Research and Market Commentary

Global markets insights: Green shoots emerge, but COVID caution still required

May 7, 2020

With spring in the air, provinces are tentatively easing restrictions on some retail businesses. Whether consumers are ready to return to their old ways remains to be seen. Equities, the Canadian dollar and the energy sector could still see challenges, though some green shoots have emerged. 


We asked Scotiabank analysts to weigh in with their latest insights on what the pandemic means for retail, equities, foreign exchange and energy.



  • Quebec, the province hardest hit by COVID-19, has announced a phased reopening of retail stores, with stores outside of the Montreal region permitted to open their doors beginning on May 4. Stores in the Montreal market were initially to be able to reopen a week later, on May 11, but the government delayed that until May 18 as the number of cases did not decline as expected. Ontario announced that hardware stores can fully open on May 9. All retail stores with a street entrance can reopen for curb-side pickup on May 11. This includes the opening of apparel and footwear stores. Major apparel and footwear chains had been fulfilling demand via online channels, but for smaller independent retailers curb-side pickup will at least provide some revenue. These two markets will be watched very closely in the coming weeks to determine consumer willingness to return to stores for non-essential goods. We suspect there will be more willing to visit stores selling garden supplies and plants as we move in on spring planting season. We do not anticipate a rush to other non-essential stores but suspect consumers will adopt a more “toe in the water” approach to resuming pre-COVID shopping patterns.


  • The discovery of COVID-19 cases in food manufacturing facilities is having an impact on the availability of meat in Canada and the US. Several meat processors have suspended operations to eliminate outbreaks while others have slowed operations in order to adapt to physical distancing measures. Plants across the country are seeing a slowdown in production resulting in shortages. Retailers are starting to limit the number of meat items consumers can purchase. This not only impacts grocers but also fast-food chains. Wendy’s, famous for its “Where’s the Beef?” tagline, has had to remove some items from its menu due to the shortage.


  • It’s been said many times that necessity is the mother of invention. In a post-COVID world there will inevitably be changes as retailers try to ensure consumers feel safe shopping. There has been some interesting innovation in response to the pandemic. A firm in the Netherlands developed Clean Trolley, a machine that sprays entire shopping trolleys/carts with virucide, which kills the coronavirus and other viruses. It allows 30 carts to be pushed through and cleaned in under 30 seconds instead of having to be wiped individually. Supermarkets across northern Europe are now buying the Clean Trolley and rolling them out. Think of it as a car wash for shopping carts. We believe we are going to see a lot more innovation in the retail sector to shape how shopping will change in the new normal.


—  Patricia Baker, Director, Retailing, Global Equity Research



Global Equities

  • Equities Discounting V-shape Recovery: High Frequency Data Suggests Caution: Progress made on the pandemic front, unprecedented easing measures, and a gradual re-opening of economies are boosting sentiment. Still, investors’ optimism has likely lifted stocks a tad too high, too fast and May could prove more challenging than April for a few reasons:
  • Lockdowns lifted, but traffic data shows subdued activity. High frequency data in cities re-opened for business suggest that traffic remains overall quite low outside of normal rush hour. These are very preliminary indications, but that raises tough questions about the willingness of consumers to quickly revert to old habits, which has implications on the economic healing process. If consumers feel unsafe and decide to stay home, it could take a bit more time for the recovery to take hold than what’s implied by stock prices at this time. Moreover, it’s hard to believe that all consumers will get their job back in the next few months.
  • At 20x earnings, valuations leave no room for any macro/earnings disappointment.
  • US Q1 EPS missing an already low earnings bar, with more negative EPS revisions coming.
  • Bond market message: Shape of recovery still uncertain. While the equity market is discounting a V-shape recovery, the bond market message appears to be somewhat different. US 10-year yields have been, to this point, unable to get any traction. We think a cyclical recovery in yields would give more credence to the equity market’s V-shape narrative.
  • Prudence still warranted. While we’re expecting a macro recovery too, the market has been fast to assume that life will be back to normal as soon as economies re-open. Equities are overdue for a pause/pullback, but odds of retesting March lows have sharply declined (as central banks’ policies are providing a backstop and investors hold record cash piles).


—  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 weakened somewhat against the USD over the past week. Markets have been choppy but essentially USDCAD continues to pivot in a broad range around the 1.40 level, with the “usual suspects” – that is to say, equity market volatility and crude oil price swings – effectively driving movement still. The CAD rallied to 1.3850 late last week before a slide in US equity markets amid a slew of weak earnings and fears of further US tariffs on Chinese trade drove stocks down and lifted the USD to 1.4150 at the start of the week. The CAD steadied and firmed again as stocks recovered and crude oil prices reached $25/barrel.


  • April unemployment data from the US and Canada (due May 8) are expected to reveal a surge in the respective unemployment rates towards 20%. But investors are likely to look through these distressingly high levels of joblessness, given that higher frequency data on applications for government support and benefits have already foreshadowed the staggeringly high levels of layoffs. Instead, markets are more focused on how quickly economies can recover from this deep slump. 


  • Plans for economic normalization in parts of the world are encouraging for equity markets and commodity prices – and, by extension, the CAD. Markets will start to handicap prospects for currencies in accordance with the sort of economic rebound that seems likely to unfold. A fairly rapid recovery in the second half of the year – our base case – should be modestly supportive for the CAD versus the USD, especially if the recovery is accompanied by further, sustained gains in crude oil prices. The risk, however, is that economic re-opening occurs before the coronavirus outbreak is sufficiently under control and a spike in cases re-emerges late in the year, dampening risk assets again and boosting the USD.


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



  • OPEC+ supply cuts take hold of the market. Nearly 10 million barrels per day of supply was pledged to be removed from the market starting May 1, helping address an acute over-supply caused by COVID-19 demand destruction. This doesn’t mean daily production in OPEC+ countries has fallen by this magnitude, but it does mean that selling pressure on the market has dramatically declined as participating nations store their produced barrels locally. Natural supply declines will eventually erode daily production, leaving a lasting impact on go-forward balances.


  • Green shoots are emerging on the demand side. End user demand for refined products, such as gasoline and diesel, has increased in recent weeks, a sentiment that we’ve heard from a handful of refiners during the Q1/20 earnings season. Economic lock-down measures are still in place for most of North America and Europe; however, some states are gradually lifting restrictions and reopening economies. Asian demand is roughly a month or two ahead of the rest of the world but is still recovering to prior demand levels.


  • Tank tops in May. Storage constraints are still a major problem as typified by the May delivery contract trading (negative) -$40 bbl when it rolled into the cash market. We don’t believe the entire U.S. storage market will fill to the brim, but certain key storage regions, such as Cushing, are likely to see increased pressure over the next month or two, before heading for clear sailing through the back half of the year.


—  Michael Loewen, Director, Energy Strategist, Global Equity Research



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