Good morning,

 

Global markets were relatively flat over the past week. But, beneath the surface, the investor unease that emerged a few weeks ago remains in place. It’s hard to pinpoint why that is, and it may be a simple case of a much needed pause after a rather rapid and robust market recovery.

 

Coronavirus update

In Canada, the trend is on the rise with a seven day moving average of new daily cases of nearly 800. The good news is that the Maritimes have shown no meaningful pickup in new cases. The same can be said for the northern territories. Meanwhile, Manitoba and Alberta, which had shown an acceleration a few weeks ago have seen some stability. Saskatchewan has seen the opposite as its new case numbers have accelerated of late but remain low in absolute terms. That leaves the remaining three provinces of British Columbia, Quebec, and Ontario as the three that account for nearly 80% of Canada’s new daily cases. The latter two are seeing the sharpest change in trend with growth rates that are clearly accelerating.

 

Less easy going forward

With much of the global economy shut down earlier this year, the easy part of the economic recovery was expected to unfold once lockdowns were lifted. And that’s largely what happened in recent months as mobility increased, some businesses reopened, and a fair number of workers returned to their jobs. Global data over the past month has suggested that while momentum has moderated, the economy remains very much in recovery mode. Over the past few weeks, the Bank of Canada, European Central Bank, and U.S. Federal Reserve all acknowledged as much, with some even suggesting a return to pre-Covid levels of economic production by the end of 2021, rather than earlier projections of 2022.

 

The biggest risk facing the global economy though still lies with the virus itself. I expect very few governments have an appetite to once again revisit full scale lockdowns. But, I expect many will consider some combination of smaller measures to slow the spread. Indeed, we have seen this approach employed already, across some U.S. states in recent months, and more recently across Europe. These actions won’t result in the colossal economic hit that was suffered earlier this year, but they will inevitably have some impact, leaving us with the impression that economic activity may have more potential to ebb and flow in the months to come rather than simply trend higher.

 

That being said, I have not been surprised by the economic recovery to date and I think the recent market weakness may simply be a typical pause and period of consolidation.

 

Tim