The COVID-19 outbreak has sent economic shockwaves across the globe as consumers are urged to retreat into their homes in a co-ordinated effort to slow the spread of the coronavirus.

The implications of suspended consumption are vast for multiple sectors of the Canadian and global economies, and the trajectory of 2020 has changed dramatically.

We asked Scotiabank analysts to weigh in on what COVID-19 means for energy, equities, currency and retail.



  • The uncertainty surrounding COVID-19 has resulted in real world demand destruction. Airlines are grounded, work-from-home and quarantine measures have been enacted, and industry has slowed. Positively, regions that were hit first by the virus, such as China and South Korea, are showing noticeable signs of recovery and data suggests increasing economic activity. We believe this global pandemic is temporary, but no one knows when it’ll be over and the dust settles.
  • Oil market fundamentals recently went from bad to much worse when Saudi Arabia signalled its intentions to slash its official selling price and ramp up production in retaliation for Russia balking from necessary OPEC+ supply cuts. We are expecting significantly more supply from Saudi Arabia, the U.A.E. and Iraq in the coming quarters in order to pressure Russia back to the OPEC+ negotiating table. Regardless of the timeline for COVID-19, the oil price war leaves global balances woefully over-supplied for the foreseeable future, or at least until OPEC decides to return to supply caps.
  • US shale supply is likely to head significantly lower. With WTI averaging above $57 per barrel in 2019, shale was already showing clears signs of slowing down. Legacy well decline rates were climbing faster than drilling activity, leaving little net growth into subsequent quarters. Now as oil prices reach into the low-$20’s per barrel range, far below break-even level, we expect investment to dry up and negative growth going forward.

—      Michael Loewen, Director, Commodities Strategist


Foreign Exchange

  • The global supply shock is morphing into a global demand shock; monetary and fiscal authorities are starting to "lean in to" the virus impact in a significant way; fundamentals matter little at the moment; volatility and liquidity are prime drivers for currency markets. 
  • Beyond stocks, major market dislocations are evident in Eurozone peripheral bonds, commercial paper and USD funding markets.  Liquidity operations from the major central banks may help address USD liquidity tightness but the USD is likely to remain firm or preferred as a liquidity refuge for now.    
  • The safe haven Japanese yen and Swiss franc will out-perform if liquidity pressures stabilize as a period of heightened uncertainty is likely to persist amid a significant slowdown in global activity. 
  • The CAD is experiencing the perfect storm of a sharp slowdown in global economic activity, an oil price war between the major producers and the surge in the USD.  We think the CAD is likely to remain weak – and risks weakening further – through mid-year at least.     

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


Global Equities

  • With Europe almost shutdown and the rapid rise in the number of confirmed cases in the US, stimulus measures are unlikely to boost sentiment in the very near term. As we indicated recently, any lasting equity bounce will depend on the virus contagion rate peaking, especially in the US. On that front, it seems that the worst has yet to come.
  • Longer term, however, we believe the current round of fiscal and monetary easing around the world should help activity levels/earnings to recover in 2021.
  • We expect choppy trading conditions to continue as investors struggle at balancing near-term risks (virus/oil shock) vs. longer-term gains (stimulus).
  • Earnings Contraction Likely in 2020. While the outlook remains murky, it seems unlikely that earnings will escape unscathed this year. We're taking our 2020 EPS expectations down, expecting a 6% contraction in the US and 17% decline in Canada. Consensus is too high and will have to come down. We're also taking our targets down, but advise caution given low visibility.

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



  • The combined impact of Covid-19 and plummeting oil prices are going to have a profound impact on Canadian retailers. Canadians are afraid of the virus and at the same time are very fearful about jobs and the economy. This was very much evidenced in the latest Consumer Confidence numbers which saw a 32-point decline in the index in March, the sharpest drop ever seen. This suggests that for an extended period Canadians will curb discretionary spend.
  • With traffic to stores all but halted as Canadians are mandated to work from home and actively avoid public spaces, retailers are going to face much slowed sales for an extended period. There will be added cost pressures as many stores which have taken the prudent decision to close stores will continue to pay employees with no revenue offset. We do not expect incremental demand online to offset the declines in traffic and revenue. As consumers work from home, as innumerable events and venues are cancelled the need for items like apparel, footwear and even sporting goods diminishes.
  • Retailers that participate in the distribution of essential goods and services are seeing unprecedented levels of demand as consumers stockpile goods. While many retailers close their stores, the nation’s grocers, pharmacies and fuel stations are effectively deemed to provide essential services and remain open. The unprecedented level of demand for essential goods is likely to continue until the Covid-19 curve flattens in Canada.
  • Broadly speaking from an investment perspective near to medium term we favour Consumer Staples over Discretionary. However, we note that there is likely to be serious value creation in the discretionary space as the market takes valuations lower. The grocery sector stands to benefit from exceptional demand as consumers stockpile in the face of fear and as consumers make a dramatic shift to eating and preparing food at home. Demand and traffic to date have been at levels never seen in this country.  Online demand for groceries and sundries is also at record levels. In all cases the grocers are working very hard to ensure the supply chain works to get the goods to store shelves and to consumers.
  • The very large unanswered question is, what are the longer-term implications for how consumers behave coming out of this crisis. There is the potential for consumers to effect a profound change in how they shop, live and work. These in turn could have even broader implications for the retail sector.

—      Patricia Baker, Director, Retailing Equity Research




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