Daily Commentary

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.

MarketMinder’s View: In addition to being a fun read, this shows a couple of key points about the Trump administration’s tariffs. One, the actual tariff isn’t the only new cost businesses face. There are also compliance costs, as firms staff up and employ customs brokers to navigate the new mountains of paperwork they now face and figure out sneakily complex details like country of origin. While this should be simple, it isn’t always. One customs broker “recently asked a beer-importing client for documentation showing the origins of aluminum it uses in its cans, to determine whether it was subject to new Trump administration tariffs. ‘It’s gotten a lot more complicated,’ he said. ‘Was it smelted in Mexico or India? Whoever smelt it, dealt it?’” But two, these customs brokers also help ease the burden on businesses, as they are extremely adept at figuring out—and helping implement—supply chain workarounds and clever ways to break down the products into their subcomponents to reduce tariff liability. Avoidance is a time-honored American tradition when it comes to taxes, and businesses are pretty good at figuring out how to navigate new barriers. This is one reason why tariffs—while a negative, in our view—aren’t automatically bearish. Companies can still find ways to transact and profit, mitigating tariffs’ take.

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.