Daily Commentary

MarketMinder’s View: Please note MarketMinder doesn’t prefer any politician or political party and comments on political developments for their economic and market effects only. China’s “Two Sessions” kicked off yesterday, with the National People’s Congress and People’s Political Consultative Conference holding their annual meetings. The premier’s “work report” receives a lot of attention since it includes the country’s official economic growth target (around 5% this year) as well as clues about the ruling Chinese Communist Party’s priorities. This analysis dissects Premier Li Qiang’s report, noting that it “… flagged more fiscal stimulus this year and a greater focus on boosting household spending to cushion the impact of wobbly external demand. It mentioned consumption 31 times, up from 21 last year, surpassing references to technology.” That said, the steps Li revealed to support household spending (e.g., pension and healthcare benefit hikes) underwhelmed economists who argue deep, structural reforms are necessary to boost consumption and combat deflation. We agree the government’s announced measures aren’t likely to meaningfully buoy private consumption over the longer term, but concerns about China’s economy look overstated. For instance, true deflation isn’t present in China. Though some prices have fallen, money supply and credit remain expansionary, indicating there isn’t too little money chasing goods and services in China. While tariffs may weigh on trade—and we are monitoring for escalation—businesses in China and abroad are familiar with this movie (and many have adapted accordingly). Interestingly, the consensus seems skeptical about the government’s ability to achieve its subdued expectations for 2025—a sign sentiment has a low bar to clear. Ongoing, slowing growth is likely enough to positively surprise.

MarketMinder’s View: Headline tariff rates get attention (e.g., a 25% tariff on all Canadian goods except energy, which is subject to a 10% rate), but what does that mean for consumers’ actual costs? As this article explores, reality is complicated. Take that 10% tariff on Canadian energy products, which appears to remain in place despite President Trump’s partial climbdown Thursday. Since there is no single national gasoline market, prices will vary depending on the part of the country. “For example, a large part of Northeast gasoline supply comes from Canada’s largest refinery, in Saint John, New Brunswick, run by Irving Oil. Irving has told customers it will not cover the increased cost from the tariffs, which could add 20 to 25 cents to a gallon of gas. Experts told CNN that because Irving sends its gas to the US by ship, it can easily redirect shipments to markets where it won’t face tariffs. … But much of Canada’s energy products move in pipelines from oil fields to US refineries in the Midwest and Rocky Mountain states. And the lack of alternative buyers for that crude oil could mean those Canadian producers will have a much harder time redirecting their oil.” Moreover, global forces swamp national, let alone regional developments, and global oil prices have returned to their pre-Ukraine war range. Canadian oil prices could also adjust for the tariff, and we can see a strong argument that their fall from $65.35 per barrel on January 15 to $53.96 yesterday is their doing just that (per FactSet). Lastly, US gas prices tend to be set regionally, based on supply and demand dynamics in a given market. Tariffs on oil from one source play only a small role.

MarketMinder’s View: As always, MarketMinder is nonpartisan. We highlight this story to emphasize an underappreciated bullish political theme: intraparty gridlock. To summarize, “A band of New York Republicans has made clear to [Speaker Mike] Johnson (R-Louisiana) that any GOP tax bill must raise the cap on state and local tax deductions, or SALT. A handful of conservative hard-liners have competing demands that the legislation must reduce the national debt. More moderate members have voiced concerns about proposed cuts to social safety net programs, including Medicaid. Rep. Thomas Massie (Kentucky), a leading budget hawk, has already signaled he opposes the whole thing — and U.S. DOGE Service overseer Elon Musk appears to agree.” Yep, the honeymoon appears to be over. The rest of the piece details the deadlines, maneuvers and challenges Republicans face to pass President Donald Trump’s agenda. We won’t predict what the final bill will look like, but it isn’t likely to fly through Congress easily. Remember, gridlock doesn’t mean nothing passes—rather, competing groups force compromise, which usually lead to a watered-down result. Given hopes for supposedly market-friendly policies under this new administration have faded substantially since the inauguration, we doubt this is some big surprise. In other words, intraparty gridlock doesn’t change our bullish outlook. But there is a chance ongoing uncertainty weighs on sentiment, which we will keep an eye on.