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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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our thoughts on the agreement to reopen the Strait of Hormuz, alongside signs that the conflict could spread deeper into the Middle East. We then focus on the Japanese yen and a possible return to currency intervention. Next, we review Alphabet’s recent debt issuance, the decline in US Strategic Petroleum Reserve levels, and the early front-runner to succeed President Trump as leader of the Republican Party. As always, we conclude with a roundup of recent domestic and international economic data.

Iran Demands: Despite ongoing negotiations, the conflict shows little sign of nearing an end. On Thursday, Iran and Oman unveiled details of an agreement permitting passage through the strait, though US and Israeli vessels remain explicitly barred. Meanwhile, Houthi forces have intensified their attacks on Saudi-backed troops in Yemen. These developments highlight the volatile, stop-and-start nature of the regional crisis as tensions over the waterway persist.

• Despite a pending transit agreement with Oman, Iran maintains that the Strait of Hormuz remains restricted. Under the proposed dual-channel arrangement, commercial vessels would enter via Iranian-monitored routes and exit through Omani-controlled waters. Although the framework currently operates without transit fees, Iran asserts its right to impose tolls in the future. US acceptance is unlikely, as Washington continues to reject any permanent impediments to free navigation.
• Moreover, fighting between Saudi Arabia and the Iranian-backed Houthis has begun to escalate. The surge in violence follows a major Houthi-led attack on Saudi-backed forces in Yemen, which resulted in hundreds of casualties. The Houthis claimed the strike was a response to what they described as a Saudi military buildup in its final stages. This marks the largest offensive outside the core confrontation between the US and Iran.
• Conflict in the Middle East continues to sit in a no-man’s-land, as signs of easing tensions are frequently followed by setbacks. The recent agreement between Iran and Oman may be another example of this trend: while it offers a welcome sign, it does not provide a final solution to the standoff over the Strait of Hormuz. Furthermore, the intensifying conflict in Yemen threatens to spark broader unrest throughout the region.
• At this time, we still expect ongoing geopolitical uncertainty in the Middle East to weigh on financial markets. Fortunately, resilient economic growth has helped prevent a prolonged downturn. We anticipate this underlying strength will persist, provided the regional conflict remains contained to a limited number of countries.

Another Yen Intervention: Nearly a week after the United States and Japan coordinated efforts to support the yen, the currency has already surrendered roughly half of its initial gains. The reversal reflects continued investor skepticism over whether the Bank of Japan can tighten policy sufficiently to contain inflation pressures stemming from recent energy-market volatility. The yen’s renewed weakness has revived speculation that US and Japanese authorities could take further coordinated action to prevent a deeper decline.

• The prospect of further coordinated intervention comes as Japan pursues additional stimulus to support growth. Earlier this week, the government approved a two-year reduction in the consumption tax on food to 1% from 8%, effective April 2027. The measure is central to Prime Minister Sanae Takaichi’s effort to ease cost-of-living pressures, but the resulting revenue loss has heightened concern over how the government will finance the shortfall given Japan’s already strained fiscal situation.
• While the Bank of Japan has signaled its intention to normalize policy as it unwinds years of ultra-accommodative monetary settings, it has continued to raise interest rates gradually. However, last week the central bank left its policy rate unchanged at 1%, despite signs that higher energy costs could add to inflationary pressures. Its cautious approach appears to reflect, in part, the Takaichi administration’s emphasis on weighing growth and financial conditions alongside inflation as the Bank considers further tightening.
• Japan’s pursuit of fiscal stimulus, combined with the BOJ’s gradual approach to monetary tightening, could leave FX intervention as a key tool for supporting the yen. However, if Tokyo were forced to fund large-scale intervention by selling its substantial Treasury holdings, this could put downward pressure on Treasury prices and push yields higher. In an extreme scenario, this could trigger a broader sell-off in global bonds, as other countries move to protect their own market liquidity.
• While Japan’s actions have triggered a global bond sell-off, we see this as a temporary, event-driven phenomenon rather than a long-term risk. The liquidity squeeze stems primarily from government funding needs tied to the Strait of Hormuz energy disruption. As soon as this geopolitical issue stabilizes — and we are optimistic it will — yen and bond-market pressures should subside. Therefore, we view any US coordination efforts as finite and conditional, not open-ended.

AI Debt: Alphabet is raising up to $25 billion through a new bond sale as it seeks to fund its expanding AI infrastructure. The Google parent company generated strong investor demand by offering attractive yields across multiple tranches. So far this year, hyperscale tech companies have issued historic levels of debt, with Alphabet joining peers like Amazon and Oracle in tapping global bond markets. This push to raise debt comes as major tech firms look to diversify their funding sources beyond cash reserves to secure the lowest possible cost of capital.

Crude Supplies Low: According to Bank of America, US Strategic Petroleum Reserves have fallen to their lowest level in 43 years. The sharp decline stems from the White House’s ongoing effort to curb oil prices, which has involved releasing over 172 million barrels over a 120-day period. This substantial drawdown raises questions about Washington’s ability and willingness to sustain its confrontational stance toward Iran, particularly with the midterm elections approaching.

Vance 2028? President Trump has reportedly urged private donors to support Vice President JD Vance in the upcoming presidential election. While other potential contenders — such as Secretary of State Marco Rubio — could vie for the nomination, Trump appears to favor Vance as his successor to lead the party. This effort to groom a standard-bearer comes as Republicans build a formidable advantage over their Democratic counterparts, strengthening their bid to retain the White House.

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