Daily Commentary

MarketMinder’s View: Whether the tentative two-week ceasefire announced Tuesday evening holds or not, look longer term. Businesses and markets are nothing if not relentless at navigating barriers to commerce (see tariffs with any questions). Given the uncertainty of seaborne traffic through the Strait of Hormuz, this piece looks at other historical “chokepoints”—and how maritime disputes over them resolved. Cutting to the chase: The bottlenecks didn’t stay that way for long as motivated parties found workarounds even as countries claimed “control” over the waterways. These provide potential starting points for Iran and the US to agree on a framework both sides find acceptable (since neither country ratified the UN Conventions on the Law of the Sea), like giving potential tolls a palatable branding—should both countries pursue a diplomatic end, rather than a military one. Yet even here, the longer-term economic implications are limited. “Saudi Arabia and the United Arab Emirates managed to circumvent the chokepoint to a limited degree via their bypass pipelines. Riyadh and Abu Dhabi are almost certain to double down, expanding those emergency conduits further. Kuwait would doubtless join forces with the Saudis to build its own bypass pipeline.” The upshot? “Iran’s stranglehold over energy supplies will therefore loosen over time. Five years from now, the Persian Gulf will have far better bypass options than it does today. No matter what the US and Iran agree over the future of Hormuz, the strait’s status will change. But the waterway will never be as critical to the global economy as it was when the fighting started six weeks ago.” Capitalism finds a way, which is one reason why global stocks rose—and energy prices fell—before the ceasefire and even after it immediately began looking tenuous. When in doubt trust markets, which are several steps ahead of headlines, looking 3 to 30 months out. Of course, the breaking news everyone is glued to may swing sentiment short term, but that doesn’t confer any long-term advantage. Investors fare better weighing future fundamentals.

MarketMinder’s View: As we wrote last April, one reason we expected tariffs’ actual bite to not match their bark: Importers would be incentivized to discover loopholes, especially with regulatory enforcement (and staffing) lacking. One year later: “Experts say companies most likely began finding ways to reduce the value of the goods they were sending to the United States. Lowering the value of the toys, couches and other products headed for America’s shores meant that companies could also reduce the amount of tariffs they had to pay for those imports.” Read on for more details on the many ways (legal and otherwise, which we absolutely don’t endorse) firms have explored tax avoidance. But for investors the takeaway remains the same as immediately post-Liberation Day: Tariffs’ hit is less than feared, which is why stocks rallied even as extra import taxes bit.

MarketMinder’s View: The latest growthy data to be dismissed as pre-war are US durable goods orders, which revealed healthy and stronger-than-forecast business investment in equipment a month before the conflict broke out. “Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after a downwardly revised 0.4% drop in January, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders would increase 0.4% after a previously reported 0.1% gain in January. There were increases in orders for primary metals and fabricated metal products. Orders for machinery jumped 1.5%. Orders for computers and electronic products were unchanged as an increase in the computers and related products category was offset by a decline in communications equipment. Orders for electrical equipment, appliances and components dipped 0.1%. Core capital goods shipments increased 0.9% in February after being unchanged in January. These shipments are among the components that go into the calculation of the business spending on equipment component in the gross domestic product report.” It all suggests the economy was on fine footing before the war, which likely hasn’t changed conditions as much as commonly feared. This piece, rather unusually, hints at that in quotations from an economist who notes businesses may have temporarily retrenched from investment, but it really amounts to a blip. But the common view is war-fixated, which widens the gap between reality and expectations, likely facilitating positive surprise ahead.