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 new reporting confirms our suspicions that hardline leaders in Tehran intend to keep fighting the US. We next review several other international and US developments that could affect the financial markets today, including new data showing weakness in China’s domestic economy and a report that will likely rekindle concerns about rising defaults in the US private credit industry.

United States-Israel-Iran: Based on sources with access to Iranian officials, reports yesterday said the country’s hardline leaders never had faith in the June “memorandum of understanding” that US officials saw as setting up a ceasefire. The sources say Iran’s leadership saw the memo as merely starting a pause that Washington and Tel Aviv would use to replenish their arsenals and prepare for new attacks. The Iranians therefore planned to restart their attacks, alone and with their proxies, while the US and Israel had their guard down.

• Importantly, the reports say the Iranian leaders have put a plan into place to continue fighting the US and Israel and to impose so much pain on them that they will never again try to attack Iran.
• Coupled with our belief that Iran holds the military and economic advantage in the conflict, the suggestion that they also have the motivation to keep fighting implies the conflict will continue indefinitely. If the Iranians really do want to impose ever higher costs on the US and Israel, it would indicate they would even escalate the fighting, say by launching bigger attacks on US allies in the region. That will likely keep alive the risk of further disruptions to the world’s energy supplies and more financial market volatility.
• Separately, Fox News this morning said President Trump told one of its reporters that he would order the US military to bomb Oman if its negotiations with Iran over control of the Strait of Hormuz obstruct the current US-Iran talks. According to the reporter, the president said, “If Oman gets in the way, we’ll bomb the s*** out of them.” It’s not clear how serious the president was, but it adds to the evidence that he is increasingly frustrated by the war and may consider unexpected new steps.

Japan: At the country’s annual memorial service for its World War II dead on Saturday, Prime Minister Takaichi attempted to strike a balance between asserting Japan’s intention to defend itself but not signaling a return to militarism. In her speech, Takaichi stressed Japanese efforts to build peace in the Indo-Pacific region but notably avoided repeating her predecessors’ “remorse” for the war. She also avoided making what would have been a controversial visit to the Yasukuni war-dead shrine, but she sent Defense Minister Koizumi in her place.

• As Japan hikes its military budget and unshackles its defense industry, countries around the region probably understand that this is a response to growing Chinese geopolitical pressure and US insistence that Japan shoulder more of its own defense. All the same, regional leaders with long memories of World War II are becoming concerned about renewed Japanese militarism.
• Takaichi’s caution at the memorial services suggests she understands how Japan’s new defense policies could unsettle other countries in the Indo-Pacific. To ensure those countries remain friends, or even allies, Takaichi will likely continue to soft-pedal her defense policies in public while still pouring new resources into the armed forces.

India: Prime Minister Modi on Saturday said his government will provide free online coaching lessons for students prepping to take competitive exams. The move comes just weeks after large student protests, triggered by the leak of a key medical entrance exam paper, and other scandals that together prompted the resignation of Modi’s education minister. The new move implies that Modi has been rattled by those protests and now sees a continuing need to appease India’s large cohort of students, all of which has implications for Indian political stability.

China: July retail sales were up just 0.6% from the same month one year earlier, slowing from a 1.0% rise in the year to June. The urban unemployment rate rose to 5.2% in July from 5.0% in June. Meanwhile, fixed-asset investment in January through July was down 6.7% from the same period one year earlier. Even though Chinese exports are still booming, reflecting both technological prowess and aggressive pricing, the data today confirms that the domestic economy remains in the doldrums, putting even more pressure on firms to unload products abroad.

United States-China: With just six weeks to go before General Secretary Xi’s summit with President Trump in Washington, reports say Chinese officials are frustrated by disorganization and missed deadlines for deliverables on the US side. The problems reportedly reflect internal disputes within the Trump administration over the goal of the meeting, as White House advisers such as Stephen Miller and Steven Cheung push the president to project superiority over China, while other advisers advocate taking steps to smooth over US-China tensions.

• The only concrete item on the agenda being discussed so far is a roughly $30-billion tariff reduction for Chinese goods as a targeted US concession. The reports say other potential deliverables remain under discussion.
• In any case, we think Trump continues to prefer a policy stance that reduces tensions and lays the groundwork for a kind of US-China détente over the long term. That’s consistent with the market-friendly “constructive relationship of strategic stability” that the two leaders agreed to at their May summit.
• However, recent Chinese territorial moves in the South China Sea and new US technology-export curbs suggest each side faces internal pressure to take more aggressive action against the other. If those forces ultimately win the day and tensions suddenly spike again, the result would probably be negative for world financial markets.

US Dollar: In an interview over the weekend, legendary investor Jim Rodgers said he’s been boosting his cash allocations due to stretched US asset values and high federal debt. Importantly, Rodgers said that because of worsening US debt levels, he would prefer to shift his cash holdings to Chinese renminbi but was deterred from doing so because the currency still isn’t convertible. The remark illustrates how other currencies’ problems with convertibility, market size, and other issues continue to slow the global shift away from the dollar as the reserve currency.

US Politics: Jonathan Reiner, MD, the long-time cardiologist for former Vice President Cheney, on Saturday posted a New York Times opinion piece raising concerns about President Trump’s health and questioning whether the White House is covering up medical issues. Reiner’s observations were based solely on publicly released health records, photographs, and videos, but his concern raises the potential issue of an unexpected presidential health problem leading to a sudden, disruptive political transition that would probably unsettle the financial markets.

• In his article, Reiner asserts that “at times over the past year, the president has not looked well” and points to evidence such as large bruises on both the president’s hands, swelling in his legs, and episodes when it appears he is struggling to stay awake. He also notes that the president has had advanced imaging performed for unclear reasons.
• Reiner also calls attention to the fact that the president was examined by 22 different specialists at his last physical exam in May — a number Reiner calls “extraordinary” for even the most extensive executive health evaluation. He also questions why the president has been subjected to such a large number of cognitive tests.
• Reiner asserts that all these issues taken together could point to serious problems in a man as aged as the president, who turned 80 in June.

US Private Credit Industry: New analysis by the Financial Times today shows non-accruing loans at the 20 largest business-development companies rose to 2.8% of cost in the second quarter, up from 2.0% in the first. Citing that and other data, the article asserts that the level of problem loans in the private credit space is now at its highest since 2017, despite recent efforts by private credit funds to downplay the issue.

US Labor Market: An article in the Wall Street Journal today shows the cancellation of the “temporary protected status” program that provided work authorization to immigrants from certain countries has had an especially large impact on the labor market in southern Florida. Cancellation of the program reportedly took over 90,000 immigrants from Haiti out of the labor market in Florida, creating labor shortages in industries such as hotels, restaurants, home healthcare, and retail.

• The article illustrates how the administration’s crackdown on immigration has helped constrict the US labor force. We believe that another major reason for the falling labor force is increasing retirements by baby boomers.
• While the loss of workers and potential workers has helped hold down the unemployment rate, it also means the economy is losing wage-earning consumers, which could eventually be a drag on economic growth.

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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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