Daily Commentary

MarketMinder’s View: Please note, MarketMinder is nonpartisan and prefers no political party or politician over another. The political issues touched on here are secondary to a broader theme we wish to highlight: the unintended consequences of bizarre monetary policy. With Japan’s upper house election coming up this Sunday, observers have commented on the rise of Sanseito, a populist upstart party that seeks to tap voter frustration on a number of issues—many sociological, but some economic. This piece posits the weak yen has been an unsung contributor to voters’ discontent. “Its [the yen’s] prolonged stint below ¥140 to the dollar is producing various effects, including the sense of national diminution that comes with seeing that your currency is no longer the mighty force that once shook the world. … The more politically potent impact is inflation. After years of deflation, Japan has had three years of sustainably rising prices but for the wrong reasons: cost-push inflation driven by the weak yen and the fact that it imports a high proportion of its raw materials, food and energy.” While we don’t think cost-push inflation is a thing, a weak currency does make imports more expensive—a problem for countries (like Japan) that import most of their energy and other raw materials. Inadvertently, the Bank of Japan’s monetary policy contributed to this, as low rates prompted currency traders to sell yen and plow into higher yielding assets abroad, weakening it relative to other major currencies. The weak yen helped exporters to an extent, via profits from currency translation, but households and others reliant on imports lose. Now, it would be a mistake to carry this too far. For one, the yen has strengthened year to date against the dollar (from ¥157 to ¥148) and from July 2024. (Source: FactSet) And much of the issues surrounding food prices are tied to rice, which has surged tied to government policy encouraging less planting (to prop up the politically powerful rural lobby) and protectionist policy. So, to be clear, monetary policy isn’t the sole headwind on Japanese domestic demand, but it hasn’t helped—the quicker to normal policy, the better. More broadly, policies’ downstream consequences are worth considering for investors, as the winners and losers aren’t always apparent at first glance.

MarketMinder’s View: Two widely watched US datasets featured here—retail sales and weekly jobless claims—and both reports pointed positively. June retail sales rebounded 0.6% m/m after May’s -0.9% contraction while initial claims for state unemployment benefits fell by 7,000 to a seasonally adjusted 221,000 for the week ending July 12. This article credits the former’s rebound to tariff-driven price increases. “Inflation data this week showed solid increases in June in the cost of tariff-sensitive goods like household furnishings and supplies, appliances, sporting goods and toys. Some economists said worries of even higher prices had lifted sales last month.” The upshot? June’s higher prices imply “…consumer spending increased moderately in the second quarter after nearly stalling in the first quarter.” Perhaps—we will have a better idea once June’s inflation-adjusted personal consumption expenditures come out at the end of the month. But the presumption that any growth is tariff-driven seems excessively skeptical. For one, June’s rise in consumer prices wasn’t hot by historical standards. Its 2.7% y/y substantially undershoots the month’s 3.9% y/y growth in retail sales. (CPI source: Bureau of Labor Statistics.) The same holds for month-over-month data. That dataset doesn’t match one-to-one, but the gap is pretty notable. Beyond this, “Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would gain 0.1%.” Furthermore, retail sales don’t even comprise the majority of consumer spending—services does, and tariffs don’t affect services as directly as goods. As for weekly jobless claims, the article points out seasonal fluctuations tied to anticipated auto factory closures probably accounted for the drop—which is true enough. While we are monitoring tariffs’ economic implications closely, the data point to ongoing resilience among consumers and businesses alike—a better-than-anticipated outcome from where outlooks were in April.

MarketMinder’s View: The headline-grabbing number here: The UK unemployment rate rose to 4.7% in May, its highest level in four years. Yet other components here suggest the UK labor market isn’t in dire straits. “It would be remiss to describe the slowdown in the jobs market as a capitulation. Despite the clear pressures, wage growth remains surprisingly resilient and redundancy rates, although elevated, are not rocketing. … However, within the labour market data there are conflicting messages. Both unemployment and employment rose at the same time. This is partly down to more people moving out of economic inactivity – when working-age adults are neither employed nor looking for work.” Now, there are plenty of caveats here worth considering. Perhaps artificial intelligence is replacing some jobs; and perhaps the Office for National Statistics’ well-known data reliability issues are skewing the numbers to a degree. But for all the worries surrounding April’s National Insurance Contribution (NIC) hikes, it appears employers haven’t resorted to layoffs en masse as some feared. There may be some effects on the margin, as the data herein hint at, including the experimental data using employer tax filings to track payroll trends. But overall, this looks like a case of reality exceeding low expectations. Oh, and this illustrates another area where things can go quietly better than feared: In citing 5% y/y wage growth, this piece argues it is a “headache for the Bank of England” because it is “stoking inflation pressures.” Yet Nobel laureate Milton Friedman proved some 60 years ago wage gains follow inflation—they don’t lead it. In other words, the current gains are likely how market economies overcome the recent burst of hot inflation. They are a solution painted as a problem—a bullish cocktail indeed.