Daily Commentary

MarketMinder’s View: We think the opening here about sums up the lengths America’s trade partners are going to strengthen trade among themselves with their US exports newly taxed. “Canada is importing more cars from Mexico than from the US. China has snubbed American soybean farmers at harvest time and is buying from South American growers instead. India and China are resuming direct flights between the two countries and trading rare earths, ending years of frozen relations. The new contours of global commerce are starting to emerge as governments redraw trade alliances and companies seek other markets to avoid the highest US tariffs since the 1930s.” As the article goes on to document, this has helped the global economy, where “85% of global trade ... occurs outside the US,” defy expectations of a recession. Tariffs aren’t great, but while they may alter trade routes and destinations, they aren’t as disruptive as many make them out to be. As this article demonstrates, they hurt the imposer more than those imposed upon. The rest of the world isn’t without options as non-US nations deepen ties with one another—one reason we remain bullish globally.

MarketMinder’s View: Tensions were on tenterhooks ahead of a 20-year Japanese government bond (JGB) auction, fearing fallout from the ruling coalition’s recent split. But while sentiment can sway bonds just like stocks (though usually more moderately), what matters most for investors is that borrowers pay the money back with interest. On that score, the JGB auction passed with flying colors: “Japan’s first sale of government bonds since the ruling political coalition crumbled drew firm demand as higher yields attracted investors, bringing more comfort to global debt markets. A key gauge of demand at the 20-year auction Wednesday was above the 12-month average for that tenor. The sale follows two smooth offerings last week, pointing to an easing funding environment in Japan even amid political turmoil.” While we don’t yet know the configuration of Japan’s government, it doesn’t seem to be affecting JGB demand much. “The bid-to-cover ratio came in at 3.56, compared with 4 at the previous auction and an average of 3.25 over the past year.” That is, demand for the new 20-year JGB issues was more than three times the amount on offer. Reality exceeds expectations once again, more global bull market fuel.

MarketMinder’s View: The Census Bureau’s retail sales report for September is likely to be delayed due to the government shutdown, but all isn’t lost! “The Chicago Fed Advance Retail Trade Summary estimated that retail sales excluding autos and parts increased by a seasonally adjusted 0.5% last month after advancing 0.7% in August. ... CARTS is meant to offer an early read for the official monthly retail sales data, excluding automobiles, produced by the Commerce Department’s Census Bureau. The comprehensive retail sales report, scheduled for release on Thursday, has been delayed by the government shutdown, now in its third week. When adjusted for inflation, retail sales excluding autos are projected to have risen only 0.2% last month after increasing 0.3% in August. CARTS’ projections are broadly in line with most estimates from independent economists and other surveys.” Like the official report, this is backward looking, and retail sales don’t reflect most personal consumption expenditures (which are mainly services). But the other spending measures here are a helpful pencil sketch. Now, the piece spends a good amount of pixels on how “Retail sales and consumer spending growth continue to be driven by higher-income households,” but that is sociology, which markets don’t primarily dwell on. Stocks are cold-hearted and care more about the big picture: overall economic growth’s contribution to earnings over the next 3 to 30 months. Who is doing the spending isn’t as consequential for markets. For more on why, please see, “So Go the Top Earners, So Goes the Economy?”