Daily Commentary

MarketMinder’s View: Chinese trade beat expectations in April, with exports (1.5% y/y, beating estimates of 1.3%) and imports (8.4% y/y, more than doubling estimates of 4.0%) both growing. On the latter, which signal domestic demand, “The unexpected jump in China’s imports was spread across many trade partners, with shipments from the US, South Korea, Taiwan, the Netherlands and Russia all rising more than 10%.” The article attributes this to global trends rather than domestic demand, as much of the bump came from tech components that will be assembled into final goods and re-exported. Which, fine, but either way it contributes to global demand, which is what stocks care primarily about. This short roundup also points out mainland China isn’t the only place in the East Asian region seeing an uptick in trade activity. “Other Asian trading nations also saw overseas sales climb last month on strong US demand. South Korean exports rose almost 14%, while Taiwan reported a record level of shipments to the US.” This is the latest bit of evidence that a major segment of the global economy continues to grow apace—worth noting for globally minded investors.

MarketMinder’s View: MarketMinder is nonpartisan and our analysis focuses on politics’ market and economic impact only. Typically, local elections aren’t too relevant for national political market drivers. But this is a special case, as Spanish Prime Minister Pedro Sánchez’s multiparty coalition government includes Catalan separatist parties—parties whose decision to call a snap regional election upended this year’s budget legislation and deepened gridlock. This saga will get some resolution when the contest in question happens on Sunday, and this piece provides some helpful background on the vote. As a political science professor interviewed here describes it, “… the vote will reflect starkly different views of where Catalonia should go after the amnesty—which would reprieve hundreds of people—as well as the pardons Sánchez granted to nine leaders in 2021. ‘This election is about whether we think the recent actions of the Spanish government are the way to reach consensus and a peaceful, non-traumatic resolution,’ he [Professor Ignacio Lago Peñas] said, ‘or whether we want to continue in the vein of conflict by opting for non-negotiated independence.” The Catalan branch of Sánchez’s Socialist party is leading in polls, ahead of the hardline separatist Junts per Catalunya, but as the article also points out, neither party looks set to win an outright parliamentary majority. That likely means a weeks-long negotiating process as parties seek allies for potential pacts—a recipe for compromise (and gridlock) that probably echoes and reinforces the tentative national coalition’s inability to pass much. For all the noise reverberating out of Spain, a gridlocked government unable to pass much of consequence remains an underappreciated positive for stocks.

MarketMinder’s View: Central bank speculation isn’t just an American phenomenon. Across the pond, Bank of England (BoE) observers are digging through the monetary policy committee’s (MPC) latest report for clues on the timing of a rate cut. Two MPC members think rates should be reduced from 5.25% to 5% while a faction of the committee allegedly needs more evidence inflation will stay cool before voting to cut. The “wait-and-see” group is supposedly focused on labor market slack, annual earnings growth and service sector inflation to deem whether inflation is just right or not. As this analysis rather definitively puts it, “The minutes of the latest MPC meeting suggest there are differences of opinion between those currently voting to keep rates on hold. As the record of the meeting makes clear, it would only take slightly better news on the likely persistence of inflation to persuade some committee members – including Bailey – to switch to the rate-cutting camp in June. Otherwise, the first move downwards will come in August.” Which, maybe! But like their counterparts on the Fed’s FOMC, MPC members are likely consulting myriad datapoints to determine their monetary policy vote—and it is near-impossible to deduce how nine different individuals will act on an unknown host of variables. Not that investors must divine what the BoE (or any other central bank) will do—monetary policy is one factor impacting the stock market and economy, but it is far from the most consequential one.