Hello. My name is Eric Lascelles. I’m the Chief Economist for RBC Global Asset Management and here to share with you our latest weekly videocast.

And, of course, COVID-19 remains the subject of dominant interest. Although here we are now in a new month, and so as I look back over the last several months, it strikes me that March was dominated by the widespread arrival of COVID-19, the implementation of significant quarantining. April was ultimately, it would appear, the low in terms of economic activity. It was also, we hope, the enduring high in terms of the number of daily infections across much of the developed world. Then May appears to have been a month in which we did manage to start something of an economic recovery.

And so that bodes the obvious question, what will June bring? And we don’t know with precision, unfortunately. But I would say my best guess is a further recovery. I think that’s the most likely scenario, at least in most of the developed world.

I will warn, though, we are a little bit nervous. It does still seem as though some jurisdictions have reopened their economies more enthusiastically and perhaps sooner than you would normally expect, and so they are at a greater risk of experiencing a second round of outbreaks. And so perhaps in need of shutting down a little bit again. So there is that risk. For most places though, we think this opening can likely persist. And so hopefully the June data proves more positive than negative.

Returning to the specifics of the virus itself. And so here we are still with a significant number of new cases and infections per day. In fact it’s running in the 100,000 to 120,000 new infections per day, which is a little higher than it was before.

The reason for that is significantly on the emerging markets side, as opposed to the developed world side. In fact we can say in the likes of the UK, and the U.S. and Canada, for the most part we are actually seeing a mild decline in number of new cases and in the number of fatalities. And so more positive than negative, although not universally so.

And so for instance, when we dig within Canada, we see many provinces enjoying quite low numbers or declining numbers, as in the case of Quebec. However, Ontario going largely sideways at this point and so not enjoying quite the same decline as others.

When we look at the U.S., we see quite a number of states doing better, including prominently New York State. However, equally we do see a number of states that are not at all doing better, in fact suffering a significant increase in the number of cases, perhaps as they have reopened. And those do include places like California and North Carolina, Alabama, South Carolina, Wisconsin. Curiously not—at the time of this recording, at least—Georgia or Florida, which have been some of the more enthusiastic openers, and so it goes to show there isn’t much precision when it comes to analyzing and predicting COVID-19. But nevertheless, it seems though that there’s a mounting risk that some parts of the U.S. at least are going to have to slow their reopenings, if not even take them back a little bit.

I want to talk for a moment about emerging markets, if I can, because that is where the virus is most obviously and most aggressively growing, including in prominent places like India and Brazil and Russia and Iran and Saudi Arabia, Peru, and a number of other places, so we are seeing increases. Unfortunately, we know these are places in many cases that are less well positioned to keep an enduring quarantine or to enforce quarantines. They’re much less about to deliver significant stimulus to fill the hole of high unemployment rates. And so this is all around quite a significant challenge, and we are now hearing some emerging market countries saying they just can’t maintain the quarantining, and so they are planning to loosen them which suggests that we probably are going to see a further increase in the virus count in these parts of the world, which is quite unfortunate. I should say, from an economic standpoint, their economies might do better in a sense that less social distancing generally does help economies to revive. However, it comes at the cost of additional deaths and so it’s ultimately not exactly an appealing proposition. But really, emerging markets are increasingly the new epicentre for COVID-19.

When I talk about the economic situation as it stands right now, there are some interesting things to share, I think. And so to begin with and looking at the U.S., we can say durable goods orders now out for the month of April. And when we compare April to way back in February to pre-COVID-19, there has now been a 31% drop in orders. That is quite considerable. It’s consistent with our view that there has been a big hit to business investment and it’s disproportionately on the transportation side of things.

When we talk about Canadian GDP, we have now had the official March data released for Canada. But also a tentative Stats Canada guess at the month of April. And by that measure, we can say a fairly significant drop here. A cumulative 17% decline across March and April. A little bit milder than we have been assuming, but nevertheless quite a substantial hit. We look at real-time indicators. That’s been a common theme for us for quite some time. And when we do that, the Apple—the Google mobility data—continues to point to a notable though incremental revival in activity that we see other real-time indicators, such as air traffic and this sort of thing, managing incremental gains as well. So the real-time data is still consistent with something of a rebound.

We’ve also been looking very closely at jobless claims. U.S. weekly jobless claims, one of the faster released weekly and timely indicators. And so we can report finally that continuing jobless claims have actually declined in the latest week. And so that hints that there actually has been net hiring, as we work our way into late May.

This makes complete sense. It seems to us the economy is bigger than it was. You would expect more economic activity to require more workers, and so it all fits together in a logical sense. But we’re still very pleased to see it in theory as many as 4 million people obtain new jobs in mid-May.

I should note that won’t be reflected in the next round of payroll reports. They miss that time period. They catch mostly mid-April to mid-May. But nevertheless, we think there are some positive things now happening on the labour market side.

And I want to mention one other piece of economic data. And that is personal income and spending data—again for the U.S., it’s our bellwether economy, it’s where the data supply is so rich—personal incomes actually rose by 10% in the month of April. And so the consensus had been a 6% drop. It was a 10% increase. You don’t see misses that big very often.

I’d be lying if I said I had expected increase quite that large, but we have done work suggesting that personal incomes really haven’t been necessarily hit all that badly by COVID-19. The government stimulus has essentially filled the hole. This math suggests it’s more than filled the hole in fact. And so this is wonderful news I think.

However, let’s not pretend that means that consumer spending necessarily holds up. We can still see that consumer spending is significantly down. It fell almost 14% in April. It’s down around 21% from February. So spending is still in retreat, not because people are actively poorer necessarily, but simply because they are feeling risk averse, and maybe because they can’t go to stores as well. So there’s the room for this to rebound going forward, but there still has been a very real spending hit.

I want to shift and talk a little bit, in a hopeful sense here, and say that we do think most parts of the world probably can persist in their reopening and sustain this economic revival that they’ve managed so far. And so that’s an optimistic thought. One piece of research we did in the latest written weekly #MacroMemo is looking into Japan. Japan is a fascinating country in many ways, but particularly right now in the sense that superficially you would have thought that Japan would have among the worst experiences out there. It’s an old population. It’s densely populated. It’s near China. These are all risk factors for COVID-19. And moreover, it hasn’t done much testing, which was South Korea’s saving grace. It hasn’t done aggressive quarantining, which was the Chinese secret to success in our eye.

And yet, COVID-19, despite very much appearing in Japan, has been drummed down to a very low level. And we don’t have all the answers for that. In the written piece we provide a few theories, but to my eye the most obvious reason and one that’s equally applicable to a large swath of Asia, is just the widespread wearing of facemasks is likely very effective. And so we hope that increasingly the developed world embraces that to the same extent. And so maybe that’s the secret to success.

In the end, we still think the recovery has to be slow. We’ve talked and written before about how governments are going to be incremental. We’ve talked about how the income side of the equation, the demand side, likely has to move fairly slowly in restarting. There are limitations on the supply side as well, so let’s not look for a complete or full recovery. And indeed, when we think about the risk of a second round, not of the virus resuming its activities, though that’s a risk as well, but a second round just of economic damage. There is a real risk there.

And so part of it is just that even as hiring resumes, there are still a lot of unemployed people. There are still a lot of failing businesses. And that accumulates over the span of months, and is still happening in May and into June as well.

We can say that there are second round effects visible. Initially, restaurants closed and tourism shuts down, but now other businesses are suffering because there’s just less money circulating in the economy. And we also know that a lot of the stimulus being delivered to such great effect, much of it does have an expiry date. It will start to bleed off into the late summer and into the fall. I think there’s a good chance governments choose to extend many of these things, but there’s a risk some of this stimulus comes off and that does some economic damage in the form of a fiscal cliff as well.

Okay. I’ll stop there. And I’ll just say thank you very much for your time. If you found this sort of thing interesting, please do refer to the written #MacroMemo. It also contains sections this week on the revival of oil prices and why that’s happening, on the particular hit to the demand for apartments, on the situation as it stands right now for corporate debt, and also with regard to the outlook for public debt.

And so again, I say thank you very much for your time. I wish you very well in your investing, and please consider tuning in again next week.