Daily Commentary

MarketMinder’s View: Moods are thawing in Europe’s largest economy, according to the Ifo Institute’s latest survey of around 9,000 German businesses. The think tank’s business-climate index ticked up from May’s 85.0 to 85.6 in June, beating analysts’ expectations and rising for a second straight month. That is all fine and dandy, but note this simply extends May’s crawl off April’s multi-year lows following the Iran war’s start. Ifo’s gauge remains markedly below its roughly 100.0 long-term average, so fears that higher energy prices may knock German industry are still present. Still, June’s warming suggests some improvement in moods. “‘Firms perceive the business environment as less uncertain. German companies are hoping for geopolitical tensions to ease,’ Ifo President Clemens Fuest said. Companies saw their current business situation more positively, while firms’ expectations especially in manufacturing and retail trade for the next six months were also somewhat less skeptical, he added.” Surveys don’t predict economic activity, but they can provide a rough sentiment snapshot. So in this case, it seems businesses in Germany are recognizing the war’s proverbial dark clouds aren’t as threatening as initially feared.

MarketMinder’s View: As headlines fret over the prospect of inflation heating up again, gold prices are slipping—prompting a worthy reminder for investors. As the article notes, though gold has posted double-digit gains in each of the last three years, some worry possible Fed rate hikes (in response to rising prices) may end the rally. But wait—isn’t gold supposed to be a safe haven when inflation picks up? If this thinking were true, gold prices and inflation rates would have a strong positive correlation (meaning they tend to move simultaneously in the same direction). But as we have covered in droves, this just isn’t the case. History shows gold lacks this relationship with inflation, and the shiny metal’s recent tumbling further illustrates the lack of connection. Gold is still just a commodity, moving chiefly on short-term, unpredictable sentiment swings. For more on this, see last week’s commentary: “Gold Fails the Safe Haven Test Again.”

MarketMinder’s View: While this anecdote-heavy article illustrates how consumers adapt to higher prices—one reason why energy prices don’t remain perpetually elevated—our interest is with a separate theme. Namely, the titular notion that a paradigm shift is underway and that US gas consumption could be in a permanent decline. Maybe! But though “gasoline use has fallen faster than usual since the war,” citing year-over-year gasoline sales, this isn’t a historical anomaly. Consider, after Russia invaded Ukraine in early 2022—driving oil shortage fears then, too—gas sales also fell for stretches throughout 2022 and 2023 (per FactSet). But that change wasn’t permanent. More broadly, we think this piece falls into the trap of extrapolating short-term trends into longer ones. For example, amid 2008’s higher gas prices, we saw plenty of pundits suggest Smart Cars and other non-gas vehicles would soon dominate American freeways. Instead, the shale boom cheapened oil and gas, fueling (sorry) a boom in ever-larger pick-up trucks and SUVs. Whenever headlines warn a permanent change is underway, proceed with caution.