Daily Commentary

MarketMinder’s View: The latest growthy data to be dismissed as pre-war are US durable goods orders, which revealed healthy and stronger-than-forecast business investment in equipment a month before the conflict broke out. “Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rose 0.6% after a downwardly revised 0.4% drop in January, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast these so-called core capital goods orders would increase 0.4% after a previously reported 0.1% gain in January. There were increases in orders for primary metals and fabricated metal products. Orders for machinery jumped 1.5%. Orders for computers and electronic products were unchanged as an increase in the computers and related products category was offset by a decline in communications equipment. Orders for electrical equipment, appliances and components dipped 0.1%. Core capital goods shipments increased 0.9% in February after being unchanged in January. These shipments are among the components that go into the calculation of the business spending on equipment component in the gross domestic product report.” It all suggests the economy was on fine footing before the war, which likely hasn’t changed conditions as much as commonly feared. This piece, rather unusually, hints at that in quotations from an economist who notes businesses may have temporarily retrenched from investment, but it really amounts to a blip. But the common view is war-fixated, which widens the gap between reality and expectations, likely facilitating positive surprise ahead.

MarketMinder’s View: We highlight this story about the Philippine consumer price index jumping from 2.4% y/y in February to 4.1% in March—far above estimates and just north of the central bank’s 2% – 4% target range—for two reasons. (For what it is worth, prices excluding food and energy rose slightly, too, from 2.9% y/y to 3.2%.) One, it illustrates market efficiency. Why? Southeast Asian Emerging Markets like the Philippines import almost all their oil—and are among the most reliant on Middle East suppliers. With the Strait of Hormuz shut, the prices from these typical suppliers are spiking even more than global benchmark prices, making these nations particularly hard hit. But here is the thing: Markets already knew this. That is largely why the MSCI Philippines Index tumbled -15.4% from the outbreak of war through the MSCI All-Country World Index’s low to date on March 30, which ranks 39^th of 47 constituent countries (data per FactSet). But also, and sensibly, this shows the central bank has held rates in spite of the expected rise in headline prices, noting their influence over supply shocks is limited. That modesty is a plus and limits the likelihood of excessive tightening, which could present an unwelcome hit to credit.

MarketMinder’s View: Beyond the war, trade policy continues to stir some fear, with the pending renegotiation of the US-Mexico-Canada Trade Agreement (USMCA) chief among the lingering worries. Many fear the US will exit the deal, which has exempted some 85% of US imports from Canada and Mexico from US tariffs—a reason why fears of their hit has proven overblown. We get the importance of this deal and don’t downplay that a bit. This article highlights the state of play, in that talks with Mexico are already underway while Canada lags, and US Trade Representative Jamieson Greer states talks on the deal’s restructuring may run past July 1 (ironically, that is Canada Day). This is all possible, and Greer notes he may have to take steps toward exiting the agreement because the administration is required to notify the other nations of its intent by that date. However, that doesn’t mean an exit is assured or imminent. “On July 1, the three countries need to approve a ‌renewal of the existing USMCA agreement or signal their intention to exit the pact, a process that takes 10 years, but which would buy more time ‌for alterations.” It is also somewhat likely that this kind of talk is meant to spur action, a simple negotiation ploy above all else.