Daily Commentary

MarketMinder’s View: As always, we are politically agnostic, preferring no politician nor any party and assessing developments for their economic and market implications only. We also remind you markets don’t move on politicians’ personalities or purported ideological leanings and don’t care about labels like left, right or “neo-liberal.” All of that is a sideshow to a broader, crucial point this piece illustrates: There is a lot of room for the UK’s political and economic drivers to shape up much better than folks expect today. Much of the fear surrounding presumptive new Prime Minister Andy Burnham ties to his supposed “soft leftism” and fears steep tax hikes and nationalizations will choke local growth and markets. That is the baseline for expectations. But there is every chance it will prove false. One, as this article notes, Burnham’s policy record is much less extreme than headlines imply. To the extent appointments hint at policy, his chief of staff, James Purnell, was one of the party’s most economically conservative members when he was in the Cabinet. And two, the UK’s economy is in a pretty good position, with growth likely to solve a lot of political gripes (e.g., debt, tax revenues, living standards). People extrapolate recent weak growth rates, ignoring actual forward-looking drivers. But there are a lot of green shoots and reasons to believe a cyclical ebb is turning. The UK’s “high gearing toward services, life sciences and technology makes it a good fit for quantum gains in AI productivity, already visible in a 1.6pc rise in the past year on the new real-time information (RTI) measure. The UK is now on the accelerating upward leg of the AI ‘J-Curve,’ tracking America with slight lag. Optimists think it could lift UK growth rates to 2-3pc, drastically improving fiscal dynamics and the political mood. Burnham’s Britain is sitting on the coiled springs of a multi-year credit boom. Households have deleveraged massively, paying down £600bn of mortgage debt. Companies have retrenched. Total private debt has dropped from 185pc to 133pc of GDP. The scale overwhelms the modest rise in public debt. Today, the UK is one of the least indebted countries in the developed world.” This looks to us like an economy poised to surprise regardless of who resides in 10 Downing Street, which would give stocks big relief tailwinds.

MarketMinder’s View: This piece names several companies, so a friendly reminder that MarketMinder doesn’t make individual security recommendations—all those here merely highlight the broader theme. We also aren’t registering opinions on the activist investor proposals listed here. Our interest is more that this wave is happening at all. When the late Shinzo Abe became prime minister in 2012, a big plank of his “Three Arrows” economic policy was corporate governance reform to make business more competitive. Japan had long lagged on that front despite its amazing human capital and technical prowess because its huge conglomerates had complicated shareholding arrangements that protected legacy interests and kept less competitive subsidiaries afloat artificially. Abe and his cabinet at the time surmised that reducing cross-shareholdings among conglomerates (where they own stakes in one another to maintain centralized control) and enabling more activist investor participation would introduce creative destruction and improve competitiveness. They passed myriad policies aimed at this, and the wave of activist initiatives suggest they are bearing fruit. This was always more of a structural driver than a cyclical one—not a near-term return booster. But it is cool to see reforms work out as intended, with investors and the Japanese economy gradually reaping the benefits.

MarketMinder’s View: Consumer sentiment readings are a coincident indicator that measures how people feel at a certain moment, not what they will do. So we think the University of Michigan survey’s June uptick to a still-low level predicts nothing. But it is still interesting for what it shows: While gas prices are down and respondents acknowledged and cheered that, inflation expectations remain lofty. “Consumers expect prices to rise at an annual rate of 4.6% over the next year, down from 4.8% in May. They also saw costs rising at an annual rate of 3.3% over the next five to 10 years, erasing the prior month's surge.” Digging deeper, analysts surmise consumers are waiting for the proverbial next shoe to drop, fearing higher oil prices will eventually flow through other goods and services. The fact that oil now sits around pre-war levels doesn’t seem to figure. Nor does businesses’ general lack of pricing power or the fact money supply growth remains too slow to stoke 2022-style inflation. This suggests to us there remains ample room for inflation to surprise positively, bringing relief and helping stocks up the wall of worry even as sentiment toward Tech and AI looks frothy.