Daily Commentary

MarketMinder’s View: (As always, MarketMinder is nonpartisan, favoring no party nor any politician and focusing solely on political developments’ potential market implications, if any.) Don’t count your chickens before they hatch, but Canada’s minority ruling party is clucking over a potential majority after Conservative Member of Parliament (MP) Marilyn Gladu crossed the floor to join Prime Minister Mark Carney’s Liberals, leaving them one MP short of “broader powers to pass legislation and reshape Canada in the face of a changing global order.” A majority may come soon enough: “Liberal Party candidates are favored to win two special elections next Monday in Ontario, and are neck-and-neck in a third race in Quebec.” As we wrote last month, though, that doesn’t automatically mean Ottawan gridlock is over. While traditional interparty gridlock may be less relevant, intraparty divisions likely gain prominence, especially if newly minted Liberals aren’t completely on board with the party’s left flank. Meanwhile, a thin Liberal majority—and its consequences—have been on markets’ radar now for months. This would be no shock for stocks, which move most on surprise.

MarketMinder’s View: Whether the tentative two-week ceasefire announced Tuesday evening holds or not, look longer term. Businesses and markets are nothing if not relentless at navigating barriers to commerce (see tariffs with any questions). Given the uncertainty of seaborne traffic through the Strait of Hormuz, this piece looks at other historical “chokepoints”—and how maritime disputes over them resolved. Cutting to the chase: The bottlenecks didn’t stay that way for long as motivated parties found workarounds even as countries claimed “control” over the waterways. These provide potential starting points for Iran and the US to agree on a framework both sides find acceptable (since neither country ratified the UN Conventions on the Law of the Sea), like giving potential tolls a palatable branding—should both countries pursue a diplomatic end, rather than a military one. Yet even here, the longer-term economic implications are limited. “Saudi Arabia and the United Arab Emirates managed to circumvent the chokepoint to a limited degree via their bypass pipelines. Riyadh and Abu Dhabi are almost certain to double down, expanding those emergency conduits further. Kuwait would doubtless join forces with the Saudis to build its own bypass pipeline.” The upshot? “Iran’s stranglehold over energy supplies will therefore loosen over time. Five years from now, the Persian Gulf will have far better bypass options than it does today. No matter what the US and Iran agree over the future of Hormuz, the strait’s status will change. But the waterway will never be as critical to the global economy as it was when the fighting started six weeks ago.” Capitalism finds a way, which is one reason why global stocks rose—and energy prices fell—before the ceasefire and even after it immediately began looking tenuous. When in doubt trust markets, which are several steps ahead of headlines, looking 3 to 30 months out. Of course, the breaking news everyone is glued to may swing sentiment short term, but that doesn’t confer any long-term advantage. Investors fare better weighing future fundamentals.

MarketMinder’s View: As we wrote last April, one reason we expected tariffs’ actual bite to not match their bark: Importers would be incentivized to discover loopholes, especially with regulatory enforcement (and staffing) lacking. One year later: “Experts say companies most likely began finding ways to reduce the value of the goods they were sending to the United States. Lowering the value of the toys, couches and other products headed for America’s shores meant that companies could also reduce the amount of tariffs they had to pay for those imports.” Read on for more details of the many ways (legal and otherwise, which we absolutely don’t endorse) firms have explored tax avoidance. But for investors the takeaway remains the same as immediately post-Liberation Day: Tariffs’ hit is less than feared, which is why stocks rallied even as extra import taxes bit.