Hello and welcome to our latest video MacroMemo. We have much to cover off this week.

We’ll talk, as always, about the latest COVID cases and, of course, the rising Delta variant right around the world. And we’ll talk a little bit about how India has improved its own infection numbers so much and what the secret to its recent success has been. We’ll also talk about the British experiment now going on with the delta variant and essentially tolerating more infections in the hope of keeping fatalities down.

On the economic side, we will take a look at the latest inflation numbers, and they remain very high indeed. But we’ll also talk about some reasons for calm on that front.

And then on the economic side maybe more precisely, we can say the U.S. economy looks like it’s slowing to some extent. The Canadian economy looks like it’s picking up to some extent.

And we’ll also take a glance at the fiscal picture in Europe and the U.S., at office occupancy data, which really does reveal some interesting things about the way forward from here. And then also a nod to geopolitics, mostly of an OPEC variety.

Let’s start with the COVID numbers. And on that front, COVID cases now, unfortunately, rising globally. And so we are seeing higher infection numbers both among emerging market countries and developed market countries as well. In fact, around 70% of the world’s nations are now experiencing a rising infection count. That compares to about 30% as of May and early June. And so, unfortunately, quite a deterioration there.

And among that set is the UK, is many European countries. The U.S. numbers are now rising as well. And on the EM side, any number of countries are deteriorating, but Indonesia now capturing particular attention. It has a high infection count. It’s going up quite quickly. And indeed, Southeast Asia struggling with the Delta variant in a way that they really didn’t struggle with earlier variants.

I should say that there is breadth to the Delta variant’s spread, not just globally and across countries, but within countries as well. And so for instance, as we look at the U.S. data, as of early June, it was a very small number of countries that were experiencing a rising infection rate. Right now, it is all 50 U.S. states. And so every single one, as of the latest calculation, is seeing more infections, not fewer.

And, not surprisingly, the worst trend is in the lower-vaccination states, but I should say, even those that are leading the way, like Vermont, are now seeing a rising number of infections. So they have not dodged that outcome altogether.

For the moment, Canada has dodged that outcome. Canada is an exception to the upward trend. For the moment, it enjoys falling infection numbers. It probably has a fighting chance of avoiding a significant further wave just in the sense that it is now truly among the world’s leaders in vaccination rates. And also, it has still somewhat stricter restrictions than many other countries.

But I must say, when we dig beneath the surface on Canada, we see that the Delta variant is still rising here. It’s being masked by a decline in other variants, but the Delta variant has increased by 40% over the last four weeks. And so, chances are Canada will see additional cases as well. But I can’t quite say that with precision because, over those four weeks, we’ve seen more people get inoculated. A number of other positive developments as well. But I would say the Canadian wave, if it comes, should be significantly milder than in other places at least.

Let’s talk now about India. And so India had experienced a truly horrific wave of COVID-19 not that long ago. It was counting 400,000-plus new infections per day, and it’s managed to whittle that down to about 40,000 infections per day, which is quite good for a country of 1.4 billion people. I think the question is, how did it go from literally doubling its daily infection rate every couple of weeks in April to having the daily infection rate in May at nearly the same rate but in the opposite direction? And we can say that vaccinations helped. India’s done better than most developing countries on that front, though equally, fewer than a quarter of Indians have at least one dose at this point. So that wasn’t the silver bullet, I don’t think. India did impose some restrictions on activities. Public awareness did go out. No doubt that helped as well. But arguably, the big driver of that turnaround is simply that India arguably has approached herd immunity via natural means. That is to say, when we look at serological tests from April, May, we find that even then, about 60% of the country was showing antibodies to COVID-19. It was more in the realm of 75% in some big cities, and, presumably, it continued to rise from April to May, to the extent that latest wave was still very much active when the tests were going on.

And so I think it’s quite credible to say that between the natural infections that arose, between the vaccines that have progressed since then, it’s quite credible that India now is in the realm of 80 to 85% of its population with some form of protection, and that is the magic number for reopening and not seeing further waves.

And so, good news for India. Not really a desirable strategy for other countries, though, to get the whole country sick. And so I’m not sure it’s a way forward consciously, but nevertheless, that helps us understand what’s happened there.

And other emerging market countries may be closer to that kind of outcome than popularly imagined. Indonesia right now struggling very much with the Delta variant. But equally, there is serological testing there that suggests nearly half of the population has already been protected via antibodies there. And so they’re likely rapidly now making progress on that front as well.

Let’s talk now about the British experiment, such as it is. And so by that I mean a high and rising number of infections, and yet, the UK has just announced, as of Monday, July 19th—or I should say just implemented as of Monday, July 19th—more or less a complete reopening, the elimination of any vestigial rules. And forecasts are, quite credibly, that the infection numbers will, therefore, get worse. And so credible forecasts are that the UK could have 100,000-plus infections a day in the not-too-distant future. And certainly, it runs counter to the usual strategy, which is you lock down when the infection numbers are going up.

But there is some logic to it. I don’t know if it’ll work or not, but there is some logic to it. And so, I think the British view is that a large fraction of the population is now inoculated, especially the most vulnerable. Therefore, to the extent COVID cases rise, it doesn’t necessarily have to be accompanied by a large increase in hospitalizations or deaths. In other words, there’s been some decoupling of those two things. And at the end of the day, the pandemic is about deaths, not about infections. And so conceivably, you can control a pandemic without limiting the infections themselves.

I think simultaneously, the UK recognizes it’s important to get the economy moving again, to let people live a normal life. To the extent that there isn’t another silver bullet out there, to the extent that vaccinations are as good as it gets, and a large fraction of British citizens now have them, what are you waiting for in terms of reopening if it’s not going to get any better at a later date?

And indeed, I think the argument for this summer being the logical time—even though, arguably, it might have made sense to wait a little bit longer until just about everyone who wanted to be inoculated could be inoculated—the argument is, essentially, if you get the infections out of the way now instead of over the fall, you can have schools reopen safely, you can avoid comingling with flu season. And so, conceivably, it’s a best-case scenario. Now, we’ll see whether this proves tolerable or not, whether British citizens are willing to accept 100,000 infections per day. We’ve already seen their app-based system quarantining a lot of people at home. And so there may be economic damage of a different sort done, simply because everyone’s been in contact now with someone who’s sick, given the high level of infection.

But we need to keep watching the UK quite closely. If it’s successful, that’s great. It could be a template for other countries to find their way out of these restrictions that are so interminable.

The U.S., I should say, is very much following a similar strategy here in the sense that the U.S. has very few restrictions left. The U.S. is stalling out on vaccinations. It’s also now seeing the Delta variant rise. And I see no credible way that lockdowns will happen again. And so the U.S. will look a lot like the UK. We need to understand if that’s acceptable or not. And again, other countries may well follow suit, if this works out okay. So let’s watch the UK very closely.

Most importantly, yes, the infections will go up. But do the hospitalizations and fatalities go up a lot? Do they only go up a little?

Let’s pivot now toward more economic kind of content, and inflation, I think, is the place to start here. And so, yet another upside surprise to U.S. inflation and running now at 5.4% year over year. That’s the highest in quite some time. The biggest monthly gain was recorded in June so I can’t say there’s a decelerating monthly trend visible just yet.

We know that a lot of this strength comes from the unusual patterns of supply and demand right now. People buying different things because of the pandemic. Now buying different things as the restrictions ease and they can go back to things like restaurants and travel. And then supply very constrained in a variety of ways throughout the pandemic but still lingering on.

I should say we do find that there is some negative correlation between prices rising today and prices rising three or six months from now. In fact, the last time we had inflation running this hot, which was the middle of 2008, it was collapsing in the opposite direction three to six months later.

I don’t know that I’d predict a collapse three to six months later. But do keep in mind, what goes up often does come back down. And one example of that would be shipping costs right now for containers are four to five times higher than normal and not clearly done rising yet. But the experts suggest the distortions persist to the middle of 2022, which isn’t great.

But equally, that is to say, as of the middle of 2022, we should see those restrictions largely gone. And that is to say, the shipping cost, in theory, should go back down by a factor of four to five times by the middle of next year. There is a deflationary pressure, in theory, emerging at some point down the line to offset the inflation pressure that exists right now.

I should say as well, on the inflation front, we’re not seeing a lot of breadth to the hot inflation. It’s narrowly based pressure. And so used cars are quite astonishingly 45% more expensive than a year ago. It’s hard to fathom, but that’s been literally a third of the recent inflation pressures has been used cars alone. Gas prices are up. Airfare, hotel, eating out now seeing additional pressure on the back of people enthusiastic to do things they couldn’t once do.

But interestingly, if you then pivot and say, what is the average thing doing in the price basket, actually, the median item is only rising by 2.2% over the last year. So most things look normal. It’s just a few things that are extremely hot. And so that speaks to certain artificial constraints, not a broadly based inflation pressure story.

In fact, if you’re worried that quantitative easing, all that money printing maybe is the cause of all this inflation, I would say, doesn’t look like it is in the sense that all that money printing would, in theory, create inflation that was broadly based. You would see prices rising for everything if it was just money sloshing around. That’s not what we’re seeing and so it doesn’t seem like it’s coming directly from central banks.

I would say more reasons for calm going forward, commodity prices broadly flat recently with oil actually down. Chinese pressure is downward on commodities. Forestry prices having collapsed, actually, over the last few months. And the real-time prices that we see that are scraped off the web have also peaked and are seemingly coming down. So probably not too far from a peak in inflation, though I’ll admit, I have said that before and I haven’t always been right. So we’re going to have to see, but I think we’re near that peak.

On the economic front, I can say U.S. growth seems to be slowing. That’s the thesis we’ve had for a while now and we’re still seeing some evidence of that. The Purchasing Manager Indices are down. The weekly economic activity index is a bit weaker. Still consistent with very enviable growth. So no problems here but less growth than before.

The second half of this year should be slower for the U.S. than the first half of the year. And it makes sense. There’s less fiscal stimulus for the moment, and tailwinds are fading from reopening, and that Delta variant is rising, and fears about inflation and the Fed tightening are also percolating right now. Conversely, though, countries that were more locked down, and so I’m thinking of Canada in particular right now, are now seeing big tailwinds. And so, a big, enthusiastic reopening by province in Canada. So we’re seeing the rules become easier. Canada is now the most open since last summer. Some provinces are the most open they’ve been, period, during the pandemic.

And some of the real-time data we track for spending shows that Canadians, just like Americans, are very keen to do the things they couldn’t do before. So travel spending has risen quite a lot. Clothing sales are back up to normal. Spending on entertainment outside the home was 15% below normal at the start of June. It’s 20% above normal by the end of June. And so we’re seeing people very much embrace that kind of thing as well.

Quick word on the fiscal front here. And so, a nod to Europe, which is simply that the European Recovery Fund at €672 billion, it’s now being funded. It will start to deploy its funds in the not-too-distant future.

But the star of the show remains the U.S., given the truly enormous amounts of money being proposed. And you may know the White House wants a $4 trillion infrastructure plan. It would be half genuine physical infrastructure and half really program spending, but they’re marketing it as things like daycare and preschool and family leave. And in theory, it’s sort of human infrastructure, if that makes sense. But nevertheless, that’s what the White House would like to do. They’re having trouble getting bipartisan support. They’ve got a $579 billion agreement for that hard infrastructure with a number of Republicans. The rest would have to be Democrat party only. But I have to say, to my eye at least—and this will change a dozen times before it gets implemented—but to my eye, I’m not sure the bipartisan part will stick. The Republicans don’t want to do the $579 billion if there’s another $3.5 trillion elsewhere on the other programs, and so I suspect that may ultimately fizzle. It may ultimately be a Democrat-only plan. It will, therefore, probably have to shrink, since not all democrats want to spend $4 trillion, and you would need unanimity to get this through.

And so, I would say, we do expect something there but it’s still going to be a little blurry for a few more months. It’s probably going to be a little smaller. And keep in mind, this isn’t the sort of thing where people get $1,000 cheques arriving in their mailboxes. This is money that trickles out over a five-to-eight-year period of time.

Let’s talk office occupancy just briefly. And so we found some great U.S. data recently, and it looks at the percentage of office occupancy by U.S. city. And I think the main takeaways are these.

The first thing is simply that office occupancy is rising very slowly. There’s no single date when everyone comes zooming back into the office altogether; just incrementally week by week going a little higher and a little higher. Even the most open cities—I’m thinking of several cities in Texas at around 50% of pre-pandemic office occupancy—they’re still well below what most people think will be post-pandemic norms of maybe 67%-or-so office occupancy.

Incredibly, financial hubs, tech hubs like New York City, San Francisco, San Jose, maybe the best proxy for places like Toronto and London and these sorts of things, they’re still below 20% office occupancy, even though the restrictions have largely been eliminated for some time. And so, it looks at the current trajectories, though it’s months to years before you see something approaching normal.

I suspect there will be some pickup in September as children go back to school, as holidays end, and so maybe it will pick up pace. But the takeaway is, again, there isn’t a single day when everyone goes back to the office. It’s proven very slow in the U.S. It’s probably going to be a very gradual affair in Canada as well.

And then the last brief snippet from me. Geopolitical front. OPEC really is just that after a lot of negotiations and a lot of disagreement, OPEC has now come to an agreement. And so, five countries within that group have been given a higher oil quota. They’re allowed to produce more, essentially. And simultaneously, OPEC plans to increase its production by about 2 million barrels a day through the end of this year and then to get all the way back to the pre-crisis norm by the end of 2022. And so, this adds more supply to the oil market. We’ve seen oil prices fall somewhat in response, though they are still fairly elevated in the grand scheme.

Okay. I’ll stop there. Thanks very much. I hope you found some of that useful and interesting, and please consider turning in again next time.