Daily Commentary

MarketMinder’s View: A useful corrective for those fearing the demise of the United States-Mexico-Canada Agreement (USMCA), underpinning $2 trillion in North American trade: “For starters, a missed deadline today simply means the deal will revert to annual reviews until it’s either extended for 16 more years or expires in 2036—ten years away. This will inject uncertainty into North American supply chains, likely hampering investment on the margins. But in terms of day-to-day trade among the three nations, it’ll be unnoticeable.” Which we think is a good reason why stocks seem to be taking all of this in stride. But even beyond this, President Donald Trump’s threats to withdraw ring hollow given “... he’s quietly offered USMCA-related exemptions for virtually every major tariff action he’s taken—exemptions that US importers have seized upon ...” Actions speak louder than words. Meanwhile, “There are also political and legal impediments to US withdrawal—and to fundamentally altering the deal in the current trilateral negotiations. Thus, we should expect lots of USMCA theater and a handful of marginal changes in the coming months, but not termination or even a major overhaul of the current agreement.” So despite all the sound and fury in USMCA renegotiations—or lack thereof—we think the bluster is mostly a tempest in a teapot.

MarketMinder’s View: This piece focuses less on the reduction in the headline tariff rate and more on refunds of tariffs paid under the now-defunct “Liberation Day” regime the Supreme Court shot down in February. It argues this is a stealth boost to earnings, and therefore, a hidden tailwind to stocks receiving refunds (and it mentions a few of those specifically, so please remember that MarketMinder doesn’t make individual security recommendations). But here is the thing: The idea no one is talking about this is a little silly, considering it was among the most-discussed factors worldwide ahead of the war. It still is heavily discussed outside America. And the refunds in question here are largely one-offs, as some analysts quoted here point out. In sum, a widely anticipated one-off is unlikely to sway markets much, as stocks would pre-price it and look to lasting factors affecting profits over the next 3 – 30 months. Tariff talk and refunds are largely in the rearview and irrelevant to where stocks head from here, in our view. If you check the relative return since February of some of the names mentioned as winners, you will find more lagged than led, which hints at the irrelevance of this “tailwind.”

MarketMinder’s View: Since the war began, the fear of oil prices driving a resurgence in white-hot inflation has run wild globally—especially in Europe. But evidence of this never really emerged and now the uptick is already fading. Germany’s consumer price index cooled from 2.6% y/y in May to 2.3% in June. On a month-over-month basis, prices fell -0.3%, the second-straight monthly drop. All this is largely because oil prices have plummeted since reaching a high in early April, highlighting war fears’ fleeting effect on commodity markets. As for worries over prices spilling over into other categories beyond energy, there was never a real sign that was happening, and it still isn’t. Core prices (excluding fuel and food) rose 2.5% y/y, matching May’s rate and the rate seen in five of six months this year (April’s fleeting downtick to 2.3% was the exception). Friends, we told you throughout this year’s war drama that energy prices don’t fuel inflation—absent swift money supply growth, they drive substitution. This is evidence of that playing out.