The Governor of the Reserve Bank of Australia (RBA), Philip Lowe has delivered optimistic updates on the state of Australia’s economy today. Dr Lowe was quoted saying it’s “doing a bit better than was earlier feared.”

According to the Australian Financial Review (AFR) reporting, Dr Lowe made the remarks while speaking in a Senate enquiry into the economic impacts of the coronavirus pandemic.

While Dr Lowe describes the unemployment statistics released earlier this month as a “shocking set of numbers”, he is optimistic the worst is behind us.

“[The jobless numbers] weren’t quite as bad as we thought they would be and the data we have seen since suggests there is a bottoming out” the AFR quotes Dr Lowe as stating. Dr Lowe further stated there has been “some pick up in employment in those industries most affected by the virus.”

However, Lowe also referenced it remains important for the government to not withdraw coronavirus stimulus measures (such as the JobKeeper program) prematurely. He said,

“I think it’s very important that we don’t withdraw the fiscal stimulus too early. … Ending the fiscal support could be damaging, but if the economy bounces back [then] tailoring the fiscal support might be the right thing to do.”

One thing investors may find illuminating is the RBA governor’s continuing assurance that Australia won’t follow other countries in introducing negative interest rates.

He stated that “I don’t think negative interest rates work. The package we have so far is working. If we had to do more we could buy more government bonds.”

What do the RBA governor’s comments mean for the ASX?

I think, for ASX investors, there are good sentiments to take from Dr Lowe’s comments. The rally that the S&P/ASX 200 Index (ASX: XJO) is enjoying today can only continue if underpinned by a strong economic recovery. Dr Lowe’s comments suggest this is starting to take shape (although it’s still early days).

The lost prospect of negative interest rates may disappoint some ASX investors. Yet, it’s good news for retirees and any investors with significant cash savings (although it looks like as low-interest rates are still here to stay).

However, in my opinion, Dr Lowe’s comments also imply that we are not out of the woods yet, and the economic situation remains fluid. That’s why I think ASX investors should still be cautious and prudent. I’m not entirely convinced just yet that the current ASX rally is a new dawn (although I hope it is).

Even so, there’s no doubt that Dr Lowe’s comments today are good news for all ASX investors, and indeed all Australians.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The CSL Limited (ASX: CSL) share price lost its status as the market darling in the latest rally, but this could be a better time to be buying the stock if Citigroup is to be believed.

Shares in the blood products pharmaceutical is trading only just above breakeven during lunch time trade at $288.87 when the S&P/ASX 200 Index (Index:^AXJO) jumped 1%.

Over the past month, CSL lost around 11% of its value while the top 200 benchmark jumped by around 9% on growing optimism that we are overcoming the COVID-19 pandemic.

From hero to zero

This marks a turn in fortunes for CSL. The stock outperformed during the height of crisis thanks to its defensive and dependable earnings while cyclical stocks like big ASX banks crashed due to their exposure to the economic downturn.

But signs that the economy is holding up better than expected triggered a rally in bank shares like Westpac Banking Corp (ASX: WBC) and National Australia bank Ltd. (ASX: NAB). This comes at the expense of CSL.

Too early to declare victory

However, Citigroup reminded investors that the global coronavirus pandemic is far from over with 5.5 million people around the world infected by the virus and more than 350,000 succumbing to it.

And those are only the official figures. The true human cost of COVID-19 is likely to be many times these numbers and things won’t return to the way they were until a vaccine is found.

This also means that the high financial toll to contain the outbreak will continue to weigh on the global economy for quite a while yet.

Vaccine may be years away

“Vaccine development has historically taken up to 10 years,” said Citi.

“Given the social and economic costs of COVID-19, governments, the pharmaceutical industry, regulators and funders are following a new “outbreak” approach to accelerate development in the hope to have a vaccine available sometime within 6-18 months.

“There is a possibility we get multiple vaccines.”

Path back to normality blocked by many obstacles

Medical experts warn that the time to get a proven vaccine is likely to be measured in years and not months. Hoping to find a cure before the end of 2020 might be wishful thinking.

“As the epidemic slows in many countries, it will become more difficult to recruit patients to conduct large scale phase 3 trials,” added the broker.

“Also, if the virus mutates significantly, it could make the development of an effective vaccine more difficult.”

But finding a vaccine is one on half of the battle. Manufacturing enough to inoculate the world’s population is the next big challenge.

Buy the CSL dip

For these reasons, it might be too early to abandon quality defensive stocks like CSL Limited. While Citi has made no changes to its earnings assumptions for the company, it upgraded the stock to “buy” from “neutral” following the pullback in its share price.

The broker’s 12-month price target on CSL is $334 a share.

More reading

• ASX 200 bull market! Why this ASX fundie is getting nervous
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• The next looming test for the ASX 200 bull market is just round the corner
• Where to invest $10,000 into ASX shares immediately
• Why you shouldn’t fear an ASX share market crash

Brendon Lau owns shares of National Australia Bank Limited and Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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