Daily Commentary

MarketMinder’s View: With just 10 days until the tournament’s opening match, World Cup fever is heating up stateside—as are rosy economic growth projections that typically accompany massive entertainment events: “The World Cup is expected to deliver $17 billion in additional gross domestic product for the United States, according to a forecast from FIFA, the organization behind the event. The total event-related expenditure, meanwhile, will tally at about $11 billion, FIFA said.” Economic forecasts’ limitations notwithstanding, scaling and perspective are critical here. As one research outfit estimates, “While sizable, the GDP gain forecasted by FIFA would amount to a fraction of the vast output from the U.S. economy. The anticipated benefit clocks in at less than 0.1% of annual U.S. GDP, Denmark-based Saxo Bank found in a report this week. ‘In other words, the 2026 World Cup is not a meaningful growth driver for the United States,’ Saxo Bank said.” As the article explains, “mega events” tend to benefit certain businesses over others—French economist Frédéric Bastiat’s “broken window fallacy” in action. For instance, the World Cup may bring soccer fans who will spend at Philadelphia’s bars and eateries, but the tournament may also end up scaring away tourists who wish to visit the Liberty Bell or Independence Hall. Said another way, World Cup-related transactions replace others that would have happened if the matches were held somewhere else. Mega events don’t necessarily add to economic output. They move it around—creating winners and losers. As the analysts herein sensibly note, “Much of the revenue often ends up in the coffers of the business putting on the event, while the tourist dollars largely serve to replace sales that would have happened anyway in major cities during the busy summertime season.” We don’t mean to be a downer as we enjoy the World Cup as much as the next sports fan. But don’t expect the tournament to add heaps of new economic output.

MarketMinder’s View: While Iranian forces have significant sway over shipping traffic (particularly for oil and gas products) through the Strait of Hormuz, reports like this one paint a better-than-feared reality—helping explain stocks’ rise to all-time highs recently. “U.S. Central Command has guided around 70 commercial ships through the strait, traveling into and out of the Persian Gulf, in the last three weeks, one of the officials said, speaking on condition of anonymity to discuss operational matters.” The article notes these US-guided tankers are turning off their transponders to avoid detection and crossing the Strait on routes away from the Iranian coastline, where most threats lie. Though Strait traffic is still nowhere near pre-war levels, it appears governments and private businesses are getting creative with shipping routes to bring tankers in and out of the Persian Gulf, where “many vessels have been stranded for weeks, losing money and leaving their crews in trying conditions.” This is the kind of adaptation many initially overlooked during markets’ swift, correction-like slump in March as the war broke out. The situation bears watching as reports vary on the pace and progress of ongoing US-Iran peace talks, but this development provides evidence of the better-than-feared economic environment few fathomed as markets sank earlier this year.

MarketMinder’s View: Lots of politics here, so we remind you MarketMinder prefers no politician nor any party and assesses developments for their economic and market implications only. In this case, UK energy regulator Ofgem announced earlier this week its household energy price cap will jump 13% in July to an annual rate of £1,862, factoring in natural gas prices’ jump as the Iran war broke out. But today, they tweaked the calculation to account for households’ reduced energy use (the logical response to high prices), knocking the next price cap down to £1,663, little changed from the current £1,641. The electricity rate won’t fall. It is just multiplied by fewer megawatt hours consumed per household. Opposition politicians seized on it as “jiggery pokery” and illusory savings, which we will set aside. Our main interest here is how it will all feed into the Consumer Price Index, given the price cap’s changes have a large influence on the headline inflation reading. So we dug into Ofgem and Office for National Statistics reports from the last time Ofgem changed its calculation to account for conservation in October 2023. And we crunched a lot of numbers, and it looks to us like the inflation calculation incorporates the actual hourly rates, not the headline average annual cost. It is hard to say for sure, given the alphabet soup of government policies affecting households’ energy costs in October 2022, which skewed the year-over-year electricity inflation rate, but that is our best guess. Which makes perfect logical sense to us. We will still take a close look at July’s Consumer Price Inflation report to see how this all shakes out, but the hourly rates (unaffected by volume of consumption tweaks) are the centerpiece of Ofgem’s materials, so make of all that what you will. More broadly, the continued lesson: However they are calculated, price caps don’t cap prices. For more, see last week’s commentary, “CPI Sheds Light on Britain’s Price ‘Cap’ Conundrum.”