by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the next phase of the conflict following the cease-fire agreement. We then examine the latest FOMC meeting minutes and their implications for monetary policy. Other discussions include the inroads that the US is making in South America, the potential impact of low fertility rates on economic growth, and signs of backlash against higher energy prices in the EU. As always, we include a summary of recent domestic and international economic data.

The New Phase: A day after the United States and Iran agreed to a two‑week ceasefire, it remains unclear whether the lull in fighting will hold, as early signs suggest both sides are not fully adhering to the deal. On Wednesday, Saudi Arabia reported that its east‑west pipeline had been struck by Iranian drones, while Israel has continued its strikes against Hezbollah targets in Lebanon. The uncertainty has not derailed the planned talks scheduled for Friday, but it has prompted Iran to impose additional restrictions on shipments transiting the Strait of Hormuz.

• The renewed hostilities appear to be driven in part by factions that never fully embraced the ceasefire. Vice President JD Vance has said the US–Iran agreement applied only to Iran, not Lebanon, underscoring Washington’s view that Israeli operations against Hezbollah can continue under the deal. At the same time, Iran-aligned proxy groups are widely suspected of being behind continued drone and missile attacks on Gulf states and regional infrastructure.
• The ongoing attacks have raised the stakes for both sides ahead of Friday’s talks. It appears that Washington and Tehran are exploring an arrangement to jointly oversee trade through the Strait of Hormuz, with Iran reportedly pressing for a $1 per‑barrel transit toll paid in crypto‑assets and the United States floating a joint‑venture structure that would also entitle it to a share of shipping fees.
• The talks also appear likely to center on Iran’s nuclear program. Vice President Vance, who is set to lead the US delegation on Friday, has stressed that Washington’s stance on uranium enrichment remains unchanged, with meaningful sanctions and tariff relief conditioned on strict limits that prevent Tehran from obtaining a nuclear weapon. Meanwhile, Iran’s 10‑point proposal asserts its right to continue uranium enrichment, which underscores the significant gap that negotiators will need to bridge at the table.
• Additionally, Europe is expected to play a major role in helping secure the strait. The US has asked a UK-led coalition of European allies, as well as Canada and Japan, to present a plan to help manage the strait. At the same time, Iran has pushed for Europe to help ensure that the US and Israel are able to follow through on their commitments to the ceasefire. Europe, which had previously agreed to assist in keeping the strait open prior to the ceasefire, has also backed Iran in its effort to stop attacks in Lebanon.
• Although market sentiment has improved, a sustained recovery will ultimately depend on companies’ earnings outlooks, particularly as they offer insight into their overall exposure to the conflict and how they plan to address these vulnerabilities. In this environment, we think firms that have a solid history of having resilient earnings as well as those who issue dividends should do well as investors are likely to start to prioritizing value over growth.

 Fed Divided: The latest FOMC meeting minutes revealed that Fed officials remain divided on how best to approach policy going forward. While most officials seem to favor holding rates steady for now and cutting later in the year, there was pushback from some members over whether there should be a reference to the possibility of a rate hike, given that inflation continues to run above target. The wide range of opinions reflects the reality that Fed policy could change quite radically over the next few months, depending on the data.

• The main concern stated by Fed officials was the trajectory of inflation. Many argued that price pressures had not eased enough to justify cutting rates even before the recent conflict. They paid particular attention to core goods and especially core services, with the latter seen as more worrisome given its historical stickiness. Others expressed confidence that the adoption of new technologies and ongoing deregulation could lift productivity over time, helping to relieve some of the upward pressure on prices.
• Views on the labor market also appear somewhat divided. Some committee members have voiced concern that job gains remain relatively modest and are concentrated in sectors such as education and health services. Others have emphasized that the unemployment rate has changed little and argue that recent payroll growth is broadly consistent with a cooling labor market and slowing labor‑force growth, suggesting conditions are roughly in line with expectations.
• On the Middle East conflict, Fed officials commented on the risks but acknowledged it was too early to draw firm conclusions. They noted that the recent spike in oil prices could complicate progress toward the 2% inflation target, while also warning that higher energy costs might weaken the labor market by squeezing household consumption. In all, there seems to be more concern with the potential downside risk to employment, even as officials recognized the twin risks of higher inflation and softer labor conditions.
• The latest minutes suggest the Fed is inclined to keep policy on hold for now, while preserving the option to cut rates later if conditions warrant. The officials note the possibility of further tightening but offer little indication if the committee is seriously considering a rate hike this year. This stance is likely to cap further upside in the dollar, especially as other major central banks, including the Bank of Japan and the ECB, appear to be gradually tilting in a more restrictive or less dovish direction.

US-Ecuador: In a sign of Washington’s growing clout in South America, Ecuador has moved to deepen security cooperation with the United States. In a recent interview, President Daniel Noboa said he would support the deployment of US troops in the country to help combat powerful drug cartels. His comments underscore Washington’s efforts to rebuild influence in the region and tighten security ties, which over time could translate into increased US investment and broader market opportunities across South America.

Low Fertility Rates: US fertility fell to a record low in 2025, signaling that population growth is continuing to slow. The decline largely reflects women having children later in life, which tends to reduce lifetime birth rates. Combined with tighter immigration policies, a persistently low birth rate is likely to slow overall population growth, making the economy increasingly reliant on gains in productivity rather than demographics to drive long‑term output.

Energy Outrage: The rise in energy prices has begun to trigger public backlash in Ireland. Protesters have blocked oil refineries in an effort to force officials to address the soaring energy costs that are being driven by the conflict. This outrage reflects the growing pressure that European lawmakers face as they try to soften the impact of higher energy prices. In our view, this could lead to increased efforts to offer subsidies aimed at reducing cost pressures, but it might also prompt the EU to loosen regulations to allow more mining and drilling.

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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 de-escalating tensions in the Middle East following a cease-fire agreement. We then examine the mounting political headwinds facing AI, North Korea’s growing assertiveness, and the New York Fed president’s latest outlook on inflation. As always, we include a comprehensive summary of recent domestic and international economic data.

The De-escalation: The US and Iran have agreed to a two-week ceasefire that will reopen the Strait of Hormuz, marking a major step toward de-escalation. The breakthrough comes ahead of scheduled peace talks on Friday, which are aiming to reach a broader agreement to end the conflict. Although strikes are still ongoing, markets have responded positively to the easing of tensions, reflecting growing optimism that the worst of the confrontation may be over.

• The emerging ceasefire framework reportedly draws on a 10-point Iranian proposal. This blueprint calls for the lifting of all sanctions, an end to Israeli strikes against Hezbollah and Lebanon, and security guarantees against future attacks. Additionally, it also includes a demand for formal recognition of Iran’s right to levy regulated transit tolls in the Strait of Hormuz. These terms currently represent an opening negotiating position rather than a finalized deal.
• Whether the newly announced two-week ceasefire will hold remains uncertain. Iran has tied the reopening of the Strait of Hormuz to a controversial $2 million transit fee per vessel, framed as a mechanism to help fund reconstruction. Despite this diplomatic opening, Kuwait, Qatar, and the UAE were all hit by Iranian strikes in the hours following the announcement. At the same time, Israel has halted direct attacks on Iran but continues its assault on targets in Lebanon.
• Easing tensions have supported a broad improvement in risk sentiment. Domestic and international equity futures, along with US Treasurys, rallied overnight on the back of the ceasefire reports. At the same time, crude futures and other commodities have retreated on expectations of smoother supply chains and reduced disruption risk. The dollar also weakened as optimism grew that potential Federal Reserve rate cuts may remain on the table.
• Assuming the ceasefire holds, the next phase will center on how the global economy absorbs the damage from the conflict. Much of the immediate focus will be on how quickly trade flows normalize as vessels resume shipments through the Strait of Hormuz. Attention will also turn to assessing the extent of the damage to energy and port infrastructure and how long it will take to bring key facilities back online.
• In turn, any recovery in activity is likely to remain fragile over the coming weeks as markets watch for concrete progress in fully restoring traffic through the strait. We do not anticipate an immediate reversal in prices, as the supply shock is likely to linger and may be exacerbated by increased demand. Even so, in the near term, greater clarity around supply conditions and geopolitics should underpin renewed risk appetite, particularly toward domestic equities.

Silicon Valley Charm: Growing concerns about AI’s impact on society are beginning to slow its nationwide expansion. Several states are weighing new limits on data center construction because of their heavy consumption of electricity and water. Fears over potential labor market disruption are also fueling public backlash, with some arguing that the pace of AI adoption should be deliberately restrained. As the midterm elections near, the pushback is increasing the chance that AI could face more legal hurdles as it looks to expand.

• AI has emerged as one of the most polarizing topics in America. A recent NBC News poll reveals a dismal -20 net favorability rating for the technology, placing it below even ICE in the public’s esteem. In fact, among all categories surveyed, only the Democratic Party and Iran received lower marks. This widespread skepticism suggests that curbing the downside effects of AI is becoming a top priority for voters.
• So far, lawmakers in more than 10 states have introduced bills to restrict or temporarily halt new data center development. Two other states, including Wisconsin and South Dakota, have already rejected similar proposals. Maine has gone further, becoming the first state to impose a moratorium on new data centers until November 2027 while it studies the facilities’ economic and environmental impacts.
• Tech companies are increasingly turning to public outreach to improve perceptions of AI and shape opinion. OpenAI, for example, has floated populist‑sounding ideas such as a four‑day workweek and the creation of a public wealth fund that would widely distribute gains from AI to citizens. More broadly, there are growing signs that major firms now accept that some form of regulation is inevitable and see cooperating with policymakers as a way to reassure a wary public and reduce political blowback.
• We remain confident that the AI infrastructure buildout still has substantial momentum, but we also see early signs that it could lose steam in the coming months as political and energy constraints intensify. A moderation in spending could, in turn, lend relative support to more fundamentally sound companies, as investors may increasingly prioritize current profitability and balance sheet strength over distant growth potential in an environment of elevated uncertainty.

North Korea: Pyongyang has stepped up its power projection in an effort to send a message to its rivals. On Tuesday, North Korea launched its second missile in as many days, following an incident in which a South Korean drone reportedly entered its airspace. The provocation appears to be driven in part by a desire to pressure the US to resume talks without any preconditions for denuclearization. While Iran dominates the headlines, investors should not lose sight of the geopolitical risk posed by North Korea.

Fed Talks: New York Fed President John Williams has offered a fairly modest view of inflation following the conflict in Iran. During an interview with Bloomberg, Williams acknowledged that while the rise in energy prices is likely to impact headline inflation, he does not believe it will have a major effect on core inflation. His view suggests that he is unlikely to favor a rate hike this year. It also serves as another sign that the Fed may be more patient with raising rates and could be open to at least one rate cut before the end of the year.

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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 it increasingly appears that the Iranian leadership won’t meet President Trump’s 8:00 PM ET deadline to open the Strait of Hormuz. We next review several other international and US developments that could affect the financial markets today, including a slump in Japanese government bond prices that has pushed yields on the benchmark 10-year JGB to a 27-year high and new details on President Trump’s proposal for a massive hike in US defense spending.

United States-Israel-Iran: In a press conference yesterday afternoon, President Trump reiterated his threat to have the US military destroy Iran’s electricity plants and bridges if it doesn’t open the Strait of Hormuz by Tuesday evening, despite the likelihood that such a broad targeting of civilian infrastructure would violate international law. At the same time, a peace deal proposed by Middle Eastern mediators failed to gain the support of both the US and Iran, which raises the chance that the president will follow through with his threat tonight.

• The widescale destruction of Iran’s electricity plants and bridges could well invite the country’s leaders to intensify and broaden their attacks on regional energy facilities and civilian infrastructure, potentially worsening the developing global energy crisis and driving up commodity prices around the world. We believe such Iranian retaliation could be a catalyst for renewed aggressive stock selling by investors.
• As a reminder that disrupted energy supplies and higher fuel prices will likely drive up food prices worldwide, a report in the South China Morning Post today says some farmers in the Philippines have elected to let their crops rot in the fields rather than incur the fuel cost needed to harvest and transport them to market.
• Separately, a report late last week said the US has informed Japan that its planned purchase of about 400 Tomahawk cruise missiles will be disrupted by the war in Iran. According to the report, the US is burning through its arsenal of Tomahawks so quickly that the Pentagon needs to prioritize rebuilding the US inventory once the war ends. As a result, Japan will take longer to develop the long-range strike capability that it has decided is needed to help deter Chinese aggression in the Western Pacific Ocean.

Japan: Little noticed amid all the news from the Iran war, the yield on 10-year Japanese government bonds have been rising and today surged to 2.43%, reaching their highest level since 1999. The jump in yields reflects not only inflation concerns driven by the war, but also the Bank of Japan’s gradual rate hikes and the Takaichi government’s big budget increases. Meanwhile, the yen has weakened to nearly 160 per dollar as investors get more skittish about the impact of rising prices and the general policy stance in Japan.

China-Taiwan: Cheng Li-wun, the leader of Taiwan’s opposition Kuomintang Party, is visiting China today in hopes of meeting General Secretary Xi. Given that the Kuomintang has traditionally been China-friendly, the visit will likely be used by Beijing for propaganda purposes to suggest that many Taiwanese support reunification with the mainland. Cheng’s visit could also embolden the Kuomintang’s current effort to block the Taiwan’s government from implementing its planned surge in defense spending to deter a Chinese takeover.

Vietnam: The National Assembly elected Communist Party chief To Lam today as the country’s new president, making him the first Vietnamese leader to be elected to hold both positions, consolidating control over party and state. The former police officer is expected to continue pursuing his key policy goals, including a crackdown on corruption and reforms to the public and private sectors to further boost Vietnam’s manufacturing sector. In turn, that could further Vietnam’s goal of becoming an alternative production center to China.

US Politics: While it now appears that the key issues in November’s mid-term Congressional elections will be the war in Iran, consumer prices, and artificial intelligence, reports today say a controversial new book on the Trump administration will be out on June 23 and may also reveal secrets that could help swing the election. The book, Regime Change, by Maggie Haberman and Jonathan Swan of the New York Times, could potentially reveal politically charged information just as voters are starting to focus more on the upcoming balloting.

US Fiscal Policy: In a development from late last week, President Trump’s proposed federal budget for the fiscal year starting in October would hike the US defense budget by a massive 44%, or $441 billion, to a total of about $1.5 trillion. Key program hikes would include the president’s “Golden Dome” missile defense system and doubling the number of navy ships to be ordered. Congress is unlikely to pass the budget as proposed, but the draft plan suggests a massive hike in defense spending that could benefit key defense stocks.

US Artificial Intelligence Industry: Yesterday, AI lab Anthropic said it has entered a deal in which it will buy billions of dollars of computer chips and cloud services from Google. Some of the associated chips will come from semiconductor giant Broadcom as well. The announcement shows that big AI deals are still happening, despite growing investor pushback over the huge costs and circular deals that may not make economic sense. In turn, that could potentially be a harbinger of a rebound in AI stock values.

• Separately, Samsung Electronics last night projected that its operating profit would increase eightfold in its first quarter, largely reflecting surging AI-related demand for its memory chips.
• The guidance was much better than analysts had anticipated, boosting Samsung’s share price by about 5% in South Korean trading.

US Healthcare Industry: The government yesterday said its Medicare Advantage payment rates will rise 2.48% in 2027, far better than its January proposal to keep the payments unchanged. The increase is expected to boost payments to health insurers by about $13 billion next year. The news therefore gave a boost to health insurers’ stock prices yesterday, with additional follow-through possible in the coming sessions.

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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 the US is again threatening a massive attack on the Iranian electricity sector if the country doesn’t open the Strait of Hormuz by tomorrow evening. We next review several other international and US developments that could affect the financial markets today, including an unusual closure of airspace off the Chinese coast that has raised worries of imminent military activity there. Being Easter Monday, with much of the world on holiday today, it has been a very light news day so far.

United States-Israel-Iran: In perhaps the most dramatic moment of the war so far, the wounded US fighter pilot lost in Iran was recovered over the weekend, eliminating the risk of a hostage or prisoner-of-war situation. Nevertheless, the downing of the F-15 illustrates how the Iranian military maintains important capabilities, despite White House assurances that it has been “obliterated.”

• Reports say the US-Iranian talks that had been going on to end the war hit an impasse on Friday and are now suspended.
• Also, today marks the end of the 10-day deadline that President Trump gave the Iranians late last month to open the Strait of Hormuz to all shipping. That hasn’t happened, so the president has set his new deadline of Tuesday evening.
• By our count, the president has set more than a dozen deadlines for the Iranians to open the strait, so it would be tempting for many investors to assume that he won’t follow through with his threat to destroy Iran’s electricity generating capacity. However, reports say the US and Israel have drawn up concrete plans for just such an attack, and the political and military pressures on the US could lead to the strike actually happening. Such an offensive, and Iranian reprisals, would likely be a further risk for the markets.
• The risk of more Iranian reprisal attacks on Middle Eastern energy infrastructure and further closure of the strait will continue to threaten a major energy crisis in Asia and Europe. For example, Malaysian budget airline AirAsia today said it has cut about 10% of its flights and will boost fuel surcharges by about 20% and base ticket prices by as much as 40%.
• Separately, reports this morning say Turkey, Egypt, and Pakistan have given the US and Iran a proposal for a 45-day ceasefire, which has provided a bit of a lift to US stock futures this morning and pushed energy prices down slightly. However, it appears that the proposal is simply a re-submittal of a previous proposal, so it could ultimately have little impact on the war.

China-Taiwan: The Chinese military has announced two unusual 40-day airspace restrictions covering areas off the coast of Shanghai and north of Taiwan, with no explanation of what’s behind them. Press reports have raised the possibility that the restrictions could be related to an effort to seize control of Taiwan now that the US is tied down with the war in Iran. However, the location of the restricted areas doesn’t seem consistent with that hypothesis. In any case, the new restrictions will likely have investors on edge about a possible new geopolitical crisis.

China-Cuba: The Financial Times reports that Chinese exports of green-energy technology to Cuba have soared in recent months and are on track to rise even further to help the island cope with the effective US oil embargo on it. In our view, the development provides added evidence that one result of the new US foreign policy and the war in Iran will be to rekindle the demand for green energy around the world as a way to diversify energy supplies. In turn, that could boost the value of green-energy stocks.

Japan-Philippines-China: Japanese combat troops today have begun drills in the Philippines as part of the annual US-Philippines military exercises known as Salaknib. That marks the first time Japanese combat troops have been involved in drills in the Philippines since World War II and illustrates the new cooperation between Japan and the Philippines as they face the threat of Chinese territorial aggression in Taiwan and the South China Sea.

• Separately, Japanese Defense Minister Koizumi earlier today visited Iwo Jima, the site of the iconic US-Japanese battle.
• During his visit, Koizumi decried what he described as a “defense vacuum” over a vast swath of the Pacific and vowed that Japan would continue to partner with like-minded countries to strengthen its deterrence capabilities.

US Financial Markets: In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon warned that when the credit cycle finally turns, soured loans to the private-credit industry are likely to be higher than investors now expect. Dimon specifically flagged loosening lending standards amid the explosive growth of private lending. More broadly, Dimon assessed the US economy to still be resilient, but he warned of higher inflation and interest rates because of the war in Iran.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of the strengthening labor market. We then outline our views on tariff policy one year after Liberation Day. In addition, we provide a brief update on the US-Israeli war with Iran and examine concerns that AI investment may be crowding out other areas of capital spending. As always, we include a summary of recent US and international economic data releases.

 Labor Comeback: There are growing indications that firms are finally starting to ramp up their hiring activity. In March, the ADP private payrolls report showed that the economy added over 62,000 jobs, beating estimates of 40,000. Although the overall number remains low, the upside surprise suggests that the economy is starting to gain steam following a slowdown in which the BLS estimated that only 181,000 jobs were added during the whole of 2025. The uptick in job creation is likely to boost optimism that the labor market and the broader economy remain on solid footing.

• The reading is likely to increase positivity heading into the next payroll report, scheduled for release on Friday. While the ADP and BLS private payroll series often diverge on a month-to-month basis, they have historically tracked each other over longer time horizons. A sustained acceleration in ADP readings should eventually show up in the BLS figures — though no single report should be treated as a reliable preview of the official data.
• The Michigan Survey of Consumer Sentiment adds to the case for a firming labor market, with households reporting greater optimism about near-term job prospects. The improvement was broad-based across education levels but most striking among high school-educated respondents. A growing sense of job optimism among workers over 65 is an additional signal, suggesting improving labor conditions may be drawing older workers back into the workforce.

• This improvement is likely to reinforce the Federal Reserve’s view that the labor market is stabilizing, reducing the urgency for near-term rate cuts. Several Fed officials, including Chicago Fed President Austan Goolsbee, have indicated a wait-and-see approach, with inflation remaining stubbornly above the 2% target. This leaves the Fed increasingly focused on its price stability mandate before considering further easing.
• The improvement in the labor market is likely a welcome sign for the economy, as it should help counter concerns of a downturn. However, the resurgence could make it harder to justify a rate cut this year. While we believe the economy remains well positioned to absorb shocks, we think that a strengthening labor market, together with still‑elevated inflation, will likely keep the Fed from cutting rates at least until the summer, when a new Fed chair is selected.

 Liberation Day Anniversary: A year after the White House announced its new tariffs, uncertainty persists over both the scale and durability of these levies. The government is now in the process of issuing refunds to companies after the Supreme Court ruled that imposing tariffs under IEEPA exceeded the president’s authority. At the same time, the president has been exploring alternative legal statutes to reimpose similar measures. Although the broader economy has displayed notable resilience, this policy uncertainty continues to unsettle business owners.

• The president is expected to announce two tariff changes in the coming weeks. He is scheduled to introduce new tariffs on Thursday targeting pharmaceutical companies that have failed to reduce drug prices. In addition, the White House is preparing to overhaul existing steel and aluminum tariffs by shifting the focus toward finished products, with the administration aiming to impose a 25% duty on goods manufactured using non‑US inputs.
• The move comes as the White House seeks to bolster the effectiveness of its trade measures following heightened legal and political scrutiny. Pharmaceutical firms have so far failed to bring US drug prices in line with those charged in other countries. Additionally, existing steel and aluminum tariffs have drawn criticism for effectively penalizing domestic manufacturers that must purchase higher‑priced US metal even as foreign competitors continue to access cheaper overseas supplies.
• That said, firms are still in the early stages of adapting to the current tariff regime, relying on product mix shifts, supplier diversification, margin compression, and selective price increases to absorb costs. At the same time, firms have found additional cost savings through technology adoption, which has boosted productivity and reduced the need to hire more workers.
• While uncertainty persists, these measures have likely fostered greater resilience than what was present at Liberation Day. Since last April, it has become clear that the economic and market impact of tariffs may be less severe than originally feared. Consequently, we are less worried that tariff changes (though disruptive to specific sectors) will undermine the broader market. Our view remains that tariffs only matter if they hurt earnings or lead to tighter monetary policy.

Iran Update: On Wednesday, both the US and Iran appealed to the American public concerning the Persian Gulf conflict. President Trump asserted the US is positioned to end this war in the coming weeks and vowed to intensify pressure on Iran. The Iranian president sent a letter expressing no ill will to the American people and stated that Iran poses no threat to the country. Both nations are strategically courting American public opinion to gain diplomatic leverage in talks.

AI Crowd out: Growing concerns have emerged that the tech sector’s aggressive push to build out AI infrastructure has come at the cost of investment elsewhere in their businesses. Microsoft is a notable example; after pausing data center development, it found itself losing ground to rivals. The setback underscores the dilemma of whether to spend heavily on AI to stay competitive, even at the risk of overcapacity. While AI investment still has momentum, there are early signs that the buildout is leading to underinvestment in other business segments.

Note: Due to the holiday, there will not be a Daily Comment published tomorrow or a Bi-Weekly Geopolitical Report published next week.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of the US decision to de-escalate and withdraw from the Persian Gulf over the coming weeks. We then outline our views on how the resulting energy shock is affecting economies around the world. In addition to examining the new Japan–France rare earths partnership, we will highlight emerging signs of deregulation that appear to be improving liquidity conditions. As always, we include a summary of recent US and international economic data releases.

NATO Friction: President Trump announced his intention to withdraw from the Persian Gulf within the next two to three weeks, regardless of whether a deal is reached with Iran. He also singled out NATO allies for failing to assist with the mission, claiming it was their problem to fix. The decision to leave comes as the conflict has dragged on longer than the White House initially anticipated, with Iran’s ability to attack vessels proving more formidable than expected. This reality has also raised growing concerns about when the Strait of Hormuz will reopen.

• There appears to be broad agreement that Iran’s leadership is likely to remain in power. In his speech, the president declared that the United States has accomplished all of its military objectives in the region and expressed confidence that the current regime is an improvement over the one the one that preceded it. Similarly, Israeli Prime Minister Benjamin Netanyahu, in a televised address on the eve of Passover, echoed this sentiment by highlighting what he described as key achievements from the conflict.
• On Tuesday, Iranian officials stated that although messages have been exchanged through intermediaries to explore an end to the conflict, no direct negotiations have taken place with the United States. Tehran indicated, however, that it would halt hostilities if Israel and the US cease their strikes and agree to provide reparations. Additionally, it also threatened to ramp up the pressure by targeting American tech companies operating in the Middle East starting today.
• While the United States and Israel are considering a potential wind-down of the conflict, NATO allies have remained largely unwilling to become directly involved. On Wednesday, Italy denied US forces access to its military air base in Sicily. Although Italian officials described the decision as a procedural matter, it comes as Spain and the United Kingdom, both critical of the operation in Iran, have also rejected similar US requests.
• In the absence of NATO allies coming together to resolve the dispute in the Middle East, Beijing has emerged as a potential peace broker to help reopen the strait. China and Pakistan have been working on a ceasefire agreement that largely delivers on many of the demands issued by Iran. While it remains unclear whether Washington supports the gesture, the effort does demonstrate China’s diplomatic weight, as well as its potential to serve as a counterweight to the United States in the Middle East.
• A possible end to the conflict would likely set the stage for a fragile recovery as markets begin to focus on what comes next. Once hostilities subside, the full extent of the damage to energy infrastructure across the Middle East should become clearer, helping to establish a realistic timeline for restoring and normalizing operations. In the near term, this disruption is likely to benefit energy producers globally, including in the United States, as they move to fill the supply gap.

Energy Concerns: While optimism is building that the US–Israeli joint mission against Iran is beginning to de-escalate, concerns over a potential energy crisis remain elevated. Many fear that if the United States withdraws before the Strait of Hormuz is fully reopened, oil prices could spike to $200 per barrel. These risks have prompted public officials worldwide to consider policy responses and emergency measures to ease pressures from supply shortfalls, reinforcing a broader shift toward more regionalized energy supply chains.

• In Asia, where economies are heavily reliant on fuel transported through the strait, governments have scrambled to implement stopgap measures to safeguard energy access. China has imposed a fuel export ban, exacerbating supply pressures on Southeast Asian economies. In response, countries across the region have stepped up cooperation, including various forms of resource‑swapping and informal barter arrangements, in order to make more efficient use of available supplies within the region.
• Europe is likewise grappling with how to manage its emerging energy shortfall. Governments across the region are embracing an “all of the above” strategy that includes accelerating investment in renewable energy, revisiting nuclear power options, and, in some cases, extending or expanding coal use. At the same time, policymakers are advancing demand‑side measures such as incentives and guidelines for working from home to curb fuel consumption and reduce pressure on electricity and heating systems.
• Across Latin America, governments are increasingly using taxes and spending to deal with rising oil prices. Several Latin American countries — including Chile and, to a lesser extent, Colombia — have allowed fuel subsidies to shrink or prices to move more closely in line with market prices to protect government budgets. In contrast, Mexico and Brazil have gone the opposite route, using tax cuts, aid programs, and targeted fuel subsidies to shield households and key industries from the worst of the price shock.
• The push toward higher oil prices is likely to impact international equities, though we still see some opportunities, especially as the conflict winds down. We expect that international companies in the traditional energy sector could see a rebound in the short term. However, as energy prices begin to fall, we may also see some of the hardest-hit countries — particularly in Asia — start to recover. In short, we still see a case for maintaining some international exposure despite the conflict in the Middle East.

Rare Earth Partnership: Japan and France have agreed to launch a public–private partnership to refine heavy rare earths in southwest France. The initiative is part of a broader push to reduce global dependence on China for critical rare earth supplies. The partnership underscores growing Western investment and coordination around securing key strategic materials and is likely to strengthen the resilience of supply chains in both Europe and Japan.

Repo Market Functions: Wells Fargo’s recent inclusion in the short-term lending market has reinforced confidence that deregulation can help ease liquidity stress in the repo market. Since the removal of its balance sheet caps, the bank has expanded its repo lending activities, contributing to greater stability in the financial system. We expect ongoing discussions in Washington regarding regulatory capital and liquidity requirements, as policymakers consider reducing barriers that restrict banks from holding or purchasing US Treasurys.

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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, which continues to affect not only geopolitics but also economic and political developments around the world. We next review several other international and US developments that could affect the financial markets today, including a statement by Federal Reserve Chair Powell that suggests the central bank will hold interest rates steady for the time being and new data showing airport security lines are shortening now that Transportation Security Administration officers are being paid again.

United States-Israel-Iran: Reports last night said a Kuwaiti oil tanker was hit by an Iranian drone while in the waters of Dubai, sparking a fire. The attack on the tanker came hours after Iran also reportedly hit one of Kuwait’s water desalination plants. The attacks on the energy transporter and the key piece of civilian infrastructure heightened concerns that the conflict is again escalating, pushing global oil prices higher again. At the same time, President Trump has reportedly told aides that he’s willing to end the war without reopening the Strait of Hormuz.

• According to the Wall Street Journal, the president is prioritizing a swift end to the war within the four-to-six week deadline he had stated. That’s likely a political decision based on public aversion to “forever wars” like Afghanistan and Iraq. However, leaving Iran in control of the strait could keep oil and natural gas prices high, especially given that much of the energy infrastructure in the region has been damaged and will take time to repair. The resulting price inflation would also exact a high political cost.
• The administration has suggested that even if the US withdraws without opening the strait, a coalition of interested nations could launch a military campaign to do the job in the future, perhaps with US participation. However, there would be no guarantee that such a coalition would be formed or that it would be strong enough to dislodge the Iranians.
• In a social media post this morning, President Trump said countries suffering from war-induced fuel shortages should buy from the US or simply go and seize it from the strait. The post criticized other countries for not wanting to contribute military forces to open the strait, but foreign leaders are likely to be angry at being criticized for not wanting to clean up after a war they didn’t start. That will likely further erode relations between the US and its allies going forward.
• Leaving the Iranian regime in place with control over the strait would also send a dangerous signal to other potential adversaries of the US. The lesson for those countries would likely be that if they can just hold out against any attack for a month or two, the US will retreat and leave them alone.
• Separately, reports say South Korea, Thailand, and other Asian countries are increasingly restarting coal-fired electricity generation plants as the war disrupts oil and natural gas shipments from the Middle East. Indeed, we think the war will lead to continued concern about the security of Middle Eastern fossil fuel supplies and prompt increased demand for a range of other energy resources, from coal to wind and solar.
• In a more ominous sign of the economic disruption from the war, the last known shipment of jet fuel to the UK from the Middle East is expected to arrive on Thursday. Industry leaders are increasingly warning that shortages of the fuel could soon develop and eventually lead to flight cancellations if the war doesn’t come to a close.
• Because of Europe’s high dependence on natural gas-heated industrial greenhouses to grow its vegetables, high gas prices are also threatening food production beyond the impact of disrupted fertilizer supplies from the Middle East. If agribusiness and grocers can’t pass on the cost of higher gas prices, they may scale back heating, reducing the yield of their facilities.

United States-Cuba-Russia: A Russian tanker today will reportedly deliver 730,000 barrels of oil at the Cuban port of Matanzas, effectively breaking the US’s two-month energy blockade. According to administration officials, the US will now allow fuel deliveries on a case-by-case basis to avert the most dire humanitarian outcomes arising from energy shortages, such as the mass electricity blackouts that the island has been experiencing. The move may also mark US reluctance to spark a new crisis while the war in Iran is still raging.

US Monetary Policy: Speaking to students at Harvard University, Fed Chair Powell yesterday said the central bank would be inclined to hold interest rates steady and look past the energy price shock from the Iran war. However, he also cautioned that the Fed might hike rates if higher energy prices begin to boost consumer expectations for future price inflation. The statements confirm that Fed policymakers are now much less inclined to cut rates than they were before the war. In turn, that realization continues to weigh on bond values, buoying yields.

US Fiscal Policy: While Washington state previously had no income tax at all, Governor Bob Ferguson yesterday signed into law a new 9.9% tax on all income over $1 million. Revenue from the tax is earmarked for childcare programs, free school meals, tax credits for working families, and tax breaks for small businesses. The move follows a tax of 4.0% on incomes over $1 million that was imposed by Massachusetts in 2022 and may signal a greater willingness of state officials to hike taxes on the wealthy.

US Airline Industry: Following President Trump’s executive order that Transportation Security Administration officers be paid despite the continuing Congressional budget impasse, reports say more TSA officers have come to work in recent days and security lines generally shortened on Monday. However, more than one-third of officers still called out sick in Baltimore, Houston, New Orleans, and Atlanta, and the permanent resignation of others will probably keep lines longer than usual for some time to come, discouraging air travel and hurting the airlines.

Eurozone: In a preliminary estimate, the March consumer price index was up 2.5% from the same month one year earlier, accelerating from 1.9% in the year to February and marking the bloc’s highest inflation rate since January 2025. The acceleration was driven by a jump in energy prices. Excluding the volatile food and energy components, the March “core” CPI was up 2.3%, decelerating from 2.4% in previous month. The figures show how price inflation is likely to rise because of the war in Iran, potentially leading to interest-rate hikes and slower economic growth.

United Kingdom: The government is considering new legislation that would allow it to buy the inefficient, loss-making British Steel from its current Chinese owner, fully nationalizing the company to protect jobs and ensure some domestic steel production. The move illustrates how countries around the world are committing funds to protect the domestic production of key goods and boost economic resiliency. Over time, more state intervention in the private economy could potentially weigh on economic growth and hurt private firms.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, including discussions on Iran’s remaining weapons arsenal and potential planning for a US ground operation. We next review several other international and US developments that could affect the financial markets today, including discussions in Congress about cutting federal healthcare spending to help pay for the war and a government move in Japan to ease rules on coal-fired power plants to ease the impact of higher energy prices.

United States-Israel-Iran: As the US and Israel continued to attack Iran over the weekend, the Iranian military continued to respond with missile and drone attacks against Israel and other countries in the region. The Iranian counterattacks raise further concerns about the country’s deep arsenal of weapons and whether significant new capabilities are still being held in reserve. Meanwhile, diplomats from Turkey, Egypt, Saudi Arabia, and Pakistan met to discuss peace proposals over the weekend but with no breakthroughs.

• The New York Times yesterday quoted an unnamed US official as saying Iran likely retains thousands of Shahed attack drones and hundreds of ballistic missiles. Although the official acknowledges that no one knows for sure how many weapons Iran still has, anything in that range would suggest it can still attack and potentially keep the Strait of Hormuz closed for some time.
• In a potentially ominous development in recent days, Houthi rebels in Yemen have fired at least two ballistic missiles at Israel. Both were intercepted, but the development shows how the war could expand further. The Houthis’ military capabilities are widely seen as weakened, but their firepower could still help Iran make up for assets destroyed by US and Israeli bombardment.
• Given the Iranians’ success in hitting critical weapons systems at US military bases in the Middle East, military observers are increasingly convinced that Russia and perhaps China are providing detailed targeting coordinates to the Iranians and may also be providing knowledge or equipment to defeat US air defense systems. Such aid could expand the war, but the US has not lodged a significant public protest against it yet.
• Meanwhile, in an interview with the Financial Times yesterday, President Trump said he’d like to “take the oil in Iran,” suggesting he may send ground troops to seize control of Kharg Island, the center of Iran’s oil export industry. In what may have been an effort to prepare the US public for a prolonged occupation, he also said, “It would also mean we had to be there [in Kharg Island] for a while.”
• Separately, the Wall Street Journal has reported that President Trump is mulling a US operation to seize the 1,000 lbs. or so of partially enriched uranium that Iran is believed to have. Such an operation deep in Iranian territory would require ground troops and be extremely risky, potentially prolonging the war and impacting the president’ political fortunes in the midterm Congressional elections later this year.
• Iran’s effective closure of the Strait of Hormuz not only continues to drive up energy prices, but it is also creating shortages and boosting prices for other commodities. For example, Middle Eastern helium producers have declared force majeure and warned customers that they won’t be able to honor contracts due to the conflict. Global shortages of helium could lead to production disruptions and raise prices for semiconductors.
• In response to the developments over the weekend, global energy prices are up modestly so far this morning, with Brent crude oil changing hands at $107.37 per barrel, up 1.9%.

US Fiscal Policy: Republicans in Congress are reportedly considering cuts to federal healthcare spending to help pay for a budget bill providing as much as $200 billion to fund the Iran war and immigration enforcement. The healthcare cuts would be couched as reducing fraud and abuse, but some Republicans are concerned that the move would open the party up to election-year attacks that they’re cutting health care to pay for an unpopular war. If offsetting spending cuts or tax hikes aren’t passed, the enormous cost of the war would be added to the federal deficit and debt.

US Politics: A poll taken at last week’s Conservative Political Action Conference found that 53% of attendees support Vice President JD Vance to be the Republican Party’s presidential nominee in 2028, while 35% support Secretary of State Marco Rubio. No other Republican contender had support beyond the single digits. The results suggest Vance currently remains the leader in the race despite Rubio’s growing support.

US Private Credit Industry: New analysis reveals that four large private-credit funds marketed to individual investors by Apollo, Ares, Blackstone, and Blue Owl Capital have more exposure to the software industry than their filings suggest. Amid fears that software firms are threatened by artificial intelligence, the analysis helps explain why investors are now so eager to withdraw their funds from private-credit managers. If AI does materially undercut software firms, the funds’ high exposures would raise the risk of financial contagion, tighter credit, and a recession.

Japan: In a meeting on Friday, the government took steps to let less-efficient coal facilities take part in capacity market auctions in the fiscal year starting in April. Previously, such plants had been restricted from the auctions, where generators sell supply, in order to help tackle climate change. The new move illustrates how countries around the world are now backing away from climate stabilization policies to ensure a more diversified energy mix and better absorb the energy price hikes arising from the Iran war.

Canada: As they try to regroup from their poor third-place showing in last year’s parliamentary elections, the left-wing New Democrat Party over the weekend chose Avi Lewis as its new leader. Lewis, a filmmaker, is a scion of a leftist political dynasty that has been influential at both the national and the provincial level in Ontario. By pushing progressive policies on issues such as the environment and the fate of the Palestinians, Lewis aims to win back voters who abandoned the NDP for the Liberal Party of Prime Minister Carney.

Russia-United Kingdom: The Russian government has declared an official at the UK Embassy in Moscow persona non grata and ordered him expelled from the country for having unofficial meetings with Russian economists. The incident is likely to further strain UK-Russian relations. It will also further reduce the combined US and UK diplomatic presence in Moscow, which has made it difficult for the allied governments to understand and influence Russian foreign policy.

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