Daily Commentary

MarketMinder’s View: So much for heatwaves destroying economic activity! Analysts expected UK retail sales volumes to fall -0.2% m/m in August, extending July’s slide. And it seems you can thank the weather. While shoppers demurred on the new fall clothing lines, saving the tweeds and wool twills for September, they splashed out on hot weather gear. “The summer heatwaves fuelled increased sales of items including fans, air-conditioning units, sports merchandise and clothing in the three months to August. The unexpected sales boost is the latest positive update on the state of the economy for the government, after a surprise 0.4% increase in gross domestic product in July that was reported by the ONS last week.” Note the headline rise also happened as fuel sales fell, showing consumers are responding to higher prices by conserving fuel, not cutting discretionary purchases. Overall, the UK economy continues outshining dreary expectations, a solid bull market foundation.

MarketMinder’s View: Rounding out this week’s central bank action, Japan hiked a quarter point Friday, a move we find sensible … but not for the reasons described here. Policymakers (and the article) dwell on Japan’s inflation risks, citing high wholesale inflation as a sign of consumer price inflation to come. We doubt it, considering wholesale and consumer prices tend to move in tandem, and retailers can’t always pass higher costs to consumers. Japan’s economy is growing slowly, with only modest consumer demand and money supply growth, suggesting businesses lack much power to pass on costs. Yet unlike the Fed’s hike, we still don’t think the move itself is an error, because in Japan, rate hikes are part of a return to normal after decades of monetary experimentation. Lifting rates should also help the yen, relieving some of the pain from high energy costs (Japan is a net energy importer, and energy is priced in US dollars, so a weak yen raises costs). Long rates are also high enough that a rate hike doesn’t much flatten the yield curve, so it shouldn’t choke growth. Japanese stocks have done quite nicely during monetary policy normalization.

MarketMinder’s View: Just an interesting little nugget showing sentiment, while noticeably warmer this year, isn’t in full-blown euphoria. While there are pockets of excessive cheer (see: leveraged exchange-traded funds, prediction markets, AI-related IPOs), investors broadly aren’t throwing caution to the wind in the expectation stocks will rise forever. Instead, the American Association of Individual Investors’ (AAII’s) weekly survey revealed 53.3% of respondents identified as bearish, with just 28.8% bullish. That is the lowest bull tally in a year, and “the spread between the number of bulls and bears in the market has fallen to -24.5%, which is ‘unusually low’ and below its historical average of 6.5% for the ninth consecutive week.” We won’t go so far as to call this a “contrarian” signal, as this article suggests, as it is all widely known, subject to short-term noise tied to market conditions and probably priced in. But the reading, coupled with respondents’ higher-than-normal cash holdings, shows some skepticism lingers, and skepticism means more wall of worry for stocks to climb.