Hello. My name is Eric Lascelles. I’m the Chief Economist for RBC Global Asset Management, and welcome to our weekly videocast.

And of course, talking COVID-19 as always. And let me just start in on that subject and say, I would say the evidence we’ve built up over the last few weeks remains fairly mixed at this point in time. We see some good things. We see some not-so-good things.

At the absolute highest level, we can say it’s not looking all that great in the sense that the COVID-19 virus continues to spread freely. We’re seeing something like 250,000 to 300,000 new infections reported per day, and we are now up to 16 million cumulatively around the world. So nothing good about that at all.

It’s maybe a very small consolation that the fatality figures, while still unacceptably high and rising, are not setting records. April was still a worse month despite that the fact that there were fewer infections seemingly swirling around at that time, and so we’ll take that, I suppose.

Emerging markets remain a focal point to the extent that they have had less luck controlling this virus. And so India and Brazil in particular at the forefront of the virus, but other countries to a significant extent. And Latin America, perhaps disproportionately, but nevertheless, Africa now starting to suffer to some extent as well. And so still a great deal of suffering, unfortunately, around the world.

But a few positive things to report, and one we’ve been watching very closely is the U.S. And so the U.S. does have the most infections per day. It has been the epicentre in many regards ever since this emerged really from China, and then I suppose briefly Europe was the epicentre. But the U.S. has been the big problem, arguably, and quite a number of U.S. states in particular suffering ever-rising virus counts and encountering quite significant trouble.

And I guess I’m happy to report that, tentatively, we are beginning to see a peak in some of those states. I wouldn’t say it’s finalized and there could yet be backtracking or other issues that occur. But for the moment, it looks as though some of the most important, biggest, most adversely affected states are starting actually to get a little bit better, or less bad maybe.

And so that list includes, by the way, Texas and Florida, North Carolina, South Carolina, Alabama. Our charts show a trend, a slight trend decline in the daily infection rate in all of those states. And so we’ll take that certainly, because there were some pretty big questions as to whether these states would manage to control the virus. There were some ideological issues; there was a reluctance to close the economy up again. And it seems the actions they’ve been taking—the insistence on more wearing of masks, shutting down or limiting things like bars and restaurants and gyms—it seems like there has been some success earned on those fronts.

I should mention as well, we’re seeing quite a number of other states starting to stabilize, which we’ll take as well, given they were also on a rising trajectory. And that would include California, which is an awfully big state. And then, interestingly, and not good at all, but interestingly, the states that had been doing very well, the ones that had had trouble back in March and April and then had started to do better over the last several months, some of them are now starting to tick a little bit higher in terms of the infection rate. And so New Jersey and Massachusetts, Illinois, for the most part still looking just fine, and actually with a very low virus count in most of those states, but nevertheless ticking a little bit higher. And, gosh, not an ideal thing.

I think these states can control it. They have fewer political challenges in terms of adjusting their economic parameters and getting this under control, but nevertheless an interesting development and one I’ll circle around to in a moment.

But first, I want to loop one other thought into the process here, which is when we look outside of the U.S. at the rest of the developed world, it’s interesting and not entirely desirable to me that we’re seeing quite a number of those countries now suffer a slightly rising virus count. So the daily infections starting to edge a little bit higher again. Not fully universal. You could debate that for Canada. I feel like I see a slight uptrend, but it’s less clear than in some countries. You could debate that for the UK. It’s been roughly flattish.

But we are seeing a number of European countries in particular with what appears to be a rising virus count. Spain now up to more than 2,000 a day. They had been down to only several hundred. Two thousand, by the way, still much better than the nine thousand they suffered during the worst of it a few months ago but nevertheless, clearly moving higher. France up over 1,000 a day right now and a few other European countries also in a similar position.

And I think there’s a common theme in all of this. There’s a common theme between some of these adversely affected U.S. states getting better, the “well-behaved” U.S. states getting worse, Europe may be getting a little bit worse again. And to me, a lot of it revolves around bars and restaurants and perhaps gyms. And I don’t mean to lump on those particular sectors. They are quite valuable ones and, of course, proprietors are hurt badly when they’re shut down. But it seems as though the U.S. states that did particularly badly were the ones that opened those enterprises first. They’re now doing better having largely closed or limited those enterprises.

Meanwhile, we’re seeing Europe and much of the rest of the developed world open indoor restaurants and bars and gyms and these sorts of things. And what do you know? They’re now starting to run into at least a little bit of trouble. And so I wouldn’t be surprised if we did have to see some iterating here in terms of policy, and it wouldn’t surprise me if there had to be a little bit more limitations placed on some of those sectors.

Don’t get me wrong. I think there’s good prospects for the necessary adjustment being made. I don’t think Europe is going to look like the US in a month’s time. I believe they will make the adjustments much more promptly than that. But nevertheless, we are seeing a mini second wave take hold in many of those jurisdictions. And also in other places that really didn’t have a big first wave. Australia’s had a similar challenge for similar reasons. Japan is also having a bit of a wave right now and they very clearly linked it to the nightclub districts in Tokyo, and so a similar causality. Hong Kong making similar comments and recently having shut down again its indoor restaurants, bars, and gyms.

And so I guess good that we can maybe fine-tune a little bit here, but let’s not pretend it’s completely static. Because as we work our way toward the fall, weather changes, the virus might be more easily transmitted when it’s colder. Similarly, schools reopening in some cases. And so limited transmission, I suspect there, but some additional transmission as well. So let’s not pretend we’ve got this perfectly fine-tuned. We have a better sense for what’s possible and what isn’t. And I guess not everything is possible. Let’s be aware of that.

We’ve been doing more work on herd immunity, by the way. And so generally, the party line has been that given the inherent transmissibility of COVID-19, you’d need something like 70 percent of the population to be infected before the virus would naturally fizzle out. Not an attractive proposition.

However, there’s some interesting math around that that may present a slightly different conclusion. And so all of that math originally was done on the premise that the natural transmission rate or reproduction number for COVID-19 is something like three. Each sick person’s going to infect three other people unless you do something about it.

However, we have done something about it. The actual transmission rate these days is, unfortunately, a little bit above one. That’s not what we want, but it’s not a lot above one. And if you do the math on that, for instance, if you can control the transmission rate initially at around 1.2, you really don’t need a 70 percent infection rate to achieve herd immunity. You need less than a 20 percent infection rate to get there.

That’s still a distant proposition outside of places maybe like New York City that might already be in that realm. But for instance, if you can control the transmission rate and keep it just above one, you can keep it at 1.02 or something like that, you actually only need 2 percent of the population to be infected before you reach herd immunity and the virus naturally fizzles. And so some countries are in that range. Plausibly, then, we could see the virus starting to back off over time.

I guess the main conclusion to this is, if you implement a certain set of policies, the transmissibility isn’t actually constant even if the policies remain unchanged. As a rising fraction of the population becomes infected, the virus has more and more trouble transmitting, and actually, those figures start to get a little bit better.

And so we don’t really want more of the population to get sick, but let’s recognize, herd immunity certainly not the main aspiration or the main goal. The goal for now is to flatten the curve and work towards a vaccine over time. But nevertheless, we’re in a position in which, actually, herd immunity might not be an impossible goal, if you’re willing to keep some economic or at least some social restrictions in place. So let’s keep that in mind. That’s maybe the backup plan, if that makes sense.

Let’s talk about the economy for a moment. And so we continue to see some evidence of the U.S. economy stalling. And so, for instance, the hours worked, data generally on a slight downward trend. Mobility data roughly flatlining if not slightly down in some of the more adversely affected States in the US. The New York Fed has an activity index that was going up nicely; now it’s also flatlining. And weekly jobless claims retreated for the first week since COVID-19 came along.

And so on a number of fronts, we are getting evidence the U.S. economy probably isn’t growing. And so, we, a few weeks ago, downgraded our U.S. growth forecast. Really, that reflects this narrative. It reflects the fact that we budgeted for a couple of months in which the U.S. economy probably isn’t growing, and it actually finds itself now behind many of the other countries that have done a better job of controlling COVID-19.

And so I’m happy to report as well that we are in the process of upgrading most of our other forecasts. And so this is still sort of a working number but we’re in a position now to think that the Canadian economy, for instance, might only shrink by something like 7 percent in 2020. Previously, we’d budgeted for a 9 percent drop. And just by happenstance, that then leaves Canada actually in a better position for 2020 than the U.S.

And it’s a similar story for the Eurozone. The UK doesn’t quite catch up to the U.S., but nevertheless, narrows the gap significantly. And so some upgrading outside the U.S.; some downgrading in the U.S.

Want to give a quick comment just to some virus science developments as well. And so these inform our thinking quite significantly. And so, one fascinating study out of Australia on compliance has made the observation that of people who suspect they’ve gotten COVID-19, who demonstrate the symptoms and who go to get tested, something like 90 percent of them don’t self-isolate between developing the symptoms and getting tested, which is not a good thing, as I’m sure you’re well aware. And then more than half also don’t self-isolate after getting tested, as they await the results. I’m sure they do self-isolate once they get the results.

But nevertheless, it is worth emphasizing here, COVID-19 has been brought into approximate control even as, really, we’re not doing that good a job, it would appear, in terms of isolating the people who very likely have it. And so that’s a negative thing. It makes us all a little bit nervous, I think. But it’s also a positive in the sense that if we could encourage that group to self-isolate a little bit more enthusiastically, arguably, this virus could be tamed quite easily.

And so I guess the point though being, compliance is also important. It’s fine to have a rule that says wear masks or have a rule that says keep a 2-metre distance. But if people aren’t actually isolating and not actually obeying those rules, it’s not all that helpful. So that’s one thought.

Let’s also acknowledge surfaces. And so the debate between how do people get sick—is it breathing in other people’s particles or is it from touching things—we broadly appreciate it’s more the breathing side; it’s less the touching things. But recent studies argued it’s probably really not the touching, that the risk of getting infected by touching inanimate objects is probably quite low. And so that’s a promising, optimistic thought, I would say.

And then just a couple of other thoughts here. I mean, just on the vaccine side of things, we are getting incrementally positive news. And so the two most advanced vaccines have both reported positive results developing significant antibodies in the people who have been injected with it. In many cases, more antibodies than the people who have already fought off the virus, and so that’s a positive thing. And indeed, when we look at some of the betting markets out there, they’ve become more optimistic in terms of the prospect of a significant number of vaccines perhaps even becoming available by early 2021. So there’s some extra optimism on that front.

Let me mention a couple of other things before I close here. And so, to begin with, we’re still tracking stimulus. That is still the name of the game for the most part, but two interesting developments come to mind.

The first one is, in the U.S., as I record this at least, in very late July, there is a fiscal cliff rapidly approaching at the start of August. I suspect they will find a way to extend some of the special unemployment benefits and keep the economy moving along, keep consumers and households in adequate shape, but there is a little uncertainty around that right now. So let’s be aware, as stimulus starts to come off, there could be some hurdles that we need to be aware of and this is perhaps the first major one.

And then the other fiscal comment is from a European perspective. We did ultimately get approval for quite a massive €750-billion stimulus package, pan-European. And so notable that it’s a big package. However, the more notable thing is it will be funded through mutual debt issuance, and so some debt mutualization helping to bind Europe together. And more than half of the money will be given as grants, not as loans. So this is really turning Europe into more of a single economic entity. They’ve got a fiscal union almost going in addition to the single Central Bank.

And why don’t I finish with a quick comment on geopolitics. And so, from a geopolitical stance, I think we’re all aware, it’s a fairly difficult period. The U.S. and China very much at odds. We’re now in this multipolar era where frictions are, arguably, almost inevitable. But it has gotten worse to some extent, and so here we are now in a position in which both countries have kicked out consulates in various second-tier cities, and so that’s a sign of tension. We’ve seen China recently impose sanctions, or at least planning to impose sanctions on Lockheed Martin, the weapons manufacturer, for selling weapons to Taiwan. We’ve seen the U.S. impose sanctions on some Chinese officials for alleged human rights violations. Hong Kong is very much in flux and national security laws have made the U.S. turn away from Hong Kong.

And so I say all of that not to say there’s a single, clear conclusion that emerges from this, but we do expect these frictions to continue. We’re not surprised by them. We’re not expecting it to lead to war or anything quite like that, but it does impose some frictions on the movement of people and trade and money and these sorts of things. And so there are some economic costs and it is at least a little bit inflationary. And of course, it could all be upended significantly depending on what happens in the U.S. election this fall.

Okay. I’ll set you all free here and thank you very much for your time. I hope you found this interesting and perhaps choose to tune in again in the coming weeks. Thank you.