Daily Commentary

MarketMinder’s View: As highlighted here: “US inflation jumped to an annual 3.8 per cent in April, while average hourly earnings increased 3.6 per cent over the year, meaning prices were rising faster than earnings for the first time in two years.” This phenomenon is also occurring in the UK and eurozone, sparking concerns “that households will rein in spending, worsening the hit from the war to economic growth and forcing companies to cut jobs as demand slows.” But that isn’t all: “The other possibility is that workers will succeed in bidding up wages, fuelling persistent inflation even once energy prices fall.” History, though, shows investors can put both these fears to bed. Regarding the first, most consumer spending goes to essential goods and services, while energy makes up too small a portion of the total to prompt major cutbacks elsewhere. You do get some substitution, but it tends to be modest, mitigated by changes in driving behavior and in a handful of discretionary categories, which markets are aware of and have likely priced in. Overall spending is generally pretty stable even in recessions. As for the second, workers typically bid up wages to stay on top of living costs—otherwise they seek employment elsewhere, as Nobel economist Milton Friedman taught decades ago, debunking the wage-price spiral theory of inflation in the process. Wages always follow inflation. They never lead it, for this reason. And since wages are an aftereffect of inflation, they don’t drive it, which conveniently resolves the second issue, too. As Friedman also taught, inflation is caused by too much money chasing too few goods and services. With developed market money supply growth currently running at prepandemic rates—when inflation wasn’t a problem—it isn’t about to runaway today (one-off energy spikes notwithstanding, as attendant cutbacks elsewhere depress prices in those areas).

MarketMinder’s View: Government “stimulus” generally isn’t all that it is cracked up to be. As the headline hints here and the article delves into: “Italy’s €194bn share of the EU’s post-pandemic recovery fund was meant to deliver a ‘once-in-a-generation’ reboot to a lagging economy. But as the deadline to use the loans and grants looms, Italy’s economy remains sluggish, fuelling debate over what the ambitious reforms-linked investment package has achieved.” As the article points out, Italy is the largest recipient of the EU’s €577bn Recovery and Resilience Facility, and “Rome and Brussels are keen to present Italy as a success story.” Yet despite such incentives, the program “was revised six times as Rome struggled to meet benchmarks, while inflation triggered by Russia’s 2022 full-scale invasion of Ukraine drove up the cost of public works. ... But by the end of 2025, Italy had spent just 57 per cent of its funding allocation, according to Eurostat.” The lesson for investors: Don’t put your hopes in big economic boosts from government stimulus programs. They tend to get bogged down by bureaucracy even when the political stars align (which reminds us, we prefer no politician nor any party and assess developments for their market implications only). Now the article spends some time on Italy’s “lacklustre” economic performance and frets over its debt. Per FactSet, though, MSCI Italy has outperformed the MSCI World Index since 2021’s end. That isn’t because of government stimulus, as the article underscores, but despite it. Italy’s economic fundamentals needn’t be stellar. They need only overcome widespread fears—including those about the debt.

MarketMinder’s View: Although a US-Iran deal could unlock the Strait of Hormuz and “return large amounts of [oil] barrels to the market,” our interest here is the longer-term focus, which markets care more about. The article notes that “There are already efforts to at least somewhat ease the strait's importance by building pipelines to bypass it. The United Arab Emirates said in mid-May that it's speeding construction of a major pipeline that will double its export capacity through the port of Fujairah.” Meanwhile, regarding US oil production: “Higher prices are likely to encourage producers to boost their output as they see opportunities from a market that went from soft to tight. Before the war, the U.S. Energy Information Administration projected domestic production dipping from 13.6 million barrels per day this year to 13.3 million barrels per day in 2027. Its latest outlook, in mid-May, now sees production rising to 14.1 million next year. Publicly listed U.S. shale producers have increased 2026 capital spending plans by $490 million compared to pre-war guidance, the energy research and consulting firm Enverus tells the FT.” So regardless of how peace negotiations go, the titular emerging “new oil order” looks more stable than the one it is replacing—a better outcome than many feared just a few months ago. For more, please see Fisher Investments founder and Executive Chairman Ken Fisher’s recent column, “How to Think About the Iran War—and What It Means for Oil and Stocks.”