Daily Commentary

MarketMinder’s View: Does a “fiscal cliff” loom for America due to its supposedly “dire and unsustainable” public finances? (As we discuss these assertions, please keep in mind MarketMinder is politically agnostic, preferring no one party or politician over another and focusing on the potential economic and market implications only.) This short piece paints a worrisome picture based on the Congressional Budget Office’s (CBO’s) estimates, with the federal government appearing to spend more than it is bringing in: “The Trump administration is seeking $200 billion to fund the Iran war and replenish depleted weaponry. The Supreme Court struck down the administration’s use of emergency authority to impose tariffs, and legal battles are underway over refunds of import taxes already paid. For all the attention on DOGE one year ago, there has been little evidence of lasting restraint of federal spending. ... That all follows tax legislation enacted last year that the Congressional Budget Office scored as increasing cumulative deficits by $3.4 trillion over a decade, with backloaded spending cuts that are smaller than combined tax cuts.” From the market’s perspective, though, investors can narrow this down. CBO projections assume unchanged present law, which isn’t realistic given how often Congress shifts fiscal policy. Besides, markets price probabilities at most roughly three years in advance—what happens a decade out is outside their scope. So is the US likely to default over the next 3 to 30 months? Debt service relative to tax revenue (not GDP as mentioned) is the relevant metric to us: Can Uncle Sam pay its financial obligations? Federal receipts dwarf federal interest outlays more than five times over, suggesting default isn’t on the horizon any time soon, just as it wasn’t the last time interest costs were similarly high. That is a big reason why 10-year Treasurys—which would be sensitive to potential nonpayment—aren’t indicating America’s finances mean trouble, with yields at 4.39%—well below the 5.82% historical monthly average since 1962. (All data per the St. Louis Fed.)

MarketMinder’s View: Well, we sure have a lot of quibbles with this piece. It argues the inflation pressure stemming from rising oil prices means the Fed, Bank of England and other central banks won’t “look through” potentially temporary inflationary pressures to support markets and the economy with easier policy, which it deems problematic as “Modern markets have gotten used to central bank support whenever the global economy wobbles.” But hold the phone. Give us an example from the last 20 years of a central bank stepping in to actually arrest a market decline. Didn’t happen in 2008, when the Fed and others cut rates and launched quantitative easing (QE) that autumn. The bear market intensified and ran through March 2009, with a recession continuing to Q2 2009’s end. In 2022, Fed hikes were part of the negative shock cornucopia that drove the bear market, which ended in October 2022—and the Fed kept on hiking dramatically for months thereafter. Ditto for other global central banks. Where was the “help” then? In the 2000 to 2002 bear market, most Fed cuts fell between January 2001 and January 2002. The bear market ran through October 2002. Even in 2020’s odd, COVID-lockdown induced bear market, the Fed was cutting for months before the crisis began. That didn’t forestall the market decline and sudden recession. Point being: Central bank intervention or action can help economies at times of stress. It isn’t necessary or some all-important factor assured to blunt a decline. It may do nothing more than foster panic! So whatever central bankers decide to do with respect to the Iran war, the key is to not overrate the importance. While a monetary policy error could be negative, the absence of easing in the face of perceived market pressure doesn’t really qualify as such.

MarketMinder’s View: Yes, Canada’s final January and advance February retail sales predate the war in Iran and associated oil price spike, so they are old in that regard. You could say that about every economic data point ever published, though. And there still is some value in reviewing releases—to help understand the extant trends coming into the present. In Canada, recession fears have dominated over the past year, tied to tariffs. Q4 2025 GDP’s -0.2% (per Statistics Canada) fed that narrative anew. “However, the January update and advance estimates for February — also about a one per cent increase — indicate retail sales volumes for the first quarter of 2026 could post their strongest quarterly gain since the fourth quarter of 2024, Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in a note. Sales were up in six of nine subsectors and led by a two per cent rebound at motor vehicle and parts dealers, following a 1.6 per cent decline in December.” So it would appear the contraction in Q4 may not extend into the new year, undercutting some fears. It all suggests the Canadian economy was on better footing than appreciated before the war—and the dismissal of growth data suggests a wider, war-driven gap between sentiment and reality is opening, fueling positive surprise before long.