by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a discussion of the Pentagon’s decision to relieve a US aircraft carrier that has faced a long deployment due to the drawn-out war in Iran. We next review several other international and US developments that could affect the financial markets today, including a report showing that net migration to Israel has now fallen for two straight years and a court decision approving the US administration’s suspension of a rule that had exempted small-value imports from tariffs.

United States-Israel-Iran: Showing how the downsized, post-Cold War US military is strained by today’s security crises, reports say the Pentagon will soon relieve the USS Abraham Lincoln aircraft carrier from its role in the Iran conflict and replace it with the USS George Washington. The swap comes as reports say the Lincoln is saddled with food shortages, intolerable plumbing issues, plunging morale, and a spate of attempted suicides. The Lincoln has now been deployed for 250 days and hasn’t made a port call in a record 200 days.

• It has long been evident that the post-Cold War downsizing of the US military and defense industrial base went too far, but nationalist, populist political trends and fiscal considerations have impeded the rebound in US defense spending.
• Especially with the unexpectedly long war in Iran, those problems are now becoming more evident. We suspect the result will be continued and even accelerated defense spending hikes, which will probably benefit a wide range of defense contractors.

US National Security Policy: President Trump yesterday signed an order that the US Navy stop using its new electromagnetic catapults to get jets airborne from aircraft carriers and instead revert to using steam catapults. The move will require extensive redesign of the Navy’s new Ford-class carriers, likely costing billions of dollars. It could also increase the risk that delivery of the ships will fall behind schedule. The move comes despite years of resistance by the Navy and associated defense contractors.

• The president has periodically complained that the new electromagnetic technology is too complex and prone to failure. Indeed, the USS Gerald R. Ford, the first ship in the new class of carriers, experienced many issues with the new catapults during its construction and initial deployments.
• All the same, shifting back to steam catapults will require future Ford-class ships to be extensively redesigned to accommodate the steam generators, piping, and other needed equipment. The vast amount of piping and the reliance on mechanical equipment rather than electrical equipment will also require each carrier to have more technicians. In turn, that will expand the size of the crew and require more bunks, bathrooms, eating facilities, and food storage areas.
• All told, analysts expect that shifting the future Ford-class carriers back to steam will increase each ship’s annual operating cost by about $100 million.

US Trade Policy: The US Court of International Trade yesterday ruled that President Trump was within his rights last year when he suspended the de minimis exemption, which allowed packages worth $800 or less to enter the US tariff-free. As a result, foreign firms sending cheap goods to the US, such as China’s Temu and Shein, will continue to be subject to tariffs. Reports say suspending the exemption generated an additional $1 billion in US tariff revenues in 2025.

• Separately, the White House today said President Trump will impose new import tariffs of as much as 100% against foreign drones and drone components, based on national security concerns.
• The new tariffs are broad, but they are expected to mostly affect drones from China, which some analysts believe have compromised parts and software that China could use for surveillance or sabotage.
• The new tariffs should remove competition for key US-based drone companies, including AeroVironment, Red Cat Holdings, and Unusual Machines.

United States-China: A new report led by White House trade adviser Peter Navarro said more than 40 countries are helping China evade the high import tariffs the administration has imposed against it. The countries range from Asian manufacturing powers such as Vietnam and Malaysia to Western Hemisphere countries such as Canada and Mexico. According to the report, the countries face relatively lower US import tariffs, so Chinese firms ship nearly finished products to the countries, complete the goods there, and then send them to the US as non-Chinese goods.

• To stop this practice, the report suggests new measures including the use of artificial intelligence tools at the border to scan cargo and documents, and tightened standards that define a product’s country of origin.
• If measures such as those are put into place, the result would likely be new trade tensions between the US and China.

Germany: Chancellor Merz’s cabinet on Wednesday approved a proposal to give the country’s BND intelligence service more aggressive powers, including the ability to carry out acts of sabotage and conduct offensive cyber operations.

• Until now, Germany’s spies have been limited to information-gathering operations due to intentional restraints put in place after World War II to prevent a repeat of the abuses perpetrated by the Nazi spy apparatus.
• The Merz reform shows how European leaders now see the threat from Russia to be dangerous enough that they are willing to take national security steps that were previously seen as taboo.

Switzerland: In a flash estimate, the country’s second-quarter gross domestic product was up 1.5% from the previous period, after stripping out price changes and seasonal variations. The surprisingly strong growth marked a significant acceleration from the increase of just 0.4% in the first quarter. It also marked the country’s best GDP growth since 2021, largely due to strong chemical and pharmaceutical exports as well as healthy services activity.

Israel: An interesting article in the Financial Times today shows net migration into Israel turned negative in both 2024 and 2025 — something that had only happened in three other years over the last century. According to the article, the outflow stems mostly from dissatisfaction with the right-wing government of Prime Minister Netanyahu and the stresses of the Israeli war with Hamas in Gaza. For investors, the negative net migration could be seen as a yellow flag and further dampen interest in the once high-flying Israeli stock market.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a concerning new development in the Russia-Ukraine war, where heightened attacks by both sides in the Black Sea are now threatening global grain supplies as well as energy shipments. We next review several other international and US developments that could affect the financial markets today, including a report of healthy economic growth in the United Kingdom despite the impact of the Iran war and new data confirming that tariff refunds are now boosting profits and economic growth in the US.

Russia-Ukraine War: As Russia and Ukraine step up their attacks on each other around the Black Sea, reports say a Ukrainian drone strike last night has closed three important grain terminals at the Russian port of Novorossiysk. Coupled with new attacks on oil tankers in the area, the strikes suggest the globally important Black Sea chokepoint may now be closing. If so, both oil and grain exports could be affected, putting further upward pressure on global energy and food prices but benefiting energy and food producers outside the region.

Russia-Japan: President Putin has sparked new tensions with Japan today by visiting the disputed Kuril Islands, which the Soviet Union seized from Japan at the end of World War II. In a move that suggests the visit was meant to be provocative, Putin preceded the trip by attending military drills, criticizing Japan’s government, and donning a naval uniform to meet senior officers to discuss protecting Russia’s eastern borders. The visit has prompted a sharp rebuke by the Japanese government and risks new discord that could threaten bilateral trade.

Japan: The yen weakened modestly again early today, approaching the important benchmark of 160 per dollar as traders continue to test the resolve of US and Japanese officials to further support the currency following the intervention on July 31. That intervention had helped take the yen from about 162.80 per dollar to around 155, but it has retreated from that territory. If the currency breaks 160 again, it would probably prompt the US and Japan to embark on another intervention to support it.

South Korea: In an effort aimed at reining in the country’s hugely volatile stock prices, the government has imposed a new requirement that investors must complete a week-long course before they can trade in exchange-traded funds that invest in a single stock. Investors wanting to trade single-stock ETFs must now complete at least one hour of simulated trading a day for five days. The move comes as South Korean stock prices jumped 76% in 2025, doubled again from January to June this year, and then plunged 22% in July.

United Kingdom: Second-quarter gross domestic product rose by a seasonally adjusted 0.4%, essentially matching expectations but decelerating a bit from the 0.6% increase in the first quarter. The main source of growth was the UK’s dominant service sector, with particular strength in information and communications services and professional and scientific activity. The relatively strong growth suggests the economy is on track to meet the Bank of England’s forecast that full-year GDP growth will come in at 1.1%.

United States-China: In a speech in Manila earlier this week, US Undersecretary of Defense for Policy Elbridge Colby avoided naming Beijing or addressing escalating tensions in the South China Sea, prompting concern among commentators and Philippine officials. In our view, Colby’s failure to name the key threat to an important US treaty ally or discuss its territorial issues with China is additional evidence that the White House is trying hard to avoid ruffling Beijing’s feathers ahead of General Secretary Xi’s visit to the US next month.

• At this point, it’s still not clear whether the US administration wants a long-term détente with China or just a short-term one to ensure the summit is a success.
• In any case, the effort to avoid stepping on China’s toes is likely being noticed by US allies and will raise further questions about whether the US would live up to its commitments to help defend them. The uncertainty is likely to keep boosting defense budgets around the globe.

US Fiscal Policy: The Wall Street Journal last night released an analysis showing that over 40 S&P 500 companies have reported some $9.6 billion in tariff refunds in the past quarter or so, including at least $2.1 billion in cash already received. The refunds, resulting from the Supreme Court’s invalidation of many of the administration’s initial tariffs, have given the firms a meaningful boost to earnings in some cases. That’s consistent with other analyses suggesting the refunds are acting as a kind of stimulus to the economy while also boosting the budget deficit.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a short update on the war in Iran, where the US Navy yesterday fired on a container ship trying to slip through its blockade. We next review several other international and US developments that could affect the financial markets today, including a new report highlighting the extent to which Chinese firms have invested in European automotive parts suppliers and US primary election results that will likely take some of the wind out of the sails of Democratic Party progressives.

United States-Israel-Iran: Central Command yesterday said its forces fired on a Panama-flagged container ship that was trying to transit the Gulf of Oman to an Iranian port in violation of the US blockade on Iran. The attack only disabled the ship, rather than sinking it. All the same, the incident underscores how the US is now emphasizing its blockade and other economic pressure on Iran to try to force open the Strait of Hormuz.

• However, that process could take time, if it is successful at all.
• In the meantime, global energy shipments will remain disrupted, probably putting continued upward pressure on prices.

China-European Union: In a new report, consultancy Rhodium says Chinese companies have invested in 130 of Europe’s automotive parts manufacturers over the last two decades, quietly gaining control of key automotive supply chains. The news will probably raise concerns in Europe that the Continent’s economy isn’t just under threat from surging Chinese imports but also from Chinese capital. It will therefore likely feed into the growing economic tensions between the EU and China, creating risks for both EU and Chinese companies.

Norway: The country’s sovereign wealth fund manager, Norges Bank Investment Management, today said its investment portfolio returned 9.4% in the first half of 2026, making a record profit equivalent to $184.70 billion. According to the fund’s chief executive, the strong returns stemmed mostly from Asian technology stocks. The results provide more evidence that the current artificial intelligence investment boom is not only helping to drive economic growth around the world, but also is providing strong returns for global investors, at least for now.

United States-Ukraine-Russia: The Financial Times today reported that US Vice President Vance in late July asked Ukraine to stop its drone attacks on oil tankers loading crude from Kazakhstan at the Russian port of Novorossiysk on the Black Sea. According to the report, the White House had become concerned that the attacks were further destabilizing the global oil market, which is already facing disruption because of the US-Israeli war against Iran. The report highlights how sensitive the White House is to elevated energy prices ahead of the mid-term elections.

US Politics: In Wisconsin’s primary elections yesterday, traditional Democrat David Crowley narrowly beat Democratic Socialist Francesca Hong to become the party’s nominee for governor in the November elections. In Minnesota, however, progressive Peggy Flanagan defeated centrist Rep. Angie Craig to become the Democratic candidate for the US Senate.

• The split decision in these high-profile races is being widely interpreted as a sign that there are limits to the party’s recent drift toward the left.
• That could keep alive the Democrats’ hopes for significant gains in Congress at the mid-term elections in November.

US Monetary Policy: Boston FRB President Susan Collins yesterday warned that high price inflation, including higher energy costs because of the war in Iran, has imposed financial hardships on many lower-income consumers and therefore might require the central bank to hike interest rates. The statement highlights how some on the Fed’s policymaking panel are inclined to hike rates in the coming months, despite pressure from the White House to keep cutting rates.

US Auto Industry: General Motors has said in a regulatory filing that it is setting up a special $4.5-billion fund to help its suppliers maintain production capacity for critical parts and potentially even stockpile them. The move comes after the firm’s final assembly operations have faced disruptions in recent years because of parts shortages. It may also reflect how companies today have replaced an all-out focus on efficiency with new initiatives to increase resilience as the world fractures into relatively separate geopolitical and economic blocs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a short update on the conflict in Iran. We next review several other international and US developments that could affect the financial markets today, including growing economic disruptions in Germany due to Europe’s recent heatwaves and drought and another big artificial intelligence funding deal that will likely further raise concerns about circular financial deals in the sector.

United States-Israel-Iran: Global oil prices jumped more than 3% earlier today on the news of fresh Iranian demands on the US and new attacks on shipping in the Strait of Hormuz, which we described in our Comment yesterday. However, prices have since retreated and are now up only slightly, with near Brent futures prices essentially flat at $87.75 per barrel.

Germany: In an emergency move to soften the trade disruption caused by historically low water levels on the Rhine River, several German states have suspended their bans on Sunday trucking. Meanwhile, shipping rates have surged. As parts of Europe face their fifth heat wave of the year in the coming days, some officials fear the Rhine will get so low that it will be unnavigable along its entire length, shutting in much of Germany’s industrial economy.

Chile: The Chilean government yesterday said it will allow state-owned copper giant Codelco to retain 100% of its profits this year, up from about 30% in recent years. The move aims to help Codelco handle its enormous debt burden, which has grown along with the firm’s massive capital investments to keep up production levels. The firm’s investment program is seen as vital to solving a massive projected shortfall in global copper production by 2040, even as electrification and data centers boost the demand for electricity.

Japan: In foreign exchange markets yesterday, the yen depreciated about 1% to more than 159 JPY per dollar, reversing about half its appreciation after the joint US-Japan intervention on July 31. The currency is trading roughly flat so far this morning, but the renewed depreciation is raising concern that it will continue to lose value until the Federal Reserve agrees to loosen its internal rules for currency operations, which may be necessary to increase the US’s intervention firepower.

Singapore: The city-state’s statistical agency said second-quarter gross domestic product was up a strong 5.9% from the same period one year earlier, almost matching the increase in the year to the first quarter. In response, the Ministry of Trade and Investment raised its full-year growth outlook to a range of 4.5% to 5.5%. The stronger-than-expected GDP growth reflects less disruption than expected in the global energy market because of the Iran war and stimulus from the global AI boom.

China: The People’s Bank of China last night appointed German financial giant Deutsche Bank to be its first European clearing house for renminbi as it seeks to increase international usage of the currency. Deutsche will be the first non-Chinese bank in Europe to be allowed to clear and settle renminbi transactions, along with the local branches of China’s major state-owned banks. That should give Deutsche an improved ability to facilitate trade, treasury, and investment activity between Europe and China, despite the growing threat of new bilateral trade barriers.

United States-China: An analysis posted yesterday said Chinese artificial-intelligence developers still prefer to train their large language models on processors from US chip giant Nvidia, despite Beijing’s pressure for them to use China’s own rapidly improving chips. According to the report, the main hurdle is that shifting to Chinese chips requires difficult engineering and software changes.

• As a result, the US government still likely has geopolitical leverage over China to the extent that it’s willing to keep or tighten its current restrictions on exporting Nvidia chips.
• Of course, that means Nvidia and other US tech firms are still at risk of sudden trade restrictions that could adversely affect their businesses.

US Artificial Intelligence Industry: AI processor giant Nvidia late yesterday confirmed it is partnering with investment firms Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to assemble more than $500 billion in loans at “attractive rates” for “the build-out of AI infrastructure over time.” The announcement is likely to rekindle concerns about circular financing deals in the AI space, which could lead to financial contagion if a major firm related to AI runs into problems. A key source of such problems could be a competitive threat from China.

US Energy Industry: Refiner Phillips 66 and two partners, including refiner HF Sinclair and pipeline operator Kinder Morgan, today said they have agreed to build a 900-mile pipeline to carry gasoline, jet fuel and diesel from the Texas Panhandle to Arizona and California. With a capacity of 230,000 barrels per day, the pipeline aims to help bring down California’s sky-high fuel prices, which in part reflect its loss of petroleum imports and refineries over the years.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, including news that Tehran has demanded a number of conditions the US must meet before it will allow free shipping through the Strait of Hormuz. We next review several other international and US developments that could affect the financial markets today, including a worsening spat over immigration in Europe and a new effort by the US administration to remove Federal Reserve board member Lisa Cook.

United States-Israel-Iran: Exercising the leverage it enjoys by keeping the Strait of Hormuz essentially closed, Tehran on Saturday issued a list of demands that the US must meet before Iran would open the waterway. The demands would require the US to lift its naval blockade and sanctions on Iran’s oil and petrochemical exports, withdraw the US military from around Iran, pay war reparations, release frozen Iranian assets, and stop threatening the country or attacking its proxies in the region. Negotiations on Iran’s nuclear program would only come later.

• Most of Iran’s weekend demands were already agreed to by the US in the two sides’ June ceasefire, but the insistence on reparations is new.
• The demand issuance underscores how advantageous Iran’s position now is. With its ability to keep the strait essentially closed, it can put continued upward pressure on global energy prices, keep the US looking impotent, and prolong the political problems the US administration has created for itself by starting an unpopular war.
• Some analysts argue Iran would let shipping in the strait flow freely again once the US gives it strong guarantees that it will meet its demands. However, we think Iran will hold out for permanent power to regulate and charge tolls on shipping in the waterway. We think the increased power and confidence Iran has gained from the war will continue driving global energy prices higher in the coming years.

Japan-North Korea: Tokyo’s metropolitan government has announced plans to build a large missile shelter for civilians in an underground parking lot next to a major train station. The shelter would aim to protect civilians in the event of attack by North Korea, though it could also come in handy in case of a future conflict with China. While the world is now focused on the wars in Ukraine and Iran and the potential for a US-China conflict, the Tokyo plan is a reminder that North Korea’s rapid military advances are making it increasingly dangerous.

China-Europe: Chinese container-shipping company Sea Legend this week will launch the first regular container shipping service through the Arctic Ocean between China and Europe. The voyage between Ningbo on China’s eastern coast and Felixstowe in the UK is expected to take as little as 20 days, or only about half as long as the standard route. The new service shows how melting sea ice in the Arctic is creating new commercial opportunities, not to mention new geopolitical tensions between the major powers.

Spain-Italy: In retaliation for Italy’s imposition last week of border checks on arrivals from Spain, the Spanish government on Saturday imposed temporary new checks on arrivals from Italy. The tit-for-tat travel barriers are the latest fallout from the mass incursion of migrants into Spain’s exclave of Ceuta in North Africa at the beginning of August. Many European countries have criticized Spain for overly lenient immigration policies, sparking sharp political fractures among countries and likely spurring greater acceptance of right-wing, populist politicians.

Colombia: The country’s conservative new president, Abelardo de la Espriella, was inaugurated on Friday and now plans to quickly get tough on cocaine traffickers who had become much more numerous and powerful under the previous leftist government. The law-and-order president is also expected to have better relations with the US than the previous president did.

Russia-United States: After Federal Bureau of Investigation Director Patel scheduled a visit to the Russian capital this fall, Kremlin commentator Vladimir Vasiliev has warned that the Russians may use the meeting to provide Patel with “dirt” on prominent Democrats to undermine them in the November mid-term elections. Whether or not that is true, the report may rekindle controversial concerns about Russia trying to interfere in US elections — a development that would likely make the mid-term election campaigns even more acrimonious than usual.

United States-Australia: The US government today said it will lend $400 million to Australian firm Sunrise Energy to help finance its new mine to produce scandium, a rare earth mineral that is important to energy and defense products. In return, the US will get right of first offer for the mine’s output. As with many rare earth minerals, China dominates the world’s scandium production and processing, so the new mine will help cut the US’s dependence on its geopolitical rival.

• The loan also illustrates the US administration’s willingness to fund foreign firms for that purpose, rather than just US companies.
• In response to the news, Sunrise Energy’s share price rose approximately 18% on the Sydney stock market today, continuing a long upward trend.

US Politics: A new poll by Reuters/Ipsos shows political independents are now surprisingly open to progressive policies like those being promoted by the left wing of the Democratic Party. Some 43% of independents still say they wouldn’t vote for a Democratic Socialist. However, 64% said they support tax hikes on billionaires and corporations, and 60% said they support government-provided healthcare for all citizens. As the mid-term elections approach, the poll suggests the Democrats’ drift to the left may not hurt them as much as Republicans think.

• Of course, many establishment Democrats remain at least skeptical of left-wing messaging, and if the party drifts too far to the left, some will likely sit out the balloting.
• In any case, Republican leaders from President Trump downward reportedly plan to brand the Democrats as “socialists” and “communists” as a key part of their election strategy.

US Monetary Policy: The White House late Friday renewed its effort to remove Fed board member Lisa Cook, despite its previous effort being invalidated by the Supreme Court. In its first attack on Cook, the administration had accused her of mortgage fraud, but the court threw out the effort to fire her on grounds that she wasn’t given notice or a chance to respond. In a letter sent to Cook last week, the administration again accused her of mortgage fraud but gave her 21 days to defend herself.

• The new effort to fire Cook will probably rekindle investor concerns about the Fed’s independence.
• Those concerns could build on the developing investor anxiety over Chair Warsh’s effort to reduce Fed guidance for the markets. The resulting increase in uncertainty already appears to have nudged up longer-term bond yields.

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