Daily Commentary

MarketMinder’s View: As headlines herald America and Iran’s peace deal—paving the way to reopening the Strait of Hormuz—this article shares several sensible reasons why the conflict didn’t cause severe global energy shortages. As the first two points argue, countries were well-prepared—large importers had plenty of strategic reserves and commercial inventories—and producers adapted. “Middle Eastern energy producers found ways around the closure of the strait faster than many energy experts predicted, while other producers—including the U.S.—stepped up production and exports to plug some of the gap. Exports from Saudi Arabia’s Red Sea port of Yanbu have jumped to around four million barrels a day from less than one million before the war, according to commodities and shipping data provider Kpler.” Consumers altered their behavior, too—China reduced oil imports and drew from its reserves—and major economies in general are more energy efficient than they were in the not-too-distant past. We are less convinced the AI boom offset energy’s drag, considering the latter isn’t a major sector and growth driver for most developed economies, but overall, this piece nicely illustrates the global economy’s resilience over the past few months. That isn’t a surprise to stocks, which have long since moved on, but we think it shows what they have been pricing in since March’s end. For more, see our June commentary, “Are World Oil Reserves Dangerously Low?”

MarketMinder’s View: Please note, MarketMinder doesn’t prefer any politician over another, and our analysis focuses on politics’ economic, market and personal finances effects (if any) only. In the Land Down Under, Prime Minister Anthony Albanese has proposed several changes (highlighted by the titular small business exemptions) after industry groups and the opposition pilloried his Labor government’s recent contentious capital gains tax reforms, which currently lack majority support in Parliament. While the article gets into the specifics (which focus on small businesses and startups, not individual investors), our interest is more with how the process is playing out, as the Aussie government’s backtracking sounds eerily familiar to other governments’ walking back planned changes (see the UK’s recent delay to Isa tax rules). Globally, there is a trend of governments announcing tax changes, then watering them down, leaving reality more benign than investors anticipated. That is generally positive for markets, which move most on the gap between reality and expectations. Also worth noting: “The announcement of the concessions comes on the eve of a Senate inquiry report into the reforms, with the government eager to pass the initial bill before parliament rises for the winter break on 2 July. … The Coalition remained opposed despite the new concessions, meaning the fate of the legislation hangs on a deal with the Greens.” The Greens aren’t ready to support the legislation, meaning further compromises may be in the works. However this all plays out, the Albanese government’s struggles to enact tax reform isn’t exclusively Australian—this is what often happens in developed economies with democratic governments. While this gridlock can be frustrating for voters, it is a reason why investors shouldn’t presume extreme-sounding legislative change will automatically become reality. (And in this case, we doubt the capital gains changes are a big deal for stocks, as our May commentary, “Around the World in Tax Policy Talk” discussed.)a

MarketMinder’s View: New Fed head Kevin Warsh chaired his first Fed meeting yesterday, and predictably, observers are scouring the tea leaves for hints of what a Warsh Fed will do (and not do). A common take: Get ready for more uncertainty, as “Investors are now confronting a more opaque Fed under Warsh, one that is retreating from forward guidance and overhauling its messaging - a shift that could inject fresh volatility into markets. … One immediate change was a stripped-down monetary policy statement that omitted potential near-term actions, echoing the format used by former Fed Chairman Alan Greenspan who sat at the helm of the central bank from 1987 to 2006.” Based on this change in communication style, which included a blunt pledge to deliver price stability, many experts, including the ones interviewed here, presume interest rate hikes are coming. But hold your horses. First, central bankers’ actions aren’t predictable. Period. Whether they talk a lot or a little, those words, words, words aren’t a precursor to what the Fed will do. Second, we question whether a “more transparent” Fed is really the benefit most assume it to be. Under recent Fed heads, the “forward guidance” policy seems to have injected more uncertainty than less due to policymakers’ changing their minds—see how former Fed chair Jerome Powell downplayed raising rates in 2021 and early 2022, which made mid-2022’s rate hike a negative shock. Less can sometimes be more, and an old-school approach may end up driving uncertainty down, not up, by improving the Fed’s credibility. For more, see yesterday’s commentary, “Kevin Warsh and the Magical Delete Button.”