Weekly Update from Mete Wealth Management - “Searching for Italy”

April 09, 2021 | Mete Wealth Management


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Dear Friends,

I hope you are well and having a great week.

I would like to thank one of my loyal clients who put me on to my latest TV adventure.  On more than one occasion he mentioned this series to me emphasizing how much I would enjoy it.  I should have known by the excitement in his voice that it was something I should not delay jumping on.  Unfortunately, I did procrastinate for several weeks before settling in one night to check it out.   What a mistake delaying this.

Stanley Tucci: Searching for Italy on CNN is a treasure of a series.  Perhaps it’s because of my Italian roots, or maybe even the fact that those roots lie in the region of Calabria like they do for Tucci, that I feel this way. Regardless, this six-part original series is worth a look.  Although much of the theme is based in food, it really goes beyond that, as Tucci reveals some incredible history through the people he meets in each of the regions.  Interestingly, the series includes some episodes that were filmed pre-COVID, while the rest have been during the Pandemic. The series has only emphasized my claim that anywhere you go in Italy is another post card.  I think how fortunate I was to travel through this wonderful country as few years ago with my family and have my children get a firsthand view of where part of their own roots lie.  I am gently reminded often that 50% of these roots also lie in Scotland.  You would be hard-pressed however to find any semblance of Scottish by looking at them….  My lovely wife begs to differ.

Although I am through all six episodes of Stanley Tucci’s  “Searching for Italy”, I anxiously await his travels to the remaining 14 regions, and leaving perhaps our bella Calabria as his grand finale!    

        

There has been a sense of calm in global equity and bond markets of late. Gages of broad market volatility now sit near levels not seen since before the pandemic began more than a year ago. This development has been encouraging as it has come in the face of another wave of Covid-19 spreading across the globe. We provide an update on the virus situation below, and discuss the divergent economic paths that countries may experience as we move through the rest of the year.

Coronavirus update
The past few weeks have been characterized by an acceleration of Covid cases across the world. But unlike prior waves, this one is being fueled by variants of the virus that are exponentially more transmissible, infecting younger people and leading to a surge in hospitalizations in some jurisdictions. This is particularly the case in Canada, which has seen its 7-day average rate of new daily infections rise to nearly 6,500, versus the 4,500 from two weeks ago. Ontario represents close to half this figure, but Alberta and British Columbia have seen cases meaningfully accelerate, while Quebec’s growth rate is not far behind. Most of these provinces have implemented new lockdowns or restrictive measures with the hope that levels could plateau in a few weeks from now. Saskatchewan and Manitoba have also seen increases, though to a lesser degree. Meanwhile, in the Maritimes and northern territories, new daily infections have fortunately not increased much.  

In Europe, the news is somewhat mixed. There are some early signs that cases may have peaked in some countries given lockdowns implemented weeks ago, but some continue to report new highs in daily fatality rates. Elsewhere, Japan’s infection rate is on the rise. Brazil’s figures have come off a recent peak but remain elevated, and India recently reported a record high of more than 130,000 new daily infections.

Encouragingly, the U.S., U.K., and Israel continue to see limited acceleration in new infections, suggesting that a combination of vaccinations and previously high infection rates may be limiting the opportunities for the virus to spread. Nevertheless, it may be too early to claim victory as new cases remain elevated, and a handful of U.S. states such as Michigan are experiencing meaningful increases in infections, driven by the same variants that have taken over in Canada.

Divergent paths
The resurgence of the virus around the world in recent weeks may have played a role in curtailing some of the inflation concerns and bond volatility that surfaced earlier this year. The last few weeks have seen some sector rotation in the global equity markets as a result. The strong rally in cyclical parts of the global equity market – energy, mining, banks, and industrial companies for example – has stalled a bit, while areas like technology and other so-called growth stocks have stabilized and seen some gains of late. In turn, this rotation has driven some recent outperformance of the U.S. equity market relative to others.

Investors have acknowledged that a simultaneous re-opening of most economies around the world is unlikely to occur, and instead we are likely to have divergent re-openings and economic trajectories through the course of the year. The U.S. and U.K. may initially lead on the growth front, while other economies falter given renewed measures put in place and slower vaccination rollouts. But, investors are looking past the near-term headwinds, believing that lockdowns and mass inoculations will eventually prevail, allowing regions like Europe, Canada, and Asia to catch up and propel a stronger tailwind for economic and earnings growth towards the end of the year. 

We suspect that the volatility in bond yields and concerns around inflation have not completely disappeared, and may resurface when some of the incoming data over the next few months reveal that the economic recovery is gaining steam and global breadth. That may once again reignite an intense debate around whether central banks like the U.S. Federal Reserve will have to tighten monetary policy earlier than they have indicated.

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

Enjoy your week-end!

Best Regards,

Frank