Daily Commentary

MarketMinder’s View: Please note MarketMinder is nonpartisan and prefers no political party or politician over another. While the news here pertains to UK investors, this article has some lessons for American readers, too. Across the pond, headlines are warning a bevy of tax hikes are coming down the pike—to be announced in Chancellor Rachel Reeves’ Budget on October 30. Many expect changes to the UK’s capital gains tax (CGT), inheritance tax (IHT) and pensions. For instance, in the UK, “[CGT]is levied on profit of more than £3,000 in 2024-25 (down from £6,000 in 2023-24) made from the sale of valuable possessions, including everything from stocks to property. Rates currently range from 10pc to 24pc. But Ms Reeves is strongly rumoured to be plotting a CGT raid by increasing the levy – possibly aligning it with income tax bands of 20pc, 40pc and 45pc.” The article demonstrates what this could look like for a hypothetical landlord looking to sell a property, calculating that a prospective CGT hike could mean paying an additional £15,500 (~$20,400) in taxes—that is a lot! But keep a couple of critical points in mind. One, nothing is official yet—we wouldn’t be shocked if Reeves’ camp is telegraphing these possible changes and gauging voters’ and markets’ reaction. An overwhelmingly negative response may end up tempering final proposals. Two, folks have legal ways to work around paying the tax—e.g., giving assets to family members who are basic-rate taxpayers is a way to avoid paying a higher CGT, as is making greater use of tax-sheltered accounts like Isas (the UK’s equivalent of an IRA). Three, and most importantly, a potential tax change shouldn’t be the sole driver behind a decision to sell. As an accountant here notes, “The key is to ask whether now is the right time to sell. If you’re considering selling an asset – say, shares in a business or a firesale on a property – you might not get as good a price now. The buyer might be aware of CGT risk and offer you a lower price.” Another accountant notes that for those not presently considering selling assets aside from the potential tax increase, the prospect of a tax change alone likely isn’t a good reason to change course—we would add that this goes especially for people who are investing for a certain set of long-term goals and needs. These takeaways are worth keeping in mind for American investors, too, especially as the rhetoric heats up on the way to November’s election. Acting on a possible change may end up being counterproductive in the long run.

MarketMinder’s View: The titular inflation measure is the headline personal consumption expenditures (PCE) price index, which held steady at 2.5% y/y in July. The core index, which excludes food and energy, stayed at 2.6% y/y. The Fed’s target is a 2.0% average year-over-year inflation rate over time for the headline PCE index, though no one knows what “over time” means, so depending on how you define it they may or may not be back at the target. This piece slices the data into a three-month annualized core inflation rate of 1.7%, which we guess is one way to do it, and uses this—along with a falling savings rate—to argue consumer spending’s small acceleration of 0.4% m/m growth is a mirage. It then segues into a discussion of how this report, plus recently weakening jobs data, will affect the Fed’s interest rate decision at mid-September’s meeting. In our view, this tells you how little newsworthiness is otherwise inherent in an unchanged inflation reading. If it weren’t for 2022’s inflation spike and the world’s obsession with central banks, we suspect the inflation section of this article would have been about one and a half paragraphs long, with most of the space given to the monthly consumer spending numbers. Instead, those (up 0.4% adjusted for inflation, with goods up 0.7% and services 0.2%) got short shrift, with the slowdown in real disposable income (up 0.1% m/m) allegedly a sign consumption will weaken from here. But if the data show wage growth continuing to outstrip inflation, then we fail to see why alarm bells should be ringing. Overall, this is an example of a solid report sparking some fear, which is a sign this bull market has some wall of worry left to climb.

MarketMinder’s View: While we think this piece goes too far in speculating about what Canada’s Q2 and July GDP reports mean for the Bank of Canada’s (BoC’s) meeting next week, we agree Q2’s expectation-beating results weren’t as good as the headline growth rate suggests. GDP grew 2.1% annualized, beating expectations for 1.9% and accelerating from Q1’s 1.8%, but 1.7 percentage points of Q2’s headline growth came from public spending and investment. Business investment and household spending contributed just 0.3 percentage point each, while real estate and exports subtracted half a point each. (Imports subtracted -0.2 percentage point, but rising imports indicate domestic demand.) So, looking at the pure private sector components only, Q2 weakened from Q1. Monthly GDP show growth was flat in July after a flat June, though July was mix under the hood “as construction, mining, quarrying, and oil and gas extraction and wholesale trade sectors recorded decreases, and finance and insurance and retail trade showed increases.” Who knows what the BoC will do with this—monetary policy moves always defy prediction, given their very human (we think) inputs—but for investors, wobbly Canadian GDP is nothing new. Markets are used to it, and weak private sector growth still adds to global demand.