Daily Commentary

MarketMinder’s View: In its latest economic report, the Bank for International Settlements (central banks’ bank) listed several potential headwinds for the global economy ahead. Chiefly, the financial institution worries AI is looking bubbly and war-related inflation will become “entrenched.” We are split on these. Elevated sentiment can drive inefficient investment into unprofitable companies, setting the stage for reality to fall short of expectations—see 2000’s dot-com bubble and ensuing crash for one glaring comparison. We agree moods toward certain sectors and industries, including Tech and Communication Services, look lofty, though optimism and even euphoria aren’t timing tools. Early euphoria also looks quite different to late-stage euphoria. Worth noting: Elevated sentiment toward AI doesn’t mean moods are broadly euphoric, either, as evidenced by the inflation fears discussed here. Inflation expectations don’t determine future inflation rates. Inflation is everywhere and always a monetary phenomenon of too much money chasing too few goods and services. And with today’s benign money supply growth, prices aren’t likely to gallop away as they did in 2021 and 2022. Reports like this one are useful in gauging sentiment, so in that vein, the negativity here—rooted in reality or not—suggests stocks’ wall of worry has plenty of bullish bricks.

MarketMinder’s View: The US dollar has risen relative to a basket of major currencies since January (per FactSet), reversing some of last year’s decline and highlighting why “Sell America” and broader “weak dollar” fears were myopic and off base. Please note this piece mentions a few publicly traded companies, so keep in mind MarketMinder doesn’t make individual security recommendations. This piece cites several reasons why non-US investors aren’t shying away from US assets, from supposedly higher returns relative to other developed markets’ assets (thanks to potentially higher US interest rates) to a stronger-than-feared economy. We disagree with the former—Fed rate hikes have no predetermined influence over markets—but we do agree America’s economic resilience is underrated, especially in non-AI/Tech industries. That said, even though global investors don’t appear put off by US opportunities, not everything is cheery. The back half of this article worries central bankers and investors are shifting away from US assets due in part to political uncertainty and a growing federal budget deficit. US public debt isn’t in dire straits by any means, so worries about its size and sustainability indicate plenty of fear remains—bullish, in our view.

MarketMinder’s View: “Quarterly oil and gas exploration spending in Australia, the world's No. 2 liquefied natural gas producer, hit a 10-year high of A$471 million ($329 million) in the March quarter, government data released in June shows.” The push comes courtesy of rising Asian gas demand, technological advances and Australia’s Labor party seeking to fill a looming end-of-decade domestic gas shortfall. This article does a solid job diving into the details here (and mentions some publicly traded companies, so please note MarketMinder doesn’t make individual security recommendations), which some may find useful. To be clear, the titular exploration won’t yield results overnight or materially alter the liquefied natural gas market today. But we think there is a useful lesson here. When Iran closed the Strait of Hormuz, several countries across Southeast Asia lost access to their natural gas imports—sending prices skyward. But prices are signals, which have at least partially inspired Australia’s ramping explorations in response. Firms must think prices make it worth their while to ramp up their spending—and perhaps that will yield higher production over the medium to long term. Again, not an immediate supply driver in the here and now, but still an interesting way to see markets in action.