Daily Commentary

MarketMinder’s View: If you haven’t tracked the ongoing French government instability over proposed pension and budget reforms to tackle the deficit, currently running at 6.2% of GDP—double the EU’s “limits”—this is a decent illustration of the saga. Before we go further, keep in mind we favor no politician nor any political party, weighing matters solely for their potential market and economic influence. In France, rising uncertainty has weighed on markets and the economy as the fourth Prime Minister in 12 months, François Bayrou, aims to win sufficient support to stay in power and pass an austere budget. But his tactics here—which echo his predecessor’s—seem less drawn from Dale Carnegie’s How to Win Friends and Influence People and more like scare tactics. Folks, French debt isn’t really a “sword of Damocles” hanging over the Republic. There is little risk of default and the EU’s budget rules are rarely “enforced.” But above and beyond the rhetoric, this article reveals Bayrou seems to be negotiating on his stance. The 5.4% deficit target in his 2025 budget is up from his predecessor’s 5.0%. And he is talking about halting pension reform implementation that would lift the retirement age to 64 from 62, a move designed to win the Socialist Party’s support—which could grant him stability. Whether that happens remains to be seen and is a matter worth watching. But to truly track it, you must get beyond the bluster and look at actions. As ever, watch what politicians do, not what they say.

MarketMinder’s View: This article is ostensibly about employment in the oil and gas production industry—with a focus on US fracking jobs. But our interest here is more in how producers are doing more with less to boost output while cutting the number of rigs actively drilling for oil. “Two decades into the shale boom, companies are drilling wells that extend deeper into the earth, unlocking more oil and natural gas. New technology is letting them oversee drilling, fracking and production from afar, with fewer people on-site. And larger companies are snapping up smaller players, shedding accountants, engineers and other workers as they go. … By late 2024, the number of drilling rigs operating in the United States had fallen roughly 28 percent in five years, federal data show. And still production climbed. ‘We get three times as many wells from a rig today that we did in 2018 or 2019,’ Bart Cahir, who leads Exxon’s shale division, said in an interview last year. ‘Per person, we’re producing a lot more.’” This also means the old relationship between rig count and production may not hold as it once did (trends in the former led the latter by roughly 18 months). This is a worthy consideration for investors, since oil supply relative to demand sets prices, which are a huge influence on oil firms’ profitability.

MarketMinder’s View: This gauge—the National Federation of Independent Business’s Small Business Optimism Index—tends to skew pretty hard on partisan lines in favor of Republicans and the coverage here is infected with partisanship, too. While we favor no party nor any politician, we do think biases around each party’s perceived economic impact can affect broad investor sentiment. In this case, as the coverage shows, the index “… jumped 3.4 points to 105.1 in December, the highest reading since October 2018.” “This is the second consecutive reading above the 50-year average, after the November index broke a 2.5-year streak that same month as Trump's win. At the same time, the NFIB's Uncertainty Index plunged 12 points last month, falling to 86.” There are other signs of ebullience in these data, which mirror results in the University of Michigan’s consumer sentiment survey and The Conference Board’s Consumer Confidence Index. It suggests Republican investors, who we think are the majority in the US, are quite optimistic with the new administration taking office—and expectations of what the government will do are elevated. That may tee up disappointment if they can’t meet or exceed those hopes.