Daily Commentary

MarketMinder’s View: Several Wall Street firms think the risk of recession is high today amid the Middle East conflict, citing the potential headwinds of higher inflation tied to rising energy prices and an elongated or expanded conflict affecting a bigger slice of global GDP. Now, we acknowledge a US recession is always possible, but the article’s assertion that economists’ raising their recession probabilities somehow signifies “elevated risk” is off base. First and foremost, these outlooks are opinions—forecasts extrapolating today’s conditions forward and, in some cases, presuming things will get worse. Maaaaybe, but what about other possible outcomes—like, what if the conflict concludes quickly and economic activity largely returns to its pre-conflict status? That wouldn’t be unprecedented as resolutions can arise swiftly and unexpectedly, rendering these predictions moot. Secondly, the article’s evidence of the titular “cracks beneath the surface” has some holes. While recent jobs data have been rocky, they are inherently backward looking, reflecting employers’ decisions from months ago. They say nothing about future economic activity. Worries that deteriorating consumer sentiment will hurt spending, which comprises the majority of GDP? Another false fear considering feelings don’t predict future economic activity. To us, rising recession odds are a sign sentiment toward America’s economy has taken a hit recently.

MarketMinder’s View: Lots of politics here, so we remind you we favor no party nor any politician and assess developments for their potential economic and market implications only. And while this piece focuses on UK Chancellor of the Exchequer Rachel Reeves’s accusations of gasoline price gouging, that is a bipartisan tradition, so we aren’t picking on anyone. Rather, this piece does a good job explaining how gas prices work and showing why higher prices at some fuel stations aren’t simple price gouging. “Gordon Balmer, the executive director of the Petrol Retailers Association, says bigger chains can secure cheaper deals with wholesalers to ensure a slower pass-through of costs. By contrast, smaller operators often have to charge the higher price almost immediately. ‘Some larger retailers buy fuel on a three-weekly lagged basis: the average price for the last three weeks applies for their deliveries this week,’ he says. ‘Some retailers, particularly the smaller ones, have to buy on a daily lag, so the price for petrol and diesel from yesterday’s trades will apply for deliveries today. When that happens, in a particularly steep market, with rises like over the past couple of weeks, they have to pass it on – otherwise, they would be selling it at a loss.’” Margins were already lean entering the war, leaving gas stations little to no room to absorb the hit from high oil prices. Then, too, taxes (including fuel duty and value-added taxes) comprise about half the current UK petrol price, which leads into the discussion of the prospective end of a 5 pence per liter fuel duty holiday in September. The article notes Reeves has thus far not committed to delaying or scrapping this increase, but the possibility remains on the table. Mostly, we see all of this as a source of uncertainty, not an economic driver, given fuel isn’t a huge share of household budgets. Markets tend to move on quickly. For more, see our recent commentary, “Pain at the Pump Won’t Hurt the Global Economy.”

MarketMinder’s View: As always, we are politically agnostic, preferring no politician nor any party and assessing developments for their potential economic and market implications only. We also take no sides in legal matters, so we aren’t offering opinion on the Justice Department’s investigation into Fed head Jerome Powell. We simply offer this as an interesting development that provides more insight into a federal judge’s recent decision to toss the grand jury subpoenas leveled at Powell tied to cost overruns in the Fed’s ongoing building renovation. “Prosecutors are weighing whether the cost overruns amount to fraud and whether Powell gave false testimony to the Senate Banking Committee. But G.A. Massucco-LaTaif, who was recently named chief of the criminal division of the U.S. attorney’s office in D.C., said at the March 3 hearing that Justice Department lawyers ‘do not know at this time’ what evidence there is of fraud or criminal misconduct, arguing only that the project was $1.2 billion over budget and that ‘it doesn’t seem right.’ … Massucco-LaTaif also said ‘we don’t know’ what statements from Powell’s congressional testimony were false, adding that ‘there are certain areas that he addressed that caused concern,’ according to the transcript.” This all seems to mesh with the judge’s ruling “that the U.S. attorney’s office had provided ‘essentially zero evidence’ of a crime.” The administration could appeal, but some Banking Committee members have pledged to delay confirmation hearings for Fed head nominee Kevin Warsh until this matter is closed, and Powell has also pledged to remain on the Fed board at least until this is finished. So uncertainty lingers for now, but it should continue falling gradually, and having more transparency on these proceedings might help ease investors’ jitters about Fed independence.