Daily Commentary

MarketMinder’s View: Is the Strait of Hormuz open yet? “Three supertankers were crossing the Strait of Hormuz on Wednesday carrying oil bound for Asian markets, after waiting in the Gulf for more than two months with 6 million barrels of Middle East crude on board, while another was entering, ‌shipping data on LSEG and Kpler showed. ... South Korean-flagged Very Large Crude Carrier (VLCC) Universal Winner, carrying 2 million barrels of Kuwaiti crude loaded on March 4, was exiting the strait following the departure of two Chinese tankers on Wednesday, the data showed.” Now, three tankers aren’t close to the “125 to 140 daily passages” pre-war, but with an average “10 vessels going into and out of the strait in recent days,” that is a mite better than none—and more than feared when conflict erupted. Of course, things could always get worse if negotiations fail and fighting resumes. But that outcome is on everyone’s minds—and markets’ radar. And since surprise moves markets most, what matters isn’t if things go badly (or well) in a vacuum, but whether they are worse (or better) than stocks anticipated. Some ships’ Strait passages show reality isn’t as disastrous as expected.

MarketMinder’s View: The headline here hints at how arduous trade deals’ paths are from negotiation to implementation. Almost a year after agreeing to make a deal, the EU has only now decided to “move forward” on a “provisional deal to remove some tariffs on U.S. imports as part of the bloc’s trade deal signed last summer, ahead of a U.S. deadline to ramp up tariffs on cars ... if Europeans didn’t implement the agreement by July 4, after U.S. officials grew frustrated with the pace of progress in Brussels. The trade deal ‘is expected to serve as a platform to continue engaging with the U.S. to lower tariffs and cooperate closely on shared challenges,’ the European Council said. The agreement reached Wednesday paves the way for a final vote in the European Parliament ahead of [US President Donald] Trump’s deadline.” As the article notes, the EU slow-walked passage pending tariffs’ legal challenges and other geopolitical tensions, while it also maintains a “slew of safeguards” that could yet suspend enactment. A couple things about this glacial process for investors. Although initial anticipation and handshake agreements receive reams of fanfare, the relatively boring procedural niceties that follow garner far less attention, often taking years to hammer out—with only marginal economic effects. Meanwhile, markets moved on from tariffs long ago, with each subsequent development having less of an effect, so we doubt it really mattered much which way this deal went—and we doubt the 2029 sunset clause is a big deal, either.

MarketMinder’s View: The rule in question is the Vickers Rule, enacted in 2011, which sought to “ring fence” banks’ deposit-taking business from the allegedly “risky” investment banking units, thereby protecting retail customers’ assets. Some say that this drives a hole through an important crisis-era reform that lowers risk. But in our view, the Vickers Rule (and its ilk globally) was always a solution seeking a problem, in the sense that the 2008 crisis had nothing to do with investment banking vis a vis retail banking. Furthermore, it isn’t like extending long-term loans underpinned by short-term deposits (banks’ core business and social function) will ever be risk-free. But the rules also led banks to raise added capital and, arguably, restrained credit growth. So now the UK government is set to change them. “Lenders would be given ‘an allowance’ worth up to 10 per cent of their ringfenced assets adjusted for risk to carry out activities that are at present prohibited, as long as these supported ‘the real economy’. They would be allowed to conduct more hedging activity through derivatives inside the entities and share some pension surpluses with other parts of their business. The Bank of England plans to change its rules to allow ringfenced banks to share more essential services such as IT within their businesses, while the central bank is also reviewing their capital requirements.” This looks like an incremental plus for economic growth to us, but we wouldn’t overstate the case. Banks could easily retain excess capital for fear of future regulatory shifts or potential blowback if the economy sours.