Daily Commentary

MarketMinder’s View: With this year’s Middle East hostilities, many see the global economic outlook darkening, including the International Monetary Fund (IMF). “The IMF now expects the global economy to expand by a sluggish 3% in 2026, down from 3.5% last year and from the 3.1% it had forecast for this year back in April. The fund expects worldwide growth to rebound to 3.4% next year.” While the supranational organization’s prognostications garner headlines, treat them like all others’—as one opinion among many. Tweaks to their earlier projections highlight forecasting’s general unpredictability—and how much things hinge on changing assumptions, e.g., “The IMF forecasts assume that the Strait of Hormuz reopens later this month—even though U.S. strikes on Iran resumed and President Donald Trump declared Wednesday that a ceasefire with Iran was over. They also assume that commerce through the strait returns to normal by next March.” Ok, but that doesn’t say anything about businesses’ adaptation to the Strait of Hormuz’s closure and energy markets recovering from the initial shock well before the latest attempted ceasefire. The global economy and markets have already shown they don’t require pinpoint timing in the Persian Gulf. What matters for markets is how reality squares with prevailing sentiment. To the degree the IMF’s cautious outlook reflects widespread moods, that suggests a low expectations bar for growth to clear and positively surprise. For the latest regarding the regional conflict, please see today’s commentary, “On the Iran Flare Up.”

MarketMinder’s View: This is a false fear. Yes, France is the only eurozone nation that hasn’t cut its debt (as a percentage of GDP) since the big COVID global government spending spree. Yes, there are projections this will reach 200% of GDP by 2050 and yes, the government has been gridlocked into inactivity, which the 2027 election may not resolve. But comparing French debt to GDP is a stock-flow mismatch, a useless comparison of something that only accumulates over time (debt) to the annual amount of economic activity (non-cumulative). Better to look to debt interest as a share of tax revenue, which French stats agency Insee put at a historically benign 10 – 11% in fiscal 2025. Markets aren’t showing there is a dire problem. 10-year French OAT yields are at 3.62%, down from March’s 3.84% high and in the same range they have been in for over a year. They still yield less than the default-risk-free US, and the spread over perceived debt-averse Germany is 0.68 percentage point, close to the average 0.58 in the past five years. (Data from FactSet.) If debt were problematic, none of those things would be true. Trust markets, not pundits and debt forecasts.

MarketMinder’s View: Is the opening line of this discussion of Korea’s frothy market intentionally paraphrasing The Sound of Music? We will leave that for you to decide. Regardless, this runs through recent market action in Korea, which we highlight for a couple of reasons. One, it is increasingly being seen as a sign investors are euphoric, which is sort of true. The trouble is, this market is heavily about two stocks, both in AI (both are touched on here, so please note we don’t make individual security recommendations). So in this sense, it is more a demonstration of the isolated froth in one area of the market—which also holds globally. The article runs through various regulatory actions aimed at reining in speculation in leveraged, single-stock ETFs, which is a noble cause in the sense these are tools of mass portfolio destruction, in our view. But we doubt this will succeed in corralling euphoric behavior in Korea. In our view, this is more a sign of behavioral traits to watch for elsewhere if hot sentiment continues to bubble up and becomes more broad-based.