Global Markets Insights: Robust CAD, retail rush to lock in sales, investor optimism

October 19, 2020


Retailers on both sides of the border rush to hold holiday sales online ahead of the traditional Black Friday launch hoping to make the most of what is expected to be a sluggish end to a year battered by COVID-19. Retailers hope winter sporting goods sales will match those of the summer, and snack foods provide a bright spot. In equities, Scotiabank’s Institutional Investors Survey found prudent optimism among global investors, tempered by the possibility of an uncontrolled second wave of the virus and a contested US election. Meanwhile, the CAD’s relative strength against the USD and other major currencies through October has not moved investors from their bearish stance on the CAD. It’s expected the USDCAD will nudge higher toward 1.32 in the coming weeks. 


Scotiabank analysts and economists weigh in on what the pandemic means for retail, equities and foreign exchange. 



  • Early kickoff for holiday shopping. COVID-19 may well have upended the traditional holiday shopping calendar, with a launch this week, in mid-October, rather than the frenzied kickoff at the end of November with Black Friday deals. Amazon Prime Day, which was postponed from July, launched Monday at midnight. On Sunday, Walmart rolled back prices for its five-day Big Save event, which is exclusively an online. WMT also announced they will schedule at least five days of online sales throughout the month of November in an effort to make the shopping experience safer and more manageable. Target launched a two-day sales event Days of Deals. Bed Bath & Beyond also moved up its holiday sales activity to early October from late November. We have also noted significant sales events this week by certain Canadian retailers. It is anticipated that the bulk of holiday sales will be done online.  

  • Retailers are bracing for a potentially sluggish end to the year. It is not surprising to see the larger players move to lock in sales earlier.  In the context of the pandemic, the traditional Black Friday in store events swarming with people is just not tenable. The high degree of uncertainty about the 2020 holiday season is underscored by the fact the NRF (National retail Foundation) has delayed its annual holiday forecast citing a lack of clear economic indicators. Likewise, Pricewaterhouse Coopers is not releasing a holiday sales prediction this year. However, a survey conducted by PwC indicates 40% of shoppers will spend less this year. Deloitte did plot out a forecast with 0-1% increase on the low end and 2.5% to 3.5% on the high end.   

  • One bright spot may come in the sporting goods category this holiday season. Akin to the large rise evident in the spring and summer for bicycles and other outdoor related activities, retailers are hoping to see a surge in the sales of winter related outdoor sporting goods such as skates, skis and snowshoes. Given the shortage that people witnessed across the country for bicycles, retailers are adding inventory but consumers may well shop early to avoid being faced with a shortage of product. There is no certainty we’ll see this but it makes sense that people will want to continue to pursue recreational activity and get outdoors should we be under prolonged lockdown during the winter.  


  • Snack food is another category benefiting from COVID-19 restrictions. CVS commissioned an interesting survey the results of which showed Americans are engaging in more snacking under lockdown. We suspect this is the same for Canadians. According to the survey, 66% of Americans are snacking at home more, and 59% are looking for healthier snacks and meal solutions than they did pre-pandemic. In seeking healthier snacks choice is driven by price (90%), variety (89%) and convenience (84%), the survey indicated. A majority (78%) say they prefer to buy snack products in stores.  


  Patricia Baker, Director, Retailing, Global Equity Research 



  • Institutional Investor Survey — adding to equities despite election risks. Given the uncertainty and potential for reversals, we polled global institutional investors to get their pulse on the market.  


  • Prudent optimism: Despite the strong equity recovery, 31% of respondents are still looking to redeploy assets into equities. In our view, the relatively large base of investors looking for reload opportunities is likely leading to “buy the dip” behaviour. Only 9% are looking to trim exposure, and 60% feel that their current equity allocation is appropriate. A relatively positive baseline outlook (72% expect a positive but slow recovery and 78% see a manageable COVID-19 second wave) induces 42% of them to see more upside in equities. 


  • Risk to the outlook: An uncontrollable second wave and contested US elections are by far the top concerns. Vaccines being pushed back and lack of fiscal stimulus are high on investors’ minds as well. Still, most investors believe that for now COVID-19 and stimulus risks remain small. By contrast, a large proportion of investors see contested US elections as likely to a near certainty. Hence, this scenario sees the highest number of investors implementing tail-risk hedging measures or even actively betting on it. 


  • Asset allocation: A third of investors increased their Equity exposure in Q3. While most left their fixed-income allocation unchanged, they remain net sellers at the margin, especially in government bonds. Cash allocation is mostly unchanged in aggregate after being used in Q2 to buy equities  


  • Regional allocation: EAFE and EM (ex-Latam) are clear favourites with our EAFE diffusion index reaching its highest level since Q3 of 2017. Investors are more ambivalent about US equities. Still, in the Americas, when asked about the most upside potential for the next 12 months, investors’ pecking order is Canada/LatAm/US.  


  • Sectors: Financials remain the preferred outperformance pick, although those hopes have been dashed several times in the past few quarters. We believe Financials need firmer growth and higher yields to work (our scenario). After a strong run, Technology drops to third spot, behind Financials and Industrials. Energy, Communications and Staples are the least likely to outperform. 


  • Earnings: Interestingly, the percentage of investors believing that TSX bottom-up EPS are too pessimistic is elevated, with our diffusion index reaching levels not seen since 2017 (positive). 


  • Commodities and currencies: A widely shared positive outlook on the world manufacturing PMI is in-line with investors’ expectations on the USD (bearish) and commodities (bullish). Yields are also expected to rise.  


  • Risk to positioning: A flare up in geopolitical tensions or unexpected monetary tightening remain the key source of risk to investor positioning.  


 —  Hugo Ste-Marie, Director Portfolio & Quantitative Strategy; Jean-Michel Gauthier, Associate Director, Portfolio & Quantitative Strategy; and Simone Arel, Research Associate, Global Equity Research 


Foreign Exchange 

  • The CAD has performed relatively strongly through October, with resilient risk sentiment supporting CAD gains against the USD and some of its major currency peers. This has eased the broad and persistent underperformance in the currency that was evident through the end of August, leaving the CAD with a small (around 1%) loss against the USD on the year overall, and slight year-to-date gains against the NZD, GBP and NOK for now.   


  • The domestic economic recovery has been relatively robust, recent data have indicated, helping lift the CAD, but it would be hard to pin too much of the CAD’s gains on the economic data at this point. Moreover, the Canadian rebound may be flattening out and prospects still hinge significantly on the evolution of the US recovery where additional fiscal support may not emerge until next year.   


  • Speculative sentiment has not bought into the CAD recovery and investors have maintained a persistently bearish view of the currency since the March low. We have been more constructive on the CAD’s outlook but now rather think the rebound may have extended a little too far. We look for firm technical support in the 1.30 to 1.31 range in the next few weeks and for USDCAD to nudge higher towards 1.32 from here. However, a clear break under 1.30 would likely force a broader reappraisal of the CAD’s near and medium-term outlook by us and by those holding short CAD positions.    


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


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


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