Daily Commentary

MarketMinder’s View: This piece is illustrative of a firestorm of overthinking and extrapolation afoot Down Under after the Reserve Bank of Australia (RBA) hiked interest rates by 0.25 percentage point overnight in response to the Consumer Price Index (CPI) ticking up to 3.8% y/y in December (or 3.6% y/y in Q4, if you prefer the more established quarterly CPI, data from FactSet). This article operates on the presumption that inflation stems from low unemployment and an economy that is running too hot, breaching potential GDP (the maximum rate economists estimate it can grow without throwing off inflation). This isn’t because the economy is really growing that fast, though. It argues this is because productivity is poor, hence the article focuses on the Labor government’s forthcoming May Budget and the Australian Productivity Commission, claiming austerity and government plans to boost productivity are required to forestall another round of rate hikes, which flow through pretty fast to households, given floating-rate mortgages’ prevalence in Australia. But slow down! Potential GDP and productivity are squishy and debatable econometrics, ones economists themselves fail to define, measure and track. Yes, inflation is running above the RBA’s 2% – 3% target range. So in a sense that would justify tightening policy, which the RBA cited (along with weak productivity and low unemployment). But that could easily reverse and prove a mere wobble. Beyond that, all those factors are backward looking. M3 money supply rose just 4% y/y in December, a historically tame rate (per the RBA). Inflation is always and everywhere a monetary phenomenon, so this suggests the forward-looking tinder for an inflation fire is lacking, regardless of what the government does with the Budget, which really doesn’t matter all that much to inflation. So we need to cool on extrapolating rates’ path from here based on such grandiose speculation. Obviously, we have no idea where rates will head. But neither does the RBA, Australian Treasurer Jim Chalmers or any pundits cited here. You can’t forecast central bankers’ actions, which are subject to human bias and whim. You must judge decisions after they are taken. While the logic behind this hike seems a little off to us, it doesn’t seem like a major mistake at this point.

MarketMinder’s View: This article features one sensible stretch detailing trade deals struck between the EU and India, and a brief discussion of a similar deal between the EU and South America’s Mercosur nations, which notes that countries have largely responded to US tariffs by freeing trade more—a trend that extends far beyond these two deals. But surrounding it is a discussion of politics (so a reminder: We favor no politician nor any political party) that largely presumes things like the dollar’s decline indicate foreign central banks are “dumping dollars and buying gold,” largely because of tariffs, which has pushed “… down the value of the dollar, long the currency of choice for global commerce, to its lowest level since 2022 last week versus several competing currencies.” While we agree tariffs are an economic negative—mostly for the US—and that uncertainty over the state of deals President Donald Trump has struck is unhelpful, the “sell America” theory this advances has some holes. Take the dollar’s level. Yes, it is roughly where it was at points in 2022 against a trade-weighted currency basket. Thing is, that isn’t a weak level—it’s roughly the average over the past 40 years. On interest rates, which this claims will rise as foreigners flee, consider: Benchmark US 10-year Treasury yields are presently 4.27%, down from one year ago—before most tariff announcements and only days into Trump’s second term. Shorter-term notes are all down, too. Longer term? 20-year yields are flat. 30-year rates are up, but from 4.76% to 4.90%, which isn’t significant. (Data from FactSet.) “Sell America” is a fun narrative, but it runs aground when you even consult a few basic facts.

MarketMinder’s View: As this piece touches on some political themes, please note MarketMinder is nonpartisan and prefers no politician or political party over another. Our interest is solely with the titular theme: the “sell America” trade. The article posits the recently weakening US dollar reflects a broader shift: “The move away from the United States is being driven by more fundamental concerns: unease about the safety of U.S. markets at a time of geopolitical upheaval, threats against the nation’s central bank, ballooning government debt and worries over the fundamental rule of law. Some investors also feel whipsawed by the White House’s pattern of erratic policymaking.” Some are valid points, particularly as it pertains to tariffs and central bank independence. But most of them strike us as false fears. For instance, US government debt is manageable right now—per the St. Louis Federal Reserve, federal interest payments are around 18% of federal tax revenue. That is admittedly the highest since the early 1990s, though double-digit ratios didn’t prevent a decade-long expansion, either. As for “weak dollar” chatter, the worries here seem overstated, too, especially since a currency’s relative strength isn’t inherently good or bad for the broader economy or markets—nor is present weakness very unique, considering the dollar nearly parallels its movement in 2017/2018. Lastly, even if the article’s claims were true, this wouldn’t be reason to “sell America.” Markets price popular investing trends like this near instantly, so acting on any of the well-known developments here is tantamount to acting on old information. Our takeaway from this piece is that some negative sentiment toward US assets lingers—not as much compared to overseas, but analyses like these suggest US markets still have some wall of worry to climb.