Daily Commentary

MarketMinder’s View: Canada’s consumer price index (CPI) notched its slowest rise since early 2021 last month, hitting 2.7% y/y from 2.9% in March. Now, much of this article predictably views this through the lens of what it means for Bank of Canada rate cuts, which we think is a folly. More interesting to us is that this cooldown came alongside an uptick in gasoline prices, which rose 6.1% y/y (7.9% m/m)—accelerating from 4.5% as suppliers shifted toward summer blends and a federal carbon tax hike kicked in. Food was a key contributor to the slowdown, though, which is positive news and more than offsets gas’s impact. And as Statistics Canada took pains to point out in the press release, these data account for so-called shrinkflation. (The prices are quantity-adjusted, so a smaller package at the same price reflects an increase in the data.) On a core basis, the Bank of Canada’s preferred trimmed mean price gauge cooled to 2.9% y/y, the first reading under 3.0% since June 2021. The older measure of core prices that strips out fresh food and fuel—and is arguably more comparable to core prices elsewhere—fell to 1.8% y/y. So all in all, this looks like a continuation of the global disinflationary trend we have seen for many months now, occasional wiggles and interruptions notwithstanding.

MarketMinder’s View: Following President Biden’s announced latest tariffs on China, we have seen a lot of speculation regarding a new era of protectionist policy—and a potential US-China trade war. This piece adds to the chorus. “Tougher protectionist measures from the US come amid signs that Beijing has abandoned, at least for now, attempts to rebalance its growth model away from exports and towards domestic consumption. China remains a high-saving, high-investment, low-consumption economy and that inevitably means that the surplus goods churned out by its factories find their way into global markets. As China’s trade surplus grows ever bigger, protectionist sentiment in the US will become more pronounced.” The article projects today’s tensions potentially leading to a deglobalized, dual-bloc global economy—one led by the US and the West, the other by China. While these projections are quite overwrought, they aren’t surprising either, in our view: It isn’t uncommon for politicians to jawbone over protectionist policy in an election year. When that noise amplifies, keep things in proportion. For all the harsh rhetoric, there isn’t strong evidence for deglobalization and Biden’s latest tariffs are mostly symbolic. We don’t dismiss the possibility of a full-blown trade war, but despite all the tough talk over the past eight years, US-China commerce remains ongoing. Plus, as this piece acknowledges, the latest tariffs cover a tiny swath of the US economy, much too small to have any notable economic impact. Context and scale are always key—and unless tariffs unexpectedly ignite a global trade war, talk alone isn’t enough to derail the economy or markets.

MarketMinder’s View: Citing the Congressional Budget Office’s (CBO) February report, this piece suggests soaring US federal debt presents major threats—today and in the future. “The [CBO] estimates that debt held by the public, which currently totals $27.4 trillion and excludes intragovernmental obligations, will rise from the current 99% of GDP to 116% over the next decade. That would be ‘an amount greater than at any point in the nation’s history,’ the CBO said in its most recent update.” Some of the finance executives interviewed here suggest rising debt will spur questions about the government’s ability to pay for its obligations, making US Treasurys less attractive to foreign investors—and that uncertainty could spill over into the stock market. Anything is possible, but the available data argue against these fears. Treasury auction demand is now stronger than in 2019—when US debt was lower—and foreign Treasury ownership has risen alongside total debt levels. Note, too, foreign investors aren’t the only source of US Treasury demand—US investors are willing and able buyers, too. Moreover, this article worries about the total amount of debt—even though its affordability is what investors care about most. In that vein, US debt is quite serviceable—today, federal interest payments are around 10% of total tax receipts (per the Office of Management and Budget), down from 2020’s levels and well below those seen in the 1980s and 1990s, a great period for the US economy and stock markets. For more on this particular concern, check out our February commentary, “Digging Into the CBO’s Debt Forecasts.”