Daily Commentary

MarketMinder’s View: The headline is correct but requires critical context. First, the titular Irish GDP contraction (-12.1% q/q, much sharper than a previously estimated -2.0%) would be for Q1—ancient news for markets, given we are in Q2’s final month. Second, should eurozone GDP actually have contracted in Q1, that is less a reflection of the 21-member bloc and more illustrative of Ireland’s uniqueness. “Irish economic data is very volatile, since it is affected by the activities of a small number of very large U.S. companies. … The CSO [Central Statistics Office] said the contraction was largely confined to the activities of U.S. businesses based in the country, with the output of what it calls the MNE (Multinational Enterprise)-dominated sectors down 27.1% during the quarter. While U.S. technology companies are included in that category, the decline appears to have been led by pharmaceuticals, with industrial production down 35% on the previous quarter.” This is why the Irish statistics office publishes a specialized statistic to track the economy, called modified domestic demand, or MDD. MDD grew 0.6% q/q in Q1, which utterly shatters the notion that Irish economic activity is a drag on the whole. (Source: Central Statistics Office of Ireland) Besides, as the article explains, US tariffs last year prompted American businesses domiciled in Ireland for tax purposes to build up inventory—which buoyed exports (and made Irish GDP one of the fastest-growing last year). That activity is now cooling as things return to normal, so Irish GDP’s slowdown is no surprise. Though more recent data have indicated soft patches in Europe, mixed growth isn’t a negative for global markets, especially with expectations toward non-US markets relatively cool. For more, see last month’s commentary, “A May Global Economic Check-In.” 

MarketMinder’s View: Please note, MarketMinder is nonpartisan and prefers no political party or politician over another. Our interest here is solely with the notion that a government funding package can sustain a given business or industry over the long term. First, the details: “The funding package would provide more than $425 million to upgrade 13 existing coal-fired power plants. Another $185 million would be used to match corporate funding for coal projects in Alaska, Maryland and West Virginia, while $75 million would support construction of the long-proposed West Gateway coal export terminal in Northern California, according to the White House official.” These figures are subject to change, but what hasn’t changed: coal’s dwindling importance as an energy source for America. “Coal generated more than half of U.S. electricity in 2000. Today, it accounts for less than one-fifth of power generation, according to data from the U.S. Energy Information Administration, as utilities have increasingly shifted toward natural gas and renewable energy sources.” Despite pledges from both parties to support the coal industry and/or coal-dependent communities, government policies haven’t been able to change coal’s downward trajectory. Rather, other energy replacements (namely, natural gas) and market economies have been the primary culprit. Even Emerging Markets, long a source of export demand for US coal, are shifting gears gradually. Keep that in mind whenever a politician promises they can “save” an industry through government support. For more, see our still-relevant 2020 commentary, “Coal’s Continued Decline Defies Political Narratives.”

MarketMinder’s View: Please note, MarketMinder doesn’t make individual security recommendations, and the individual firms referenced here are coincident to a broader theme we wish to discuss. When it comes to initial public offerings (IPOs), headlines frequently focus on the hype and hope surrounding the firms going public, i.e., the demand side, or at least, the narratives crafted to stoke demand. The discussion here includes an often-overlooked part of the equation: supply. Besides the “mega” names, other private tech firms are mulling a return to public markets. “The combination of mega IPOs and new share issues would mark a structural shift for the US market. Equities have fallen in supply over the past two decades as a result of delisting, buybacks, mergers and the growth of private markets. … Cynics view major IPOs as a chance for private investors to cash out into a booming market—as they did during the dotcom bubble of the late 1990s. Equity supply could then increase further as lock-up periods expire over the coming year, forcing the market absorb additional unwanted shares from recently listed companies.” To be clear, we don’t believe global equity supply is flashing warning signs currently, as most excitement is centered on America. But as the year progresses, don’t lose sight of what equity supply is doing—its overheating could be a sign expectations are outpacing reality and it already signals the hurdle US stocks need to clear to positively surprise is likely pretty lofty. For more, see our May 22 commentary, “In Orbit? On Tech Sentiment and IPOs.”