky Schuett Speaker Series: Where do we go from here? In conversation with Jim Allworth.


It was an eventful week in the news, particularly in the United States, though much of it had little to do with the economy or markets. Another violent incident involving law enforcement and a black man in the U.S. rekindled the strong emotions related to racial injustice that surfaced following similar incidents just a few months ago. Meanwhile, Hurricane Laura swept through the Gulf of Mexico and resulted in major flooding, damage, and the shut-down of significant oil, natural gas, and chemical infrastructure in the region. Lastly, the Republican National Convention has taken place, and candidates from both parties will now hit the road for nine weeks of campaigning in advance of the election in November.

From a market perspective, the Canadian banks were a key highlight over the past week, and one of the reasons why the Canadian stock market continued its climb higher. In the U.S., Jerome Powell, Chairman of the U.S. Federal Reserve, indicated that it will explore “average inflation targeting” going forward. We offer our take on this new approach and the aforementioned market-related issues below.

Canadian banks – lower reserves

The Canadian banks reported their third quarter results this week for the period ending in July. As suspected, some of the banks set aside less reserves for future loan losses than they did earlier this year. Up until recently, the banks had been increasing these accounts by billions of dollars, in anticipation of future delinquencies. This quarter, some banks set aside less, which may be taken as a sign that they feel adequately prepared for any challenges that may come. Importantly, none of the banks have experienced any outsized loan losses to-date, despite the millions of jobs lost and business disruptions as the government aid, income support measures, and the banks’ loan deferral programs have delivered on their objectives. This development is positive, but not surprising. Investor anxiety, with respect to the sector, may fade in the near-term as there may be greater conviction in the ability of the banks to continue to successfully navigate through this challenging period. However, should the economic recovery falter as we head through the fall and into 2021, questions will arise as to whether more reserves will need to be set aside.

Coronavirus update

The U.S. continues to see its rate of new daily infections slow, with levels that now sit above 30,000, nearly 10,000 lower than last week. It’s worth noting that the decline was not as profound as it has been in recent weeks, but the trend nonetheless was lower. Elsewhere, the news continues to be more mixed. Some regions have seen some levelling off of new infections – Russia, Pakistan, Hong Kong, and early signs of stability in hotspots such as Brazil and South Africa. Others have been less fortunate, such as Argentina, Indonesia and India, with all three reporting record highs this week. South Korea is now dealing with an escalating outbreak, although its number of new cases remains low by global standards. Europe continues to see a broad deterioration in virus trends across many countries. Many are now exploring a variety of containment measures, though most have indicated that they will avoid any restrictive lockdowns. This should help reassure investors that any hit to the region’s economy may not be as severe as it was earlier this year.

The Fed – average inflation targeting

The U.S. Federal Reserve Chair, Jerome Powell, unveiled a change to the institution’s approach to monetary policy this week. This was widely anticipated, but still very important. The Fed has historically wanted long-term inflation expectations to be anchored at two percent, but it has acknowledged that inflation has been stubbornly low in recent years, running below two percent during periods of both weak and reasonably good growth. This could potentially lead consumers and businesses to expect lower longer-term inflation, a scenario which it is hoping to avoid. Going forward, it will explore policy that would aim to achieve inflation “moderately above two percent for some time” in hopes of offsetting the periods when inflation is running below its long-term two percent target. In his speech, Mr. Powell described the approach as a “flexible form of average inflation targeting”. There are two important implications:

  1. interest rates and monetary policy are likely to remain low and very accommodative for an extended period of time (i.e. years); and
  2. should inflation move close to two percent or even above, it may not lead to an immediately more restrictive approach to monetary policy.

The messaging from the Fed this week has served as another reminder of the significant role that they have played, along with other central banks around the world, this year. Ultra-low rates and a variety of programs designed to ensure the proper functioning of lending markets have helped foster a significant recovery in global credit and equity markets. The economic recovery on the other hand has been more moderate. It will remain very dependent on fiscal support from governments and will ultimately be dictated by the future path and severity of the virus.

Five Cyberfraud Survival Tips to Protect Your Business in a Digital Workplace

cid:image007.jpg@01D67C83.7B814E00This article shares ways that business owners can protect themselves from cyber attacks in the modern era. With the rapid shift to new digital tools and remote work that has changed the business landscape, RBC's experts say now is the time for a cyber check-up. Read more

 

10-Minute Take

The 10-Minute Take is a podcast series dedicated to providing insights from RBC Economists and market experts on events unfolding around the globe. Although we do not have a new 10-Minute Take to share with you this week, you can listen to our library of 10-Minute Take podcasts online now: The 10-Minute Take.

Elinesky Schuett Speaker Series
Where do we go from here? In conversation with Jim Allworth


We hope that you can join us for the next online event in the Elinesky Schuett Speaker Series: Where do we go from here? In conversation with Jim Allworth, portfolio strategist with RBC Dominion Securities. Jim will speak on the outlook for the global and Canadian economies and financial markets.

September 16, 2020 - 1:00 p.m. - 2:00 p.m.
A link to the event website will be provided with
your registration confirmation.

Kindly RSVP by September 14 by clicking on the button below.

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#MacroMemo with Eric Lascelles: COVID-19 back to school

As kids prepare to go back to school, RBC GAM Chief Economist Eric Lascelles notes that certain regions (such as the U.S.) seem to be doing a little better than previously whereas others (such as Europe) are struggling with a second wave of the pandemic. As for the economy, the recovery continues apace. The historically rapid losses and gains seem to be a Q2 story. And why is gold glittering?

Watch time: 11 minutes 55 seconds

Technology is Disrupting the Brain. Here’s What To Do About It

The COVID pandemic has locked down much of society and driven many of our activities online – working, shopping, entertaining, and catching up with friends and family.

The COVID pandemic has locked down much of society and driven many of our activities online – working, shopping, entertaining, and catching up with friends and family.

But what effect is all this technology having on us? Learn how technology is changing the brain and mind – and what advice Dr. Doraiswamy has to share about keeping our brains balanced between our natural world and our digital one in this online article and podcast: Technology is Disrupting the Brain. Here’s What To Do About It.

Community Corner

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

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.