Daily Commentary

MarketMinder’s View: Some politics here, so please note MarketMinder is nonpartisan, assessing developments solely for their potential economic and/or market effects. Australia’s Intergenerational Report discussed here reportedly foretells “far-reaching” economic implications tied to an aging population hitting around the 2060s, when deaths are projected to outpace births and the graying population stresses the country’s fiscal health due to benefit and health expenditures. We won’t try to predict Australia’s demographics ahead, but these projections’ potential negatives aren’t inevitable. For one, these estimates assume today’s trends and policy are concrete, which is unlikely. Politicians could extend the country’s preservation or pension ages (when Australians can access public benefits), easing the supposed fiscal pressure here. Relatedly, the report weighs these trends as economic threats over the next forty years. This massive timeline lies well beyond the 3 – 30 month window stocks care about most. Far too much can change between then and now. Lastly, these long-term projections put far too much weight into human capital’s contribution to economic growth. Technological innovation and financial capital also matter and can help drive economic expansion even as a population ages.

MarketMinder’s View: This piece centers on German politics, so please note MarketMinder is politically agnostic. We favor no policy, politician nor party, assessing developments solely for their potential economic and/or market effects. In yesterday’s twin state elections, Chancellor Friedrich Merz’s Christian Democratic Union (CDU) failed to win a majority of votes in Mecklenburg-Western Pomerania and Berlin—even missing the 5% mark in the former, giving the CDU zero seats in the state and marking the party’s worst-ever state election result. This follows disappointing outcomes for the CDU in other state elections earlier this month, which speaks to general discontent with Germany’s ruling coalition—as well as gridlock. For context, Merz’s CDU and its coalition partner, the Social Democratic Party (SPD), are already divided on Merz’s targeted economic and welfare reforms this year, which include “modest tax cuts, an overhaul of the country’s state health-insurance system, and changes to its pension system.” After the latest poor election showings, the SPD is pushing for policy shifts. Yet, as the title notes, Merz pledged to stay the course on Monday, a sign the coalition’s policy divergence may be widening yet. Pair this with the CDU-SPD’s myriad extant policy disagreements with opposition parties (i.e., AfD, Die Linke, the Greens) and political gridlock reigns in Germany. Now, we were always skeptical Merz’s plans would be big economic boons. But as these policies (and future ones) hit the floor for debate and voting, a tightly gridlocked parliament gives stocks time to price their likeliest effects and raises the likelihood these bills get watered down or not pass at all—reducing uncertainty.

MarketMinder’s View: Rounding out this week’s central bank action, Japan hiked a quarter point Friday, a move we find sensible … but not for the reasons described here. Policymakers (and the article) dwell on Japan’s inflation risks, citing high wholesale inflation as a sign of consumer price inflation to come. We doubt it, considering wholesale and consumer prices tend to move in tandem, and retailers can’t always pass higher costs to consumers. Japan’s economy is growing slowly, with only modest consumer demand and money supply growth, suggesting businesses lack much power to pass on costs. Yet unlike the Fed’s hike, we still don’t think the move itself is an error, because in Japan, rate hikes are part of a return to normal after decades of monetary experimentation. Lifting rates should also help the yen, relieving some of the pain from high energy costs (Japan is a net energy importer, and energy is priced in US dollars, so a weak yen raises costs). Long rates are also high enough that a rate hike doesn’t much flatten the yield curve, so it shouldn’t choke growth. Japanese stocks have done quite nicely during monetary policy normalization.