Daily Commentary

MarketMinder’s View: Here is an interesting thing that may be coming down the pike, pending the 60-day public comment period and final rulemaking. The SEC proposed nixing a 2005 rule requiring “trading platforms to execute buy and sell orders at the best possible price. The agency on Thursday proposed the elimination of the trade-through rule, which forbids platforms from completing a trade at a price that is worse than the best available price across all U.S. exchanges, even if that means filling the order at a competing market.” Regulators believe that while the rule made sense in 2005, basically the dark ages for electronic trading relative to today, modern connectivity makes them moot—and a financial albatross for brokers, forcing them to pay through the nose for “expensive market data feeds linked to a bevy of exchanges, including overlapping ones that proliferated as a direct result of the rule.” To us, this looks procedural and shouldn’t affect the overall trade execution you get when you decide to buy or sell. Brokers already have a duty to seek best overall execution for their clients, which stretches well beyond the execution price to include liquidity, speed, mitigating the risk of trade failure and more. If the rule changes, it would essentially give brokers more flexibility to fulfill this duty rather than being hamstrung by a price mandate (and given how bid/ask spreads have narrowed, the difference may amount to a penny or less per share). Not that we are taking a stance for or against—just pointing out that this tweak, should it go through, looks highly unlikely to leave investors worse off.

MarketMinder’s View: A one-off -0.1% m/m GDP drop in April is hardly a big deal, especially when it follows two strong months and leaves the three-month growth rate at a healthy 0.7%, faster than the three months through March (per the Office for National Statistics). It also looks temporary. Manufacturing grew 0.4% m/m, construction rose 0.1%, and services’ -0.2% decline stemmed primarily from the cancellation of two Formula 1 races in the Middle East. At first blush, this would seem to have little to do with output in the UK. But most F1 teams are based in Britain, so cancelled races mean lost sponsor revenues and business-to-business activity for UK-based companies. UK-based events and hospitality firms also lost out, as did UK-based broadcast partners. This is a one-off negative spurred by external events, not domestic weakness, and it creates a lower base for the resumption of the F1 season in May to boost output, followed by the UK’s international tennis tournaments kicking off in June. It all evens out in the end. As a result, the handwringing throughout this article seems overwrought—a stark illustration of the gap between sentiment and reality in the UK economy. 

MarketMinder’s View: This week in global adaptation to the bottlenecked Strait of Hormuz, Japan has rounded up enough alternative oil suppliers to match last year’s import levels in July. “[T]he country has secured crude from Middle Eastern exporters on alternative routes and also from at least 14 countries outside the region, including the United States, Mexico, Azerbaijan and several African nations. Imports from the United States are expected to rise more than tenfold in July compared to a year earlier. Japan has a daily crude demand of 2.24 million barrels, but next month about 2.4 million barrels are projected to arrive per day on average.” Now officials are looking to imports for August and beyond, and supply looks stable for the next several months. This new supply may entail higher shipping costs, but that amounts to slightly higher prices per barrel—still light years better than the severe shortages people feared (and markets initially priced in) when the Strait closed. Reality needn’t be perfect for stocks—beating expectations is enough to power a rally.