MarketMinder Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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Starmer Will Destroy What’s Left of Our Stock Market

By Matthew Lynn, The Telegraph, 5/24/2024

MarketMinder’s View: This piece is obviously quite political, and MarketMinder doesn’t play that game. We prefer no candidate nor any party and assess developments for their potential economic and market impact only—in other words, we come at this topic like markets do. So we are not here to argue which party is better for the UK stock market. Rather, we are focusing on the core discussion of the erosion of listings in London and the assertion that if politicians keep piling on red tape, “at the current rate, the last listed company may have left the market sometime in the 2050s. The stock market may cease to exist.” Right off the bat, this makes the error of extrapolating the recent past forward, applying the current rate of attrition to the future. But the why is also suspect, in our view. The piece focuses on the opposition Labour Party’s proposals for hitting climate targets. Thing is, those targets are statutory—the UK is law-bound to meet them—and both parties have become increasingly statist in the quest to meet them. So nothing here seems unique to Labour. But, crucially, it also isn’t unique to the UK. A lot of countries have similar agendas, government intervention and disclosure requirements. The article ignores this, implying UK regulations are uniquely burdensome. But it is actually more or less in line with the developed-world consensus, so the competitive disadvantage seems overstated. In our view, the situation here is a lot more mundane. Yes, the compliance and regulatory costs of listing in London are high. But also, the UK is just a very value-oriented market, with a focus on Financials, Energy and Materials. Value has underperformed growth for much of the past decade, while Tech and Tech-like firms—of which the UK has precious few—have led. Sector composition, not the fundamental outlook, explains much of the UK’s underperformance. Plus, with the pound also rather cheap globally, this makes UK companies ripe for international mergers. But all this stuff is cyclical. When value’s time comes again, we suspect London will start looking a lot more attractive for listings regardless of which party is in government.


Rain Hits Retail Sales in Great Britain as Shoppers Reduce Spending

By Hazel Sheffield, The Guardian, 5/24/2024

MarketMinder’s View: UK retail sales missed expectations badly in April, falling -2.3% m/m—a lot steeper than the -0.4% consensus forecast. The reason? Rain. Lots and lots of rain. Online sales rose 1.1% m/m as housebound Brits sought a little retail therapy, but that couldn’t offset the fall in brick-and-mortar foot traffic. Plus, with Easter arriving in March this year, “‘all those tasty chocolate eggs and family feasts were totted up in the previous month’s numbers,’” as one analyst put it. Most expect sales to bounce in May, though expectations seem tempered. As this piece notes, some think interest rate uncertainty and a lack of policy clarity with an election six weeks away will put people in wait-and-see mode. Maybe, but if high rates haven’t destroyed retail spending yet, we doubt they suddenly start, and we doubt people would hold off on purchases because of a looming vote that was always due by early next year and widely expected this year. We mostly see this as a reminder not to read too much into monthly wiggles. Mind the trend instead, and the UK’s retail trend has been choppy for a while. Markets are used to it.


US Orders for Business Equipment Rebound, Defying High Rates

By Mark Niquette, Bloomberg, 5/24/2024

MarketMinder’s View: In another sign US businesses are going on offense after two years of retrenching to survive a recession that never came, durable goods orders rose 0.7% m/m—trouncing expectations for a -0.6% decline. Excluding defense and aircraft, core capital goods orders rose 0.3% m/m. This category most resembles GDP’s business investment in equipment subset (although it omits R&D spending and intellectual property), so it augurs well for a continued recovery in that category. In our view, the article sums it up well: “The report suggests businesses remain committed to making long-term investments despite high borrowing costs and elevated input prices. Though firms are cautious about capital spending, many are seeking to enhance productivity and boost capacity amid a reshoring trend.” This is just one area where reality is beating expectations, helping fuel this bull market. (Oh, and as this article delves into one aircraft manufacturer’s travails, we remind readers that MarketMinder doesn’t make individual security recommendations—we are here for the broader economic data report only.)


Starmer Will Destroy What’s Left of Our Stock Market

By Matthew Lynn, The Telegraph, 5/24/2024

MarketMinder’s View: This piece is obviously quite political, and MarketMinder doesn’t play that game. We prefer no candidate nor any party and assess developments for their potential economic and market impact only—in other words, we come at this topic like markets do. So we are not here to argue which party is better for the UK stock market. Rather, we are focusing on the core discussion of the erosion of listings in London and the assertion that if politicians keep piling on red tape, “at the current rate, the last listed company may have left the market sometime in the 2050s. The stock market may cease to exist.” Right off the bat, this makes the error of extrapolating the recent past forward, applying the current rate of attrition to the future. But the why is also suspect, in our view. The piece focuses on the opposition Labour Party’s proposals for hitting climate targets. Thing is, those targets are statutory—the UK is law-bound to meet them—and both parties have become increasingly statist in the quest to meet them. So nothing here seems unique to Labour. But, crucially, it also isn’t unique to the UK. A lot of countries have similar agendas, government intervention and disclosure requirements. The article ignores this, implying UK regulations are uniquely burdensome. But it is actually more or less in line with the developed-world consensus, so the competitive disadvantage seems overstated. In our view, the situation here is a lot more mundane. Yes, the compliance and regulatory costs of listing in London are high. But also, the UK is just a very value-oriented market, with a focus on Financials, Energy and Materials. Value has underperformed growth for much of the past decade, while Tech and Tech-like firms—of which the UK has precious few—have led. Sector composition, not the fundamental outlook, explains much of the UK’s underperformance. Plus, with the pound also rather cheap globally, this makes UK companies ripe for international mergers. But all this stuff is cyclical. When value’s time comes again, we suspect London will start looking a lot more attractive for listings regardless of which party is in government.


Rain Hits Retail Sales in Great Britain as Shoppers Reduce Spending

By Hazel Sheffield, The Guardian, 5/24/2024

MarketMinder’s View: UK retail sales missed expectations badly in April, falling -2.3% m/m—a lot steeper than the -0.4% consensus forecast. The reason? Rain. Lots and lots of rain. Online sales rose 1.1% m/m as housebound Brits sought a little retail therapy, but that couldn’t offset the fall in brick-and-mortar foot traffic. Plus, with Easter arriving in March this year, “‘all those tasty chocolate eggs and family feasts were totted up in the previous month’s numbers,’” as one analyst put it. Most expect sales to bounce in May, though expectations seem tempered. As this piece notes, some think interest rate uncertainty and a lack of policy clarity with an election six weeks away will put people in wait-and-see mode. Maybe, but if high rates haven’t destroyed retail spending yet, we doubt they suddenly start, and we doubt people would hold off on purchases because of a looming vote that was always due by early next year and widely expected this year. We mostly see this as a reminder not to read too much into monthly wiggles. Mind the trend instead, and the UK’s retail trend has been choppy for a while. Markets are used to it.


US Orders for Business Equipment Rebound, Defying High Rates

By Mark Niquette, Bloomberg, 5/24/2024

MarketMinder’s View: In another sign US businesses are going on offense after two years of retrenching to survive a recession that never came, durable goods orders rose 0.7% m/m—trouncing expectations for a -0.6% decline. Excluding defense and aircraft, core capital goods orders rose 0.3% m/m. This category most resembles GDP’s business investment in equipment subset (although it omits R&D spending and intellectual property), so it augurs well for a continued recovery in that category. In our view, the article sums it up well: “The report suggests businesses remain committed to making long-term investments despite high borrowing costs and elevated input prices. Though firms are cautious about capital spending, many are seeking to enhance productivity and boost capacity amid a reshoring trend.” This is just one area where reality is beating expectations, helping fuel this bull market. (Oh, and as this article delves into one aircraft manufacturer’s travails, we remind readers that MarketMinder doesn’t make individual security recommendations—we are here for the broader economic data report only.)