Daily Commentary

MarketMinder’s View: After a downwardly revised -1.8% annualized Q2 contraction, many expected Canadian GDP to fall once again in Q3—meeting one definition of a recession (two consecutive quarterly falls). But surprise! Q3 GDP grew 2.6% annualized, easily topping expectations. However, as this notes, the details under the hood are perhaps less bullish than the headline read. “Government spending on weapons systems, up by 82 per cent in the third quarter, led the stronger-than-anticipated growth, alongside an uptick in crude oil exports. Ottawa pledged in June — alongside other NATO countries — to spend five per cent of GDP on defence by 2035. There was also more government spending on non-residential structures, such as hospitals. However, business investment was virtually unchanged in the third quarter, according to Statistics Canada, and household spending declined as fewer people purchased cars but spent more on rent and financial services.” In addition, a decline in imports also exaggerated headline growth, which is likely an aftereffect of earlier tariff frontrunning. That being said, all the anticipation of recession means Canada doesn’t need to deliver super economic results to positively surprise … especially considering the huge, huge majority of its exports aren’t subject to tariffs, as they fall under the US-Mexico-Canada trade pact. That likely explains why Canada’s S&P TSX is up 29.1% this year through Thursday’s close, outpacing the MSCI World’s 16.6%, per FactSet data including dividends.

MarketMinder’s View: Now, this article dives into British politics, which is still dotted with coverage of Wednesday’s Budget announcement by Chancellor of the Exchequer Rachel Reeves and, as the title hints at, there is a heavy partisan angle to this. Please note that we favor no politician nor any political party and assess developments like this for their market and/or economic effects only. With that in mind, the story here is that for months, Reeves floated tax hike trial balloon after trial balloon on the grounds that a decline in British labor productivity had widened expected budget deficits over the next five years, which is counter to fiscal rules seeking a balanced budget in that span. This article notes that the nonpartisan Office for Budget Responsibility (OBR) had revised away that projected deficit widening in the months before the Budget release—and that Reeves knew it. We won’t traffic in biased talk about whether this constitutes a politician lying. (We mean, it probably is, but that is far from unique. Hence, the old adage, “How do you know when a politician is lying? Their lips are moving.”) The OBR’s estimates are what drove all the debate over tax hikes and guide future policy, to boot. In the short term, the debate over her honesty does keep some political uncertainty alive in the UK, in the sense that it could cost Reeves her job or, we guess, Prime Minister Keir Starmer, which was whispered about before the Budget itself. But also, there is a logical point made in this article we want to highlight. Per an analyst from the National Institute of Economic and Social Research (NIESR) interviewed here, “‘However, it is equally possible that she simply wanted to prepare the public for the large tax increases in the Budget that were necessary for her to build a bigger “buffer” against her fiscal rules, something that NIESR argued for in our Autumn Economic Outlook. ‘If this were the case, then actually it would be important to let the markets know that she was serious about raising taxes, which the 4 November speech did. Although we feel that the £22bn buffer is not enough – we advocated £30bn – increasing the size of the buffer does make it less likely that the OBR’s March forecast will require a further response from her (like it did back in March of this year), allowing her to stick to her pledge of only one fiscal event next year.’” That could mean the tradeoff of more short-term uncertainty now for less in the new year—a matter worth monitoring.

MarketMinder’s View: This article dives into politics, so please note that we favor no party nor any politician and are assessing the policies in question—tariffs—exclusively and solely for their economic and market effects. We have long noted that tariffs are economically negative, with the imposing nation most affected. This article helps to illustrate why that is. In documenting a “winner” from the tariffs (one customs broker who is using AI to help companies ensure they are compliant without overpaying the government), it highlights not only the vastly increased cost American importers must pay, but also the uncertainty and red tape in compliance. “Completing the digital paperwork that must accompany each shipment is taking longer, as specialists address the many tariffs that might apply. Millions of shipments that previously entered the country without Form 7501, the government’s standard entry document, now require it because of Trump’s decision in August to eliminate a customs exemption for packages worth less than $800. Daily inquiries from puzzled clients are five times higher today than last year, said Kevin Sola, 42, branch manager of Alba Wheels Up’s New York office.” All of this not only is a drag on American businesses’ productivity and efficiency, but the uncertainty around where it goes from here also dissuades future investment. It is a less-seen outcome from tariffs than simple revenue figures. And one major reason why protective tariffs and import quotas did not protect the American steel industry in the 1960s – 1990s. And it will all require a vast government bureaucracy to not only enforce but administer. Tariffs are bad policy, in our view, full stop. While they have proven smaller than feared this year given many and varied exemptions, one wonders about the long-term effects of the uncertainty they create.