Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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BoE's Mann Says Rich Consumers Are Making it Harder to Curb Inflation

By Staff, Reuters, 2/29/2024

MarketMinder’s View: Inflation has slowed globally in recent months, but UK headline inflation has remained stubbornly higher than in other developed economies. According to Bank of England official Catherine Mann, one very specific factor could be to blame: “Mann told a Financial Times event that those on higher incomes who still had money for discretionary purchases, even with higher mortgage costs, were spending ‘disproportionately’ on travel, eating out and entertainment. That meant services inflation was not falling fast enough to bring inflation back to the BoE's 2% target even though energy prices were easing and goods prices were largely flat.” This is a very common sentiment, and it harkens from a school of thought that sees inflation as coming either from businesses passing costs to consumers or hot demand pushing prices up. The problem? It ignores that inflation is a monetary phenomenon of too much money chasing too few goods and services, which seems to be a chronic oversight at all the world’s major central banks right now and appears to be widespread within the BoE as well, based on other policymakers’ public comments. So, we aren’t pointing fingers at this one official, but rather using this as a friendly reminder that all central bankers have their biases and opinions that lead them to their monetary policy decisions. This is a big reason why policymaking is so unpredictable and why investors benefit from weighing actions after the fact rather than speculating about what will come next.


Key Fed Inflation Measure Rose 0.4% in January as Expected, Up 2.8% From a Year Ago

By Jeff Cox, CNBC, 2/29/2024

MarketMinder’s View: Despite accelerating slightly on a monthly basis, the headline personal consumption expenditures (PCE) price index inflation rate—the Fed’s targeted measure—cooled from December’s 2.6% y/y to 2.4% in January, while core PCE (excluding food and energy) eased slightly to 2.8%. Both matched analysts’ expectations. Under the hood, services prices matched December’s rate at 3.9%, while goods prices fell -0.5% y/y tied to softer energy costs. We don’t expect this kind of deflation to continue, but for now the relief in some prices might help sentiment a smidge. While encouraging overall, Thursday’s report didn’t pack many surprises—especially for stocks, which priced in this improvement a while ago. Still, this article warns inflation could reheat or stay higher for longer if the Fed jumps the gun in cutting rates, which we think is a stretch considering the lack of evidence rate hikes did much to tamp prices. While they inverted the yield curve, which theoretically weighs on lending, rate hikes didn’t translate to significantly higher bank funding costs—the national average deposit rate merely inched from 0.06% when the Fed started hiking in March 2022 to 0.46% in February 2024. So lending actually got more profitable as long rates rose. That it slowed anyway (and that broad money supply dipped) seems tied more to factors outside the Fed’s control. So while rate cuts might be welcome, we doubt they do much to grease new money supply growth.


Germany's DAX Index Breaks Records as Recession Looms

By Kristie Pladson, Deutsche Welle, 2/29/2024

MarketMinder’s View: Germany’s DAX index has notched several record highs in euros recently, but at the same time, the country is facing widespread economic weakness in what many consider a recession. This article attempts to discern how and why this may be. Some connect it to the DAX’s 40 constituents generating much of their income outside of Germany, whereas the country’s legion of small and medium-sized enterprises, which are still struggling, aren’t represented in the DAX. We can see the logic, but historically, companies from a given nation have tended to perform similarly regardless of whether their revenues are primarily domestic or international—local fundamentals matter more to returns than revenue source. In our view, the explanation is much, much more simple: Forward-looking stocks are pricing in the recovery ahead, not today’s weakness, which they discounted well before now. Consider: The DAX bottomed with global stocks in 2022, falling as expectations for Germany’s economy rapidly downshifted after Vladimir Putin’s Ukraine invasion and Western sanctions jolted energy prices and German natural gas supply. Then, deep recession (not to mention energy rationing) was the baseline forecast. That was 17 months ago, well within stocks’ 3 – 30 month window, and reality has subsequently gone much better than expected. Even though the results have been mixed at best, when expectations are as low as they were toward Germany, not as bad as expected can be a big positive surprise. With ample German gas storage levels to meet future industrial demand and signs of a pickup in factory orders, we think the country’s economic prospects are better than most think. Instead of using complicated theories to guess why there is a gap between recent economic data and stocks’ performance, remember much of the data are backward-looking and likely already in stocks’ rearview.


BoE's Mann Says Rich Consumers Are Making it Harder to Curb Inflation

By Staff, Reuters, 2/29/2024

MarketMinder’s View: Inflation has slowed globally in recent months, but UK headline inflation has remained stubbornly higher than in other developed economies. According to Bank of England official Catherine Mann, one very specific factor could be to blame: “Mann told a Financial Times event that those on higher incomes who still had money for discretionary purchases, even with higher mortgage costs, were spending ‘disproportionately’ on travel, eating out and entertainment. That meant services inflation was not falling fast enough to bring inflation back to the BoE's 2% target even though energy prices were easing and goods prices were largely flat.” This is a very common sentiment, and it harkens from a school of thought that sees inflation as coming either from businesses passing costs to consumers or hot demand pushing prices up. The problem? It ignores that inflation is a monetary phenomenon of too much money chasing too few goods and services, which seems to be a chronic oversight at all the world’s major central banks right now and appears to be widespread within the BoE as well, based on other policymakers’ public comments. So, we aren’t pointing fingers at this one official, but rather using this as a friendly reminder that all central bankers have their biases and opinions that lead them to their monetary policy decisions. This is a big reason why policymaking is so unpredictable and why investors benefit from weighing actions after the fact rather than speculating about what will come next.


Key Fed Inflation Measure Rose 0.4% in January as Expected, Up 2.8% From a Year Ago

By Jeff Cox, CNBC, 2/29/2024

MarketMinder’s View: Despite accelerating slightly on a monthly basis, the headline personal consumption expenditures (PCE) price index inflation rate—the Fed’s targeted measure—cooled from December’s 2.6% y/y to 2.4% in January, while core PCE (excluding food and energy) eased slightly to 2.8%. Both matched analysts’ expectations. Under the hood, services prices matched December’s rate at 3.9%, while goods prices fell -0.5% y/y tied to softer energy costs. We don’t expect this kind of deflation to continue, but for now the relief in some prices might help sentiment a smidge. While encouraging overall, Thursday’s report didn’t pack many surprises—especially for stocks, which priced in this improvement a while ago. Still, this article warns inflation could reheat or stay higher for longer if the Fed jumps the gun in cutting rates, which we think is a stretch considering the lack of evidence rate hikes did much to tamp prices. While they inverted the yield curve, which theoretically weighs on lending, rate hikes didn’t translate to significantly higher bank funding costs—the national average deposit rate merely inched from 0.06% when the Fed started hiking in March 2022 to 0.46% in February 2024. So lending actually got more profitable as long rates rose. That it slowed anyway (and that broad money supply dipped) seems tied more to factors outside the Fed’s control. So while rate cuts might be welcome, we doubt they do much to grease new money supply growth.


Germany's DAX Index Breaks Records as Recession Looms

By Kristie Pladson, Deutsche Welle, 2/29/2024

MarketMinder’s View: Germany’s DAX index has notched several record highs in euros recently, but at the same time, the country is facing widespread economic weakness in what many consider a recession. This article attempts to discern how and why this may be. Some connect it to the DAX’s 40 constituents generating much of their income outside of Germany, whereas the country’s legion of small and medium-sized enterprises, which are still struggling, aren’t represented in the DAX. We can see the logic, but historically, companies from a given nation have tended to perform similarly regardless of whether their revenues are primarily domestic or international—local fundamentals matter more to returns than revenue source. In our view, the explanation is much, much more simple: Forward-looking stocks are pricing in the recovery ahead, not today’s weakness, which they discounted well before now. Consider: The DAX bottomed with global stocks in 2022, falling as expectations for Germany’s economy rapidly downshifted after Vladimir Putin’s Ukraine invasion and Western sanctions jolted energy prices and German natural gas supply. Then, deep recession (not to mention energy rationing) was the baseline forecast. That was 17 months ago, well within stocks’ 3 – 30 month window, and reality has subsequently gone much better than expected. Even though the results have been mixed at best, when expectations are as low as they were toward Germany, not as bad as expected can be a big positive surprise. With ample German gas storage levels to meet future industrial demand and signs of a pickup in factory orders, we think the country’s economic prospects are better than most think. Instead of using complicated theories to guess why there is a gap between recent economic data and stocks’ performance, remember much of the data are backward-looking and likely already in stocks’ rearview.