Daily Commentary

MarketMinder’s View: This article covers byelections in three ridings (districts) in Canada, so please keep in mind that we favor no politician nor any political party, assessing matters solely for their potential market effects. Here is the issue: Since taking office last spring, Prime Minister Mark Carney has sat atop a minority government—perhaps parliamentary democracy’s deepest form of gridlock. But now, after five defections from other parties to his Liberals and these byelections, his minority has swung to a majority. Hence, “Fewer than half of the government bills introduced over the last year have become law — a figure that is expected to increase in short order now that Carney won't have to cajole other parties to back his policies.” Many are talking up legislative plans and ideas, pushing for a more active government. If that holds, it could increase political uncertainty to an extent in Canada, a potential headwind as stocks weigh the possibility of rules changes that affect investment plans. But here is the thing: Even after the byelection victories in all three ridings, the Liberals have a five-seat edge (174 – 169). That is quite narrow and will require Carney to rein in any backbench dissent. Given the defections amount to all of that edge, it isn’t hard to see the party struggling to advance divisive plans. Gridlock obviously isn’t as entrenched in the Great White North as it was a month or two ago, but we think this narrow edge is still a brake on big change, which is bullish enough.

MarketMinder’s View: This article dives a bit into politics and personality politics in particular, so please note MarketMinder favors no politician nor any political party. This discusses the looming confirmation hearings for would-be Fed head Kevin Warsh, who is slated to ascend to the post—if confirmed by the Senate—in May. Yet there are reasons to think that timing is in question, raising hackles around who may lead the institution after current head Jerome Powell’s term expires. Powell says he will, in keeping with past precedent. Some pundits say the administration may challenge that on legal grounds. But the key piece of this article actually comes late and it shows you why that debate is a sideshow. The central issue here is whether monetary policy is conducted independent of elected officials’ interference. Powell, as noted in this piece, can stay on the policy-setting Federal Open Market Committee until 2028. No one questions that. Fed heads usually don’t stay on after their chairmanship expires, but they can and have. If Trump pushes on him hard, he may choose to as comeuppance. But either way, “Even if Trump stakes and wins a claim to appoint an interim head of the Federal Reserve’s board, he is unlikely to get to control the committee that determines the central bank’s decision-making on interest rates.” The voting members are largely set already. And, “Even if a dispute erupted over who chairs the Fed’s board of governors, Powell could continue to run monetary policy through the FOMC — limiting the practical impact of any White House challenge on interest rates, at least in the near term.”

MarketMinder’s View: As always, MarketMinder is politically agnostic, preferring no politician nor any party and assessing developments for their potential economic and market implications. And we bring you this discussion of Hungary’s election, which saw center-right Tisza party leader Peter Magyar unseat Victor Orban as prime minister after 16 years, because people say it has big implications. Orban and his Fidesz party governed with an authoritarian bent, stacking the judiciary, asserting control over the central bank, nationalizing private pensions and reducing economic freedom overall. With Magyar now in charge with a supermajority, people are optimistic that the rule of law and economic freedom will be restored and that Hungary will stop trying to veto EU initiatives. Hungarian stocks rallied hard on those hopes Monday. But whenever a reformist government takes over amid lofty expectations, investors benefit from taking a deep breath and thinking like markets. Stocks move on the gap between reality and expectations. If hopes get too high and reforms are disappointingly slow, that can weigh on markets. That is a risk here, with institutions stacked with Fidesz loyalists who might not smile and accept Magyar’s calls to resign. Note, too, that Hungarian stocks weren’t exactly swirling the drain under Orban. They priced the authoritarian turn early in the 2010s and moved on, trouncing Emerging Markets and global markets even when denominated in USD (to account for the weak forint’s skew). Stocks moved on the gap between reality and expectations under Orban and will do so under Magyar. (Also, Hungary’s market is tiny—an Emerging Market constituting just 0.04% of the MSCI All-Country World Index, per FactSet—and the MSCI Hungary contains just three companies, so sector/company-specific issues matter a great deal to returns.)