Daily Commentary

MarketMinder’s View: Lots of politics in this piece, so keep in mind that MarketMinder prefers no politician nor any party—we assess developments for their potential economic and market effects only. This is the latest in a long string of pieces arguing the UK government’s fiscal plans are a negative for local stocks. The evidence: Fund flows, which show money leaving UK-focused stock funds while other countries received net inflows. Look, we don’t doubt all the talk about shifting tax rates is raising uncertainty, which can deter risk taking and hit sentiment as people wait to see what the lay of the land will be. But fund flows are the wrong place to measure this, as there are too many competing variables and unknowable counterfactuals. Such as: What did people do with the money they pulled from UK funds? Put them into individual stocks? And considering these funds aren’t dedicated to UK stocks but just happen to be overweight because they are income-focused, might it just be that investors shifted their preference away from high dividend-paying stocks in general? And if Brits are down on UK stocks because of potential capital gains increases, it wouldn’t make sense to load up on international stocks (which the article sort of alludes to), as they would still have to pay tax on those gains. We do think it is fair to say Budget uncertainty is weighing on sentiment and recent UK returns. France is enduring something similar. But this is part and parcel of markets pre-pricing potential change, which helps sap surprise power as and when the actual Budget becomes clear at the end of this month.

MarketMinder’s View: ADP’s September National Employment Report flashed some positive signs for the private sector, beating expectations for the second consecutive month: “Companies added 143,000 jobs in September — more than the 120,000 gain predicted by LSEG economists. The report also revised August's jobs gains upward from 99,000 to 103,000.” Services businesses led the way, while manufacturing extended its long flattish streak. This divergence makes sense, as manufacturing—and the general “goods” portion of the economy—has struggled for the past couple of years while services drove growth. This is a lingering example of post-lockdown distortions, as we showed recently, so it isn’t surprising that late-lagging employment metrics still show it. As for the discussion of slowing year-over-year wage growth, we think it is backward. Wages follow inflation, not the opposite, so it is natural and normal that slower wage growth would follow inflation’s slowdown. Overall, September’s reading adds to a slew of better-than-expected labor market data in recent weeks, showing early August’s freakout over this late-lagging indicator was overwrought.

MarketMinder’s View: The Institute for Supply Management’s (ISM) services purchasing managers’ index (PMI) had a fine September, rising from 51.5 to 54.9, beating expectations and—being well above 50—indicating broader growth. This is services’ highest reading since February 2023, showing the largest segment of America’s economy is growing just fine. This is a solid counterpoint to continued recession fears, which hinge either on backward-looking data (e.g., unemployment) or manufacturing-heavy measures like The Conference Board’s Leading Economic Index. PMIs aren’t perfect, as they measure growth’s breadth rather than its magnitude, but it would be quite unusual for recession to break out with a services PMI in the mid-50s. Better still, forward-looking new orders surged from 53.0 to 59.4, which augurs well since today’s orders are tomorrow’s output.