Daily Commentary

MarketMinder’s View: This looks at tariff policy, which is of course political. So please keep in mind we favor no politician nor any party, assessing developments solely for their potential market effects (or lack thereof). When the US Supreme Court shot down most of President Donald Trump’s “Liberation Day” tariffs on the grounds he lacked legal authority to implement them unilaterally, it did so arguing the International Emergency Economic Powers Act (IEEPA) didn’t specifically shift the power to tariff from Congress to the White House. We told you then the ruling, while significant in that it clarified those powers, didn’t mean tariff policy would shift in any meaningful sense. This article dives further into why we thought that. The administration has already slapped a 10% global levy under different, temporary legal grounds (Section 122 of the Trade Act of 1974). Those levies expire July 24, but, as detailed here, they are already looking to make them permanent under Section 301 of the same act. This section permits the president to enact permanent tariffs, but it first requires investigations into trade partners on grounds like dumping, currency manipulation and unfair labor practices. The investigations are ongoing now. You can question the validity of those investigations, considering the administration already hinted at the outcome. But tariffs under Section 301 have been enacted before and withstood legal challenge. Look, we would love it if these tariffs vanished—we think they are economic negatives that mostly harm the US itself. But that isn’t likely to happen. The good news? Markets already know all this. We think these tariffs’ power to sway stocks is gone.

MarketMinder’s View: The announcement that the United Arab Emirates (UAE) will leave the Organization of Petroleum Exporting Countries (OPEC) means little for the oil market in the immediate term, considering the Strait of Hormuz’s closure restrains much of its production. But in the longer term, the decision taken by OPEC’s fourth-largest producer does highlight how OPEC’s status has fallen. The bloc used to hold great sway over the oil market—and it is still important. But as this notes, the UAE’s departure will lower the group’s share of global output to 26% from 30%, a figure that has fallen dramatically as output in the US, Canada, Brazil, Guyana and elsewhere has grown. Moreover, “The UAE’s withdrawal ‘marks a significant shift for the oil-producer group,’ said Jorge Leon, head of geopolitical analysis at consultancy Rystad. ‘Alongside Saudi Arabia, it is one of the few members with meaningful spare (production) capacity, the mechanism through which the group exerts market influence and responds to supply shocks,’ he wrote in a note.” This further cedes ground to other producers as the swing factors in the oil market. The idea the cartel “controls” prices is increasingly outdated, and this decision only furthers that. The titular “reshaping” of global oil markets already happened—this is more aftereffect than driver, in our view.

MarketMinder’s View: A net 10 percentage points of eurozone bankers reported tightening credit standards for borrowers during the first quarter, as war fears caused them to rein credit in (this means the percentage of banks reporting tighter standards was 10 percentage points above the share reporting looser standards). Two takeaways from this: One, given the steep yield curve (long rates are well above short, making new lending profitable as banks borrow short term to fund longer-term loans), this slight tightening likely proves a fleeting war response, much as markets have signaled. When it becomes clear the war’s effects on inflation, oil and GDP are smaller than feared, bankers will likely revert to the incentives from wider profit margins on new loans the steep curve hints at. Two, this is yet another point against the ECB potentially raising interest rates in response to war-driven oil price rises, which aren’t really inflationary anyway (they foster consumer substitution). The ECB potentially raising short rates would flatten the curve more and likely further dissuade credit creation. They aren’t doing so now, but this is a matter worth watching.