Daily Commentary

MarketMinder’s View: Canada’s headline Consumer Price Index ticked up in April to 2.8% y/y from 2.4%, but beyond gasoline and energy prices, there are few signs inflation poses a credible risk up north: “Energy prices overall rose a whopping 19.2 per cent year-over-year in April, following a 3.9 per cent increase the month before. Statistics Canada said the cost of gasoline specifically rose even quicker, and was 28.6 per cent higher year-over-year, thanks to the supply crunch in the Strait of Hormuz and because of the switch to the more expensive summer blend of gasoline.” As the report goes on to explain, some of that rise is because of oil prices’ climb on the Iran war. But it is also skewed upward in Canada because of base effects. Last April, the government waived an 18 cent-per-liter federal carbon tax. That lowered gasoline prices over the past 12 months, but it fell out of the comparison base now. As Statistics Canada explained, excluding gasoline only—just gas—CPI rose 2.0% y/y, slowing from March’s 2.2%. Canada is yet another nation where inflation measures show the war’s effect on oil prices hasn’t swayed prices beyond fuel at this point—and it likely won’t affect them much, given money supply growth is tepid.

MarketMinder’s View: It isn’t super shocking to us that sentiment toward stocks generally among professional fund managers, as measured by BofA’s Fund Manager Survey, has snapped positive in May, following markets’ returning to all-time highs in April and fully reversing the war-driven mini-correction. Sentiment measures like this can follow market movement, and that seems at work here. Now, we suspect that pace of warming will cool, but it is a matter worth watching. At this point, it seems expectations are most heated toward chip stocks and US Tech, which presents a hurdle to their continuing to lead markets, as they have since the mini-correction low. Sentiment towards Europe is much cooler, as this documents, which we think is a sign a reversal to non-US stocks’ earlier leadership is taking shape. Of course, this is only one sentiment measure and no single indicator is complete or descriptive of sentiment at large. But we think it is an interesting marker.

MarketMinder’s View: With UK Chancellor of the Exchequer Rachel Reeves set to announce measures aimed at assuaging household fears over inflation and living costs, news is leaking that the government may “ask” some food retailers to cap prices of essentials like fruit, bread and eggs, among others. This is on the heels of the Scottish National Party winning the early May election to control its devolved national parliament after employing harsher-but-similar promises. While the use of such measures here seems limited and unlikely to carry much market or economic effect—if it even becomes policy—it is highly unlikely to work. “One of the retail executives argued the government should focus on reducing ‘cost headwinds’, as a [price] freeze would not ‘deliver the outcome they want’. The source said the plan might depress prices on the 20 or so items covered but this was likely to have ‘unintended consequences on items they might not consider essential but might be for some families’ as businesses sought to recover lost profits elsewhere.” It would likely also reduce supply of essentials, as it artificially boosts demand and reduces the incentive to increase supply accordingly. That is the lesson of the 1970s’ price controls: They don’t actually control anything and do little more than store up inflation for later, when relaxed. Now, perhaps this is just the UK government floating a trial balloon it pulls back quickly. But the use and popularity of measures like this is a risk worth watching, given the zeitgeist around prices worldwide.