Daily Commentary

MarketMinder’s View: Lots of politics here, so we remind you we favor no party nor any politician and assess developments for their potential economic and market implications only. And while this piece focuses on UK Chancellor of the Exchequer Rachel Reeves’s accusations of gasoline price gouging, that is a bipartisan tradition, so we aren’t picking on anyone. Rather, this piece does a good job explaining how gas prices work and showing why higher prices at some fuel stations aren’t simple price gouging. “Gordon Balmer, the executive director of the Petrol Retailers Association, says bigger chains can secure cheaper deals with wholesalers to ensure a slower pass-through of costs. By contrast, smaller operators often have to charge the higher price almost immediately. ‘Some larger retailers buy fuel on a three-weekly lagged basis: the average price for the last three weeks applies for their deliveries this week,’ he says. ‘Some retailers, particularly the smaller ones, have to buy on a daily lag, so the price for petrol and diesel from yesterday’s trades will apply for deliveries today. When that happens, in a particularly steep market, with rises like over the past couple of weeks, they have to pass it on – otherwise, they would be selling it at a loss.’” Margins were already lean entering the war, leaving gas stations little to no room to absorb the hit from high oil prices. Then, too, taxes (including fuel duty and value-added taxes) comprise about half the current UK petrol price, which leads into the discussion of the prospective end of a 5 pence per liter fuel duty holiday in September. The article notes Reeves has thus far not committed to delaying or scrapping this increase, but the possibility remains on the table. Mostly, we see all of this as a source of uncertainty, not an economic driver, given fuel isn’t a huge share of household budgets. Markets tend to move on quickly. For more, see our recent commentary, “Pain at the Pump Won’t Hurt the Global Economy.”

MarketMinder’s View: While sentiment seems to have moved on from tariff fears since the war in Iran began, developments like this remain noteworthy. Australia and the EU spent eight years negotiating a free-trade deal, and it seems the need to offset headwinds from US tariffs gave both sides the incentive to finally get this over the hump. This trend—America’s trade partners freeing trade with one another—has ramped up since President Donald Trump announced broad tariffs nearly a year ago, and it is one big way tariff reality has exceeded worst-case scenario expectations. We think this symbolism is the biggest implication, as free-trade deals generally aren’t major cyclical economic drivers. This one appears no different, given many of its provisions phase in gradually. “The deal could see EU exports to Australia increase by 33% over the next decade, according to a European Commission press release, with daily, motor vehicles and chemicals seeing the strongest growth.” While this is quite nice, markets tend to look about 3 – 30 months ahead, with expected events beyond that too far out.

MarketMinder’s View: Does a “fiscal cliff” loom for America due to its supposedly “dire and unsustainable” public finances? (As we discuss these assertions, please keep in mind MarketMinder is politically agnostic, preferring no one party or politician over another and focusing on the potential economic and market implications only.) This short piece paints a worrisome picture based on the Congressional Budget Office’s (CBO’s) estimates, with the federal government appearing to spend more than it is bringing in: “The Trump administration is seeking $200 billion to fund the Iran war and replenish depleted weaponry. The Supreme Court struck down the administration’s use of emergency authority to impose tariffs, and legal battles are underway over refunds of import taxes already paid. For all the attention on DOGE one year ago, there has been little evidence of lasting restraint of federal spending. ... That all follows tax legislation enacted last year that the Congressional Budget Office scored as increasing cumulative deficits by $3.4 trillion over a decade, with backloaded spending cuts that are smaller than combined tax cuts.” From the market’s perspective, though, investors can narrow this down. CBO projections assume unchanged present law, which isn’t realistic given how often Congress shifts fiscal policy. Besides, markets price probabilities at most roughly three years in advance—what happens a decade out is outside their scope. So is the US likely to default over the next 3 to 30 months? Debt service relative to tax revenue (not GDP as mentioned) is the relevant metric to us: Can Uncle Sam pay its financial obligations? Federal receipts dwarf federal interest outlays more than five times over, suggesting default isn’t on the horizon any time soon, just as it wasn’t the last time interest costs were similarly high. That is a big reason why 10-year Treasurys—which would be sensitive to potential nonpayment—aren’t indicating America’s finances mean trouble, with yields at 4.39%—well below the 5.82% historical monthly average since 1962. (All data per the St. Louis Fed.)