Research and Market Commentary

Global Markets Insights: Some retailers, dollar see gains, SMEs more optimistic

May 29, 2020

As we enjoy increasingly warmer weather in Canada and begin a new month of largely working and living at home, some green shoots have emerged. Some pandemic-related restrictions have been eased to allow for certain store reopenings and garden centres are benefitting. The loonie has also had a relatively good week, outperforming its peers amid a broadly positive backdrop for equity markets. Small and medium-sized enterprises’ sentiment is also improving, but uncertainty remains.


We asked Scotiabank analysts and economists to weigh in with their latest insights on what the pandemic might mean for retail, foreign exchange and small and medium-sized enterprise.



  • The final week of May saw a boost in the shares of certain discretionary retailers as easing of lockdown measures with store re-openings provide some hope for a better-than-expected recovery. The TSX discretionary index advanced 5.53% in the first three days of the week, outpacing the overall market move of 2.4%. In contrast the Consumer Staples index declined 0.19%. This marks a reversal of the performance at the start of the lockdown when certain staples stocks like the grocers outperformed. Notable movers this week were Canadian Tire gaining 16%, Sleep Country +7.9% and Aritzia + 9%. We suspect Canadian Tire is seeing good traffic at its garden centers as warmer weather allows Canadians to turn their attention outdoors. Likewise, we believe their outdoor living category is attracting customers. As many decide to forego summer travel vacations, the trend to staycation will likely see a greater spend in these areas. Sleep Country, which began to open stores in May, will also benefit we believe from more cocooning and as a store is built for social isolation, given the lower number of customers in stores at any one time. Aritzia may be one of the few apparel retailers that will emerge from the pandemic with no need to adjust its bricks-and-mortar footprint downwards.

  • Recent consumer confidence numbers in Canada and the US both point to an improvement in sentiment in May. The Canadian Consumer Confidence Index climbed 16.3 points in May to 63.7, a big improvement over the April reading of 47.5, which marked record low consumer confidence. During the 2008 financial crisis, consumer confidence bottomed out at 56.3. Confidence in May compared to April improved across all regions of the country, with Atlantic Canada posting the largest increase, up 21.7 points. Despite the month-over-month improvement, these levels are low and we have seen confidence fall nearly 60 points since February. This will be a critical index to monitor in the coming months as restrictions are relaxed and the economy reopens. There is no doubt that the lingering uncertainty around the timing and shape of the “new normal” will weigh on confidence and in turn on spending. In the US the gradual re-opening of the economy saw short-term expectations improve and the Confidence index rise to 86.6 in May from 85.7 in April. This marks a far better reading than the trough in confidence of 25.3 during the 2008 financial crisis.

  • The dollar store segment has emerged a winner in the context of the pandemic. Dollar General and Dollar Tree exceeded expectations and benefited from soaring sales. Same-store sales at Dollar General rose 21.7%, while Dollar Tree posted a 7% rise, driven by a 15.5% uptick in its Family Dollar division, which has a greater exposure to consumables. Its Dollar Tree stores, which do not have as high an exposure, experienced a decline of 0.9%. The dollar stores were permitted to remain open during lockdown and many bargain-seeking customers turned to them to serve their needs. With jobless rates continuing to soar, the segment is likely to see further strength through 2020.

—  Patricia Baker, Director, Retailing, Global Equity Research


Foreign Exchange

  • The CAD has had a relatively good week so far, out-performing most of its G10 currency peers to gain a little over 1.5% against the USD at writing and reach the low 1.37 area – levels we last traded at in mid-March. The broadly positive backdrop for equity markets has helped drive CAD gains, while firmer crude oil prices have also provided some support at the margin.  

  • Risk appetite – as defined by trends in US stock markets, essentially – remains the key driver for the CAD, which is showing a positive correlation with daily stock market (S&P 500) returns of around 77% over a rolling one-month observation window. This is by far the strongest variable (beyond interest rates and crude oil prices, for example) influencing the CAD tone at the moment. 

  • We think that situation will persist in the near-term at least. While the pro-risk market mood is being supported by massive monetary and fiscal stimulus (Japan and the EU Commission both unveiled proposals for significant support programs this week), there may be some clouds looming on the horizon for stock markets. US-China relations continue to deteriorate, following China’s decision to impose a new security law on Hong Kong. Meanwhile, signs that the easing of distancing restrictions in some jurisdictions may have triggered new COVID-19 cases is another potential knock against risk appetite.  

  • Overall, we think the CAD’s rapid gains this week may pause, or even reverse against the USD in the coming week; we expect good USD support to hold at the low end of this week’s range near 1.37; USD gains above 1.3825/30 should prompt additional USD strength towards 1.3925/50. 

—  Shaun Osborne, Managing Director, Chief FX Strategist, and Juan Manuel Herrera, FX Strategist



  • Small and medium sized enterprise sentiment (SME) continued to improve, from April’s reading of 46.4 in the Canadian Federation of Independent Business’ monthly Business Barometer Index to 52.5 in the month of May. COVID-related impacts continue to create operational hurdles for SMEs, but adaptation measures and easing of restrictions are leading to sentiment trends in the right direction. However, uncertainty is here to stay, as Canada’s Q2-2020 GDP contraction is expected to be very deep.

  • Business owners feel more broadly optimistic as six out of 10 provinces show index values of 50 or above, indicating stronger business conditions over the next year. Nova Scotia and Ontario business owners are the most optimistic (59.2) and (57.1) respectively, while those in PEI (30.0) are well below the national average.

  • General business indicators show early signs of strengthening, but it is too early to tell if these are transitory. Nonetheless, indicators such as hiring, capacity utilization, and general business situations have risen from their prior months’ downbeat readings. Service-producing industries appear to be more optimistic than their goods-producing counterparts, with notable increases in Finance & Insurance (currently at 59.4), Hospitality (56.8), and Transportation (55.1). Agriculture (43.5) and Natural Resources (37.5) sectors remain well below the national average. Read the full SME report.

—  Nikita Perevalov, Director of Economic Forecasting, and Marc Ercolao, Economic Analyst, Scotiabank Economics


View Foreign Exchange Reports



For Scotiabank, Global Banking and Markets Research Analyst Standards and Disclosure Policies, please visit www.gbm.scotiabank.com/disclosures.





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