Global Insight Monthly
June 2020 edition now available!
It was an eventful week. Understandably, many were focused on the social unrest that permeated across the United States. As a result, there was less attention paid to the pandemic and state of the economic recovery. This week in our blog insight, we take a look at developments, and also discuss the noteworthy move in the Canadian dollar.
The rebounding economy
Millions of people have lost their jobs across North America over the past few months. But, markets tend to be less concerned about what’s recently happened and more focused on the future. In other words, it’s the change in trend that is more important for investors. And the change has been positive. Weekly jobless claims for example have now declined for nine straight weeks in the U.S. and there have been early signs of certain jobs coming back as indicated by the recent employment reports out of the U.S. and Canada. This suggests some of the job losses may only be temporary in nature.
Meanwhile, more “real time” or high-frequency data as it is often called is also portraying a slowly improving picture. For example, internet searches for “filing unemployment” have made fresh lows, driving mobility is nearly back to normal levels, the rate of year over year decline in retail sales is improving, and restaurant reservations are trending in the right direction. Even the Bank of Canada this week acknowledged that our country appears to have avoided the worst case outcome. The economic rebound is not just a North American phenomenon as monthly services and manufacturing data across China and much of Europe this week showed evidence of improving over the past month. Much work remains, but the overall trend is improving, rather than deteriorating. And with the prospects of extensions and expansions of aid and stimulus programs across China, Europe, and North America, governments and central banks remain very focused on providing economic support.
The rise of the loonie…or the fall of the U.S. dollar?
The Canadian dollar had quite the week, breaching the $0.74 level for the first time since the beginning of March. But, its move higher may have more to do with the global recovery than with what’s transpiring domestically. While the U.S. dollar has fallen relative to the Canadian dollar, it has also depreciated against other major currencies too. And just as the U.S. dollar strengthens during periods of crisis as investors flock to it for its relative “safe haven” status, it can weaken as investor concern fades and risk appetite rises. We expect the weakness in the U.S. dollar may continue in the weeks to come barring any setbacks in the health crisis. But looking out beyond the next few months, Canada’s domestic challenges – high consumer debt loads, lack of pipeline capacity that exacerbates depressed energy prices, and weaker overall competitiveness levels - remain structural headwinds that may limit any sustainable move higher in the loonie.
Overall, we are encouraged by the broadening rally across equities and currencies, which suggests growing confidence in the economic recovery. Its path and sustainability longer-term remain questions in our minds. A new near-term risk has presented itself in the form of the abandonment of social distancing across the United States. We will be watching closely to see if it results in a re-escalation of the health crisis.
I am pleased to share the latest investment strategy report from RBC Wealth Management.
Short audio file with highlights of the key content of Global Insight.
Listen here (approximately 5-minute duration)
On the fast track
The COVID-19 disruption has hammered home that necessity is the mother of invention. We asked Mark Mahaney, top-ranked internet analyst from RBC Capital Markets, what impact the COVID-19 crisis is having on the internet sector. Which technologies and categories could benefit? Which could lose out? And which trends will have staying power as the economy reopens?
Global equity: Invested, but not fully invested
While long-term equity values are attractive, the nearer-term picture still entails some outsized risks for the economy and earnings. We think the way to reconcile this divergence is to carry equity exposure that is modestly below benchmark.
As always, Global Insight also provides our latest thoughts on asset classes, the economy, and timely issues that impact investment strategy.
Please take some time to review this month’s Global Insight.
If you have any questions or need further guidance, please do not hesitate to contact me.
We appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.
Warm Regards,
Rhonda
“In seeking happiness for others, you will find it in yourself.” ~ Unknown