Daily Commentary

MarketMinder’s View: Energy developments often grab headlines and spur speculation—see Russia’s temporary ban of fuel exports today—which can affect sentiment. Rather than get caught up in announcements, we suggest reviewing supply and demand drivers, as they determine prices over the longer term. In that spirit, we highlight this outfit’s research on European gas prices. “The continent is heading into winter with stockpiles above the seasonal norm, a buffer against any short-term disruptions. There’s also been a drop in gas use for power, with renewables gaining market share, nuclear output rising and economic pressures weighing on industrial and household consumption. ‘The European gas sector looks set to see a fall in gas demand that will have a knock-on effect for prices next year,’ Wood Mackenzie said in a report. ‘Gas in power is expected to decline by 12% year-on-year in 2024, a similar decline to that of 2023,’ it said.” As the article relays, Europe’s preemptive moves to boost gas supply dampen the likelihood of shortages this winter. Now, it is possible a severely cold winter draws down inventories more quickly than anticipated or an external event takes a major source of supply off the market. But investing is about probabilities, not possibilities, and in our view, it looks more probable that Europe’s energy situation is better than feared. For more on why, see last month’s commentary, “Quick Hit: On the Recent Spike in European Gas Prices.”

MarketMinder’s View: The Conference Board’s Leading Economic Index (LEI) fell again in August, with manufacturing new orders, expectations for business conditions and the yield spread detracting the most. A Conference Board manager noted here that this shows the US economy is in a “challenging growth period,” suggesting recession is possible over the next year. Considering LEI’s long history as a forward-looking indicator, we don’t dismiss its long-running weakness—nor the possibility of a mild recession. But we would add some important caveats, including LEI’s skew towards goods production over services. Though manufacturing new orders have detracted each of the past 12 months, the industry also comprises about 11% of GDP—small compared to services’ 70% share. Weakness in US manufacturing is well known, too, so we don’t think LEI’s downward trend is sharing anything markets aren’t aware of already. For more, see our March commentary, “What to Make of a Forward-Looking Indicator Today.”

MarketMinder’s View: A snapshot of the mood over on the Continent: “Consumer confidence in the eurozone further declined in September, signaling a deteriorating sentiment amid high inflation and rising interest rates. The bloc’s confidence indicator--an aggregate measure of business and consumer confidence--stood at minus 17.8 for the eurozone in September, from minus 16 last month, data from the European Commission showed Thursday. … Declines in September and August reversed gains from the previous four months, which had registered a gradual improvement in consumer confidence from a low of minus 28.7 in September 2022.” Why is more difficult to pinpoint than what, but elevated inflation is one likely culprit—similar to other major developed nations worldwide. Another? Recently weak economic data. But crucially, from an investing perspective, stocks move most on the gap between expectations and reality. Considering moods remain so down in the dumps, it likely won’t take much to surprise to the upside. Even if future data are somewhat weak, this sentiment backdrop suggests seeing those figures may help uncertainty fall—boosting stocks in the process. For more, see last week’s commentary, “Markets Priced in Weak Eurozone Growth Long Ago.”