Daily Commentary

MarketMinder’s View: This fact-packed article about Japan’s -3.09 million population drop between 2020 and 2025 doesn’t make any economic or market claims. But it does show a long-running fear about economics and markets—demographic decline—coming true. A -3.09 million person drop in five years is Japan’s biggest decline on record, amounting to -2.5% and over triple the population drops in the prior two five-year periods. And while the household count rose, “This is believed to be due to an increase in the number of single and elderly people living alone. The average number of people per household fell to a record low of 2.15.” This will all have implications for redistricting, which will unfold later this year alongside a parliamentary debate over reducing seat count. But do you know what we don’t see implications for? Japan’s economy or markets. Japanese GDP grew 6.7% in this stretch and 2.0% since 2019, to account for 2020 being a COVID-depressed base (per FactSet). Japanese stocks rose just fine, with their underperformance tied more to the US’s Tech boom and overall domestic sector makeup than inherent weakness. Businesses are adapting with automation and efficiency gains.

MarketMinder’s View: Lots of politics here, so we remind you MarketMinder prefers no politician nor any party and assesses developments for their economic and market implications only. In this case, UK energy regulator Ofgem announced earlier this week its household energy price cap will jump 13% in July to an annual rate of £1,862, factoring in natural gas prices’ jump as the Iran war broke out. But today, they tweaked the calculation to account for households’ reduced energy use (the logical response to high prices), knocking the next price cap down to £1,663, little changed from the current £1,641. The electricity rate won’t fall. It is just multiplied by fewer megawatt hours consumed per household. Opposition politicians seized on it as “jiggery pokery” and illusory savings, which we will set aside. Our main interest here is how it will all feed into the Consumer Price Index, given the price cap’s changes have a large influence on the headline inflation reading. So we dug into Ofgem and Office for National Statistics reports from the last time Ofgem changed its calculation to account for conservation in October 2023. And we crunched a lot of numbers, and it looks to us like the inflation calculation incorporates the actual hourly rates, not the headline average annual cost. It is hard to say for sure, given the alphabet soup of government policies affecting households’ energy costs in October 2022, which skewed the year-over-year electricity inflation rate, but that is our best guess. Which makes perfect logical sense to us. We will still take a close look at July’s Consumer Price Inflation report to see how this all shakes out, but the hourly rates (unaffected by volume of consumption tweaks) are the centerpiece of Ofgem’s materials, so make of all that what you will. More broadly, the continued lesson: However they are calculated, price caps don’t cap prices. For more, see last week’s commentary, “CPI Sheds Light on Britain’s Price ‘Cap’ Conundrum.”

MarketMinder’s View: Forget the trade deficit, which is a meaningless statistic. Imports represent domestic demand, and running a trade deficit doesn’t mean the US bleeds money—it means an investment surplus as foreign companies reinvest revenues here. It all balances out. So we think it is more interesting to simply look at both sides of April trade—exports and imports—for what they imply about the domestic and global economies. Goods exports jumped 4.0% m/m, “… propelled by increases in capital goods and consumer merchandise as well as outbound shipments of industrial supplies such as crude oil and petroleum products, which climbed to a record.” In other words, higher US energy exports are helping the world weather the Strait of Hormuz’s closure. Meanwhile, imports rose 1.9% m/m, despite tariffs’ continued existence, as demand outweighed annoyance and, potentially, modestly increased costs. “The advance data don’t offer a detailed breakdown of capital goods imports, but they are ‘hinting that the surge in imports of computer equipment linked to the AI boom continues apace,’ Oliver Allen, a senior US economist at Pantheon Macroeconomics, said in a note.” Get ready for another round of AI is the only thing boosting the US economy, we guess—a false fear that bullishly extends US stocks’ wall of worry.