Daily Commentary

MarketMinder’s View: Today in tariff news, we got some resolution on one plaintiff group’s request for the Supreme Court to expedite review of the Trump administration’s tariffs. The Supreme Court has now declined, which “means the administration will have the normal 30 days to file a full response, not the much shorter period the companies sought in their filing on Tuesday. The companies want the court to take the unusual step of considering the case without waiting for a federal appeals court to rule. The administration says the Supreme Court should let the normal appellate process play out.” This case is separate from the case the Court for International Trade ruled on last month, striking down the tariffs, and which is now pending with the US Court of Appeals for the Federal Circuit (which has said the tariffs can remain in place during the appeals process). So we have twin challenges working their way up the ladder, illustrating the lingering uncertainty. Businesses and investors will get clarity as this continues playing out, but for now things are clear as mud. On the bright side, with tariff revenues continuing to undercut forecasts by a wide margin, markets are able to move on from worst-case scenarios they seemingly priced in April. But the ongoing uncertainty likely remains a headwind, in our view.

MarketMinder’s View: Far be it from us to predict what any politician will do, anywhere (which reminds us, MarketMinder is non-partisan, preferring no politician nor any party and assessing developments for their economic and market implications only). But extrapolating big tax hikes from one month’s budget deficit seems a bridge too far. For one, other reports indicate Chancellor of the Exchequer Rachel Reeves is hoping to raise revenue by undoing earlier changes to the taxation of non-domiciled foreign residents, which appear to have caused these folks to leave and take their entire tax take with them. Applying lessons that the more you tax something, the less you get of it, could be a third way to raise revenue. Two, speculating based on forecasts of GDP and interest rates ignores the possibility that both could behave differently than expected. Three, all this talk of May being the second-highest monthly deficit on record ignores the role inflation played. Inflation lifts spending and revenues. But if spending has long exceeded revenues, which it has, then the simple math dictates it will grow more in pounds than spending, which will widen the deficit. And after a run of hotter inflation, that is near-automatically going to create record highs. Looking at those raw numbers doesn’t give much information. In our view, pieces like this are emblematic of still-dour sentiment, creating an easy hurdle for reality to beat.

MarketMinder’s View: There is a bit of an interesting sentiment shift going on in Europe, which the Swiss National Bank’s (SNB’s) decision to cut rates to zero illustrates. Where US investors fear tariffs reheating inflation, Europe fears the opposite: US tariffs weakening the dollar and strengthening European currencies (euro, Swiss franc, etc.) while motivating other nations to “dump” cheap exports in their markets, causing too-slow inflation and weak growth. While “too slow” sounds like a weird descriptor for inflation after 2022, there is a long-running myth that inflation below a central bank’s target either indicates or predicts sluggish economic growth. We disagree, as the real issue here is money supply growth—inflation is a monetary phenomenon, after all, of too much money chasing too few good and services. The SNB cut rates yesterday in part because Swiss CPI fell -0.1% y/y in May, raising fears that the country is slipping into deflation. But falling CPI seems more like an after-effect of Switzerland’s broad monetary contraction from February 2023 through May 2024, when M3 fell on a year-over-year basis for 15 straight months (per the SNB). Now it is growing and accelerating, which points to modest inflation and supports modest growth looking forward. Hence, tariff-related deflation and disinflation fears seem wide of the mark to us, indicating this is a new brick in European stocks’ wall of worry.