Daily Commentary

MarketMinder’s View: America’s manufacturing soft patch continued in November according to the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI), which fell to 48.2 from October’s 48.7. Readings below 50 mean more businesses reported contraction last month, though PMIs reflect that contraction’s breadth, not magnitude. The article links November’s weakness to President Donald Trump’s tariffs, which is likely a contributing factor. As it notes, “Uncertainty concerning tariff levels has also weighed on manufacturers, as duty levels have fluctuated for much of the year. Further clouding the outlook: a pending Supreme Court decision that could nullify many of the duties.” While the article’s takeaways are pretty dour, it does offer an interesting point near the conclusion: “A separate survey of manufacturing activity, S&P Global’s PMI for manufacturing, came in at 52.2, down slightly from October’s 52.5, but still above the 50 break-even line, according to its report published Monday. While factories produced more, there was a steep rise in unsold inventories. Demand growth slowed, especially in export markets where tariffs continued to cloud the outlook.” We pointed out this divergence before—worth keeping an eye on, even if this information doesn’t reveal anything markets aren’t already aware of.

MarketMinder’s View: The US and UK struck a deal to remove President Donald Trump’s tariffs on British pharmaceutical imports. Most pharmaceuticals have been largely levy-free since the World Trade Organization’s 1994 public health agreement, but the Trump administration changed that, with the president’s threats of 100% tariffs on medicines made outside America. For the UK, Monday’s deal removes this burden and uncertainty. This probably isn’t a game-changer economically, considering UK pharmaceuticals comprise around 11% of exports to the US (per the Office for National Statistics). Still, the deal is a positive in that it provides clarity for businesses and removes some additional costs to margins and/or consumers. A small cheer, but a cheer nonetheless. Separately, the deal also lowers the “rebate rate” drug companies pay to Britain’s National Health Service (NHS, the country’s public healthcare apparatus). The UK also agreed to boost spending on prescription drugs and cut the rebate paid by drugmakers on sales to the NHS from 23% to 15%. That is a response to drugmakers’ longstanding concerns, but all this phases in through 2035—which is a long way away, so who knows how that could change. So in effect, this could mean higher surface-level costs for the NHS, but the additional supply it may encourage could offset that. Overall, though, this is yet another example of negotiators hammering out details on trade agreements, providing a bit more clarity for companies and investors—even if the details create winners and losers.

MarketMinder’s View: Now, this article dives into British politics, which is still dotted with coverage of Wednesday’s Budget announcement by Chancellor of the Exchequer Rachel Reeves and, as the title hints at, there is a heavy partisan angle to this. Please note that we favor no politician nor any political party and assess developments like this for their market and/or economic effects only. With that in mind, the story here is that for months, Reeves floated tax hike trial balloon after trial balloon on the grounds that a decline in British labor productivity had widened expected budget deficits over the next five years, which is counter to fiscal rules seeking a balanced budget in that span. This article notes that the nonpartisan Office for Budget Responsibility (OBR) had revised away that projected deficit widening in the months before the Budget release—and that Reeves knew it. We won’t traffic in biased talk about whether this constitutes a politician lying. (We mean, it probably is, but that is far from unique. Hence, the old adage, “How do you know when a politician is lying? Their lips are moving.”) The OBR’s estimates are what drove all the debate over tax hikes and guide future policy, to boot. In the short term, the debate over her honesty does keep some political uncertainty alive in the UK, in the sense that it could cost Reeves her job or, we guess, Prime Minister Keir Starmer, which was whispered about before the Budget itself. But also, there is a logical point made in this article we want to highlight. Per an analyst from the National Institute of Economic and Social Research (NIESR) interviewed here, “‘However, it is equally possible that she simply wanted to prepare the public for the large tax increases in the Budget that were necessary for her to build a bigger “buffer” against her fiscal rules, something that NIESR argued for in our Autumn Economic Outlook. ‘If this were the case, then actually it would be important to let the markets know that she was serious about raising taxes, which the 4 November speech did. Although we feel that the £22bn buffer is not enough – we advocated £30bn – increasing the size of the buffer does make it less likely that the OBR’s March forecast will require a further response from her (like it did back in March of this year), allowing her to stick to her pledge of only one fiscal event next year.’” That could mean the tradeoff of more short-term uncertainty now for less in the new year—a matter worth monitoring.