Daily Commentary

MarketMinder’s View: First, this touches on politics in the UK, so please keep in mind we favor no politician nor any political party, assessing matters solely for their potential effects on markets and the economy. At issue here: bank taxation. The latest trial balloon that the UK government and Chancellor John Healey seem to be floating is whether to implement a windfall profit tax on banks due to elevated long-term interest rates. The industry notes (correctly) that it pays outsized taxes tied to a bank surtax and larger firms’ balance sheet levy. The result, as the visual herein shows, is that UK banks face a far higher tax burden than peers elsewhere. That hurts the competitiveness of Britain’s mainstay industry. But for markets, it is very well known. The uncertainty over whether tax rates may rise (again) in the forthcoming budget isn’t great for stocks, but it likely evaporates soon. Even if rates rise again, as this notes, it probably won’t push rates above where they were before the fairly recent surtax cut. So this wouldn’t be unprecedented. It is also an if. While we doubt Healey cuts tax rates the way banks want, past UK governments frequently aired ideas that never came to fruition when blowback was significant—which is the case here.

MarketMinder’s View: This article touches on politics and makes policy prescriptions at the end. We don’t endorse those (or policies in general), and we favor no party nor any politician whatsoever. Our interest here is the highlighted disconnect between sentiment surveys and economic numbers—and how income growth illustrates this. We touched on this recently, but this is a good supplement. The article notes that recent years’ median income growth has been swift, even after accounting for inflation, which it largely pins on the absence of recession and overall steady growth with a tight labor market. That is the fundamental backdrop we have seen outside COVID lockdowns’ brief economic downturn in 2020—and this notes even that oddity led to a scramble to hire service workers, which caused “wage compression”—the lowest quartile of incomes grew faster than the top end. Why doesn’t this factoid get attention amid oceans of “K-shaped” economy narratives? “But there has been a disconnect between economic statistics and economic sentiment since the late 2010s, and especially since 2021, with the historic relationship between the two breaking down and sentiment consistently more negative than the data would suggest. Of the many possible explanations, one of the most convincing — and the only one that I personally can do anything about — is that media coverage of the economy has become consistently more negative relative to the statistics, which in turn has happened mostly because consumers of digital media reward negativity with easily measured clicks and engagement.”

MarketMinder’s View: This article spills many pixels over reports of price pressures, but this is the core of it, to us: “The ISM ⁠said its nonmanufacturing Purchasing Managers' Index fell to a still-high 54.9 last month from 55.4 in August. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast the PMI would be largely unchanged at 55.2. The PMI is at a level consistent with strong economic growth in the third quarter. The economy is being driven by robust domestic demand, mostly consumer spending and business investment in AI and related infrastructure. Thirteen services industries reported growth last month, including wholesale trade, utilities, retail trade, information, transportation and warehousing as well as finance and insurance, accommodation and food services. Among the four industries reporting a contraction were mining and construction.” That is continued broad growth. Forward-looking new orders hit 59.8, down from last month’s 60.9 (the highest in three years) but still nicely expansionary. And on the price pressures? Commentary indicates these were centered in energy. “Steve Miller, the chair of the ISM Services Business Survey Committee, said ‘tariffs and fuel cost impacts were the most cited issues impacting respondents' supply chain,’ noting that ‘fuel costs were mentioned twice as often as any other single issue impacting performance.’” This is widely known and doesn’t suggest price pressures are spilling much beyond the oil market. Growthy data plus fearful comments and media focus suggest a still-healthy gap between reality and expectations—the lifeblood of bull markets.