Daily Commentary

MarketMinder’s View: The UK’s state-owned energy systems operator NESO reportedly warned power plants across the country last night of potential energy shortages Monday evening. “Neso’s warning comes as the UK enters a period of ‘dunkelflaute’ conditions, the German term for still and gloomy weather that causes renewable power generation to plummet.” Because the UK derives around 29% and 7% of its electricity generation from wind and solar (per International Energy Agency), respectively, dunkelflaute can weigh on the country’s power grid and is a drawback to renewable sources like wind. Yet, as we saw in late 2022, suppliers generating electricity with natural gas stepped in and successfully supplied filled the gap, causing NESO to cancel the warning. We highlight this story for a couple of reasons. One, we enjoy dropping “dunkelflaute” whenever possible. Secondly, and more importantly, electricity suppliers’ swift adaption Monday shows that lessons from 2022 were learned, making the country more adaptive and resilient. That doesn’t mean there are zero concerns here, but it proves the folly of investors’ long tendency to fight the last war on the idea that something that caused a problem before is assured to again. This should render fears over short-term energy supply in Britain off base.

MarketMinder’s View: “Funflation,” which has painted headlines in recent years, refers to higher prices in select recreational activities—typically, with a negative connotation. In the interpretation discussed here, spending on leisure activities ranging from gas for weekend road trips to items at sporting goods stores are up because households are dedicating less of their discretionary purchases to travel (which is more expensive due to higher jet fuel costs). As noted here, Americans’ hobby spending (a broad measure including “arts and crafts and hobby shops to retailers selling skiing, hiking, camping or scuba diving gear”) rose 7.9% y/y in August, with overall transactions rising 3.4%. Thus, US consumers continued spending on non-essentials last month despite today’s higher costs—another sign households are more inflation proof than some fear. In our view, this crafty substitution is a major reason why higher prices for certain goods and services needn’t crimp overall activity. Rather than cutting discretionary spending entirely, many across the US are opting to spend their precious dollars elsewhere, including more localized recreation. Now, spending on essentials (i.e., housing, energy, food) remains the majority of overall consumer spending, so we aren’t talking about a major economic needle mover here. But these data extend the bullish trend of America’s healthier-than-feared economy this year, a big reason behind stocks’ rise year to date.

MarketMinder’s View: Will Canada continue increasing its clout in global oil markets? That seems like the plan, as this piece covers, thanks to Prime Minister Mark Carney’s deregulation push. While it is a mistake to presume that past slow growth was all about policy, since low Western Canada Select oil blend prices made profitability of projects difficult, the government’s approach was a factor. Now the premier aims to shorten new project reviews to one year (from two or three years) and is introducing hefty tax breaks for oil and gas companies, allowing them to write off 100% of new project costs. Given today’s rising US-Canada trade tensions and America’s pursuing of Venezuelan heavy, sour crude in lieu of Canada’s, these shifts—alongside Ottawa’s ongoing plans to expand Canadian pipelines to support Asia-bound flows—could help propel production and reduce its reliance on American purchases, an economic positive for the Great White North. As the article explains, though, all of this will take years and is contingent on producers’ willingness to invest. Nothing is guaranteed at this point. But Canada’s growth possibilities are a reminder of non-OPEC producers’ production potential—another reason why the cartel’s influence over global oil prices is limited.