by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of private credit and AI, framed around key takeaways from the Milken Global Conference. We then share our views on the White House’s decision to end Operation Epic Fury. Next, we briefly address the administration’s push for greater oversight of AI models, North Korea’s move away from its longstanding goal of reunification, and the US decision to halt weapons shipments to Germany. As always, we include an overview of recent domestic and international economic data.

Milken Global Conference: Some of Wall Street’s largest firms took the stage at the Milken Institute Global Conference, emphasizing efforts to sustain momentum in both artificial intelligence (AI) and private credit. This push comes amid rising market skepticism driven by stress in private credit names like Tricolor and First Brands, alongside broader concerns about escalating AI-related capital expenditures. Yet the tone of the discussions suggests that, despite negative headlines, institutional investors remain largely confident in both sectors.

• Panel discussions at the conference struck a generally constructive tone, but with clear caution about the risks facing private credit. As the asset class has grown in importance, some participants highlighted that describing certain vehicles as “semi‑liquid” has become a source of tension, especially for less experienced investors. The language around liquidity may have created a false sense of flexibility. The rise in redemption requests has revealed how difficult it can be to withdraw cash during times of uncertainty.
• Additionally, JPMorgan Chase CEO Jamie Dimon and BlackRock CEO Larry Fink have dismissed concerns about a growing AI bubble. During their discussions, both expressed optimism that AI investment will sustain momentum in equity markets and the broader economy as tech companies push to expand capacity. Their comments come as major banks continue to act as a conduit for many of these tech firms seeking fresh funds for projects expected to cost over $1 trillion in the coming year.
• The discussion surrounding AI and private credit comes as the two are becoming increasingly linked. Major banks have turned to private credit as one way to offload some of their exposure to tech-related debt. At the same time, private credit has looked to major banks as a backstop to enhance its ability to provide credit. Working together, the two have helped keep each other afloat while also becoming deeply interconnected.
• We continue to see ample credit availability and sustained AI investment as important supports for overall economic activity. This is especially important at a time when consumer spending is outpacing income growth and AI-related capex is beginning to crowd out other types of investment. Taken together, signs that private credit flows and AI infrastructure buildouts remain largely unimpeded are providing some reassurance that the economy can stay resilient even amid rising geopolitical and trade risks.

Operation Over? The White House has ended Operation Epic Fury as it shifts to alternative measures to pressure Iran to abandon its nuclear program. On Wednesday, Secretary of State Marco Rubio said the US will halt offensive operations while remaining ready to defend against threats. The move signals a commitment to maintaining the ceasefire yet sustaining pressure through a blockade. Although further conflict has not been ruled out, the decision reduces the risk of escalation that had been weighing on markets.

• The decision to end the blockade comes at a time when the White House would need to seek congressional approval. The deadline was believed to have passed over the weekend, although there has been debate over what classifies as the start and end of a war. The president has insisted that the legal limits are likely unconstitutional, suggesting he was preparing to let the courts decide. However, the recent declaration indicates that such a step may no longer be necessary.
• There appear to be additional factors behind the operation’s end. In a post on Truth Social, President Trump said the decision was driven by progress in negotiations, while leaving open the possibility of future military action. He added that the halt came at the request of Pakistan and other countries and reflected momentum toward a formal agreement between the two sides. However, there are indications the administration may also be seeking to pivot away from the conflict ahead of the midterm elections.
• The potential end to the conflict will be supportive for risk assets as it indicates that the worst is perhaps behind us. This will likely allow investors to shift their attention to Q1 earnings, which continue to surprise to the upside. That said, the risk of renewed hostilities is not zero, and the ceasefire remains fragile. As a result, we continue to emphasize maintaining exposure to value as a potential portfolio shock absorber in the event of a return to fighting.

Government AI: Major AI companies are submitting their models to the US Commerce Department for vetting of national security risks as they prepare for wider release. The move comes as the US government looks for ways to ensure protection against safety risks following the release of newer, more advanced models. The push for government review of AI models comes as lawmakers consider possible regulations to limit AI risks to the broader public.

No More Reunification: North Korea has amended its constitution to remove references to reunifying the peninsula under a single country. The change comes as North Korea seeks to reaffirm its borders and define itself as an independent nation and a nuclear power with its own sovereign rights. Additionally, it may be a subtle sign that the country no longer wishes to challenge the borders established following the Korean War. This shift could reduce geopolitical tensions in Asia.

German-US Tensions: After deciding to withdraw troops from Germany, the US has also cut back on providing weapons. The White House announced that it would no longer supply Germany with weapons capable of striking deep into Russia. The administration’s decision follows Chancellor Merz’s criticism of the Iran war. We suspect that rising tensions between the US and Germany are likely to accelerate Germany’s plans to develop its own defense industries.

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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, where renewed military action by the US and Iran yesterday threatens to upset the ongoing ceasefire. We next review several other international and US developments that could affect the financial markets today, including a downgrade to global economic growth forecasts from the International Monetary Fund and new data showing a jump in the number of US homes with foreclosure filings on them due to the end of a Biden-era subsidy.

United States-Israel-Iran: In a chaotic day of news yesterday, it appears that Iran tried to disrupt the US’s new “Project Freedom” program of guiding ships through the Strait of Hormuz by attacking both US Navy warships and commercial vessels and also launched new attacks against the United Arab Emirates. Meanwhile, US Central Command said it used Apache helicopters to sink small Iranian boats that were harassing ships in the waterway.

• Despite the Iranian attacks and its continued refusal to reopen the strait or abandon its nuclear program, President Trump yesterday downplayed the conflict as a “mini-war” and said he didn’t plan to retaliate with massive US airstrikes again. All the same, the continued Iranian attacks could eventually force the president to resume major attacks and keep the US embroiled in the conflict.
• The Iranian attack on the UAE targeted a major oil exporting terminal at Fujairah on the Gulf of Oman, the eastern endpoint of the Habshan-Fujairah oil pipeline that allows Abu Dhabi to move some of the crude pumped from its fields directly to the coast without sending tankers through the strait. Early reports don’t indicate that the damage to the oil exporting infrastructure was extensive, but it still highlights the risk that the region’s key oil facilities could be damaged and put out of action for months or even years into the future.

Global Economy: International Monetary Fund chief Kristalina Georgieva yesterday said the war in Iran has nullified the institution’s baseline forecast that the global economy would grow 3.1% in 2026. Georgieva said that forecast, issued just last month in the IMF’s World Economic Outlook, must be replaced with the “adverse scenario” forecast that assumes the war becomes prolonged. In that case, the IMF sees global gross domestic product expanding just 2.5% this year, with average consumer price inflation of 5.4%, up from 4.4% in the earlier forecast.

United Kingdom: The yield on 30-year government bonds today rose 0.14 percentage points to 5.78%, reaching the highest level in almost three decades. The yield on the 10-year gilt also climbed 0.14 percentage points to reach 5.10%, close to the 18-year high of 5.12%, which was hit earlier in the Iran war. The jump in gilt yields reflects investor concern that the Bank of England will be forced to hike interest rates to contain consumer price inflation resulting from the war.

United Kingdom-United States: The Financial Times today carries an article revealing that US Treasury Secretary Bessent and UK Chancellor of the Exchequer Reeves had a “fierce row” over the wisdom and impact of the Iran war last month in Washington. According to the article, Bessent berated Reeves for her publicly stated view that the US hasn’t been clear about its goals in the war and that the war hasn’t necessarily made the world safer. Reeves reportedly snapped back that she doesn’t work for Bessent and wouldn’t tolerate being talked to in that manner.

• Bessent and Reeves reportedly have worked well together on issues other than the war, and they have been in contact since the April dispute.
• Nevertheless, the incident illustrates the fraying relationship between President Trump’s administration and the Labour Party government of Prime Minister Starmer.

China-United States: New reports say Beijing has ordered Chinese companies not to comply with recent US sanctions on Chinese refiners that buy Iranian oil. The move marks the first time the Chinese government has invoked its 2021 “blocking rule” designed to counteract foreign laws that it believes violate international norms or restrict trade. It also suggests Beijing wants to send a message to Washington that it can and will resist what it sees as coercive US measures ahead of the upcoming summit between President Trump and General Secretary Xi.

US Healthcare Market: Health Secretary Robert F. Kennedy Jr. yesterday announced an initiative aimed at helping wean some Americans off psychiatric medications. The move extends to antidepressants, which are some of the most widely prescribed medicines in the US and are used by about 16% of the population. While details of the program are still being worked out, an aggressive, widely applied move to cut usage could adversely affect some pharmaceutical firms’ sales.

US Housing Market: A new report from data firm ATTOM shows the number of US homes with foreclosure filings on them in March was up 28% from the same month one year earlier. The number is still below the pre-pandemic levels of 2019, but analysts expect foreclosure filings to jump well beyond those levels soon due to the Trump administration’s recent move to end a Biden-era subsidy. Removal of the subsidy will likely further weigh on the finances of relatively lower-income homeowners and further constrain their consumption spending.

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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, where President Trump has announced a new effort to “guide” ships through the Strait of Hormuz and unclog global energy and commodity markets. We next review several other international and US developments that could affect the financial markets today, including a statement by the OPEC+ oil cartel that it will slightly increase production to help ease prices and new reporting that suggests smaller US firms will be largely unable to access refunds for tariffs paid over the last year.

United States-Israel-Iran: President Trump yesterday said the US Navy will begin to “guide” ships from certain countries out of the Strait of Hormuz today to unclog global supplies of oil and other key commodities. The proposal essentially involves setting up a coordination cell to collect information from shippers, insurers, and militaries on mines and other dangers and to recommend safe routes for vessels. However, it’s unclear how many shippers would risk their vessels without US Navy ships as escorts.

• Meanwhile, Iranian media has reported that a US Navy ship near the strait has been hit by missiles. US Central Command has denied the account. Nevertheless, the report has put the oil market on edge and helped push oil prices higher early today. Near Brent crude oil futures prices are currently up some 3.4% to $111.80 per barrel.
• In any case, it appears that Iran is continuing to attack just enough vessels around the strait to intimidate shippers from trying to move through the waterway. According to UK Maritime Trade Operations, which is affiliated with the Royal Navy, a bulk carrier reported being attacked by multiple small boats in the waterway earlier today.
• Separately, Tehran said it has received a US counterproposal to its 14-point peace plan offered last week. A government spokesman said the US response didn’t bring up Iran’s nuclear program, but that seems as unlikely as the US administration’s frequent statements that Iranian leaders are begging for peace. In our view, the US and Iran remain far apart in the negotiating demands, so a near-term end to the hostilities is unlikely.
• Also, the White House said late Friday that it has approved $8.7 billion in emergency arms sales to Middle Eastern countries that have been targeted by Iran during the war. The arms sales include rockets to Israel, Qatar, and the United Arab Emirates and air-defense equipment to Qatar and Kuwait. The sales illustrate the increased sales that US defense contractors are likely to enjoy because of the conflict.
• As we had predicted, the Financial Times yesterday said investors poured $3 billion into exchange-traded funds focused on renewable energy in April alone. That highlights how the increased risk for fossil fuels transiting the strait is forcing countries around the world to adopt an “all of the above” energy policy, in which they support a wide range of energy sources, from Middle Eastern oil and natural gas to domestic coal and all manner of green energy.
• In the US, however, the administration is taking steps to stifle any further diversification in the nation’s energy portfolio. New reports say the Defense Department has stopped approving US onshore wind farms, citing national security reasons.

Global Oil Market: The OPEC+ oil cartel said yesterday that it will hike its collective oil output by 188,000 barrels per day, a token amount that follows a series of modest production increases over the last several quarters. The move is likely aimed at showing that OPEC+, led by Saudi Arabia and Russia, is unconcerned by the impending departure of the UAE from the main Organization of the Petroleum Exporting Countries. It is probably also meant to signal that the group is doing its part to bring energy prices back down.

• However, the move by OPEC+ is unlikely to have much, if any, impact on the world’s current oil supply, given that much of its production is still bottled up by the effective closure of the Strait of Hormuz.
• Separately, the UAE announced yesterday that it will spend roughly $55 billion to “support upcoming projects” intended to help it meet rising global oil demand. That announcement reflects the UAE’s frustration that membership in OPEC had limited its ability to monetize its oil resources.

Russia: The Financial Times reported over the weekend that security around President Putin has tightened sharply in recent months as Ukraine demonstrated an ever-increasing ability to conduct drone attacks deep into Russia. The report says Putin now spends so much time in underground bunkers micromanaging the war that he has grown detached from civilian affairs. The report suggests Russian security services have reason to believe assassination is a real threat to Putin.

• If Putin really was assassinated, it could spark a period of dangerous instability and political infighting in Russia as officials jockey for power.
• No matter what official ultimately ended up on top, such a development could well spark a sharp Russian intensification of its war against Ukraine.

Japan-MERCOSUR: Reports based on inside sources yesterday said Tokyo is preparing to launch talks toward a free-trade pact with MERCOSUR, the economic bloc consisting of Brazil, Argentina, Uruguay, and Paraguay. The move reflects Prime Minister Takaichi’s belief that Japan must expand its markets and diversify its supply chains for critical materials in response to US tariff policies and China’s curbs on rare earth exports. It also marks the latest effort by an ally to diversify trade away from the US, potentially undermining future US economic growth.

India: Initial results suggest Prime Minister Modi’s Hindu-nationalist Bharatiya Janata Party has won the weekend elections in West Bengal state, unseating the longstanding chief minister of the leftwing Trinamool Congress. The BJP also improved its position so much in the northeastern state of Assam that it will no longer need to rely on coalition partners there. The results show that Modi and the BJP continue to build power and remain firmly in control of Indian politics and economic policy as it deals with energy supply disruptions due to the war in Iran.

United States-North Atlantic Treaty Organization: The US administration late Friday said it will reduce the number of US troops stationed in Germany by 5,000, and President Trump on Saturday warned he may order even deeper troop cuts. The move is apparently retaliation for NATO allies in Europe refusing to take on more of the burden to resolve the US-Israeli war against Iran.

• A dramatic drawdown in US forces in Europe could leave the US unable to effectively defend its extensive political, economic, and cultural interests in the region.
• Any sign that the US no longer has the will or ability to defend its interests in Europe could eventually weigh heavily on the stocks of US firms that rely on Europe for sales, manufacturing inputs, or capital.

United States-Cuba: President Trump on Friday signed an executive order under which the US could block the assets of any foreign individual or entity operating in key sectors of the Cuban economy — including energy, financial services, mining, and defense — or providing material, financial or technological support to the government. The order would greatly broaden the US economic pressure on the Cuban government, potentially signaling the administration wants to shift focus from the Iran war to Cuba and raising sanctions risks on foreign companies.

US Tariff Policy: An article in today’s Financial Times shows that the procedure set up by the federal government to refund tariff payments ruled illegal by the courts will mostly benefit larger firms. According to the article, the administration’s website only allows the “importer of record” to apply for the refund, meaning legions of small companies that import through a distributor or other intermediary can’t use the system. The situation is further evidence of the broad advantage that large firms have amassed versus smaller businesses in recent decades.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a deep dive into the latest GDP report and its implications for the growth outlook. We then briefly cover President Trump’s new initiative to expand IRA access for low‑income workers, efforts to crack down on international IP theft, the growing reluctance of farmers to respond to government surveys, and other market‑relevant developments. As always, we include an overview of recent domestic and international economic data.

 GDP Deep Dive: The economy continues to demonstrate resilience, reinforcing market confidence that it has the ability to absorb potential shocks. Business investment was supported by sustained AI-related spending, while household consumption benefited from tax refunds and improved credit availability. The government’s reopening also contributed to economic growth, with net exports being the only notable drag. Despite this steady expansion, the risk of a prolonged conflict involving Iran remains a key uncertainty for the outlook.

• GDP grew at a 2.0% annualized rate, accelerating from 0.5% in the prior quarter but coming in modestly below the 2.2% consensus forecast. The expansion was led by investment spending, which increased at a 2.5% annualized pace. Within that, technology investment remained the standout, continuing to outpace other categories as firms accelerate buildouts of AI-related infrastructure and capacity.
• At the same time, household spending showed signs of moderation, slowing from a 1.9% increase in Q4 2025 to 1.6% in the latest period. Growth was driven primarily by rising healthcare expenditures, which continue to underpin demand. In contrast, goods spending declined modestly, reflecting a pullback in nondurable purchases, a possible sign that consumers are becoming more price sensitive.
• The final two components, net exports and government spending, were subject to temporary distortions. The normalization of trade flows weighed on growth as a rise in imports led to lower net exports. Meanwhile, the government’s reopening drove a surge in public spending. Looking ahead, net exports are likely to remain a drag on growth, while the boost from government spending should help moderate declines.
• While growth has been relatively solid, its composition is likely to shape future performance, particularly for consumption and investment. Household spending is still expanding, but declining savings rates are eroding consumers’ capacity to absorb ongoing inflation pressures. Additionally, technology firms that depend on components from Asian markets, especially semiconductors, may be forced to delay projects until supply conditions stabilize, posing an additional headwind to investment.
• While we remain confident that the economy can continue to grow through the end of the year, we do see signs of moderation. We continue to believe that as long as households have access to credit, consumer spending will hold up, and investment spending should further support economic activity. That said, significant uncertainty still lingers. Therefore, we recommend maintaining at least some exposure to value stocks, which can offer a degree of protection against unexpected economic shocks.

TrumpIRA: The White House has announced a new website that will allow workers to find and compare private sector retirement savings accounts. The online portal will be developed through an executive order and aims to help low-income workers access the Saver’s Match program, which is set to take effect next year under legislation passed by the previous administration. The move signals that more people will have access to passive investments, which could provide greater stability in equity markets.

 International IP Theft: The US is expected to launch an investigation into Vietnam’s trade practices following a review of intellectual property protection and enforcement. The report accuses Vietnam of failing to protect US trade secrets. Vietnam is the first new country in 13 years to receive a priority designation, joining a list that already included India, China, Indonesia, Russia, Chile, and Venezuela. This suggests that tariffs, a tool to enforce better trade practices, will remain in place despite the court setback earlier this year.

Farmers Push Back: More farmers are refusing to answer USDA survey questions due to growing distrust. Crop producers have complained that the data being collected is often used against them, as reports of higher harvests generally lead to a decline in prices. Their refusal to cooperate with the USDA appears to be a sign of rising strain, but it could also compromise data quality. The lack of transparency regarding crop production could lead to greater price volatility, which may translate into structurally higher food inflation.

 War Powers Act: The White House is moving closer to a deadline regarding the conflict involving Iran that began on March 2. Under the War Powers Act, the White House must seek congressional approval to continue military action. While the exact timing has been debated, continuing the conflict would represent an example of a concentration of power in the executive branch. Although several resolutions have been introduced to end the conflict, they have been defeated in Congress as lawmakers remain unsure how to deal with the growing threat from Iran.

 Oil Companies Rally: Exxon and Chevron both reported strong first‑quarter earnings, which were aided by conflict‑driven tensions in the Middle East that pushed energy prices higher. Exxon absorbed some region‑related production outages but largely offset them through increased sales elsewhere. Chevron, which is less exposed to Middle Eastern supply risks, also posted higher sales as tighter global supply conditions boosted margins. Together, these results underscore why major energy producers remain attractive investment opportunities in the current environment.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on Powell’s final meeting as Fed chair. We then examine AI earnings and provide an update on developments in Iran. Next, we briefly discuss the prospect of Japanese intervention in currency markets and the possibility that the US may withdraw troops from Germany. As always, we include an overview of recent domestic and international economic data.

 Powell’s Farewell: Federal Reserve Chair Jerome Powell held his final press conference on Wednesday following the FOMC’s two-day meeting. Fed officials voted to hold rates unchanged at a range of 3.5% to 3.75%. The decision drew dual-sided dissents by four members, which hasn’t occurred since 1992. One member favored a rate cut, while the others preferred language that would remove any suggestion of future easing. The meeting highlights the growing divide among Fed officials as they prepare for the next Fed chair.

• The Fed statement showed an overall shift in sentiment regarding how the conflict in Iran is affecting its outlook on the economy and inflation. Specifically, the statement removed the qualifier “somewhat” when describing elevated inflation, in part due to rising energy prices. It also changed its assessment of the Middle East, now stating that developments are “contributing to uncertainty in the economic outlook.” This is a shift from its previous statement, which showed hesitancy about whether the conflict would impact the economy.
• While the statement did not reference the future direction of monetary policy, it featured unusual dissents over a perceived easing bias. Three Fed officials dissented against the statement’s language. These dissents likely served as a counterweight to Stephen Miran’s vote in favor of a cut, which, if left unchallenged, could have led markets to interpret the FOMC as having greater appetite for rate cuts than most Fed officials actually had during the two-day meeting.
• Powell used the press conference to narrow the apparent divide by stressing that policy is not on a preset course. He said the FOMC currently sees no need for a rate hike but left the door open to one if conditions warrant. He also indicated that the scope for additional cuts may be limited, given where rates stand relative to the neutral rate, the theoretical level at which policy is neither stimulating nor restraining economic growth.
• In other news, Powell clarified his post-chairship plans. Although his tenure as Fed chair is ending, his term as a governor extends through January 2028. Powell intends to remain on the Board for the duration of any potential investigations into the Fed. While he hasn’t set a firm departure date, he noted that his remaining time as governor will be low-profile to ensure he does not overshadow his likely successor, Kevin Warsh.
• The transition from Powell’s chairship to Kevin Warsh is likely to be bumpy as markets reassess the future path of policy. Warsh has signaled discomfort with the current degree of transparency and may seek to scale it back, potentially by holding fewer press conferences. In our view, the combination of heightened internal disagreement at the Fed and a possible reduction in public communication could add to bond‑market volatility.

AI Earnings: Several big‑tech names reported earnings on Wednesday to a mixed reception, as investors continue to press for greater shareholder returns. Each company delivered strong results, with Alphabet, Meta, Amazon, and Microsoft all posting solid earnings growth, particularly in their cloud businesses. However, investors were unimpressed, as these firms are still prioritizing higher capital‑expenditure plans, which will likely delay a more meaningful return of capital to shareholders.

• Alphabet emerged as the clear winner on the night, while Meta lagged. Alphabet distinguished itself from several peers by demonstrating that its cloud business continues to consistently beat market expectations. Meta, by contrast, does not operate a cloud‑computing platform and has ramped up capital spending without yet convincingly showing that it can translate its AI investments into comparably strong financial results.
• With hyperscalers on pace to spend over $725 billion in capex, the market is clearly signaling a strong appetite for these tech firms. This surge in spending will likely force investors to start questioning the underlying valuations of these companies, as it remains unclear whether stock prices have room to grow given their substantial rise over the past few years. That said, we believe the preference for tech will likely shift toward companies that benefit directly from this increase in spending.

Iran Update: The fragile truce between the United States and Iran is fraying as the two sides remain unable to agree on a deal. The White House now appears more willing to contemplate the use of additional force to break the deadlock. Tensions escalated after Washington rejected Tehran’s request to reopen the strait while nuclear talks continue, insisting instead that Iran end uranium enrichment as a condition for lifting the blockade. The standoff has already contributed to higher oil prices.

• Tensions are escalating as the United States searches for ways to break Iran’s grip on the strait. White House officials have reportedly discussed the possible use of hypersonic missiles to signal the level of force Washington is prepared to deploy to reopen the waterway. At the same time, the US is seeking international support to build a coalition aimed at restoring freedom of navigation through the strait.
• The ceasefire has not been formally revoked, but there are mounting signs it is fraying. On Wednesday, the United States indicated that Israel will retain the right to carry out limited strikes in Lebanon under any agreement, a position that is likely to deepen tensions with Iran, which insists that Israeli attacks on Lebanon must stop as a condition for sustaining the truce.
• Rising US‑Iran tensions are likely to add to economic uncertainty and provide support for commodity prices. While risk assets have remained relatively resilient so far, they could start to show signs of moderating if direct fighting between the two sides resumes. We continue to believe that, although the growth outlook for equities remains attractive, the risk of conflict‑related shocks means that maintaining exposure to value‑oriented sectors is important for investors seeking a more balanced portfolio.

BOJ Intervention: The Bank of Japan has signaled that it may intervene in currency markets to defend the yen against speculative pressure. The warning comes as the Japanese currency has weakened against the US dollar amid doubts over how far policymakers are willing to tighten policy in response to rising inflation. Any move to lean against further yen depreciation would likely act as a modest headwind for the US dollar, which has been strengthening in recent weeks.

 Troop Withdrawal: The US is weighing the withdrawal of some troops from Germany after Chancellor Friedrich Merz criticized Washington’s lack of a cohesive strategy on Iran. Yet, even amid these tensions, the US has reinforced defense ties by deploying officers to support military integration, suggesting the withdrawal threat may be more rhetorical than real. Still, repeated talk of pulling back US forces could spur Europe to increase defense spending, potentially boosting the region’s defense sector.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the UAE’s OPEC exit and its implications for the cartel. We then examine King Charles’s White House visit and what it signals for the US-UK relationship. Next, we discuss the unexpected rise in consumer confidence, China’s detainment of Panamanian vessels, Beijing’s decision to ease energy export restrictions, and a new Republican capital gains tax proposal. As always, we include an overview of recent domestic and international economic data.

 OPEC Break Up: The United Arab Emirates announced its plan to withdraw from OPEC in May. Although the UAE had previously signaled its intention to operate outside OPEC’s production constraints, the ongoing war with Iran has forced a shift toward unrestricted output. This decision highlights how the conflict has strained cooperation among OPEC members, particularly as some members face the immediate need to fund infrastructure repairs following regional strikes.

• The UAE will exit OPEC on May 1, ending nearly six decades of membership. The move delivers a meaningful blow to the cartel as the UAE is its third-largest producer and accounts for roughly 12% of core members’ output. The decision signals an intent to accelerate production growth once operational plans are finalized, positioning the country to capitalize on recovering demand, particularly when the Strait of Hormuz reopens, without the constraints of OPEC quotas.
• A smaller OPEC is likely to raise questions about the group’s ability to enforce production constraints effectively. The UAE’s decision to withdraw appears driven in part by its growing rivalry with the cartel’s de facto leader, Saudi Arabia, as well as frustration with Riyadh’s quota-setting dominance and its reluctance to take more forceful steps to reopen the strait. While there are no clear signs of a broader exodus, the UAE’s departure is likely to cast doubts on OPEC’s overall influence on the global oil market.
• OPEC’s influence over global energy markets has eroded since the US shale boom of the 2000s. The cartel only regained some control after coordinating a supply surge to reassert pricing power. The UAE’s exit may signal expectations of an impending price war once the strait reopens. While oil prices could remain elevated in the near term, they are likely to face downward pressure as transit resumes and Gulf producers bring additional capacity back online.

 The Special Relationship: The White House hosted King Charles III on Tuesday as both nations seek to repair strained relations. During his visit, King Charles delivered a speech to Congress emphasizing the importance of reconciliation with allies and upholding the democratic principles on which the United States was founded. The address struck a diplomatically lighthearted tone while subtly acknowledging recent tensions between Washington and its traditional partners, particularly the United Kingdom.

• The visit comes at a contentious moment when both nations have displayed mutual distrust, particularly over the war with Iran. The US has criticized the UK for disloyalty after Britain refused to allow American forces to use its air bases for strikes. Meanwhile, the UK has faulted the US for prioritizing Israel over its NATO allies through what many members view as a disproportionate military response against Iran. Tensions escalated to the point that the US publicly questioned British sovereignty over the Falkland Islands.
• Although King Charles’s speech was seen as an effort to air grievances while mending the relationship, there are signs that the rift may be irreparable. Following the address, the UK ambassador to the US reportedly claimed that America’s “special relationship” is now with Israel rather than Britain, reflecting a broader shift in the political alignment. His comments likely reflect the ongoing pessimism that UK leadership feels toward the US.
• While King Charles’s visit may ease near-term tensions, it is unlikely to reverse the broader fracturing of US-European relations. We continue to expect NATO members to accelerate defense and aerospace spending as they seek greater autonomy from US security guarantees. European defense contractors are likely to be the primary beneficiaries of this strategic realignment.

 Consumer Confidence: The Conference Board’s consumer confidence report showed sentiment rose in April, as optimism about the job market outweighed concerns over elevated energy prices. The index climbed unexpectedly to 92.8 from 92.2, beating expectations of 89.0. While the survey showed households remain worried about inflation stemming from the Iran conflict, strong hiring and limited layoffs helped offset those concerns. The uptick in confidence suggests household consumption may accelerate later this year.

 China-US Frictions: The US and several Latin American countries have condemned China for detaining 70 Panamanian-flagged vessels following an unfavorable ruling by Panamanian courts that annulled contracts granted to Chinese companies operating ports in the region. Beijing has accused Washington of leveraging its influence to undermine China’s regional presence. The dispute is expected to feature prominently in talks covering trade, AI, and broader geopolitical issues.

 China Energy Exports: Beijing is set to ease export restrictions on select energy products as it seeks to alleviate global supply shortages. China had initially limited sales of jet fuel, gasoline, and diesel at the start of the year to protect domestic inventories. However, those restrictions appear to have been relaxed, as evidenced by a surge in export permit applications from Chinese companies. The release of Chinese fuels could provide relief, particularly to Asian nations seeking alternatives to energy supplies from the Middle East.

 Another Tax Cut? Republican lawmakers are proposing lower capital gains taxes to address affordability concerns. The legislation would index capital gains to inflation, reducing the effective tax burden on investment profits. While the level of support for the bill remains unclear, it is likely to be incorporated into the next tax and spending package later this year. The move could incentivize greater equity ownership as investors seek to minimize their tax liabilities.

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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. We next review several other international and US developments with the potential to affect the financial markets today, including a decision by the Bank of Japan to hold its benchmark interest rate steady despite rising price inflation due to the war and new data showing US banks have responded to deregulation by boosting their holdings of Treasurys, potentially helping cap US bond yields.

United States-Israel-Iran: New reporting confirms that Iran is rapidly running out of facilities to store its oil output as the US continues its blockade of Iranian oil-export terminals and other ports. Iran is trying to ship more oil to China by rail, but the effort is not likely to end the problem, so we see an increasing risk that Iran will have to shut in production at well sites.

• If Iran does shut in its oil wells at scale, it would be difficult and time consuming to bring them back into production quickly when the conflict ends. Some of the wells might never produce oil again.
• This is therefore another example of how the war could leave lasting scars on the global supply of oil and keep post-war oil prices from falling back to their pre-war levels.
• As the US and Iran remain far apart on their negotiating demands this morning, the Strait of Hormuz remains effectively closed and the US continues its blockade. With the standoff continuing, investors are becoming increasingly unnerved by the worsening impact on energy and commodity markets. Brent crude oil prices so far today have therefore risen about 3.0% to $104.77 per barrel.

Japan: As widely expected, the Bank of Japan today held its benchmark short-term interest rate unchanged at 0.75%, despite the central bank projecting increased consumer price inflation because of the war in Iran. However, three of the nine members of the policy committee voted against the move and called for an immediate rate hike to help contain price pressures. The BOJ has been raising rates gradually to normalize policy now that deflation is less of a concern, but some investors and policymakers believe the central bank should be moving faster.

Germany: New data from the national statistics agency today showed that just over 654,000 babies were born in Germany in 2025, barely half the 1.36 million born at the peak of the baby boom in 1964 and the lowest number since post-war records began in 1946. Meanwhile, there were about 1.01 million deaths in Germany last year, highlighting the continued demographic headwinds for economic growth.

United Kingdom: In a sign of Labour Party Prime Minister Starmer’s increasing political vulnerability, parliament today will begin hearings on Starmer’s appointment of Lord Peter Mandelson as British ambassador to the US despite Mandelson’s ties to disgraced financier Jeffrey Epstein. Ultimately, the process could lead to lawmakers referring Starmer to the privileges committee for an inquiry into claims he misled parliament about Mandelson’s appointment. The resulting political instability is likely to be negative for British stocks going forward.

Canada: Prime Minister Carney yesterday announced the creation of Canada’s first sovereign wealth fund, initially capitalized at $18 billion and known as the “Canada Strong Fund.” The fund will work with the private sector to finance 15 infrastructure proposals with the country’s Major Projects Office, which was set up in August. Carney also said the fund will include a retail investment product for individuals. The fund is aimed at boosting investment and spurring faster economic growth amid the challenges of a more hostile, protectionist US.

US Monetary Policy: The Fed’s policy committee begins its latest two-day meeting today, with its decision to be released tomorrow at 2:00 PM ET. Based on interest-rate futures prices, investors are nearly unanimous in expecting the committee to keep its benchmark fed funds rate unchanged at 3.50% to 3.75%. The more significant news will be whether Chair Powell uses his post-decision press conference to reveal anything about his plans for staying on the Fed board after his chairship ends next month.

US Bond Market: New research by the Financial Times shows that net Treasury inventories held by primary dealers — the big banks that underwrite US government debt — have risen to about $550 billion on average this year, from less than $400 billion in 2025. The data suggests the recent easing of capital rules has enticed banks back into the market, providing incremental demand for Treasurys and probably helping to hold bond yields somewhat lower than they otherwise would be.

US Housing Industry: New reports say a bill passed by the Senate last month is freezing some large-scale home construction projects across the country even though it hasn’t yet passed the House or become law. The bill includes dozens of measures to make it faster and easier to build homes, such as streamlining environmental reviews and cutting rules for factory-built homes. However, it would also force developers to sell homes built to rent within seven years, forcing developers to shelve large-scale build-to-rent projects in states such as Arizona and Texas.

US Artificial Intelligence Industry: According to inside sources, OpenAI has been missing internal financial and operational goals since late last year, reflecting slowing growth in the number of regular ChatGPT users. In response, CFO Sarah Friar and members of the board have become worried that the firm might not be able to meet its contracts for future computing-power purchases. They are therefore pushing to impose more discipline on future contracts and on the firm’s build-out of data centers.

• The news of missed financial and operational goals could undermine investor enthusiasm for OpenAI ahead of its expected initial public offering later this year.
• Slowing growth in ChatGPT usage could simply reflect growing competitive pressure from other popular AI services. All the same, investors may start to interpret the slowdown as a sign that the industry is maturing faster than expected. That kind of concern would likely be negative for a swath of AI-related stocks.

US Budget Airline Industry: A trade group representing low-cost airlines yesterday said it would ask the Trump administration for $2.5 billion to offset some of the spike in fuel costs from the war in Iran. US jet-fuel prices have essentially doubled from their typical level before the war, creating an especially onerous financial burden on low-margin budget airlines. Bankrupt Spirit airlines is also seeking a $500-million loan from the federal government to stave off liquidation — a deal that could see the US taking a stake in the airline.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a quick update on the weekend shooting at the White House Correspondents’ dinner and on the war in Iran. We next review several other international and US developments with the potential to affect the financial markets today, including a Chinese threat to retaliate against the European Union if it implements a proposed bill to protect its domestic manufacturing base and further evidence that the US Senate is likely to approve Kevin Warsh as the new chair of the Fed.

Correspondents’ Dinner Attack: Law enforcement officials have announced that they believe the man who opened fire at the White House Correspondents’ dinner over the weekend was targeting President Trump and administration officials but was acting alone. The suspect will be arraigned in court today. For investors, the failure of the attack means there will be no abrupt change in the US policy environment in the near term, but sympathy voting or other ballot dynamics could shift as the November mid-term Congressional elections approach.

United States-Israel-Iran: President Trump on Saturday said his top negotiators for Iran, Steve Witkoff and son-in-law Jared Kushner, would not travel to Pakistan for a new round of talks despite announcements last week that they would be going. The development likely shows how far apart the US and Iran remain in their demands. Each side apparently believes it has the stronger position to weather the standoff, raising the possibility that global oil and commodity disruptions will continue to push up prices and threaten the global economy and risk assets.

• The US is apparently making little progress persuading Iran to turn over its stockpile of enriched uranium, curtail its nuclear program, and reopen the Strait of Hormuz.
• Separately, an internal Pentagon email leaked late last week discussed several possible retaliatory measures against allies in the North Atlantic Treaty Organization for their failure to provide access, basing, and overflight rights in support of the US-Israeli war against Iran, despite provisions in the NATO treaties that only obligate the allies to cooperative defensive measures if NATO countries are attacked. For example, the measures include possibly suspending Spain’s membership in NATO.
• With the strait remaining effectively closed, global oil prices continue to rise gradually. As of this writing, Brent crude is trading hands at $100.18 per barrel, up 1.0% on the day.

United Kingdom-European Union: UK government ministers dealing with technology issues are reportedly pushing back against Prime Minister Starmer’s effort to partly reverse Brexit and partially re-integrate the UK and EU economies, including by adopting a vast array of EU regulations. The technology ministers are warning that the plan would stifle British firms’ ability to innovate in areas ranging from artificial intelligence to lab-grown meat. In turn, we think the plan could potentially weigh on the British economy and stock values.

China-United States: The Chinese government said today that it is blocking Meta’s planned purchase of Chinese artificial intelligence start-up Manus, citing national security concerns. Meta has countered that the deal met legal requirements and signaled that it will appeal the ruling. Nevertheless, the announcement signals that China will closely guard its AI innovations to keep them out of US hands, potentially keeping US investors from benefitting from them.

China-European Union: Beijing today warned the EU not to implement its proposed new Industrial Accelerator Act aimed at protecting and growing the region’s domestic manufacturers. If the EU proceeds with the legislation and Chinese firms are harmed, Beijing threatened to impose “countermeasures” in retaliation. The development is further evidence that the US isn’t the only major economy starting to push back against Chinese dumping. That pushback will further raise trade and investment tensions and potentially slow Chinese economic growth.

Romania: Today, the center-left Social Democratic Party said it would join the far-right, ultranationalist Alliance for the Union of Romanians in a no-confidence vote against the center-right government later this week. The SDP’s willingness to vote in tandem with the AUR marks another case in which one of Europe’s far-right parties has been embraced by traditional voters or parties. As it is increasingly embraced, the far-right could gain power in one of the major countries, such as Germany or France, with major implications for foreign and domestic policy.

Colombia: Just a month before the country’s presidential election, authorities said a drug-trafficking group based in southern Colombia detonated 26 bombs that killed 20 civilians on Sunday. The attacks were the most extensive in Colombia in many years and raised concerns about more attacks in the run-up to the balloting. For investors, they are also a reminder that Latin America faces security risks, even though the commodity-driven region looks increasingly attractive as Asia and Europe face economic headwinds from high energy prices.

US Monetary Policy: Senator Thom Tillis of North Carolina yesterday confirmed he will now vote to advance Kevin Warsh’s nomination to be the new chair of the Fed. The announcement came after Tillis received assurances from the Department of Justice that it is dropping its prosecution of current Fed Chair Powell over the central bank’s big headquarters construction project. That prosecution has been widely seen as White House pressure on Powell to leave office and/or cut interest rates more quickly.

• If Tillis really does vote to advance Warsh’s nomination out of committee, Warsh is highly likely to become the new Fed chair when Powell’s term ends next month. However, there is still some question whether Powell will relinquish his seat on the Fed’s board, which does not expire at the same time as his chairship.
• Separately, the Fed’s policy committee will hold its latest two-day meeting this week, with its decision expected to be released on Wednesday at 2:00 PM ET. The committee is widely expected to keep its benchmark fed funds rate unchanged at 3.50% to 3.75%.

US Artificial Intelligence Industry: New reports say the rising cost of computing resources is eating up corporate information technology budgets to the point where human workers are sometimes seen as more cost effective than AI. The reports suggest that AI may not lead to the full job destruction that some analysts are expecting. The reports also suggest the current boom in computing use for AI may at some point have to slow down, which would likely take some of the momentum out of AI stocks.

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