Daily Commentary

MarketMinder’s View: This piece focuses on UK politics, so please note MarketMinder is nonpartisan. We prefer no party nor politician over another and assess political developments for their potential market and/or economic effects only. While there aren’t forward-looking investment implications here, the analysis is worth a read for the history and background of the UK’s Office for Budget Responsibility (OBR), a nonpartisan fiscal watchdog with an outsized influence over the government’s Budget. Per UK law, the government must run a projected budget surplus within five years based on OBR forecasts, so the Treasury has to shape significant policy (e.g., tax changes, spending plans, etc.) on these estimates. But the OBR’s forecasts are rarely accurate, which is less a criticism of the OBR specifically and more a comment on the near-impossibility of predicting the future five years out with any sort of precision. As argued here, “There is also the simple fact that forecasts change. It is distinctly odd to be setting fiscal policy on the basis of the latest tweaks to the OBR’s forecast for economic outturns five years into the future. Indeed, it seems the type and scope of prospective Budget measures altered radically in the last few months in response to changing news about what numbers the OBR was going to present.” We agree! That said, for as much attention the Budget and OBR have received recently, most of the implications are political. Yes, the Budget can select winners and losers at a local or personal level, but the changes lack the scale to be a macroeconomic swing factor—worth keeping in mind for both our pals across the pond and global investors at large.

MarketMinder’s View: The US and UK struck a deal to remove President Donald Trump’s tariffs on British pharmaceutical imports. Most pharmaceuticals have been largely levy-free since the World Trade Organization’s 1994 public health agreement, but the Trump administration changed that, with the president’s threats of 100% tariffs on medicines made outside America. For the UK, Monday’s deal removes this burden and uncertainty. This probably isn’t a game-changer economically, considering UK pharmaceuticals comprise around 11% of exports to the US (per the Office for National Statistics). Still, the deal is a positive in that it provides clarity for businesses and removes some additional costs to margins and/or consumers. A small cheer, but a cheer nonetheless. Separately, the deal also lowers the “rebate rate” drug companies pay to Britain’s National Health Service (NHS, the country’s public healthcare apparatus). The UK also agreed to boost spending on prescription drugs and cut the rebate paid by drugmakers on sales to the NHS from 23% to 15%. That is a response to drugmakers’ longstanding concerns, but all this phases in through 2035—which is a long way away, so who knows how that could change. So in effect, this could mean higher surface-level costs for the NHS, but the additional supply it may encourage could offset that. Overall, though, this is yet another example of negotiators hammering out details on trade agreements, providing a bit more clarity for companies and investors—even if the details create winners and losers.

MarketMinder’s View: America’s manufacturing soft patch continued in November according to the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI), which fell to 48.2 from October’s 48.7. Readings below 50 mean more businesses reported contraction last month, though PMIs reflect that contraction’s breadth, not magnitude. The article links November’s weakness to President Donald Trump’s tariffs, which is likely a contributing factor. As it notes, “Uncertainty concerning tariff levels has also weighed on manufacturers, as duty levels have fluctuated for much of the year. Further clouding the outlook: a pending Supreme Court decision that could nullify many of the duties.” While the article’s takeaways are pretty dour, it does offer an interesting point near the conclusion: “A separate survey of manufacturing activity, S&P Global’s PMI for manufacturing, came in at 52.2, down slightly from October’s 52.5, but still above the 50 break-even line, according to its report published Monday. While factories produced more, there was a steep rise in unsold inventories. Demand growth slowed, especially in export markets where tariffs continued to cloud the outlook.” We pointed out this divergence before—worth keeping an eye on, even if this information doesn’t reveal anything markets aren’t already aware of.