Daily Commentary

MarketMinder’s View: This article highlights some interesting research supporting our skepticism that the government’s efforts to stimulate manufacturing and boost growth may be overstated. Essentially, it details how a good chunk of industrial loans aren’t going to industry. Instead, “[research group] Rhodium found much of the increase in industrial loans were driven by banks’ refinancing to local government financing vehicles — companies that borrow on behalf of provinces and cities to fund infrastructure — as well as extended loan repayment for small firms during the pandemic. Many companies also took cheap bank loans and channeled them into long-term time deposits and investment products to gain a profit.” Rolling over questionable debts or parking loan money back in banks may not be the most efficient use of funds, but it also suggests how credit flows enable China’s protracted debt restructuring. That can help avert long-awaited (and feared) crises in problem areas like property development and local government debt.

MarketMinder’s View: Taiwan’s April exports rose 4.3% y/y, up a sixth-straight month, though below expectations as shipments to China tumbled -11.3%. However, exports to America accelerated to 81.6% y/y, hitting record levels after soaring 65.7% in March. In our view, this is further evidence the semiconductor cycle upturn—which Taiwanese firms are integral to—is well underway. (Here we also note that firms mentioned are incidental to this broader theme, and MarketMinder doesn’t make individual security recommendations.) Moreover, looking ahead, demand for the island nation’s main export looks solid, as Taiwan’s Finance Ministry predicts “exports in May could rise between 7% and 10% from a year earlier.” Ongoing global chip demand helps support Tech and Tech-like industries—we remain bullish.

MarketMinder’s View: Sweden’s central bank, the Riksbank, cut rates a quarter point to 3.75% today, after recent Swiss, Czech and Hungarian central bank cuts. This has added to speculation of an ECB rate cut next month—and how that may affect the Fed’s rate path, as well as how any prospective divergence will drive currency moves. These expectations get pre-priced in real time, though, blunting much of the surprise power they might have had—which is what moves markets most. Consider, the Swedish krona moved negligibly in response to the Riksbank’s cut today, having already fallen against the dollar and euro this year. This is a big reason why rate (and currency) moves are overrated. Because they are widely watched and anticipated, they don’t have a predetermined impact when policymakers eventually decide. And because of monetary policy’s long and variable lag, investors have time to evaluate a move’s likely effects, if any. Central bank speculation is needless as it is fruitless. As for the fear a weaker currency invites higher prices, yes, it can make imports more expensive (see Japan for more), but inflation itself is ultimately a monetary phenomenon. The big driver is money supply and how fast that is turning over against the supply of goods and services. With money supply slowing globally—and goods and services volumes expanding worldwide—we see inflation continuing to trend down, short-term wiggles notwithstanding. To us, the most notable takeaway here is that central banks don’t predict one another—the Fed doesn’t automatically preview what its peers will do.