Hello. My name is Eric Lascelles.

I’m the Chief Economist at RBC Global Asset Management and here to share with your weekly video #MacroMemo. And of course, COVID-19 very much in the headlines these days. Still the focus for us, though not the only subject we’ll cover off.

And unfortunately, it’s been more negative than positive news these days. And so perhaps most obviously, we are seeing significant evidence of a second wave, not just in Europe where it has been raging now for more than a month, but Canada, the UK now seeing significant rising daily infection numbers. The U.S., which of course already had its second wave and had come nicely off of that peak, seemingly no longer actively falling, maybe even slightly rising again.

And so we are again in the midst of a significant viral outbreak again and hitting new global highs at the global level. And so this is the most daily infections we’ve ever seen formally recorded.

It’s still some consolation that the global fatality numbers aren’t setting a record. In fact, that hints to us, among other things, there probably were many more cases that were never fully identified—infections, that is—back in the spring. And so perhaps it’s not actually the worst that it’s been right now, but the numbers are getting worse.

And in terms of understanding why that’s happened, it’s likely some interplay of such a large fraction of economies being reopened, so many people returning to more normal activity patterns, but also colder, drier weather setting in as fall begins. And, of course, schools reopening is another potential vector for transmission.

But the bottom line is, the virus numbers aren’t very good right now. And at this point in time, we are starting to see some significant tightening of rules in an effort to control this outbreak. That’s been ongoing for some time in Europe. In fact, there were recently protests in Spain in terms of the severity of the moves that have been made there. And so while that’s challenging, hopefully, the moves therefore have been sufficiently aggressive to control the virus there.

In terms of the Canadian and perhaps the UK experience, it seems as though the recent tightening that we’re getting is more of a social interaction nature. It’s mostly about reducing the amount of private interaction and private gatherings and barbecues and these sorts of things, as opposed to actually shutting down all that many economic sectors.

If it works, that’s a wonderful thing in the sense that it will prevent doing all that much economic damage and nevertheless control the virus. Indeed, the Quebec Health Minister had indicated recently that they were finding that a disproportionate fraction of the transmission was coming through things like barbecues and private weddings, and not all that much through the likes of restaurants and bars. And so perhaps the targeting has been exactly right. I’m still nervous, though. And my concern is that we may yet need to see some of these more socially oriented economic sectors limited to a greater extent, as well, to make this truly work and to get the virus under control. And indeed, that’s what British Columbia has at least started to do by closing down its nightclubs and its banquet halls as well.

And so I think there’s going to have to be some economic damage that emerges from this. And I should say, notwithstanding the comments and the experience apparently in Quebec, we have seen some academic studies suggesting that restaurants and bars are the most obvious vector for transmission. In fact, one study showed that while public transit and socializing in groups and these sorts of things were sources of transmission, restaurants and bars were easily the highest association with people who had gotten COVID-19 versus those who hadn’t. Even more so, in fact, even significantly more so than people who had a family member with COVID-19 in their own homes.

And so in that sense, wouldn’t surprise me if we had to see some tightening of those sectors as well. But for the moment, we haven’t seen those actions in significant numbers and we haven’t seen the virus particularly controlled either. And so it’s likely to be a more difficult experience over the coming weeks, in any event. And we should expect eventually to see a little bit of economic damage done by this second wave.

It’s perhaps some consolation that in the U.S. the second wave was controlled and without any great economic sacrifice. There were a few months in which the economy didn’t really grow, but it didn’t shrink either. It wasn’t a new recession. And so I think that’s something to aspire to for other countries as well right now.

From a more economic perspective, we can say that one concern we had had was that with fiscal cliff hitting the U.S. in late July, that is to say, less generous fiscal support as of August, we were concerned there could be some economic damage done there.

Not all that obvious right now. I can say that, for instance, U.S. August retail sales data was up, and so not the retreat that one might have envisioned. I can say that we’re watching mobility data, the extent to which people are moving around, according to Google and Apple data. That’s actually down sharply and so that doesn’t look all that great. But I will say, we strongly suspect there is a seasonal component to this.

I’m not convinced it’s because the economy is collapsing. I think it’s actually just because fall is coming in the northern hemisphere, and so people aren’t going to the park as much or maybe not going on walks quite to the same extent, as it’s darker in the morning and in the evening. And those things are combining, conspiring to pull the mobility numbers down without necessarily telling us all that much about the economy.

And so we’re in this tricky position in which the real-time economic data, the real-time mobility data that we’ve been using to such great effect over the last couple of months, in fact the last six months, probably not as useful now going forward. We’re now in a position in which the seasonality effects may dominate.

It didn’t matter initially; the extent of the decline was so great, didn’t really matter that March was different from April from a weather perspective or something like that. Similarly, when the rebound was happening in May and June and July, it was so extreme it didn’t really show up that there was a weather difference beneath the surface. But now we’re not seeing as big economic moves and it’s starting to complicate matters to some extent. And so that’s the story there.

We have been watching another issue. And so this doesn’t—I must confess, it doesn’t specifically apply in to our economic forecast, it doesn’t specifically apply into the investment outlook or anything quite like that, but I think it’s relevant at some level. And so it really is the idea of stalled progress.

And so the Gates Foundation, a charitable entity focused really on helping the poorest humans on the planet, they reported; they did their annual report of human development indicators. And the usual story is one of regular improvement and fewer people in poverty and more people getting vaccinated, and really happy progress at a greater rate even than the rate of economic growth. And so it’s been a real positive over the last decade.

That’s not the story right now. So 2020 is looking perhaps understandably to be quite a rough year, beyond a dollars-and-cents perspective. And so, for instance, they estimate that extreme poverty in the world will be up 7 percent; that’s 37 million more people in extreme poverty. They note that vaccine coverage for young children of a normal vaccination age—and again, not a COVID-19 vaccine, but a vaccine for the usual childhood illnesses that one gets—those have retreated back to 1990’s-type levels. And so there’s been a 25-year step backwards in terms of vaccination programs. They expect malaria to be up around 10%. And they note that if the wealthiest countries of the world buy up the first 2 billion doses of the vaccine exclusively for their own use, the number of people who die globally could be something like twice as high as if the vaccine were distributed more equally.

And so I don’t have a precise linkage back into, therefore, do X or do Y with your investment portfolio, but concerning and really make the comment that, if this has not been good for the economy and this has maybe done some damage to financial markets, but there’s been a big inequality effect and the poorest people on the planet are doing even worse. And I think we will see some improvement as the economy recovers and as COVID-19 is eventually vanquished, but there is multiyear damage that’s occurring here in the meantime.

I’d like to talk for a moment about the fiscal situation, mostly in a North American context. And so in the U.S., still efforts to achieve some sort of bipartisan fiscal program that helps to keep the economy going and gets rid of those fiscal cliffs that I talked about a little bit earlier, and there was some progress recently. But time is running out. The election’s getting awfully close; it’s just six weeks away. And now there’s this Supreme Court nomination battle, and that’s likely to increase the partisan divide as opposed to decrease it. And so that further complicates any kind of fiscal effort in the U.S. and so we’re assuming no great accomplishment there. In Canada, a throne speech is imminent as I record this, but it may have already happened so I won’t spend a great deal of time on it from your perspective, but it seems like there is the potential for, at a minimum, more help in the context of COVID-19, but also some inclination of an expanded role for government in a general and perhaps more permanent sense. And so we’ll see, I suppose, fairly shortly, what that looks like.

I will say one thing that is already scheduled to happen, is that the CERB income support program for unemployed people does expire on September 27th. It’s replaced by a somewhat less generous set of programs, but nevertheless, more generous than the prior permanent set of programs. And so, for instance, the average unemployed person might go from making $500 per week on unemployment to more like $400. So it is a little fiscal cliff in the Canadian context, but fairly mild at this point in time.

I’d like to talk for a moment about the U.S. election as well. It’s six weeks away, and so getting awfully close. The polls continue to show Joe Biden out in front; around a 7 percentage point advantage from a purely polling perspective. But we care more about probabilities because you could have a tiny lead but if you know that you’re going to keep it, that’s 100% chance of winning.

So probabilities matter more, and the probabilities are generally more favourable to Biden, again. And so we see betting markets that argue he has a 13 percentage-point advantage. We see some models out there, some quite credible models, arguing his advantage is as much as a 72 percentage-point advantage. And so that would mean, in plainer English, an 86% chance of Biden winning versus a 14% chance of Trump winning. The answer is probably somewhere in the middle but for the moment, Biden has the advantage. And we’ve talked in the past about the policy differences of the two candidates.

Let’s emphasize, though, it’s not done. Things can change, and polls and probabilities can change along with them, and so there is quite a bit of uncertainty with regard to the Supreme Court battle that may energize both bases, or one base more than the other. Racial justice protests are also very much relevant at this point in time. Mail-in ballots have an uncertain implication for how the election plays out. And of course, the pandemic itself has an uncertain implication.

We’re also watching quite closely the Senate battle in the U.S. Because as much as that’s likely to tilt towards the Democrats as well, that’s considered the closest of the bunch. And in fact, just a couple of weeks ago, it appeared that the Republicans might actually keep it. And so that’s wobbling back and forth, and so another thing to watch over the next few weeks.

Lastly, let me just cover off or at least flag that we are thinking very hard about the longer-term implications of COVID-19 as well. And we’ve tended to categorize these into three separate buckets. We have a permanent bucket, meaning things that are forever changed. And so, for instance, we think public debt levels will probably be forever higher than before, and so that’s a permanent change. We flag things that were inevitable but accelerated.

So these are also permanent changes, the things that were going to happen one way or the other; they just happened sooner, maybe five or ten years sooner than otherwise. And so online shopping has surged forward. It was going to continue to rise, but it’s happened sooner. Working from home has surged; that was already happening but it’s, again, happening sooner.

And then lastly, we talk about temporary factors. And so temporary meaning multiyear still, so entirely relevant and they will stick around for a few years, but not forever. And actually, most things fit into that bucket. And so we think governments are larger, but probably on a temporary basis; at least they don’t have to be forever because of COVID-19. A preference for low-density living, low-density working—very real and very powerful right now, but unlikely to be something that is equally powerful five years from now or ten years from now. Likely we will see a return to more normal preferences and people appreciating the value of living in a central location and having access to social activities and these sorts of things.

Okay. I’ll leave it there and say thank you so much, once again, for your time. I hope you found some of this interesting and wish you very well with your investing. And please consider tuning in again next time.