Financial Markets Monthly - July 2020

The equity market rally that extended from late-March to early-June—pushing the S&P 500 within 5% of February’s record high—faded over the past month as investors balanced improving economic data with concerns about a resurgence in COVID-19 infections. Oil prices, too, haven’t been able to break out of their recent range with WTI hovering around US$40 per barrel, $20 less than at the start of the year. Equity market volatility remains elevated compared with recent years, and demand for the safety of gold has pushed prices to a nine-year high.

To be sure, recent data have signaled a stronger than expected rebound in activity in many advanced economies. Significant government support underpinned plenty of pent up demand as restrictions have been relaxed. But the path forward remains fraught with risks. Look no further than the United States, where easing of physical distancing measures resulted in the number of infections accelerating in many states. Even countries that better controlled the pandemic, like Australia, have had to re-impose lockdown measures in some areas. Many European countries, and Canada, have kept their case curves flat. But that doesn’t mean easing of restrictions, and the nascent economic recovery, can continue apace.

It’s also worth keeping in mind that these economies have a deep hole to climb out of. Even with declines in activity generally contained to March and April, the IMF expects the global economy will contract by 5% this year (global growth only slowed to zero in 2009). The OECD’s forecast was a bit more pessimistic, and highlighted that a potential second wave of outbreaks would cause an even deeper contraction this year, and a limited recovery in 2021. Monetary policy is set to provide significant support in any case, but a return to widespread lockdowns would test the capacity of fiscal authorities.


  • The US has seen a worrying acceleration in COVID-19 infections in many states that could hamper the nascent, consumer-led recovery. Jobless claims remain high, and re-hiring momentum appears to have slowed.
  • Canada’s economic contraction ended in April, with a flattening case curve allowing for a gradual re-opening in May and June. The early rebound has been strong, but gains in the second half of the year won’t be as easy to come by.
  • Government support programs have pushed Canada’s federal deficit to a post-war high, prompting a ratings downgrade from one agency.
  • European economies have also seen a quick, early recovery as pandemic restrictions have been partially lifted. But labour market conditions will remain challenging as government support measures ease, necessitating ongoing monetary policy stimulus.
  • A fresh outbreak in Australia’s second largest city—while not nearly as severe as in the US—has prompted fresh lockdowns, which contributed to a more cautious tone from the RBA.


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Josh Nye is a senior economist at RBC. His focus is on macroeconomic outlook and monetary policy in Canada and the United States. His comments on economic data and policy developments provide valuable insights to clients and colleagues, and are often featured in the media.

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