Daily Commentary

MarketMinder’s View: The latest growthy data to be dismissed as pre-war are US durable goods orders, which revealed healthy and stronger-than-forecast business investment in equipment a month before the conflict broke out. “Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after a downwardly revised 0.4% drop in January, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders would increase 0.4% after a previously reported 0.1% gain in January. There were increases in orders for primary metals and fabricated metal products. Orders for machinery jumped 1.5%. Orders for computers and electronic products were unchanged as an increase in the computers and related products category was offset by a decline in communications equipment. Orders for electrical equipment, appliances and components dipped 0.1%. Core capital goods shipments increased 0.9% in February after being unchanged in January. These shipments are among the components that go into the calculation of the business spending on equipment component in the gross domestic product report.” It all suggests the economy was on fine footing before the war, which likely hasn’t changed conditions as much as commonly feared. This piece, rather unusually, hints at that in quotations from an economist who notes businesses may have temporarily retrenched from investment, but it really amounts to a blip. But the common view is war-fixated, which widens the gap between reality and expectations, likely facilitating positive surprise ahead.

MarketMinder’s View: This piece is a flawed look at the oil market that casts pre-existing developments in the futures market and Asian nations as new signs oil supply is at risk globally, not merely costing more. For example, it claims: “Contracts for delivery at the end of this month are trading at a hefty premium compared to contracts for subsequent months. It’s a situation known as backwardation, and it suggests the market believes oil supply is at risk, particularly for longer-term contracts.” But backwardation has existed more or less since the start of the war, and it doesn’t mean what this implies. It usually implies the market sees the factors driving prices up as likely to be short-lived. If longer-term supply were at risk, you should see prices further out in time higher, not lower. The rest of the piece details regional premiums producers are charging and measures in places like Southeast Asia to constrain demand. Those will have an economic cost, for sure. And yes, measures there will affect prices in America. But they are also well known and have existed for weeks—hence, rising US oil and gas prices. Markets pre-price matters like this—and likely did so long ago, which is why many Asian markets are among the world’s worst performers during the war. In short, this is fear-based reporting that adds little of value for investors.

MarketMinder’s View: We highlight this story about the Philippine consumer price index jumping from 2.4% y/y in February to 4.1% in March—far above estimates and just north of the central bank’s 2% – 4% target range—for two reasons. (For what it is worth, prices excluding food and energy rose slightly, too, from 2.9% y/y to 3.2%.) One, it illustrates market efficiency. Why? Southeast Asian Emerging Markets like the Philippines import almost all their oil—and are among the most reliant on Middle East suppliers. With the Strait of Hormuz shut, the prices from these typical suppliers are spiking even more than global benchmark prices, making these nations particularly hard hit. But here is the thing: Markets already knew this. That is largely why the MSCI Philippines Index tumbled -15.4% from the outbreak of war through the MSCI All-Country World Index’s low to date on March 30, which ranks 39^th of 47 constituent countries (data per FactSet). But also, and sensibly, this shows the central bank has held rates in spite of the expected rise in headline prices, noting their influence over supply shocks is limited. That modesty is a plus and limits the likelihood of excessive tightening, which could present an unwelcome hit to credit.