Daily Commentary

MarketMinder’s View: When the market is left to its own devices, high prices signal producers to crank up output, which increases supply, stabilizes prices and makes everyone happy. But energy markets are rarely left to their own devices, and this piece shows why Germany’s energy producers aren’t responding to the very obvious price signals. “For instance, some industry figures say shale gas drilling, which has greatly increased output in the United States, could be successful in Germany, but the fracking that is necessary to unlock oil and gas from the rocks has been banned for about a decade. While Chancellor Friedrich Merz’s government, which took power in May, is ‘supportive of gas production, I wouldn’t say that we saw a huge difference to before,’ said Claudia Kromberg, managing director of the German unit of Harbour Energy, an international oil and natural gas company based in London.” While conventional drilling is allowed, the permits required for oil exploration and drilling take years to obtain and service providers are dwindling in number. Adding a big wrinkle is something the article doesn’t address: Unlike America, German mineral rights belong to the state—as in Britain, so private landowners have no incentive to push for change. These are all manmade headwinds, as is Germany’s curious decision to abandon nuclear power in the wake of Japan’s Fukushima disaster. And it all feeds into broader concerns about industrial decline, given Germany’s vast petrochemical industry requires natural gas as feedstock. Lesson: Reality is often pretty complicated. For investors, the upshot here is that Germany’s headwinds are unique and not emblematic of Energy or Industrials’ fundamentals as a whole. Society there made choices, and these are the second- and third-order effects.

MarketMinder’s View: As always, MarketMinder is politically agnostic. We prefer no politician nor any party and assess developments for their potential economic and market effects only. With UK Prime Minister Keir Starmer facing opposition within his Labour Party, political uncertainty continues hanging over UK stocks. Yesterday’s by-election in a traditional Labour stronghold was the latest supposed make-or-break moment for him, and so far he is holding on. Though Labour came third behind populist parties on the left and right (the Greens and Reform, respectively), the proverbial men in grey suits aren’t coming for Starmer just yet. His Cabinet, which rallied around him when Scottish Labour leader Anas Sarwar called on him to resign two weeks ago, remains loyal for now, as do most backbench Labour Members of Parliament (MPs), buying some time. “But even his closest aides acknowledge that the aftermath of the May elections will be a crunch point and he is likely to face a leadership challenge then unless he reassures anxious MPs, especially if his rivals ‘get their acts together’, as they failed to do when Sarwar called on him to go.” So the status quo persists as all eyes turn to May. While political uncertainty can be a headwind, UK stocks are used to it by now and continue outperforming global markets this year. That doesn’t preclude volatility if things get tense, but don’t overrate it.

MarketMinder’s View: Now that the world has had a week to digest the 10,000 words of doomsday AI fiction one research outlet posted on Substack, the sane responses are starting to hit the wires. They aren’t nearly as colorful, but unlike the viral post, they are fact-packed and grounded in reality. This is a good example, chock full of evidence supporting the headline point. “Technological advancements always cost some people their jobs—those whose skills can be easily substituted by tech. But their loss is more than offset through three other channels. The new technology enhances the skills of some survivors, who become more productive and better paid; it helps create new businesses and new jobs; and it makes some stuff cheaper, increasing consumers’ incomes, adjusted for inflation, which can be spent on other stuff, generating yet more jobs. These offsets explain why, through the sweep of U.S. history, technological advance hasn’t, by itself, raised unemployment for the country as a whole.” While the AI doomers say this time is different, as the article shows, employment in the areas supposedly most affected by AI displacement is up nicely since ChatGPT arrived in late 2022, and pay is up. This echoes past trends where technology was supposed to render mass unemployment. “Radiologists were supposed to lose their jobs to offshoring, and then to AI. They didn’t, because patients and providers like having humans around to explain their medical images. Since Google Translate launched in 2006, the number of human translator and interpreter employees in the U.S. has risen 73%.” Even if employment in one industry suffers, job growth elsewhere usually offsets it plus some, as shown with continued overall employment growth in the stretches where manufacturing, oil drilling and retail employment fell. Reality is boring, folks, but boring is often better than expected—bull market fuel.