Daily Commentary

MarketMinder’s View: This article devolves into some discussion of political matters, so please note that MarketMinder favors no politician nor any political party. That said, the “news” here is that the Bank of England (BoE) kept its key interest rate at 4.5% today, which wasn’t a surprise. More interesting to us was the BoE’s updated growth forecast, which revealed skepticism about the UK economy remains rampant. “The Bank upgraded its forecast for growth in the first quarter from 0.1% to about 0.25% after a stronger end to 2024 than feared, but said the outlook remained highly uncertain amid weak consumer and business sentiment. … In a blow for the chancellor before the spring statement, the Bank published findings compiled by its network of agents across the country showing that growing numbers of companies were putting their hiring plans on ice. ‘Employment intentions are now negative, on balance, with more firms reporting hiring pauses or freezes and saying they will review staffing levels through natural attrition or redundancies if the outlook does not improve,’ the report said.” Now, it is fair for businesses to wait and see what Chancellor Rachel Reeves shares in her spring statement next week, but we also wonder whether companies are blaming their issues on an external bogeyman. We have seen that behavior before, e.g., US firms pinning weakness on tariffs, or a strong currency or an upcoming presidential election, etc. Regardless, many anticipate the BoE will resume cutting rates later this year in order to support the economy—indicating expectations remain low in the UK.

MarketMinder’s View: After the Fed released its economic outlook yesterday, some experts thought the projections “were revised in a stagflationary direction” (whatever that means). In our experience, “stagflation” is an economic term headlines frequently warn about but which rarely manifests. Definitions may vary, but generally speaking, stagflation is either flat economic growth or contraction paired with rising prices and unemployment. The 1970s are the classic example, if not the only one. Now, this article acknowledges we aren’t near 1970s levels today, but it still worries it is a risk on Fed officials’ radar now due to the White House’s tariffs and uncertainty. However, investors can easily dig into whether the US risks a 1970s redux in the foreseeable future. For instance, does inflation look likely to speed up again soon? Well, inflation is always about too much money chasing too few goods and services. Today, inflation rates are historically normal and money supply is growing at prepandemic rates (source: Center for Financial Stability)—so the fuel for sharp reacceleration doesn’t seem to be there. The unemployment rate isn’t far off generational lows (and is a late-lagging indicator anyway). The economy appears to be growing, too. Moreover, the 1970s’ stagflation was due to a number of factors, including President Nixon’s price controls, fast money supply growth and a global oil supply shock (due to OPEC’s embargo). We aren’t saying another bout of stagflation is impossible, but it doesn’t look probable now.

MarketMinder’s View: We have some more falling uncertainty north of the border, as multiple news outlets report newly elected Canadian Prime Minister Mark Carney of the Liberal Party is likely to call a national election for April 28—about five weeks from now. It appears Carney is striking when the iron is hot in an effort to capitalize on his apparent popularity boost as the person to stand up to President Donald Trump in trade negotiations. “Some suggest a shorter campaign could work in Carney's favor, since much of the current national discourse revolves around the ongoing trade war between the US and Canada, particularly after President Trump's threats and actions.” From an investment perspective, this development means we will get the next government’s composition sooner than later—allowing businesses to move on and start planning. For more, see last week’s commentary, “Rounding Up Politics in Canada, Portugal and America.”