Daily Commentary

MarketMinder’s View: Hats off to the headline here, which hints at our view of the Bank of Japan’s (BoJ’s) move: It is another step toward normalizing monetary policy. The Bank of Japan’s long-running nemesis isn’t inflation but deflation, leading to an alphabet soup of weird, conflicting and counterproductive policies aimed at boosting prices over the past 25-ish years. Stable domestic economic fundamentals, along with more consistent (and by global standards utterly tame) inflation have given the BoJ room to move further away from its negative-rate era, yet rates there remain low by global standards. Interestingly, sentiment toward Japanese rate hikes has shifted wildly over the past two years. When hikes began, headlines and the yen freaked out over feared disruptions to the yen carry trade, which was supposedly pumping global markets (people borrowing in yen then investing elsewhere to capture currency gains as well as market returns). Now people have seemingly gotten used to the BoJ’s moves, as this very calm article indicates. There is no freakout, illustrating how broader sentiment has improved during this bull market. As for whether the move itself is wise, given Japan’s 10-year yield is still a bit north of 2.6%, per FactSet, short rates at 1% leave the yield curve plenty steep. We think monetary policy should still support lending and growth.

MarketMinder’s View: China’s May economic data hit the wires today, and as the article notes, they were a mixed bag. Retail sales fell -0.6% y/y (bringing the year-to-date, year-over-year growth rate to 1.4%), missing expectations, while industrial production accelerated to 4.5%. Fixed asset investment fell, due largely to real estate investment, and per the National Bureau of Statistics’ official release, services rose. Exports and imports each grew both year over year and year to date, indicating healthy domestic and external demand. All in all, the report didn’t show any new trends. Headlines have long sweated Chinese consumers’ relative weakness and worried only heavily subsidized exports are fueling growth. This article touches on that, warning it limits China’s growth prospects. We agree not all is perfect on China’s economic front, but it doesn’t need to be. Markets move most on the gap between reality and expectations, and today’s negative sentiment seems to overlook that China is still contributing just fine to global growth despite occasionally patchy domestic data. Fears of weak consumption keep the bar for reality to clear low.

MarketMinder’s View: A decent portion of this piece focuses on sociological issues (e.g., income inequality), so please remember sociology isn’t a market driver. We highlight this discussion because it illustrates one of the big headline worries weighing on sentiment today and counterbalancing creeping AI enthusiasm. Namely, rising stocks (especially a couple big names going public) are supposedly enriching a handful folks, but most regular folks are purportedly falling behind as elevated energy prices eat into real (inflation-adjusted) wage growth—and that distress is showing up in recent tumbling sentiment surveys. Perhaps this is true. Losing purchasing power at the grocery store or gas pump can certainly be frustrating and may be a hardship for some families. While it is normal for real wages to drop when inflation first erupts since faster wage growth tends to follow inflation, helping folks eventually catch up, that is probably cold comfort now. Overall though, we see a big gap between sentiment and reality here. As the article notes, over half of US households own stocks and are also therefore benefiting from the ongoing bull market. And despite people’s feelings, household balance sheets are in good shape, as we showed here. But That inflation worries and generally dour sentiment (outside Tech) remain atop many commentators’ minds is counterintuitively bullish, as false fears are bull market fuel.