Daily Commentary

MarketMinder’s View: Two weeks before Halloween, we guess it is fitting the Brexit zombie returned from the grave … again. This piece is a good snapshot of what all the chatter really is: political. It is all about industries presenting the government reports showing how bad Brexit was for their people, in hopes they will get better trade terms or regulatory treatment. In this case, the National Farmers’ Union tied big drops in agrifood exports to the EU to post-Brexit red tape. Their goal is simple: They need the government to hash out the final details of May’s agreement to ease sanitary checks on food exports to the EU. “The NFU is calling for ‘transition arrangements’ for some UK crops that have been grown with fungicides or breeding techniques not yet approved in the EU. This is to allow those harvesting this autumn and winter to make use of the new export freedoms when they come in next year.” Crucially, none of this means Brexit has destroyed UK agriculture as a whole. Food exports to the EU are down, yes, but non-EU food exports have helped pick up the slack. And exports aren’t everything. Total UK annual agricultural output is up almost 30% since 2018 (per FactSet), the same period where the NFU notes falling EU food exports. Seems to us Brexit rerouted output rather than destroying it, part of reality beating dreary expectations.

MarketMinder’s View: We think Bank of England Governor Andrew Bailey’s comments on inflation are a good reminder—not just for Britain, but the world. Because the UK isn’t the only place where higher energy prices didn’t spark hot inflation economywide. That is the trend across the developed world. “Speaking at the Institute of International Finance’s annual meeting in Bangkok, Mr Bailey said: ‘Talking to businesses, there is a very, very big focus on cost cutting and a very big focus on the difficulty of passing through. Firms are clearly squeezing margins as well as cost cutting, using margins. The longer the energy situation goes on, the harder that gets.’ Mr Bailey also noted that soaring mortgage rates had kept inflation under control by reducing homeowners’ disposable income and limiting their ability to spend.” In other words, firms lack pricing power. We would add a big reason for this is that money supply growth isn’t running away like it did in 2022. Excess new money is the tinder that sparks hot inflation. Without it, businesses must scrimp when costs rise. As for the rest of the article, it is a hodgepodge of comments and forward guidance, the usual central bank chatter. We suggest not reading into it. Central bankers are always patchy when talking about what they think will happen. We just thought Bailey’s comments on what already happened were noteworthy.

MarketMinder’s View: Here is some follow-up on our article earlier this week discussing AI’s alleged risk to bank profits. The fear: Consumers will use AI agents to move their savings to higher-yielding accounts hassle-free, eroding banks’ cheap funding base and wrecking earnings. We noted many reasons this is unlikely to happen, including the likelihood banks would block unauthorized agents due to cybersecurity and data privacy concerns. This interview with Charles Schwab Chief Risk Office Rick Wurster has loads more color on this (which reminds us, MarketMinder doesn’t make individual security recommendations and presents this for the broad discussion only). He is one guy talking for one firm, but his concerns are universal. “‘We don’t want someone just giving their password to [an AI agent], and letting [the AI agent] come in and take action on that client’s behalf. We can’t control it, the client can’t control it, something could go wrong and who’s liable?’ Wurster said Friday in a Bloomberg Television interview. ‘For the protection of the client and for the protection of us, we’re not allowing it.’” Think this through even more. Maybe it is annoying that your AI agent can’t do your banking for you. But you know what else it means? A bad actor can’t tell their AI agent to go hack your account and steal your money. That is probably a bigger concern than eroding funding bases, considering this: “‘I get a report on how many times we’ve blocked clients from using one of these agents in a week and it’s in the tens and twenties — per week — that the big agents are being blocked,’ Wurster said Friday. ‘What that tells me is that while people love AI, they’re not willing to turn their financial accounts over to them just yet.’” The scramble to use AI to move to higher-yielding accounts seems just a little made-up.