Welcome. My name is Eric Lascelles. I’m the Chief Economist for RBC Global Asset Management here to share with you our latest video MacroMemo.

And of course COVID-19 featuring centrally. Indeed we will talk about the latest virus numbers and the economic recovery figures, and even some vaccine developments. And we’ll also work our way into the reopening of schools and some of the thoughts around that. And also the luxury of a non-COVID item, we’ll talk Brexit as well.

And so let’s jump right in and begin on the obvious front here, which is to say the COVID-19 infection numbers are unfortunately seeming to start rising again at the global level. There had been a brief, glorious moment when they’d started to come down, but that is now in reverse yet again. And so that’s unfortunate.

India now the true epicentre for the virus in the sense that India now recording 85,000-plus new infections per day. That’s more than the U.S. ever did. Obviously the context is that India has a massive population and it’s not actually the most infested country by that standard. But nevertheless, not an ideal thing. And the country just continues to steadily suffer a rising virus count. And so that is becoming somewhat problematic there.

Europe is the other hotbed of sorts right now. And so we’ve seen a real serious second wave emerge there across a significant fraction of the countries. Spain unfortunately leading the way, and so now recording around 9,000 new infections per day. That’s actually more than it ever recorded in March and April, with the caveat though that we think they’re doing a much better job of capturing actual infections this time. So probably not truly worse, but nevertheless a significant outbreak perhaps now starting to peak as Spain has made some important adjustments to its social distancing protocols.

And then France also in serious challenges here with 7,000 new infections per day. That’s well beyond the peak France officially hit in March and April. One key saving grace in all of this is that the fatality numbers have not generally followed along to the same extent.

And so for instance, quite astonishingly, the French daily fatality numbers are more than a 100 times lower than they were in March and April. Now caveats are important there in the sense that the fatality figures tend to operate with a lag. We could yet see them go higher as a result of what’s happened.

We know that it’s younger people getting infected this time on average, and so that’s helping. We know that there’s better medical treatments and so on. But in the end, to the extent that the biggest problem with COVID-19 is the extent to which it’s killing people, a fact that it’s killing people 100 times less than several months ago is a most welcome development, as much as we’d like the virus to be under control.

The UK now starting to run into a bit of trouble itself. It’s up to about 3,000 cases per day. That’s about a tripling compared to where it was just a few weeks ago. And Canada also now suffering a clear upward trend. The numbers themselves are still fairly low, just in the hundreds, but about 25% higher than a week ago. Notably higher than a month ago as well.

And so on all these fronts I suppose really the critique one can give is that economies seem to be too open. The reality is there’s been a lot of reopening of sectors and people going about their lives. And possibly, in fact almost clearly, a bit too much of that.

And so we now see governments halting plans to open further sectors and lighten restrictions further. That’s good. Probably they need to restrict some things that haven’t been restricted over the last few months, if they actually want to get this back under control. And so we’re watching for more evidence of that happening.

When we turn to the vaccine situation. I would say this is where we feel most optimistic. We’re looking for vaccines. That’s the thing that that will allow life eventually to go almost completely back to normal. 2021 has widely been flagged as the relevant time period and so a number of thoughts on that front.

One would be as we look at some of the betting markets out there, there now is the opinion that 68% believe that there will be fairly widespread availability of a vaccine, at least in the U.S., by the end of the first quarter of 2021. So likely an early 2021 proposition as opposed to later.

It’s worth flagging, there are now seven vaccines in Phase 3 trials. That’s quite important. That means they seem to work. At this point they’re just looking for obscure side effects in a very large population. And so that’s a helpful thing.

In fact these vaccine makers seem to think their vaccines might well be available for emergency use as soon as November. Though perhaps not widespread use. The White House is talking November. Others are talking 2021. But the idea is we’re getting closer to vaccines and for the most part they’re looking to be fairly successful with a few notable exceptions.

Now let’s keep in mind take-up is unlikely to be 100%. The thinking is it might be more like three-quarters of people willing to get the vaccine. Let’s equally appreciate that the efficacy of vaccines is usually not 100%.

And so if we assume it’s a 60% efficacy and the take-up is 75%, we can do a little bit of fancy math and reach a conclusion that we may not quite hit herd immunity with a vaccine. We might still be a little bit short, even combining the vaccine and people who were already infected.

And so chances are there’s still going to be the need for a little bit of social distancing on a semi-permanent basis. My suspicion is it’s not going to have to be explicit rules. It’s probably just going to be habits. We’re used to perhaps wearing masks when sick, and staying home when sick, and these sorts of things. And that’s probably going to be enough to get us there. But nevertheless, for the most part, the vaccine developments have been fairly positive.

On the economic side, well, we’re continuing to see signs of a recovery that is underway. Purchasing manager indices around the world are still consistent with economic growth, if not overwhelming economic growth. Real-time indicators for the most part still nodding in that direction, though the activity metrics are no longer rising as reliably as they once did.

We now have the luxury of second quarter GDP numbers. Not just for the big countries, but for a lot of countries. And some of those only came out recently, even though we’re well past the end of June. And we’ve been taking a look at that, just to get a sense for how our initial assumptions have held up. And actually fairly well indeed.

As we’d suspected, Australia, Japan had less of a severe hit. They weren’t hit by the virus as hard, and so the economy was not damaged to the same extent. Sweden got off lighter than many because of course it accepted a greater infestation of the virus.

The U.S. generally has done better economically, or really I should say suffered less in terms of this remarkably sharp decline for everyone, than the likes of Canada, and the eurozone, and the UK, because it never instituted as severe quarantining. And of course it suffered a significant second wave, perhaps as an indirect result of that.

And so the trough numbers are holding up as per our expectations. The recovery numbers are now what we’re focused on. And what we can see is some pretty good job numbers in a North American context.

Canada now has recovered 64% of the jobs that it lost. The U.S. hasn’t quite pulled that off, but it’s nevertheless seen a big rebound. And the U.S. unemployment rate quite amazingly is now down to just 8.4%. That probably exaggerates the health a little bit, but nevertheless it’s been a big gain.

I want to talk a little bit about the U.S. Federal Reserve, the U.S. central bank, just because it made a very important pivot since we last recorded one of these. And so the Fed is now targeting an average inflation rate, as opposed to specifically 2% at all times. And so it still wants to average 2%.

You might think it’s a trivial difference, but it’s relevant in the sense that because inflation has been so persistently below the 2% target over the last decade, under the prior regime that didn’t matter. They’d still want 2% in the future.

But under the new regime they say, gee we were too low for a while, now we’re going to try and be potentially a little bit too high for a while to balance that out. And so the bottom line is over the next, say five years, there’s likely a tolerance for extra inflation in the U.S.

And so that means the U.S. central bank probably keeps monetary stimulus on for even longer. And it adds another factor to the upside risks to inflation. Though I should emphasize, still fairly muted upside risks in the grand scheme.

On the COVID file, maybe let me finish on the subject of schools. And so, say at least in the northern hemisphere, we’ve now seen a lot of schools beginning to open. And in much of the U.S. they’re already underway and starting in other parts of the northern hemisphere.

And so we really can’t say with precision whether this is a good or a bad thing. Keep in mind that balancing is it’s a new potential vector for virus transmission, which is bad. However, equally it helps children get educated and it helps parents go back to work, which are good things.

And so it really depends on the jurisdiction, the extent to which the virus is prevalent, the extent to which there are safety protocols in place in the schools, like masks, and open windows, and sufficient spacing, and these sorts of things. And so there’s no-one-size-fits-all protocol.

And indeed we did a review of schools that had been open in other countries over the summer and even late last spring as some schools reopened then, and it’s really hard to say. You see clear examples of countries in which schools opened and trouble ensued. Though equally they were opening other sectors at the same time, and so it’s not quite a one-to-one relationship.

You see other examples of countries that opened schools and haven’t actually run into serious trouble. And so it really seems to depend on how it’s handled. One thing that’s key though is you have to be nimble and so inevitably there are infections with students in school, you have to then very quickly adjust in those particular schools. And it doesn’t necessarily mean entire boards or entire countries need to open or close the schools in unison. We’re going to learn a lot more over the coming weeks on that file.

Let me finish very briefly on Brexit. And so the UK and the EU relationship coming to a close at the end of this year. Negotiations have not been going well. Some of that might be bluffing, but views are quite negative on both sides of the table.

And so at this point in time, we’re sticking with our view that there’s a 55% chance of a no-deal Brexit, at least in the context of a proper trade deal, a 40% chance of a shallow free trade agreement, and a 5% chance something deeper comes along, but it’s not looking too likely at this juncture.

And with that, I say thank you so much for your time. I hope you found it interesting and please consider tuning in again next time. Thank you.