Daily Commentary

MarketMinder’s View: We touched on America’s June manufacturing purchasing managers index (PMI) yesterday, so how about a look at some other major economies? “Among the bright spots, Japan’s manufacturing read-out showed growth for the first time in 13 months, South Korea’s activity contracted at a milder pace and China’s Caixin PMI index also expanded in June – confounding an official survey that showed activity shrinking for a third straight month. Ireland, Spain and the Netherlands were among the star performers in Europe even as the wider eurozone read-out was broadly flat and Britain continued to contract, albeit more slowly. ... While Germany’s manufacturing PMI reached its highest in nearly three years, it still indicated contraction. France, Italy and Austria on the other hand registered faster declines in manufacturing conditions.” Manufacturing globally is mixed. But similar to America’s report, we would note a few things. These latest PMI readings, especially with most only slightly above or below 50 (the dividing line between nominal contraction and expansion) are, in aggregate, broadly flat. With many expecting ongoing weakness (or worse due to trade-related fears), June’s numbers aren’t as bad as many anticipated. Second, PMI survey data give a sense of growth’s breadth, not its magnitude. Sub-50 manufacturing PMIs don’t necessarily equate to contracting manufacturing output—what if a minority of firms’ expanding business activity outweighs the majority’s slight shrinking or flatness? That has been the case in Europe and Asia earlier this year. For example, eurozone manufacturing rose 0.8% y/y in April (the latest figure, per FactSet) despite a contractionary PMI over the past year. Third, don’t overrate manufacturing’s influence as most major economies are primarily services based—and services PMIs globally have indicated expansion overall. The main takeaway: The global economy is growing, which we think many overlook amid tariff policy and other headline noise.

MarketMinder’s View: Please note MarketMinder doesn’t make individual security recommendations. Specific firms mentioned here are incidental to the broader theme we wish to highlight: the liquidity risks investors face in private equity. This article provides several examples of the difficulty “private equity owners eager to return cash to their investors” are having when trying to offload their investments. For example, “Buyout firms often use the value of comparable publicly listed companies to price their own assets. But that’s a harder sell right now, several market participants said, because buyers don’t trust that giddy public markets are reflecting business’ fundamentals.” While we quibble with the characterization of public markets as “giddy” currently, our focus is more on the implied flipside to this: Owners of listed companies don’t have the same issue selling stocks on public exchanges, a much more robust marketplace. The relative illiquidity in private markets underscores a risk worth being aware of—a seller in need of cash may have a much tougher time finding a buyer (which could lead to selling at a lower price). Then factor in the leverage often employed in these deals: “Private equity buyers are being doubly careful because they’re regularly having to put in more of their own equity to finance deals compared to the past. The industry traditionally funded its acquisitions through loading up the target companies with heavy borrowing, but this flip in the model means they’re having to bear more of the investment risk themselves.” Now, we aren’t inherently against private equity—or most other alternative investments—but the extra due diligence you need to buy and sell such illiquid and opaque assets is a big reason why they trade so thinly. An oft-overlooked risk we think those considering private equity and the like should examine closely before taking the plunge.

MarketMinder’s View: “In a post on Truth Social, [President Donald] Trump said the U.S. will apply a 20 percent tariff to imported Vietnamese goods and a 40 percent tax on goods from countries, such as China, that are shipped to American buyers via the Southeast Asian nation. ... As of midday the White House had not released any text of the agreement or additional details.” First off with that last caveat, a few questions come to mind. For instance, who determines what is a “Vietnamese good” versus, say, a Chinese one? And how will this be enforced? Similarly, what if Vietnam sends goods through Mexico or Canada, which might allow tariff-free shipment to America? Again, a lack of enforcement could mean any agreement is rather toothless. Second, although a 20% tariff on Vietnamese goods isn’t positive, in our view, that would be a sight better than “when a reciprocal tariff rate of 46 percent was slated to kick in.” Though questions linger, a trade deal with Vietnam (coming after the UK’s) is a sign reality is turning out less dire than many initially expected three months ago to the day. Though it still leaves tariffs much higher than when the year began, which we think is a headwind for US stocks relative to the rest of the world.