Daily Commentary

MarketMinder’s View: Some politics here, so we remind you MarketMinder is politically agnostic, preferring no party or politician and bringing you this piece for the personal finance implications only. In last year’s Budget, UK Chancellor of the Exchequer Rachel Reeves cut the annual contribution limit for tax-free cash savings accounts (cash Individual Savings Accounts, aka cash Isas) from £20,000 to £12,000. The goal: Incentivizing people to put more funds in stocks and shares Isas, boosting Brits’ investment and long-term compound returns. We found it an overall sensible move helping people mitigate the risk of having too much cash and not enough growth to fund retirement. But six months on, the change still hasn’t become official, and the Treasury is having some trouble with the finer points. It turns out people’s psychological affinity with cash is hard to break, and there was chatter that folks could still load up on cash by maxing out their stocks and shares Isa contributions but deploying the funds in money market accounts. To prevent this, the Treasury planned a 22% tax on interest accrued in stocks and shares Isas—a tax, to be clear, we don’t think officials actually wanted to collect. It was a nudge. All seemed on track until the same outlet uncovered some Treasury leaks last week that revealed the rules were written in a way allowing people to dodge the tax if they had just 1% of their stocks and shares Isa actually invested in stocks, allowing the remainder to park in cash tax-free. So now the Treasury is going back to the drawing board. To our British friends waiting for tax clarity, stay tuned, for it seems the uncertainty will last a while longer. Frustrating, but clarity will come. And for everyone, this is a timely (and timeless) reminder that tax changes often aren’t as simple as the initial announcements suggest, and whether you love or loathe them, reacting before you get all the details may not be wise. It may prove unnecessary or counterproductive.

MarketMinder’s View: This article, which covers the forthcoming review of the US-Mexico-Canada act (arguably the most important trade development coming this year), gets pretty political. So please keep in mind we favor no politician nor any party, assessing matters solely for their potential market effects. With that review about to commence, it is worth getting into the specifics of what the titular “tear up” would actually entail, as that seems to be terminology commentators commonly play fast and loose with, as this piece capably demonstrates. Here is what it actually means, as it explains: “When the USMCA agreement was struck, the three countries agreed to a joint review after six years and, if they agreed it was satisfactory, to leave it in place until 2042. If they don’t agree to that extension, the existing agreement remains in place, but will be subject to annual reviews over the next decade. If, at the end of that period, there still isn’t a consensus, the agreement is terminated.” It is not subject to immediate termination. It is not a wholesale renegotiation. It means mooted reviews would happen more frequently, with the deal itself remaining in effect. This is good because, despite the claims of tariff hits in this piece, some 80% of North American trade is currently devoid of tariffs under the deal, a share that has grown since last year’s tariff tirade broke out. It also makes much of the divisions among the parties without noting separate comments from Canada’s Prime Minister Mark Carney that he seeks tighter ties on aluminum, cars and critical minerals. Point being: The angle of this article is more dour than almost any of the details support. While this deal is unquestionably important and the talks are worth watching, the realities suggest it isn’t a make-or-break factor for stocks—especially given the wide and overwrought media coverage on the subject. It is, like most tariff-related matters, largely pre-priced into meaninglessness for stocks.

MarketMinder’s View: As highlighted here: “US inflation jumped to an annual 3.8 per cent in April, while average hourly earnings increased 3.6 per cent over the year, meaning prices were rising faster than earnings for the first time in two years.” This phenomenon is also occurring in the UK and eurozone, sparking concerns “that households will rein in spending, worsening the hit from the war to economic growth and forcing companies to cut jobs as demand slows.” But that isn’t all: “The other possibility is that workers will succeed in bidding up wages, fuelling persistent inflation even once energy prices fall.” History, though, shows investors can put both these fears to bed. Regarding the first, most consumer spending goes to essential goods and services, while energy makes up too small a portion of the total to prompt major cutbacks elsewhere. You do get some substitution, but it tends to be modest, mitigated by changes in driving behavior and in a handful of discretionary categories, which markets are aware of and have likely priced in. Overall spending is generally pretty stable even in recessions. As for the second, workers typically bid up wages to stay on top of living costs—otherwise they seek employment elsewhere, as Nobel economist Milton Friedman taught decades ago, debunking the wage-price spiral theory of inflation in the process. Wages always follow inflation. They never lead it, for this reason. And since wages are an aftereffect of inflation, they don’t drive it, which conveniently resolves the second issue, too. As Friedman also taught, inflation is caused by too much money chasing too few goods and services. With developed market money supply growth currently running at prepandemic rates—when inflation wasn’t a problem—it isn’t about to runaway today (one-off energy spikes notwithstanding, as attendant cutbacks elsewhere depress prices in those areas).