Weakness in global markets has continued to persist. A laundry list of items were to blame this week, including a number of U.S. monetary policymakers who pleaded for Congress to pass more fiscal stimulus, concerns over the potential of a contested U.S. election, a noticeable slowing in European services activity, covid-19 case trends and the potential for more government restrictions. Market volatility did move modestly higher recently though remains below the levels of early September when weakness first emerged. This suggests market action remains orderly.
All the issues listed above are worthy of further discussion, but we focus our commentary this week on a virus update as it remains the predominant driver of the global economic and market trajectory in our view. We also address the implications of the throne speech from the Canadian government along with insights from Chief Economist Eric Lascelles.
The implications of our government’s plan
The minority Liberal government delivered its much anticipated throne speech this past week. Given the emergence of a second wave of the coronavirus in Canada, it was not necessarily surprising to see a heavy focus on the various programs put in place to continue to support the unemployed and businesses that are being impacted by the pandemic in order to buy more time for the economic recovery. Interestingly, there was a change to one particular program (explained below), which may be enough to secure the support from the NDP party. If the Liberals want to survive a parliamentary confidence vote in the days to come, they will need the NDP given the Conservatives and Bloc Québécois have suggested they are not likely to be supportive.
The support programs include:
- Canada Emergency Wage Subsidy – extended from December through until next summer, essentially pays a sizeable portion of an employee’s salary for eligible businesses.
- Canada Recovery Benefit – available for 26 weeks to workers who are self-employed, gig, or contract workers. Was initially promised to be $400 per week but was raised to $500 in an attempt to secure support from the NDP party.
- Canada Recovery Sickness Benefit – applicable for those that do not have paid sick leave, will provide $500 per week for up to 2 weeks.
- Canada Recovery Caregiving Benefit – applicable to those that have to stay home to care for someone because alternatives are not available due to the pandemic, will provide $500 per week for up to 26 weeks.
In addition to the above, some changes were made a month ago to the Employment Insurance (EI) program that should allow more people to quality. This is important as many participants of the Canada Emergency Response Benefit, which is on the verge of expiring, are likely to transition to EI.
There will be concerns about the cost of these programs as the fiscal deficit was already expected to be the largest this year since the Second World War. Moreover, the government will be funding this spending with increasing amounts of debt. But, these measures are undoubtedly required to help the many households and businesses endure through this period of economic stress. Austerity and fiscal restraint will come at some point in the future. Canada won’t be alone in confronting that longer-term challenge as most other countries have had to undertake similar spending to deal with the impact the pandemic has had on their own economies.
We are likely to turn our attention from Canada to the U.S. and its presidential and congressional elections. The first of three presidential debates takes place soon (September 29th) and the noise could last longer than it otherwise would as there is some risk of a contested outcome. We will discuss this more when we publish our next commentary over the following week.
MacroMemo - September 22 - September 28, 2020
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What's in this article:
- Virus developments
- Cases versus deaths
- Does the U.S. have fewer deaths than usual?
- How is COVID-19 transmitting?
- Stalled progress
- Falling mobility
- Fiscal update
- U.S. election update
- U.S. dollar implications
- Lasting repercussions
As always, please feel free to reach out to our team with any questions.
Have a nice weekend.
Warm Regards,
Rhonda
"We must never be afraid to go too far, for success lies just beyond." ~ Marcel Proust