Good morning,

This week ended roughly where it started as the market seesawed between modest gains and losses. This tug of war was somewhat fitting because it encapsulates an interesting dynamic. More specifically, the risks posed by the pandemic offset, for now, by the efforts undertaken by governments around the world to buy time for their economies to recover.

 

Coronavirus update

Some of the virus trends of recent weeks remain firmly in place. Positively, lower new infections in Canada and Western Europe. Meanwhile, Central and South America remain problematic with Brazil reporting new daily cases that exceeded 30,000. On the other side of the world, India, Pakistan, and Indonesia are three countries that are struggling with containing the virus’ spread, with record daily new cases reported this week.

 

Investors remain focused on the U.S., where there are rising new daily cases across several states such as Texas, Arizona, California, and Florida for example. Some of these states have indicated the average age of the newly infected appears to be meaningfully younger, which may help limit any strain on the health care system should hospitalization rates be lower. It is hard to pin point a cause of the rise in new cases and it may be a result of a combination of economic reopening, mass gatherings, and a lack of mandated protective equipment. This latter point may be about to change as a number of states are considering making the wearing of masks a requirement in public.

 

China came back into focus this week after an outbreak of the virus in a Beijing food market. While the recent number of daily new cases has moderated, it has led to regional lockdowns, quarantining, and restrictions on travel to and from neighbouring regions. This comes after months of successful containment and illustrates the risk of the virus resurfacing in fits and starts.

 

Some positive news did emerge this week with respect to a therapeutic. A well-known steroid called dexamethasone, used to treat a range of conditions such as arthritis, asthma, and allergies, was found to help the survival rates of some of the sickest virus patients. While details are still sparse, this could improve the ability of the population to cope with the disease.

 

Government action

The Canadian government took action this week and extended one of its pandemic-related programs, the CERB (Canada emergency response benefit), by two months. As a reminder, this program was launched in April and promised to provide taxable payments of $2,000 per month for up to 16 weeks to Canadians who lost income because of the pandemic. The payments were set to expire in July for some of the 8 million Canadians who had applied. This announcement should help the country buy more time for its economy to recover. It has been costly, with the government confirming it had spent $45 billion in payments by the end of May, surpassing its initial estimate of $35 billion. Nevertheless, the program has more than likely helped the economy avoid an even worse recession than it is already grappling with.

 

The Canadian government is not alone in its efforts to find short-term solutions to help offset the economic damage. Governments around the world have undertaken similar responses and some continue to debate extensions and additional action. For example, the U.S. is discussing another round of fiscal stimulus that would add to the more than $2 trillion they have already announced. It too is also exploring an extension of jobless benefits that were implemented a few months ago.

 

These aid packages are costly and will undoubtedly add to the high debt burdens that governments around the world are already wrestling with. But, that’s a problem for another day and something we will discuss in the future once this crisis subsides. For now, we believe the ongoing responses from governments globally are a key reason why investors appear to be looking past the pandemic and current economic malaise with a sense of hope and optimism towards the future.

 

Political noise just getting started

We would be remiss if we did not briefly touch on the political commotion that is set to swell in the U.S. in the weeks to come. The first of many rallies is scheduled to occur this weekend with the Republican Party kicking things off in Tulsa, Oklahoma. Elections can have important investment implications and it is another factor, among many, that we have to think about as we manage portfolios. We will discuss potential political scenarios in future commentaries. For now, we remain focused on the pandemic and economic recovery.

 

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

Have a great weekend.

Mirjana