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by  Eric Lascelles Dec 8, 2020

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Overall, recent developments have been fairly mixed. There are quite a number of small positives to report, contrasted against one big negative.

The small positives include:

  • Europe’s second wave is receding more quickly than initially expected.
  • Economic data for the U.S. and Canada was surprisingly decent in November.
  • Vaccine news remains mostly positive.
  • S. fiscal stimulus is looking somewhat more likely.

Conversely, the big negative is that U.S. and Canadian infection numbers continue to deteriorate badly. This is not to be underestimated.

Virus developments

COVID-19 continues to spread at a high rate around the world, with global fatalities setting new records at a stark 11,000 deaths each day (refer to next chart).

Global COVID-19 cases and deaths

Global COVID-19 cases and deaths

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

Developed countries remain responsible for more than half of all infections, but emerging markets have not been unscathed. Brazil is particularly notable among those deteriorating recently (see next chart). Other prominent examples include Mexico, Russia and South Africa.

COVID-19 cases and deaths in Brazil

COVID-19 cases and deaths in Brazil

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

That said, the deterioration is not universal. Iran, Poland, India and Peru are all enjoying substantial improvements.

Europe continues to ebb

Europe’s latest infection figures continue to ebb. The improvement is especially remarkable in France, though the rate of improvement there has recently stalled (refer to next chart). Germany’s improvement has been only slight, though the country was never as badly off as its peers. Fortunately, Italy and Spain continue to improve substantially.

COVID-19 cases and deaths in France

COVID-19 cases and deaths in France

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

Of course, as we have noted repeatedly, this improvement has only come via aggressive social distancing. That is set to exact a toll on European economic activity over the final months of the year.

The U.K. can also report a substantial improvement, having declined from around 25,000 cases per day to around 15,000 per day. However, as with France, it has also ceased to substantially improve (see next chart). This is concerning as the U.K. is now planning on lifting some restrictions in the near future, potentially reversing recent gains.

COVID-19 cases and deaths in the U.K.

COVID-19 cases and deaths in the U.K.

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

Canadian frustrations

Most Canadian provinces introduced materially tougher social distancing rules over the past month. So it has been a great disappointment that the Canadian infection numbers continue to deteriorate (see next chart). Alberta’s caseload has risen particularly aggressively (see subsequent chart). The number of national fatalities per day remain at just half the level of last spring, but are still rising.

COVID-19 cases and deaths in Canada

COVID-19 cases and deaths in Canada

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

Spread of COVID-19 in Alberta

Spread of COVID-19 in Alberta

Note: As of 12/06/2020. Calculated as 7-day moving average of daily cases and total cases. Source: Government of Canada, Macrobond, RBC GAM

Being able to predict the peak of this second wave has proven frustratingly elusive. After the U.S. tamed its summer second wave via minimal additional social distancing, it was tempting to conclude that future waves would prove easily managed via modest policy tweaks. But the European experience was that aggressive restrictions were ultimately necessary.

It remains conceivable that Canada’s moderate social distancing rules will allow the country’s infection numbers to begin improving within the next week – a lagged response to earlier tightening. But we have made that claim too many times to feel particularly confident in it. It may simply be that Canada needs stricter rules if the virus is to be controlled.

False U.S. improvement

Last week, the U.S. had appeared to be miraculously stabilizing despite only slightly stricter social distancing efforts in the country. We could think of two possible explanations. The optimistic view was that Americans have a low level of trust in government, such that many were voluntarily socially distancing as they perceived the risk to be rising, even without a government guiding them toward stricter restrictions.

The pessimistic view was that people simply weren’t getting tested over the Thanksgiving holiday. Unfortunately, it appears that this interpretation was correct. The U.S. daily infection numbers are again rising now that Thanksgiving is over, though there remains the hope that perhaps the increase is exaggerated as the backlog of earlier infections are captured all at once (and also because additional social interactions over the holiday might induce a temporary surge).

U.S. policymakers are finally responding – most prominently, with California now locking down. However, the overall U.S. effort still falls well short of the European (and even, arguably, Canadian) measures. In turn, a U.S. peak is likely some distance off (see next chart). The U.S. is now recording 200,000 new cases per day, and is suffering around 2,250 deaths each day. As this rises, it nears the spring peak of roughly 2,750 fatalities per day.

COVID-19 cases and deaths in the U.S.

COVID-19 cases and deaths in the U.S.

Note: As of 12/07/2020. 7-day moving average of daily new cases and new deaths. Source: CDC, Macrobond, RBC GAM

Second wave reversal timing

Europe is now mending from its second wave. In an earlier report, we argued that such waves usually recede around half as quickly as they come washing in, with the implication that the process could take some time.

However, additional research reveals nuance to this observation. In fact, this claim is only true of the first two U.S. waves. Other countries tended to improve fairly quickly after their first waves, and European countries are now tentatively improving more quickly than this after their second waves. Refer back to the prior chart on France for a sense of this – the slope of the second wave is less steep as it ascends than as it subsequently falls.

As a result, we shouldn’t assume that it will take six months to unwind three months of deterioration. In fact, the recovery from a daily infection perspective can be achieved in a matter of a few months. Let us recognize, of course, that the speed of improvement is in large part due to the social distancing rules implemented rather than some mathematical identity.

Virus science


As positive vaccine news trickles out, forecasters are becoming more optimistic about when vaccines will be widely available. One survey we follow asks when 25 million Americans will be inoculated. Two weeks ago, 72% of respondents indicated that this milestone would be achieved by the end of May. Now, that share has risen to 95%.

While there has been concern in Canada about the delayed receipt of vaccines versus other countries, the country’s prime minister recently indicated that most Canadians would be vaccinated by the fall – roughly in line with our expectations for other developed countries.

In estimating when life can return to normal, it is important to keep in mind that most vaccines will require a second inoculation a month after the first one, and that protection still isn’t fully conferred until two weeks after that. As such, the entire process from first inoculation to protection is roughly six weeks.


The U.K. has now awarded emergency-use authorization to the Pfizer and BioNTech vaccines. The first batch is set to arrive this week, with inoculations beginning immediately thereafter.

The U.S. and Canada are expected to approve vaccines as early as this week, and to begin receiving shipments as early as next week.


With a limited supply of vaccines initially, disbursement will be prioritized.

Logically, the first group of those inoculated should be health care professionals and first responders, people with high-risk conditions and older adults.

The second group to receive inoculations should be essential workers who are not engaged in health care, people working in settings that limit their ability to protect themselves, communities with limited access to health care, and people most likely to infect high-risk groups (such as intergenerational families).

The third group should include everyone else – the young, the healthy and those working from home. One imagines that this last group may not be inoculated until the middle of the year or beyond.

Economic developments

Doctor Copper

Copper is sometimes referred to as “Doctor Copper” due to the PhD it is said to possess in economics. This is because copper prices have often proven a useful predictor for the trajectory of the global economy. Rising copper prices usually signal that an economy is strengthening since copper is a core ingredient for such cyclical activities as capital expenditures, construction projects, appliance purchases and car buying.

Copper prices are now at a seven-year high, having increased by a sharp 66% from its recession low. This improvement appears to be a function of several things:

  • The Chinese economy is growing nicely, and China consumes more than half of many of the world’s base metals.
  • The global economic outlook is arguably strengthening.
  • Relatedly, demand for appliances and cars is rising.
  • Governments are expected to pivot their fiscal efforts from short-term income support to longer-term infrastructure projects over time.
  • Electric car demand is rising, and electric cars contain three times more copper than an internal combustion vehicle.
  • There are also supply-side factors: copper supply has been limited, there has only been one major discovery since 2015, and new projects take a long seven to 10 years to develop.

As such, there appears to be good reason for the higher copper prices. But we care most about the causality in the opposite direction. The fact that copper prices have been rising is a vote of confidence that the economic recovery will continue.

A tale of two economies

The pandemic experience has varied enormously depending on the sector. The following two charts make that point nicely, using fresh real-time data. The first chart is an index we created that tracks U.S. industrial activity, revealing a steady recovery with full normalization seemingly imminent. It includes measures such as railroad traffic, steel production and electricity output.

U.S. industrial activity approaching normal

U.S. industrial activity approaching normal

Note: As of 11/06/2020. Measured as a composite of the year-over-year change in railroad traffic, steel production, petroleum products supplied, and electric utility output. Source: Goldman Sachs Global Investment Research, Haver Analytics, RBC GAM

The second chart, conversely, focuses on COVID-sensitive sectors such as hotels, movie theatres and air travel. Unsurprisingly, the initial economic decline was much greater (around -65% versus -20%), and the rebound has been far less complete, with activity still 50% below normal. Furthermore, the recent tightening of social distancing rules should again bite into these sectors.

COVID-sensitive activities in U.S. slipped in latest week

COVID-sensitive activities in U.S. slipped in latest week

Note: As of 11/07/2020. Measured as a composite of the year-over-year change in hotel occupancy, movie box office receipts, Redbook retail sales, and TSA passenger throughput. Source: STR, BoxOfficeMojo, TSA, Goldman Sachs Global Investment Research, Haver Analytics, Macrobond, RBC GAM

Black Friday sales

Around half as many people visited U.S. stores on Black Friday relative to the year before. Online spending, meanwhile, was up by 22%, partially offsetting the decline. Nevertheless, the end result is that U.S. shoppers spent around 14% less between Black Friday and Cyber Monday than they did the year before.

It seems perfectly reasonable that fewer people were crowding malls during a pandemic. Yet the result is nevertheless a bit surprising. Overall retail sales are running above year-ago levels, and credit-card usage is also roughly normal. So one might have imagined a fairly normal-looking Black Friday. One difference is that stores may have had stricter capacity limits this year, potentially spreading spending across a larger number of days. Another is that with so many people working from home, it is no longer necessary to jam into the stores on a weekend or holiday – a normal weekday is also an option. A third is that some U.S. households are now running low on money as prior fiscal support expires.

The bottom line is that we believe overall holiday spending will look fairly normal despite the lackluster Thanksgiving sales. But we are alert for any other evidence that argues for an underwhelming result.

North American economy grew in November

U.S. personal disposable income fell 0.8% in October, marking the second month of decline in three. However, personal incomes are still several percent higher than normal and spending continued to rise. The U.S. household savings buffer is gradually shrinking, but not gone altogether.

Turning to the November data for the U.S., we have been pleasantly surprised by the results so far. For instance:

  • The ISM (Institute of Supply Management) Manufacturing and Services indexes both fell during the month, but to still robust readings of 57.5 and 55.9, respectively.
  • Weekly jobless claims managed a substantial improvement after two consecutive weeks of deterioration.
  • Payroll employment rose by 245,000 jobs – shy of expectations, but consistent with an ongoing economic expansion. The unemployment rate accordingly fell from 6.9% to 6.7%.

However, there were three worrying developments for the U.S. economy in November:

  1. The household survey portion of the latest employment report argued, instead, that the U.S. lost 74,000 jobs. The two often disagree and the latest gap is far from a record divergence. But this nevertheless represents the first negative month since April.
  2. Anecdotally, furniture demand was beginning to wobble in November – perhaps a proxy for big-ticket purchases and housing market enthusiasm.
  3. The anecdotal Beige Book survey reported that four of 12 districts found that growth was beginning to slow in early November (though, equally, the overall assessment was that growth in November was somehow better than in the early fall).

Overall, it still seems likely that the U.S. economy grew in November, but some fraying is visible.

For Canada, the November data released so far has been surprisingly good. The Canadian Federation of Independent Business index, which reflects the sentiment of smaller businesses, surprisingly rose from 53.3 to a decent 55.7 in the month. The Markit Canada Manufacturing PMI (Purchasing Managers’ Index) similarly rose, from 55.5 to 55.8. And the country created 52,000 jobs during the month – more than double what had been expected, with the unemployment rate falling from 8.9% to 8.5%.

We continue to think that Canada and the U.S. are vulnerable to a month or two of modest economic decline as social distancing rules grow tighter. But it doesn’t appear that the economies were shrinking in November.

Celebrating financial conditions

The pandemic has created an unprecedented economic shock. Of particular note have been the extreme depth of the initial decline, the speed of the subsequent rebound, and the role that policymakers have played in it – both in terms of shuttering industries and propping up incomes.

In all of this, financial conditions have been unusually quiet. Normally, financial conditions tighten aggressively during a recession as credit spreads widen and the stock market falls. But that hasn’t been the story with this cycle (see next chart). Instead, financial conditions have actually improved, to the point that financial conditions have never been looser. This is always the goal of central bankers during a recession or crisis, but it is rarely achieved.

It provides quite a contrast to the experience of the global financial crisis of a decade ago, when financial conditions were the tightest they had ever been. Then, what was originally a housing and financial sector problem morphed into an economy-wide problem as every sector was confronted by illiquid and expensive borrowing markets and unfriendly equity markets. The good behavior of financial conditions this time has greatly confined the damage to the socially oriented sectors directly limited by COVID-19.

Global Financial Conditions Index at record low

Global Financial Conditions Index at record low

Note: As of 12/03/2020 for U.S., 12/02/2020 for global. Source: Goldman Sachs, Bloomberg, RBC GAM

U.S. political update

While the outcome has not been in serious doubt for some time, more and more U.S. states have been officially certifying their presidential vote tallies. California’s recent announcement means that President-Elect Biden now officially has enough states in his camp to win the Electoral College when the formal vote occurs on December 14. The results will then be tabulated on January 6.

Efforts to discredit the election continue to wither. Attorney General Barr has indicated that there was no evidence of widespread voter fraud during the election. President Trump now appears willing to vacate the White House, based on his approval of transition funding for Biden’s team in waiting. Furthermore, Trump has indicated that he would accept defeat if the Electoral College confirms Biden’s win.

Biden has now begun proposing appointments for key administrative positions. Pending Congressional approval, the Treasury Secretary is set to be Janet Yellen, who was the Chair of the Federal Reserve from 2014 to 2018. She has a reputation as a highly competent, pragmatic, evidence-based decision maker. As such, the U.S. should be in good hands.

Perhaps the only point of small concern is that the appointment represents a further blurring of the division between monetary and fiscal policy. The risk is that if monetary policy were to come under the sway of politicians, there might be a tendency to tolerate too much inflation in an effort to maximize short-term growth. Central banks have already been criticized over the last decade for working increasingly intimately with fiscal policymakers. Indeed they have radically expanded their balance sheets over the period. Ominously, the last time someone held both positions was in the late 1970s – a time of high inflation. But, practically speaking, the risk today is low. Yellen has gone from the Fed to the Treasury – a better sequence than the reverse – and she is not known as a radical.

Iranian geopolitics

It is hard to remember, but before the pandemic struck in early 2020, Iran was foremost on the mind of investors and economists. The country was engaging in skirmishes with its Middle Eastern enemies and the U.S., using drone strikes, bombs, missiles and ships to wreak havoc in Saudi Arabia and Iraq.

This conflict went silent for much of the last year, but has since heated up after Iran’s chief nuclear scientist was killed in a recent attack. The timing is likely not coincidental. Many of Iran’s adversaries are worried that Iran may be able to secure a peace accord with the U.S. once Biden is inaugurated, much as the country did when Obama was in office. As such, any effort to destabilize Iran or set back its nuclear aspirations would naturally happen before Biden arrives. While Israel has been accused of the latest attack, recall that Trump was reported to have recently asked his military leaders for options on attacking an Iranian nuclear site.

Iran has not yet responded, and is thought unlikely to do so because it doesn’t want to lose bargaining clout with Biden when he arrives in six weeks. Nevertheless, the risk of further attacks by the country’s adversaries are not nil over the next month and half. As such, the Middle East is again a place of high geopolitical tension. This is of particular relevance to the global economy and financial markets via the region’s enormous oil production and Iran’s ability to control the oil shipping pinch point that is the Strait of Hormuz.

U.S. fiscal stimulus update

Time is growing short for a new U.S. fiscal stimulus package. On the heels of earlier fiscal cliffs that struck at the end of April and July, further pandemic support programs expire at the end of December. At a minimum, the U.S. needs to pass a short-term continuing resolution to avoid a government shutdown that would begin on December 11. There is a mere handful of days remaining to solve these problems, as the House of Representatives will recess after December 10, and the Senate will break after December 18.

The Democrats proposed a big $2.4 trillion fiscal package in October. A Republican proposal tabled on December 1 was for a much smaller (though still considerable) $553 billion. A bipartisan group of politicians spanning both Democrats and Republicans from the Senate and House have now pitched a $908 billion deal. This deal would provide:

  • a further $288 billion for small businesses
  • $180 billion in additional unemployment benefits
  • significant funds to distribute vaccines and support schools, childcare centres, the postal service, renters, healthcare providers and transportation providers.

It is certainly possible that this package passes over the next few days. However, we are more inclined to think that a continuing resolution is approved that keeps the government operating, with a larger fiscal package delayed until Biden occupies the Oval Office. While the next Congress will take over on January 3, Biden does not become President until January 20. In turn, there will be some economic suffering in the U.S. over the intervening period.

Brexit deadline looms

The timing to extract a last-minute Brexit deal between the U.K. and Eurozone is now growing very tight. While the Irish Prime Minister – who has proven prescient on the subject in the past – recently expressed a measure of optimism for a deal, this is far from assured.

Despite some progress in drafting the agreement text over the past several months, significant disagreements remain with regard to fishing rights, governance and business subsidy rules. The U.K. is also continuing to pursue an Internal Market Bill that appears incompatible with agreements it has already struck with the EU concerning a friction-free Ireland-Northern Ireland border.

Most acutely, France now threatens to veto any deal if not given access to British waters for fishing purposes. Similar sentiments exist in the other countries abutting the U.K. Meanwhile British Prime Minister Johnson is now travelling to Brussels for last-minute negotiations with European Commission President von der Leyen.

Suffice it to say, the prospects of a deal are now declining, both as time runs short and as both parties prove recalcitrant. But we still believe a small free-trade agreement has a greater than 50% chance of occurring given that it is in both parties’ best interests.

The Great Reset

The idea of a “Great Reset” has lately received considerable attention. While the term means different things to different people, the conventional usage involves thinking more deeply about what humans as a collective species should be aspiring toward, with the idea that priorities should include addressing global challenges such as poverty, inequality and climate change.

The pandemic certainly demonstrates that society is capable of grand achievements, such as delivering massive income support to many unemployed people and developing a vaccine in record time. The pandemic has also offered up a few surprises on this front, such as bestowing greater prominence to the pursuit of racial equality. One imagines there may be a greater willingness in the future to deploy collective resources toward low probability/high consequence risks (such as beating future pandemics or dealing with asteroids), and toward achieving great scientific advances in areas such as space exploration, particle physics and nuclear fusion.

However, there are two reasons why a truly great reset is nevertheless unlikely.

  1. It is far from clear that voters or politicians are universally congealing around the views espoused by the Global Reset. The partisan divide appears as great as ever, as demonstrated by the recent U.S. election. That is ultimately what limits any radical departure from centrist policies.

Even if there was an agreement that “fairer outcomes” were worth pursuing, some people would argue that this means giving more to the poor, while others would argue this means taking less from the people who have worked for their money. Further complicating any effort, others are now arguing that the most important Great Reset would instead be to tame decades of rising debt – the very opposite of a grand plan to deploy money to the poor or rescue the environment.

While measures to address climate change appear to be accelerating, this trend was already visible before the pandemic struck and so is arguably not a sudden re-envisioning of societal goals post-pandemic.

  1. Due to the worst recession in a lifetime, governments are now short of money and desperate for growth. While some of the initiatives of the Great Reset are not entirely incompatible with the constraints imposed by the present situation, most are. Restoring jobs and output will probably take the greatest priority for the next several years, at which point the urge to remake society may be starting to dim.

-With contributions from Vivien Lee and Kiki Oyerinde

Interested in more insights from Eric Lascelles and other RBC GAM thought leaders? Read more insights now.


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