Daily Commentary

MarketMinder’s View: Here is a great follow-up on the feared economic fallout—or more like the lack thereof—from President Donald Trump’s Liberation Day tariffs. America’s protectionist policies were supposed to roil growth worldwide, especially those nations that are particularly dependent on US commerce. See America’s neighbors to the north and south. “You’d be forgiven for thinking that Canada and Mexico, uniquely dependent on trade with the US, must be principal victims of the new order. Not so much. Goods deemed compliant with the earlier US-Mexico-Canada agreement are mostly exempt from new tariffs — and ‘compliance’ turns out to be an impressively accommodating concept. In 2024, less than 40% of US imports from Canada crossed the border under USMCA terms. But roughly 85% can qualify for USMCA treatment if traders ask to be certified and the certifiers decide to be flexible. They asked, and the US said fine. Canada’s effective tariff rate — revenue divided by the value of exports to the US — was just 3% as of July. Mexico’s was only a little higher, at 4.7%. By this measure, the first and most shocking targets in the administration’s multi-front trade war are almost unscathed.” The rest of the article explores other ways reality has exceeded dire expectations, from carve-outs for certain goods (e.g., smartphones and laptops) to tax relief. Now, to be clear, tariffs are an economic negative, in our view—they add friction and costs, and they hurt small businesses (which lack clout to negotiate) disproportionately. But while these levies hurt the tariff imposer more than the targets, they also haven’t hamstrung business—and that better-than-anticipated reality has boosted stocks. For more, see our August commentary, “Why Headline Tariff Rates Tell You So Little.” 

MarketMinder’s View: Please note, MarketMinder is nonpartisan and doesn’t prefer any politician or political party over another. Since this article mentions some specific companies, note, too, MarketMinder doesn’t make individual security recommendations, and any firms referred to here are coincident to a broader theme we wish to highlight. That theme: Company executives rarely miss an opportunity to blame disappointing results on an external bogeyman or lobby for favorable policies. In this case, UK executives are bemoaning the potential damage from UK Chancellor of the Exchequer Rachel Reeves’s Budget (and possible tax hikes). “FTSE bosses have warned ‘damaging uncertainty’ about Rachel Reeves’s Budget is undermining the pensions industry and harming the property market. Michael Summersgill, the chief executive of investment platform AJ Bell, said a failure by the Chancellor to rule out changes to pension tax rules had sparked concern among the public and removed vital stability from the market. Separately, Guy Gittins, the chief executive of Foxtons, blamed uncertainty about what will be in the Budget for a sharp slowdown in home sales in London.” We agree uncertainty isn’t great—it can make companies more risk-averse and discourage investment. But it isn’t as if the Chancellor’s Budget is the be-all, end-all source of uncertainty. Companies are always navigating unknowns, whether it comes from politics (e.g., tax changes) or the general business environment (e.g., meeting consumer demand while managing costs). UK firms’ griping about the Budget is akin to when US companies blamed external developments (e.g., tariffs or a strong dollar) for weak earnings. We don’t dismiss UK companies’ domestic headwinds, but some marketing spin may be at play here, too. And either way, stocks are very familiar with all of this by now. Markets move most on surprise, not widely held fears.

MarketMinder’s View: Slowing Chinese household spending is worrying public officials, experts and regular citizens alike. For the government, stronger domestic spending is part of its long-term economic aim of transitioning from export- and production-led growth to a consumption- and services-driven model—similar to most major developed economies. However, other issues are complicating that transition. “The challenges at home include youth unemployment, a threadbare social welfare system and an aging population. But the government has failed to take on these problems aggressively, instead tinkering with incremental policy changes and doubling down on investing in the factories that generate goods for export.” The rest of the article highlights some China-specific headwinds (e.g., the long-struggling real estate sector, where many people park their savings) and shares some anecdotal examples of individuals facing issues. We don’t dismiss those headwinds, but they don’t mean the economy at large is contracting. Rather, growth is slowing, and while high-profile soft patches grab attention, spending hasn’t stopped. As one interviewee noted here, subsidies are helpful for planned or needed purchases, but she isn’t going out of her way to buy something solely because of the government program. Handwringing over frugal spending indicates sentiment remains pretty dour toward China—a bullish development. For more, see yesterday’s commentary, “China’s Great Wall of Worry Extends.”