Daily Commentary

MarketMinder’s View: Some better-than-expected and growthy news from July’s UK monthly GDP report this morning: “Figures from the Office for National Statistics (ONS) showed a surprise 0.4% increase in gross domestic product (GDP), compared with 0.3% growth in June. City economists had forecast zero growth.” Most credited that growth to AI and AI-related industries but: “The ONS said industrial production was also up in July, by 0.2%, with a rise in manufacturing output offsetting falls in mining, and electricity and gas supply.” That doesn’t look so directly AI-related. More broadly, “Over the three months to July – a period the ONS says is more representative of economic conditions – GDP growth was also 0.4%, the same pace as in the three months to June.” The rest of the article hypes alleged threats like oil above $100 a barrel, possible rate hikes and more. But those worries have swirled for many months and the UK has proven, as the article puts it earlier, “resilient.” That disconnect shows plenty of fuel for future positive surprise and bull market to us.

MarketMinder’s View: In part accelerated by the collapse of bilateral talks between America and Canada, it seems as though negotiations on a bilateral backstop to the US-Mexico-Canada Agreement (USMCA) are progressing between US and Mexican negotiators. “While no formal deadline exists, officials in both countries see political benefits in reaching a deal before the November 3 elections when U.S. President Donald Trump’s Republican Party risks losing control of Congress. An accord would enable both leaders to tout a win as they face domestic political challenges.” This article gives a decent update on the state of play and issues in talks, including US demands for North American content requirements and Mexican wishes for lower auto and steel tariffs (to effectively match or undercut those granted to non-North American nations in deals struck over the past year-plus). Now, whether we reach a deal soon or not, USMCA is still in effect and applies to the huge majority of trade between the US and Mexico. But getting resolution on this sooner rather than later would likely help lift uncertainty to an extent.

MarketMinder’s View: This is an odd piece, in our view, and it gets it wrong. In short, the article centrally argues that recent bond market volatility is partly a function of a lack of clarity surrounding new Fed Chair Kevin Warsh’s communications with the public, which is leading to doubts about his commitment to rein inflation in. Nope. Let us start here: Interest rates are up. But they aren’t up that much and the levels aren’t historically lofty. The closing 10-year yield on September 10 was 4.95%, the highest since … October 19, 2023. This is the high end of the range rates have been in since then. But it isn’t exceptional and by historical standards is very normal. Year-to-date, 10-year yields are up 0.78 percentage point. That isn’t huge. In 2022, rates climbed 1.81 percentage point over the same, roughly nine-month period. 30-year yields are up less than 10-year yields in 2026. (Data from FactSet.) So the movement here isn’t very abnormal. There is another reason why we highlight the comparison to 2022: Then you could very easily argue Fed communication was a key driver of rate volatility. Why? Because entering that year, Fed Chair Jerome Powell and his cohorts told investors they would likely “look through transitory” inflation pressures and not hike rates. That then morphed to “gradual.” So the fast hikes that followed were a shock to markets, amplifying the volatility in bond markets. It was an overcommunication error that drove it, in our view. Less can be more on the communication front, especially considering how poor the Fed’s forecasting history is. The end of this piece, which highlights quantitative easing as a means for the Fed to tame bond markets is not only unnecessary, but confusing. The point to quantitative easing is to lower long rates when short rates sit near zero. Doing so to lower government borrowing costs would be a move that arguably politicizes monetary policy and could be inflationary—working at cross-purposes with the hawkish talk earlier in this piece. It also is highly, highly unlikely to happen. Not only would it seem inappropriate given the present economic backdrop, Warsh himself has said such policies should be confined to crises. Maybe he doesn’t stick to those words, but nothing today looks like a crisis warranting bizarre, unconventional moves that carry more risks than benefits.