Daily Commentary

MarketMinder’s View: Over the past couple months, we have pointed out the many ways companies can mitigate tariffs’ bite. The tactics addressed here are another example, and we think they showcase not only businesses’ creativity but also why tariffs are economic negatives in general. On the former, Canadian warehouses are seeing a surge in demand as companies look for ways to avoid the biggest tariffs. As explained here, a company can change the final destination for its shipment to a Canadian warehouse, then transport the goods to the US in special bonded trucks, “which exempt their contents from duties while they’re in transit. Legally, it was as if the products never landed in the US at all.” Doing so doesn’t skirt all tariffs, but “it does let the owner delay paying them until the goods are shipped stateside. That can prove useful as Trump’s rates keep shifting. It also helps companies smooth out cash flows and avoid paying any tariffs on unsold goods.” Smart! Yet this also illustrates how tariffs throw sand in the gears of the global trading system and add costs beyond the duties themselves. As the warehouse owner interviewed here explains, some goods from China are making a pitstop in Canada before heading back to the Pacific (e.g., Japan and Australia). For many mid-sized US firms, having a single location to organize their orders from Chinese suppliers is most efficient—and thanks to US tariffs, some businesses are considering shifting to more friction-less options like Canada to serve as their logistics hub even as the prices for such services jump. Creative cottage industries help businesses navigate the storm, but added costs are added costs. For more, see this week’s commentary, “Charts of the Day: Trade Winds Shifting Around Tariffs.”

MarketMinder’s View: UK GDP fell -0.3% m/m in April, worse than estimates and the sharpest contraction since October 2023. Tariff uncertainty and the hangover from US customers’ front-loading purchases in February and March likely weighed on some industries (e.g., motor vehicle manufacturing dropped -9.5% m/m), but domestic developments contributed to April’s weakness, too, particularly on the services front (legal activities plummeted -10.2% m/m). “The slump came as some tax rises came into force, including a change to stamp duty rates in England and Northern Ireland that led to a sharp drop in house sales. The hit to estate agents, conveyancing lawyers and other property industry businesses helped push the services sector down by 0.4%.” Call a spade a spade: This was a poor report. However, this is also the nature of a monthly data series, where one-off factors can have an outsized effect. Trends take time to materialize, so we don’t yet know the long-term effects of this or the other tax changes taking effect in April. Monthly GDP also has a history of being quite bouncy. Regardless, these data reflect what happened in April. We are now almost halfway through June, and forward-looking markets are, well, looking forward … and hitting all-time highs and rising in the UK.

MarketMinder’s View: According to four different research outfits, German GDP will grow modestly this year—snapping a two-year streak of annual contractions—before accelerating in 2026. Our interest here is less in the projected figures and more about the why behind them. As the article relays, the experts expect improvement because of the new German government’s big spending plans—a purported shot in the arm for the current “Sick Man of Europe.” We have a few takeaways from this. One, these outfits are overstating public investment’s economic benefits, which doesn’t turbocharge growth the way many presume, in our view. Besides taking time to reach its recipients, government spending boosts some companies and industries over others—it isn’t a broad benefit for the economy at large. The German economy is also already recovering, arguing against the need for “help.” Finally, from an investment perspective, markets often do something different than what the consensus expects. Currently, the consensus appears bullish on Germany largely on the hope of government spending—meaning markets have likely pre-priced that development already. Now, we are optimistic about Germany for other reasons (e.g., more resilient private sector growth than popularly perceived against all the sick man talk), but it is worth monitoring how expectations align with reality—excitement for public spending could lead to disappointment should the new government fail to enact as much as anticipated. For more, see our March commentary, “Merz’s Massive Spending Isn’t Germany’s Saving Grace.”