by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a short review of the US-China summit in Beijing late last week. We next review several other international and US developments that could affect the financial markets today, including a potential labor strike at South Korean semiconductor giant Samsung Electronics and new signs that the US may still be interested in a military strike against Cuba despite the stalemate in the US-Israeli war against Iran.

United States-China: Now that the latest summit between President Trump and General Secretary Xi has wrapped up, it seems that the meeting produced little value for the US beyond generally positive optics and commitments on both sides to ease tensions. Details are still dribbling out, but it appears that no major deals were struck for China to pressure Iran to end its effective shutdown of the Strait of Hormuz, stop its predatory economic and technology policies, ease its military pressure on Taiwan, or respect other major US interests.

• In trade, the Chinese Commerce Ministry on Saturday said Beijing has committed to cutting import tariffs on some US products and explore increased purchases of US farm products and other goods. However, official statements so far suggest the commercial deals were more modest than expected. Of course, China also has a history of failing to fully implement such deals. In sum, the summit appears unlikely to usher in significant new US trade with China.
• Regarding key national security issues, there was no apparent deal for China to step back from its military, economic, and diplomatic pressure on Taiwan and its effort to set the stage for an eventual seizure of the island. Indeed, Trump downplayed US military and economic interests related to Taiwan and suggested the US military might not have the capability to defend the island.
• While President Trump appears to have banked on establishing warm personal ties with Xi, even that effort appears to have failed. While the US president repeatedly referred to Xi as his “friend,” the Chinese leader and his administration made no apparent effort to say the same thing about Trump. Indeed, it appears that the Chinese side deliberately took steps to undercut the US president’s status. For a photo, for instance, the Chinese had Trump sit in a low-slung chair so that it appeared he was smaller than Xi.

Global Semiconductor Industry: Korean semiconductor giant Samsung Electronics and its biggest union are meeting today in a last-ditch effort to avert a strike. Now that Samsung is reporting record profits because of the global artificial intelligence boom, its workers are demanding increased wages and benefits. The union has set a May 21 deadline for a deal, or it will stage an 18-day walkout.

• Of course, a strike could potentially hurt not only Samsung, but it could potentially disrupt supply chains related to global AI investment.
• Nevertheless, Samsung shares have risen sharply today after a South Korean court granted Samsung’s request for an injunction that will limit the impact of the strike. Under the injunction, staffing levels needed for safety protection, facility damage prevention, and product quality maintenance must remain at normal levels during the strike.

China: Despite strong growth in exports, April retail sales were up just 0.2% from the same month one year earlier, decelerating from their 1.7% rise in the year to March. Industrial production also decelerated, to an annual growth of 4.1% in April versus 5.7% in March. Fixed asset investment in January through April was down 1.6% year-over-year. The figures show how Chinese domestic demand continues to soften, in large part because of the country’s massive excess capacity and debilitating price wars.

Japan: In a major political U-turn, Prime Minister Takaichi today asked her government to develop a supplementary budget for the current fiscal year to fund huge energy subsidies. The goal would be to shield domestic energy users from the full brunt of the price hikes touched off by the US-Israeli war against Iran. However, investors fear the new subsidies would further worsen Japan’s fiscal position. In response, 10-year Japanese government bond yields have risen to 2.746% today, while the yen has depreciated slightly to 159 per dollar.

United States-Israel-Iran: The United Arab Emirates yesterday said a drone strike, apparently launched by Iran, caused a fire at the perimeter of its Barakah nuclear power plant. The strike illustrates that the on-going “ceasefire” hasn’t precluded military attacks by either the US and Iran, rendering it fragile. At the same time, global investment and energy analysts continue to warn that global energy and commodity prices could still suddenly surge, despite the relative complacency in the financial markets.

• Separately, the Financial Times yesterday said European airline and refinery executives have become more confident that the Continent will avoid outright jet fuel shortages this summer. The new confidence reflects the impact of maximized refinery output, increased imports from the US and elsewhere, and governments tapping their strategic reserves.
• The report will be especially welcomed by the European travel industry, which has already seen some flight cancellations and delayed bookings as consumers worried about disruptions to their summer vacation plans.
• We would note, however, that crimped supplies are still buoying jet fuel prices, which will likely have a continued impact on airline ticket prices.

United States-Cuba: In a sign that the US may be setting the stage for a future attack on Cuba, administration officials have begun leaking intelligence saying Havana is acquiring a fleet of attack drones that could target the US base at Guantanamo Bay. That follows a trip to Cuba by CIA Director Ratcliffe last week, during which he reportedly warned Havana to stop funding drug cartels and other groups working against US interests.

• This week, the US Justice Department is also expected to unseal an indictment of Cuba’s de facto leader, Raúl Castro, for allegedly ordering the 1996 downing of two planes flown by a Miami-based aid group.
• The various moves all suggest the US could be developing a series of justifications for an attack on the island and trying to depose the leadership. Of course, another potential reason to do so would be to divert attention from the US’s so-far failed war against Iran.

US Labor Market: The Long Island Rail Road, the nation’s busiest commuter line, remains closed today because of a strike. The shutdown is expected to affect about 300,000 commuters in New York and on Long Island, including many workers in the financial services industry. The key issue in the strike is worker pay, driven in part by employee concerns about continued high price inflation.

US Defense Industry: Some US defense contractors are reportedly lobbying the White House to delay a long-planned prohibition on using Chinese rare earth magnets in military goods starting January 1. Despite the administration pouring billions of dollars of support into the domestic rare earths industry, the lobbying reflects concerns that there still is not enough domestic or allied supply of the magnets, which are essential to a wide range of military and civilian goods. It remains unclear whether the administration will play hardball with the firms or push off the rule.

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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 the new Federal Reserve chair. We then examine recent signs that the US is seeking greater influence in Latin America. After that, we briefly cover a potential challenger to UK Prime Minister Keir Starmer, provide an update on the US-China summit, and highlight an AI robot now capable of performing blue‑collar work. As always, we include an overview of the latest international and domestic economic data.

New Fed Chair: Kevin Warsh has officially taken the helm as Fed chair, stepping into a role that is likely to become more contentious as he works to define his legacy. He inherits a central bank grappling with a renewed bout of inflation, the rapid emergence of AI, and a president who has made clear his desire for greater influence over monetary policy. How Warsh navigates these issues will be critical, not just for the Fed’s credibility, but for bond markets that have already fallen out of favor amid growing doubts about the central bank’s commitment to price stability.

• The new chair takes over a Fed that has grown increasingly hawkish in recent months. While Warsh had previously signaled openness to a potential rate cut, the latest FOMC meeting revealed three dissents in favor of language that deliberately avoided any suggestion of a pivot toward easing, particularly in light of the recent uptick in inflation. This shift has been further cemented by the departure of Fed Governor Stephen Miran, the most dovish member, which has tilted the Committee’s balance even more firmly in a hawkish direction.
• Warsh is also assuming leadership at a moment of significant change and uncertainty, complicating the policy outlook. Although the war in Iran has pushed headline inflation to its highest level since 2022, many observers still view this shock as potentially temporary. At the same time, optimism around AI’s ability to lift productivity persists, even as the associated infrastructure build-out contributes to higher prices in energy as well as other parts of the economy.
• While Warsh may find it difficult to build consensus, he does appear to be prepared for the Fed to have tougher, more candid internal debates. Unlike his predecessor, he does not see it as the FOMC’s job to keep markets continuously updated on every nuance of its thinking, warning that excessive communication can backfire when members disagree and send mixed signals. Instead, he is expected to keep more of the discussion behind closed doors and communicate externally on a more selective, need‑to‑know basis.
• Warsh will need to establish his credibility quickly if he wants to earn the bond market’s trust. His first meeting on June 15-16 will be an important early test, as investors will look for a clear framework for how he intends to address the recent uptick in inflation. If he is successful, he should be able to reduce some of the volatility that we have seen in bond markets.

“Donroe Doctrine”: While attention has been fixed on the Middle East, the US continues to deepen its engagement in Latin America. The CIA director has reportedly traveled to Cuba to signal that Havana will need to undertake significant changes if it wants sustained US support. At the same time, President Trump has floated the idea of Venezuela becoming the 51^st US state, underscoring a more assertive regional posture. This renewed focus on the Americas highlights Washington’s efforts to curb China’s influence within the US’s own hemisphere.

• On Thursday, CIA Director John Ratcliffe traveled to Havana for talks with Cuban leaders focused on relief efforts. Cuba recently announced that it now has sufficient diesel and fuel oil supplies for power generation following the US blockade. During his visit, Ratcliffe indicated that Washington would be open to offering economic and security guarantees if Cuba undertakes significant reforms, including changes to its economic system.
• Further south, President Trump has sparked confusion by suggesting that he would like Venezuela to become the next US state. Earlier this week, he posted a map depicting Venezuela covered in American flags, fueling speculation that Washington intends to deepen its ties with Caracas. Although the US Constitution requires both congressional approval and the consent of the country itself for statehood, this rhetoric signals an ambition for the US to exert greater influence over the region.
• The push to draw two China‑aligned regional players more firmly into the US orbit reflects Washington’s broader effort to reassert influence in its own hemisphere. This ambition likely extends well beyond Venezuela and Cuba, encompassing Latin America. In our view, the US’s backing of Argentine President Javier Milei and prior White House support for former Brazilian President Jair Bolsonaro are examples of Washington’s interest in shaping political and economic outcomes across the region.
• US efforts to exert greater influence over Latin America are likely to benefit capital markets in the region. We believe deeper economic and security ties could pave the way for increased US investment while also helping the US secure local resources. As a result, we see Latin America as a potentially overlooked investment opportunity.

Starmer Challenge: Andy Burnham has emerged as a possible challenger to Keir Starmer’s leadership of the Labour Party. Currently serving as the mayor of Greater Manchester, Burnham has signaled plans to seek a parliamentary seat in an upcoming Manchester by-election as a springboard for a future leadership bid. If successful, he could ultimately force a leadership vote that might position him to become prime minister. Repeated shifts in party leadership have heightened political risk, contributing to upward pressure on regional bond yields.

US-China Talks: There was no grand bargain after the two-day meeting between the US and China. However, Beijing said both sides reached an important consensus on a new “strategic relationship.” While the talks did not produce any formal agreements, US officials indicated they discussed creating a Board of Investment to coordinate projects in non-sensitive sectors, as well as potential Chinese purchases of Boeing aircraft and US agricultural products. The meeting likely paves the way for future talks.

AI Workers: While most of the focus has been on AI’s replacement of white‑collar workers, there are growing signs that automation is moving into blue‑collar roles as well. A new AI‑enabled robot can reportedly change tires in about half the time of a human worker, helping to address labor shortages in this area. Developments like this suggest that the potential for job displacement may be broader and more pervasive than is often acknowledged.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our takeaways from the first day of US-China trade talks. We then turn to fixed income and examine the drivers behind the 30-year Treasury yield’s move to 5%. Next, we briefly cover Federal Reserve Chair Warsh’s confirmation, the latest signs of rising US-Iran tensions, and the emerging controversy surrounding Brazil’s right-wing candidate Flávio Bolsonaro. As always, we include an overview of recent domestic and international economic data.

The China Trip: The Trump administration arrived in China for a two-day summit on Thursday. The White House is aiming to reset the US-China trade relationship, a central source of friction between the two countries in recent years. Ahead of the talks, President Trump has reiterated his push to expand US access to Chinese markets. Meanwhile, Beijing has outlined four red lines for talks, including its position on Taiwan. As the world’s two largest economies convene, the outcome of these discussions is poised to be a major catalyst for markets.

• Following a two-hour meeting, early discussions between the two sides appear to have been focused on energy and Iran. According to a US readout, officials specifically raised the prospect of China increasing purchases of US energy as part of a broader effort to diversify away from Middle Eastern supply. Both sides also emphasized the importance of keeping the Strait of Hormuz open to commercial traffic, underscoring the shared interest in maintaining stability in the waterway.
• Ahead of the talks, Beijing outlined four red lines for the US, which were Taiwan, democracy and human rights, political systems and governance, and China’s right to development. While it remains uncertain how US officials will navigate these constraints, President Trump acknowledged that the Taiwan issue could surface during discussions. However, he downplayed its importance to the US, suggesting it is a higher priority for China than for Washington.
• Markets are closely watching these talks, as much of the recent rally has been driven by optimism that trade ties, particularly in technology, could be reinforced. The Nasdaq has significantly outperformed the S&P 500, supported by expectations that the US may secure greater access to critical Chinese minerals, bolstering confidence in the durability of the AI cycle. Semiconductor stocks have also rallied on hopes that export restrictions could ease, potentially allowing US chipmakers to expand sales into China.
• The recent market rally is likely to continue as long as investors see meaningful progress in the talks. However, any sign of stalled momentum could quickly reverse market direction. While we view continued progress as the more probable scenario, a wrong call could trigger a swift market reaction. Against that backdrop, we still advocate for maintaining exposure to value for capital preservation should sentiment deteriorate abruptly.

Bond Retreat: The 30‑year Treasury yield climbed to about 5%, its highest level since 2007, driven by rising inflation expectations and a Treasury auction that tailed amid weak demand. We think the rise is largely due to market rotation. Rather than moving into safe haven bonds, many investors shifted toward large cap technology stocks as an alternative duration play. The move is reminiscent of what the market did in 2023 and 2024 and reflects the market’s growing concern about a possible shift in Fed policy due to a re-acceleration of inflation.

• Rising long‑duration bond yields appear to be a response to mounting inflation fears, with investors demanding higher compensation to hold government debt. Recent producer price data showed input costs accelerating at their fastest pace in roughly three years, reinforcing the view that inflationary pressures are re‑emerging. Much of this pickup has been linked to the war in Iran, which has driven a sharp increase in energy prices and pushed up related costs in transportation and warehousing.

• Investor wariness toward US long-duration debt was evident in Wednesday’s Treasury auction. The 30‑year bond drew a relatively soft bid, clearing at a high yield of 5.046%, only modestly above the when‑issued level of 5.041%. This marked the third underwhelming sale of the week, following lukewarm demand for both the 3‑year and 10‑year notes, reinforcing signs that investors are increasingly shunning US fixed income in favor of alternative assets.
• Investor concerns about inflation have pushed money back into leading technology names, as investors seek relative safety in companies with strong earnings track records. The sector also got a lift on Wednesday amid reports that the Trump administration has invited major US tech leaders to join talks with China on a potential “grand bargain,” aimed at preserving these firms’ access to both markets even as the two economies gradually pull back from one another.
• The recent rotation out of fixed income and into equities appears to be driven by investors seeking protection from tighter Fed policy. However, this positioning may prove short-lived if rate expectations moderate. Any signs of a potential rate cut could prompt investors to broaden their exposure toward lesser-known names, as a return of easier Fed policy would encourage risk-taking. In this context, we continue to favor value as a longer-term allocation, particularly as a hedge against lingering AI-related risks.

New Fed Chair: Kevin Warsh was confirmed to lead the Federal Reserve on Friday, securing the position with a 54-45 Senate vote — a relatively narrow margin for such a role. His confirmation likely means Jerome Powell will now serve as a Fed governor, a shift that could unsettle bond investors who fear the central bank may become less independent. We expect Warsh’s appointment to bring some volatility to bond markets as investors assess how he will handle rising inflation amid White House pressure for lower interest rates.

Fragile Ceasefire: Tensions between the US and Iran escalated on Wednesday after a commercial vessel was seized near the United Arab Emirates. The unidentified ship now appears to be heading toward Iran, underscoring the persistent challenges with shipping through the Strait of Hormuz, which is at the heart of the global energy crunch. Rising friction between Washington and Tehran is likely to put renewed upward pressure on oil prices as investors grow more concerned about future supply and a possible return to fighting.

Brazil Elections: Right-wing candidate Flávio Bolsonaro has been linked to disgraced banker Daniel Vorcaro — a connection that has raised fresh doubts about his prospects in the upcoming election. Vorcaro is currently jailed for his role in bank fraud, and although Bolsonaro has denied any wrongdoing, saying their relationship stemmed from discussions about financing a film about his father, the association is still seen as politically damaging. In the wake of the report, the Brazilian real weakened as investors reassessed the political risk backdrop.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our assessment of the latest CPI report and its implications for Fed policy. We then turn to AI, focusing on mounting concerns over the cybersecurity risks associated with these tools. Next, we briefly address Jamie Dimon’s call for closer US‑EU ties, the delegation of business leaders accompanying the Trump administration on its trip to China, and a potential leadership challenge in the UK. As always, we conclude with an overview of recent domestic and international economic data.

CPI Inflation: The April CPI report suggests that the war in Iran is now feeding directly into household costs, making it harder for the Federal Reserve to justify rate cuts this year. Headline inflation rose 3.8% year-over-year in April, the highest reading since 2023, while core CPI increased 2.8%, signaling that price pressures are no longer confined to energy alone. That rebound in inflation weakens the case for looser monetary policy and adds to the challenge facing a more divided Fed.

• While inflation did rise, the pickup still appears relatively narrow, particularly on the goods side. Although fuel oil prices eased from the prior month, they remained elevated, rising 5.8% in April after a 30.7% jump in March. Excluding the more volatile categories of food and energy, commodity prices were little changed, while services inflation was concentrated in higher shelter costs, with most other services categories remaining relatively contained.

• The recent increase in inflation is likely to complicate efforts by incoming Fed Chair Kevin Warsh to justify rate cuts. While he has repeatedly emphasized his commitment to the Fed’s price‑stability mandate, he has also questioned the wisdom of maintaining restrictive policy in the face of supply‑driven inflation. In addition, he has argued that monetary policy should support the development of AI, where appropriate, given its potential to lower inflation over time by boosting productivity.
• Warsh’s position is likely to widen divisions within the FOMC, where many officials remain wary of recalibrating policy in response to supply-side shocks. Several policymakers have recently argued that the Fed should abandon any residual easing bias, while some stress that rate hikes can no longer be ruled out. More broadly, those concerns have pushed much of the committee away from its earlier tilt to cuts and toward a more neutral stance that keeps all policy options open.
• The rise in inflation is likely to spur more intense debate among Fed officials over the appropriate policy path. While Warsh appears to welcome this confrontation, inviting colleagues to make their case for where rates should be set, markets may be less receptive, given expectations that he will be less transparent than his predecessor. In our view, the combination of higher inflation and greater internal disagreement over Fed policy could lead to increased volatility in the bond market, especially for longer‑duration Treasurys.

AI Risks: Fears over the cybersecurity risks posed by AI tools are mounting as lawmakers and companies confront the broader economic implications. Anthropic is set to brief the House Committee on Homeland Security on the dangers linked to its latest model, Mythos, which has reportedly exposed security flaws and breached cybersecurity systems. Growing scrutiny of Mythos is prompting Washington to reconsider both its regulatory approach and its foreign policy, given the likelihood that advanced AI tools will play a central role in future cyberwarfare.

• The closed-door meeting is scheduled for Wednesday and is expected to focus on national security risks, as well as potential safeguards. This marks the second time in two weeks that Anthropic has been called to testify before Congress, underscoring the growing urgency among lawmakers to contain emerging AI-related risks. Adding to these concerns, Alphabet noted this week that hackers may have already begun developing their own AI tools to enhance the sophistication and scale of cyberattacks.
• The White House is also planning talks with China to address AI safety risks as both countries race to develop advanced capabilities. Officials say the discussions will aim to manage competition and lower the risk that AI technologies could be weaponized against either side. The goal is to establish open channels of communication to reduce the chance of miscalculation or retaliation if AI systems are used to cause harm.
• Concerns about AI safety and distrust over how rival states might use these tools have highlighted the risk that lawmakers could move to slow adoption. Although no laws have been passed yet, the rising number of hearings suggests legislators may consider measures to limit AI systems that pose national security threats. Companies developing these models could also face pressure to restrict sales and access to prevent state actors from acquiring tools that might be used to harm the country.
• While the tech sector still has significant momentum, we continue to advise investors to maintain a more balanced portfolio. The potential safety risks of AI could lead to increased regulatory scrutiny, which may weigh on the earnings of companies that are already trading at high valuations. We continue to favor some exposure to value stocks, as these companies should be able to outperform growth stocks when doubts emerge around technology.

Jamie’s EU Push: JP Morgan CEO Jamie Dimon has called for the US to forge closer ties with the EU. In a recent interview with Bloomberg, he argued that Washington and Brussels should resolve their disputes in ways that leave both sides stronger. His remarks reflect a broader view that the EU needs to modernize its regulatory framework to create a more supportive business environment. We suspect this perspective is part of a wider trend among global investors who are positioning their portfolios to increase exposure to Europe if US‑EU relations improve.

White House and Friends: Several prominent business leaders are traveling with the Trump administration to take part in talks between the world’s two largest economies. The discussions are expected to cover not only trade, but also the countries’ deepening technology ties as they work to resolve ongoing disputes. Nvidia’s Jensen Huang, Apple’s Tim Cook, and Tesla’s Elon Musk will join the delegation as they seek to help both sides reach an agreement that avoids any broad disruption to global supply chains.

Labour Party Challenge: Following a poor showing in last week’s local elections, Prime Minister Keir Starmer appears to be bracing for a potential leadership challenge. Health Secretary Wes Streeting is reportedly sounding out colleagues to see if he can secure the backing needed to trigger a confidence vote. At this stage, he is believed to have support from around 40 MPs, well short of the 81 required to initiate the process, but a successful challenge could draw in additional contenders and pave the way for yet another change in UK leadership.

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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 appears to be increasingly frustrated that the Iranians are not caving to his demands in negotiations. We next review several other international and US developments that could affect the financial markets today, including an increasing risk that British Prime Minister Starmer will be forced to resign and surprising new data showing that major oil companies are starting to explore for oil again in Alaska.

United States-Iran-UAE: In a television interview yesterday, President Trump said the US ceasefire with Iran was on “life support,” which may signal that he is considering a resumption of attacks against Tehran to extract concessions in the ongoing bilateral peace talks. Trump’s statement came as both sides reportedly launched limited attacks on each other yesterday.

• We continue to believe that few investors are pricing in the risk of a new price spike for energy and other commodities as global stockpiles dwindle in response to the continued closure of the Strait of Hormuz. Even fewer investors are probably pricing in the risk that frustration with Iran’s intransigence in the peace talks could prompt the administration to renew its military campaign against Iran much more aggressively than in the war to date.
• Separately, Trump said he supports the idea of temporarily suspending the US gasoline tax of 18.4 cents per gallon to ease soaring fuel costs for motorists. Lawmakers in Congress are already working on the required legislation. However, along with the cost of prosecuting the war, the move would further boost the US budget deficit and could put additional upward pressure on bond yields.
• In another important development, reports say the United Arab Emirates has secretly been launching military attacks on Iran, including a strike on its Lavan oil refinery in the Persian Gulf, to retaliate for Tehran’s large-scale attacks on the UAE. The development provides further evidence that the war could still draw in other nations in the region.

Germany: New polling shows that support for the far-right Alternative for Germany (AfD) has jumped to 27% since the party began criticizing President Trump for his war against Iran. That means the AfD’s support is now stronger than that of the ruling Christian Democratic Party. The news also shows how Europe’s far-right parties are rebuilding support not only by criticizing their national governments and advocating for better economic policies, but also by distancing themselves from the current US administration.

United Kingdom: As we flagged in our Comment yesterday, Prime Minister Starmer tried to rebuild his political support on Monday with a major speech calling for more leftist policies. However, the effort fell flat. More than 80 lawmakers from his own Labour Party have now publicly urged Starmer to set a timetable for his departure, and government ministers have begun to resign. Still, Starmer is refusing to step down.

• Amid the political instability, the yield on the UK’s 10-year government bonds has topped 5.10%, reaching its highest level since 2008. In addition, the pound today has depreciated by about 0.6% to just $1.35. The FTSE 100 stock price index is now down approximately 6.3% from its most recent peak in late February.
• The market reaction suggests investors are becoming more concerned that the political situation will undermine British fiscal discipline and preclude economic reforms needed to reignite economic growth.

Philippines: In a chaotic day of politics yesterday, the lower house of the legislature voted to impeach Vice President Sara Duterte for plotting to assassinate President Marcos, among other charges. However, sensing where the vote was going, Duterte’s party used a parliamentary procedure to seize control of the upper chamber, likely meaning that Duterte will be acquitted or have her trial delayed. The developments underscore the deep political fractures in Manila, which are also hindering needed economic reforms and discouraging investors.

United States-Japan: After a meeting today between US Treasury Secretary Bessent and Japanese Finance Minister Katayama, the Japanese side claimed Bessent had given them his “full understanding” regarding the weak yen. The statement suggests the US administration is satisfied with Tokyo’s recent currency market interventions to keep the yen from weakening further and will not take more aggressive measures to force Japan to boost the yen.

US Politics: After three straight losses in court regarding their redistricting efforts, as we discussed in our Comment yesterday, Democrats have begun mulling new redistricting efforts to pick up additional House seats in states such as New York, Maryland, and Colorado. Of course, it’s getting very close to the November mid-term elections, so it’s not clear that the effort would tip the redistricting battle in the Democrats’ favor, especially since the Republicans can also launch new efforts to squeeze more seats out of other states.

US Monetary Policy: With the success of procedural voting in recent days, a final Senate vote to confirm Kevin Warsh as the new chair of the Federal Reserve could come as early as Wednesday, setting the stage for Warsh to take over the central bank as soon as Chair Powell’s term ends on Friday. However, as noted in a useful Financial Times article today, Warsh is likely to face a fractured policy committee and will need to manage a tough balancing act to cap consumer price inflation while also supporting the economic growth that the White House wants.

US Energy Industry: In a little-noticed development amid the war in Iran and the continuing productivity of the US shale fields, new reports say ExxonMobil, Shell, Repsol, and other major oil producers bid a record $163 million in March to secure drilling leases in Alaska’s National Petroleum Reserve. In addition, ConocoPhillips and Australia’s Santos bid on leases covering more than one million acres on Alaska’s North Slope.

• The reports suggest that major oil companies have begun exploring in Alaska again to replenish reserves, diversify their portfolios, and capitalize on the US administration’s greater support for fossil-fuel development.
• While it is costly to produce oil in Alaska, the investments could end up being lucrative if discoveries are made and global oil prices remain high.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest developments in the Iran war, including Iran’s response to the latest US peace proposal. We next review several other international and US developments that could affect the financial markets today, including the US’s imposition of new sanctions on Chinese entities for supporting Iran’s military and new concerns about defaults in the US private-credit industry.

United States-Israel-Iran: The Iranian government responded to the 14-point peace proposal delivered by the US last week by issuing a counterproposal to gradually open the Strait of Hormuz as the US gradually lifts its blockade of Iranian ports. Iran’s nuclear program would be negotiated over the next 30 days, with Iran having some of its highly enriched uranium diluted and the rest transferred to a third country, subject to repatriation if talks fail or the US exits the deal later. On social media, President Trump rejected the counteroffer as “totally unacceptable.”

• Separately, a classified CIA analysis recently delivered to the White House reportedly said that Iran can survive the US’s naval blockade against it for at least three to four months before facing more severe economic hardship. The report also said that Tehran retains significant ballistic missile capabilities despite weeks of intense US and Israeli bombardment.
• Coupled with the US rejection of Tehran’s counterproposal, the CIA analysis suggests the war and the associated commodity supply disruptions are likely to continue, setting the stage for further price hikes, economic disruption, and risks for stock prices.
• In another development, the Wall Street Journal reported that Israel set up “a clandestine military outpost in the Iraqi desert to support its air campaign against Iran.” Importantly, the report also says Israel launched airstrikes against Iraqi troops sent to investigate after a shepherd reported unusual activity in the area. The report highlights the ongoing risk that the war against Iran could draw in other countries at any time and pose further risks for global commodity supplies, economic activity, and asset prices.
• Confirming our view that oil and natural gas supply disruptions from the war will boost all kinds of alternative energy sources, new data shows that global coal shipments have been surging. Worldwide imports this month are expected to reach 107 million tons, the third-highest monthly figure for May in records that go back to 2017. Separate reports have also shown renewed interest in renewable energy sources, such as wind and solar.
• Illustrating how the disruptions from the war are weighing especially hard on emerging economies, Indian Prime Minister Modi has urged his citizens not only to use less petroleum-based fuel, but also to buy less gold. The call to buy less gold aims to preserve the country’s foreign reserves, which have been under pressure as the rupee weakens.

United States-China: Over the weekend, the US imposed financial sanctions on nine mainland Chinese and Hong Kong companies and individuals for providing support to Iran’s military. The announcement accuses the entities of helping Iran’s armed forces secure weapons, components and raw materials for drones, and satellite imagery for targeting. The move is significant because it could spoil this week’s highly anticipated summit between President Trump and General Secretary Xi in Beijing.

China: In April, China exported more electric vehicles and plug-in vehicles than gasoline or diesel cars for the first time ever. The shift toward EV exports reflects China’s enormous government-bred problem of excess capacity in the domestic EV manufacturing industry and weak domestic demand. The surge in EV and other exports continues to push down prices and raise financial pressure on foreign manufacturers, worsening China’s trade tensions with other countries.

• Separately, the US Chamber of Commerce yesterday issued a report warning that Beijing is “doubling down” on state intervention in manufacturing, services, and frontier technologies to dominate global supply chains.
• The report warns that free-market economies around the world are running out of time to push back against China’s policies and avoid being reliant on Chinese suppliers.

Australia: In a by-election on Saturday, the far-right, anti-immigrant One Nation Party won a seat in the national parliament for the first time. The result is seen as a protest vote to punish the center-right Liberal Party for ousting its leader, who represented the district and was well liked there. Nevertheless, the news shows how anti-immigrant sentiment and other issues are boosting the far right in Australia, just as they are in Europe. If far-right parties continue to gain power, the result could be a big shift toward nationalist, populist economic and social policies.

Germany-France: Franco-German tank maker KNDS has warned the German government that it will press ahead with a decision on an initial public offering within the next two months, whether or not Berlin has responded to its offer for it to take a stake in the defense business. If Berlin declines, the French government would be the largest shareholder in the firm as it opens itself to public ownership. In any case, the IPO planning illustrates the strong investor interest in European defense firms — a sentiment that we share.

United Kingdom: Another top Labour Party lawmaker yesterday urged Prime Minister Starmer to resign, heaping pressure on him to step down amid scandals and accusations of ineffective government. A change in government would create political uncertainty and could undermine UK stocks. Nevertheless, reports suggest Starmer’s opponents in the party for now remain reluctant or unable to force him out. Starmer will attempt another “reset” of his government with a major speech today and new legislation to be laid out in his “King’s speech” on Wednesday.

Argentina: The legislature has voted to amend the Glacier Law of 2010 to ease restrictions on the mining of glaciers and areas around them. The easing of regulations could potentially open more of the country to the extraction of gold, copper, molybdenum, and other valuable minerals. However, critics of the move warn that large-scale mining operations in or around Argentina’s 5,270 square miles of glaciers could threaten critical water supplies downstream.

US Politics: While Democrats have been widely expected to win control of the House in the November mid-term elections, a series of three redistricting losses in the courts has suddenly made such an outcome significantly more difficult. The most recent loss was a decision by the Virginia Supreme Court late last week that invalidated the Democrats’ aggressive redistricting effort there. Of course, ballot dynamics still could swing in either direction, but investors should be aware that a Democratic takeover of the House is not yet set in stone.

US Private Credit Industry: In news that could rekindle investor concerns about the private-credit industry, Apollo Global Management said it’s trying to sell MidCap Financial Investment, its publicly listed business-development company. Defaults in the fund jumped to 5.3% in the first quarter from 3.9% previously, driving down MFIC’s stock price. Business-development companies are considered a type of private-credit firm, so the news will likely remind investors of the private-credit default scare earlier this year and spark renewed market volatility.

• Separately, KKR said its largest private-credit fund held by individual investors, called FS KKR Capital (FSK), suffered a major loss and required a 10% write-down in the first quarter due to rising defaults.
• According to KKR, defaults in the fund jumped to 8.1% in the first quarter from 5.5% in December.

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