Daily Commentary

MarketMinder’s View: As always, we prefer no party nor any politician and assess developments for their potential economic and market implications only. Taxes are something many investors believe carry huge ramifications for both, putting tax debates front and center always. So as Congress debates how to extend 2017’s Tax Cuts and Jobs Act (TCJA) and President Donald Trump weighs in with his preferred ideas (which include making tips, overtime pay and Social Security benefits tax-free as well as raising taxes on very high earners), all eyes are on them to see what emerges. This is a good rundown of the divisions and sticking points, which include Trump’s ideas and the potential raising of the state and local tax deduction—as well as the spending cuts necessary to make tax cuts permanent (versus kicking the can for a decade). Already, it looks like early proposals are starting to get sanded down, which is normal when intraparty gridlock reigns as it does now. So whether you think the current tax plans are great, horrid or mixed, we suggest not getting hung up. Markets, meanwhile, typically discount tax changes gradually, well before they take effect, sapping surprise power for good or ill.

MarketMinder’s View: When yesterday’s quasi-deal between the US and UK included the removal of US tariffs on British steel, we suspected the government’s efforts to rescue an ailing steel plant had something to do with it. This is now getting clearer. The plant in question belongs to British steel, which is currently under Chinese ownership. The UK government has spent weeks trying to figure out how to force the company’s divestment, as the owners were planning to close the plants. Nationalization was on the table, and now it appears the trade deal requires plants not to be under Chinese ownership. This could give the UK more legal backing to complete a transaction it already wanted to make. Which isn’t a huge deal economically or for markets, but it shows how many moving parts there are in trade talks. It also highlights why this was the easiest deal for the Trump administration to reach. Far from being strong-armed, the UK government was already seemingly looking for a reason to do what the US was asking. Other countries might not have such overlapping aims. This is a big reason why we don’t think this deal does much to alleviate uncertainty. For more, see yesterday’s commentary, “The UK and US Make a Deal (to Maybe Make a Deal Later).”

MarketMinder’s View: “Positive but muted” is how analysts sum up the collective economic effects of the UK’s trade deals with the US and India and the Bank of England’s quarter-point rate cut, all happening this week. That seems like a fair assessment to us, given incremental rate moves tend to be pretty meaningless and trade deals’ benefits gradual and long-term. The US trade deal also seems geared toward individual companies rather than the broad UK economy (which reminds us, MarketMinder doesn’t make individual security recommendations, and those mentioned here merely highlight the broader theme) and still leaves overall tariffs higher than they were in January. But also, the UK economy doesn’t need massive stimulus and fresh catalysts. It was already plodding along fine, better than expected. So sentiment still looks well in check, preserving UK stocks’ wall of worry. In our view, the deals’ main benefits at this point are probably psychological, helping ease the uncertainty hanging over businesses and their investment decisions. With employment data this week also showing widely feared tax hikes haven’t bitten nearly as hard as many forecast, the volley of good news might motivate more risk-taking, which fuels investment and growth.