Daily Commentary

MarketMinder’s View: Keep an eye on this one. Last autumn, a UK appeals court ruled banks had mis-sold auto loans by failing to disclose commissions paid to brokers, essentially re-regulating car financing on the spot by establishing a fiduciary standard that, at the time, wasn’t statutory. Overnight, it basically made standard sales practices illegal, forcing banks to scramble and opening the door to tens of billions of pounds’ worth of compensatory payments to customers. This rapidly raised uncertainty, creating fears that financing would halt, with deep economic effects. As the case went to the Supreme Court, the fervor died down a bit, but with the verdict due next week, nerves are a little rattled, and the government is mulling how to navigate the situation. Here enters politics, so we remind you we are nonpartisan and assessing this for the economic and market implications only. If the Supreme Court confirms the prior ruling, not only would lenders be on the hook, but there is a risk the fallout could “balloon beyond car loans, and potentially expose lenders to complaints over commission payments across other financial products, like appliances and furniture.” One solution, purportedly under consideration, would be legislation to reduce lenders’ liabilities and make it effective retroactively. And this, friends, is the pickle. Doing that would ease uncertainty, which is theoretically beneficial. However, retroactive legislation is a big can of worms that inherently raises overall uncertainty, which could also affect risk-taking. We aren’t opining on which approach is optimal, and the situation is complex. But there is some potential for unintended consequences either way, and it will be important to monitor. The scope and scale are small, but it is an interesting case.

MarketMinder’s View: Lots of politics here, so we remind you we are politically agnostic, preferring no politician nor any party and assessing developments for their economic and market implications only. Ever since a former UK Labour Party leader mused publicly about a wealth tax, there has been a rather mad frenzy in headlines about the government supposedly not ruling it out. As the idea gained support from some backbenchers, Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves were rather noncommittal. Headlines read a lot into what struck us as very normal politicking from a government trying to rebuild its political capital after backbenchers upended its welfare reforms, and the fear spread. Now Business Secretary Jonathan Reynolds is trying to put the whole thing to bed, telling television interviewers the government won’t try to pass a wealth tax. Make of that what you will—politicians’ words and actions, regardless of party, can be malleable. But in addition to the strong words, there are simple facts: “Economists have also warned that introducing a wealth tax by the autumn would be practically impossible because the UK’s tax authority lacks the necessary data on who would have to pay the levy.” (Boldface ours.) Political will is one thing. Administrative barriers are generally an even greater hurdle. So here, too, reality looks set to beat dreary expectations in the UK. For more, see this week’s commentary, “Data and Perspective on the UK’s Neverending Tax Debate.”

MarketMinder’s View: Hmmmm. US durable goods orders fell -9.3% m/m in June, which sounds big and bad until you consider the headline drop suffered major skew from a single airline manufacturer, whose orders had soared the month prior. Transportation equipment often skews this measure up and down. So economists focus on core capital goods orders, which exclude aircraft and defense spending. These fell -0.7% m/m, missing expectations for a 0.2% rise. Not great. Now, the disappointing result did follow May’s 2.0% m/m rise, but that came after a -1.5% drop in April, per FactSet. “Economists said the data, when accounting for inflation, suggested that business spending on equipment sharply moderated to low single-digit growth last quarter after surging at a 23.7% annualized rate in the first quarter. Some of them even projected a contraction. Unfilled core capital goods orders dipped after barely rising in May, consistent with economists' expectations for weakness in the second half of this year.” The question is, did the weakness occur because everyone scrambled to front-fun potential tariffs in Q1, leaving a pothole in Q2, or because tariffs are raising uncertainty and discouraging investment as businesses wait to see what the lay of the land will be? We suspect it is a smattering of both, illustrating tariffs’ negative effects on imposing nations. None of this is sneaking up on markets, which seemingly priced worst-case scenarios in April. But weak investment underscores that we can’t rule out a recession or slowing growth later this year.