by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our takeaways from the latest FOMC meeting. We then turn to geopolitics, examining efforts to bring Iran to the negotiating table before the midterm elections. Next, we discuss Federal Reserve Chair Kevin Warsh’s changes to the meeting schedule, the implications of Alphabet’s earnings for market sentiment, and the UK’s efforts to rein in government spending. As always, we conclude with a review of recent domestic and international economic data.

Serious and Sober Discussion: Federal Reserve officials delivered no surprises with their latest decision to leave the benchmark interest rate unchanged, though the outlook for December remains far less clear. While the pause was widely expected, two policymakers dissented in favor of an immediate rate hike. However, this hawkish tilt was offset by the Fed chair’s reluctance to view AI as a trigger for further policy tightening. Thus, while a December rate hike remains possible, another pause is still very much in play.

• During the press conference, Warsh was tight-lipped about the specifics of the meeting. He described the session as a serious and sober discussion in which all participants aired their views in what he called “a good family fight.” He suggested that the committee is weighing the geopolitical conflict and will closely monitor incoming data. His comments implied that a de-escalation of the war in the Middle East could open the door to extending the Fed’s pause in policy tightening.
• Although Fed Chair Warsh adopted a noncommittal tone regarding future rate hikes, hawkish sentiment is clearly building across the committee. Leading the push for higher rates were Fed Governor Lisa Cook and Cleveland Fed President Elizabeth Hammack, both of whom cited the expansion of AI as a major contributor to persistent inflation. Even Chair Warsh hinted at AI’s growing influence on price dynamics by noting that he is keeping a close eye on how South Korean tech imports are affecting inflation.
• While the Fed has made it clear that its goal is to contain inflation, it has been less transparent about its willingness to tighten policy in response to the AI buildout. During the press conference, Warsh initially sidestepped a question about whether AI-related investment could add to demand pressures but was compelled to answer when a reporter repeated it. His comments suggested that the central bank has not settled on how it would respond, with Warsh saying it is not the Fed’s goal to “throw sand in the gears of the economy.”
• Market pricing for the December rate decision may be underestimating near-term policy risk. Although consensus aligned around a pause following the recent FOMC meeting, Warsh’s remarks on AI introduce a critical variable. To the extent Warsh considers imported cost pressures a larger inflation risk than capex-driven expansion, he could lean on trade indicators as a forward-looking proxy for price stability, thereby establishing a justification to avoid further monetary tightening.

Iran Talks: The White House has reached out to Iran in an effort to help end the conflict in the Middle East. Earlier this week, Vice President JD Vance sent a letter to a noted Iranian hardliner to help reopen peace negotiations. This outreach comes as the administration considers another round of strikes on Iran following the midterm elections. While it is unclear whether Iran is open to talks, the letter signals that the White House still favors a diplomatic pathway toward de-escalation.

• The letter was sent to Mohsen Rezaei, the secretary of Iran’s top security body, the Supreme National Security Council. Rezaei is set to become a key figure in discussions over the coming weeks. The message sent by Vice President Vance did not include specific proposals, but it did provide a framework to restart talks. Rezaei, seen as a key voice of resistance within Iran, has argued for prolonging the conflict unless Washington meets core Iranian demands.
• Vance’s letter to Rezaei appears to be part of a broader effort to restart negotiations regarding Iran’s nuclear capabilities. Alongside the vice president, regional leaders in the Middle East have been working to convince Tehran to make concessions. Most recently, Qatari mediators have sought to persuade Iran to allow UN inspectors access to its nuclear facilities in exchange for sanctions relief.
• Publicly, Iran appears unwilling to make concessions to the US, even as momentum builds for potential US strikes following the midterm elections. Overnight, both sides seemed to dig in their heels, with Iran rejecting Qatari proposals and launching strikes on vessels in the Strait of Hormuz. At the same time, the White House has warned its Gulf allies to prepare for Iranian retaliation in the event of a renewed US offensive.
• Although the timing and outcome of the war are still uncertain, the White House clearly favors ending it sooner rather than later. Diplomatic windows are rapidly closing, though talks could regain momentum if a US offensive yields results. Regardless, oil markets will closely follow the trajectory of the conflict  after the midterms. We remain cautiously optimistic about a resolution, but the risk of a protracted conflict is still high.

Fed Change: In addition to the rate decision, Fed Chair Warsh announced a shift in the FOMC’s meeting schedule beginning next year. While the Fed will maintain its standard schedule of eight annual gatherings, the number of rate-setting meetings will decline to seven in 2027 and six by 2028. The remaining sessions will be dedicated to broader strategic policy discussions, formalizing ideas Warsh had floated as early as July. This structural shift could impact futures contract markets tied to those meeting dates.

AI Concerns: Disappointing results from Google’s parent company, Alphabet, will likely weigh on market sentiment. The company reported that third-quarter sales, excluding partner payouts, missed expectations, while ad sales, its core business, grew at their slowest pace in over five quarters. This weaker-than-expected performance comes as the tech giant continues to aggressively fund massive infrastructure projects to expand its AI capabilities, renewing concerns among investors about capital discipline.

UK Budget: UK officials are seeking to rein in the country’s budget deficit as higher energy costs and debt-servicing expenses strain public finances. Following Wednesday’s budget release, Chancellor John Healey pledged to reduce welfare spending, although the timing and details have yet to be announced. The budget also included support for households facing higher energy bills, highlighting the government’s challenge of balancing short-term relief with longer-term fiscal discipline.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with the latest developments in the Russia-Ukraine conflict. We then turn to AI and how Anthropic’s IPO could influence sentiment toward the sector. Next, we briefly cover the preliminary results of Israel’s election, Iran’s threat against South Korean shipper Sinokor, and Flávio Bolsonaro’s decision to flee to the US. As always, we conclude with a review of recent domestic and international economic data.

Ukraine Progress: Russia remains intent on negotiating a Ukrainian peace deal exclusively with the US, effectively brushing aside European efforts to join the talks. Reports also point to discussions with the White House aimed at paving the way for American companies to re-enter Russia. Moscow’s refusal to engage the EU highlights its deep distrust of mainstream European leadership and its strong preference for dealing with more accommodating Western political figures.

• Talks between Russian President Vladimir Putin and European leaders were largely performative and unproductive. While European leaders intended to discuss Ukraine’s conditions for ending the conflict, Putin spent most of the conversation attempting to justify Russia’s claim to Ukrainian territory. Following the meeting, the Russian foreign minister dismissed Europe’s mediation efforts and hinted at a possible escalation between the two sides.

• At the same time, the White House appears to be preparing for an eventual resumption of ties between the US and Russia. The two sides are reportedly working on a joint venture that would allow American firms to invest in pipelines to supply Europe directly. These discussions seem aimed at creating a pathway for Russia to re-establish international relations. Additionally, the two nations are discussing allowing US commercial flights over Russian airspace and exploring cooperation on titanium production.
• Russia’s contrasting relationships with the EU and the US are largely driven by its strategic preference for right-wing populist movements. Moscow appears to have concluded that it cannot reach what it considers a fair compromise with Western establishment parties. As a result, if current political trends persist and populist parties such as Germany’s AfD and France’s National Rally gain significant power over the coming years, we could see renewed efforts to reintegrate Russia into the global economy.
• Progress toward ending the war in Ukraine remains a very real possibility. While a resolution is still a long way off, a successful peace deal could provide a noticeable economic tailwind. A key political obstacle to an agreement may be a shifting US Congress, as current polls suggest Democrats could gain ground in the midterm elections. Nevertheless, a final settlement would likely help lower global oil prices, benefiting equities both domestically and internationally, particularly in Asia and Europe.

IPO Lifts Optimism: AI is riding a new wave of optimism as Anthropic prepares to go public. Earlier this week, the creator of Claude officially filed its highly anticipated S-1 and kicked off its investor roadshow to build demand for the initial public offering (IPO). Aiming for what could be the second-largest market debut behind SpaceX, Anthropic’s public offering will serve as a crucial test of Wall Street’s continued appetite for capital-intensive AI ventures.

• The company’s results point to improved performance in recent months, but its growing spending commitments raise questions about its financial flexibility and path to returns. In the first half of the year, it generated $3.45 billion in positive cash flow — a marked improvement from the negative cash flow reported in previous periods. However, its commitments total $657 billion, with 76% classified as noncancelable, creating substantial future obligations that could constrain that progress.
• Investors are increasingly focused on AI providers’ overall spending relative to revenue as they evaluate the long-term viability of the industry. According to data tracked by IsAIProfitable.com, the sector has poured $1.9 trillion into AI infrastructure while generating only $972 billion in revenue. The disparity is even more pronounced given that much of that revenue is concentrated among chipmakers, while application and software companies continue to post heavy operating losses.
• AI companies are accelerating plans to go public amid a sharp divergence between equity and debt markets. Firms are capitalizing on elevated equity valuations to raise capital at a premium, even as fixed-income investors continue to demand higher compensation for bonds. SpaceX exemplifies this dichotomy, trading at a staggering P/E ratio of 646x on the equity side, while spreads on its debt issuances have widened to a record high.
• Anthropic’s push toward an IPO will serve as a critical litmus test for investor appetite across the AI landscape. A successful public debut could reinvigorate optimism, bolstering the AI trade in the near term. Conversely, a disappointing launch could trigger a broader reassessment of risk tolerance. Given the ongoing uncertainty surrounding AI’s long-term commercial sustainability, maintaining a well-diversified portfolio could guard against a shift in market sentiment.

Israeli Elections: Israel faces political deadlock as election counts leave both main blocs short of a 61-seat majority. Prime Minister Benjamin Netanyahu’s bloc holds a projected 54 seats against 49 seats for Gadi Eisenkot’s opposition alliance, with Arab parties holding 17 seats. Coalition negotiations will be critical to breaking the stalemate, placing potential support from Arab parties at the center of those talks. Meanwhile, Polymarket odds for Netanyahu to secure the premiership have risen to 45%, recovering from around 30% leading into the vote.

Iran Threats: Iran is moving to enforce control over the Strait of Hormuz by threatening legal action against South Korean shipping firm Sinokor beginning November 1. The warning reflects Tehran’s broader push to validate its Persian Gulf Strait Authority (PGSA), which was created in May to manage vessel passage. Although Iran has not launched missile strikes against every noncompliant ship, it explicitly warned that vessels committing transit violations could be treated as legitimate targets.

Bolsonaro Flees: Defeated right-wing presidential candidate Flávio Bolsonaro has left Brazil after defying a court order to surrender his passport. Before the election, Bolsonaro was under investigation for corruption and a money-laundering scheme involving fundraising for a biographical film about his father. Reports that the US is granting him asylum are expected to cool US-Brazil relations, complicating Washington’s push to deepen diplomatic engagement in the region.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of a European Union subsidy for aircraft maker Airbus that the US administration has warned could be a violation of the recent US-EU trade deal. We next review several other international and US developments that could affect the financial markets today, including proposed new US investment curbs that could undermine the current effort by President Trump and General Secretary Xi to ease bilateral tensions and a preview of the Federal Reserve’s policy meeting, which starts today.

United States-European Union: Yesterday, US Trade Representative Jamieson Greer accused the European Investment Bank of failing to share details about the $3.4 billion loan that it made to airliner manufacturer Airbus in June, despite “ongoing requests.” Greer also warned that the money could lead to market distortions constituting a violation of the recent US-EU trade deal. His complaint is a reminder that trade tensions and retaliatory measures between the US and its trading partners are still a risk and could drive down the stock prices of targeted companies.

United States-China: In a little-noticed proposal late last week, the Treasury Department said it wants to tighten its curbs on US investments in Chinese technology firms. The proposed rule would broaden the Treasury’s current investment restrictions to include radiation-hardened integrated circuits (ICs), photonic ICs, high-bandwidth memory, “additional categories of advanced ICs,” algorithms or applications for quantum computing, and biotechnologies.

• As we’ve mentioned before, US President Trump and Chinese General Secretary Xi have adopted a new, détente-like policy of “Constructive Strategic Stability” (see our latest Bi-Weekly Geopolitical Report) to cool tensions.
• Nevertheless, the two leaders’ bureaucracies continue to take steps that might rekindle conflict between the two sides. That, in turn, could serve to undermine the prospects for Chinese stocks or for US firms that do a lot of business in China.

Israel: The country will vote in parliamentary elections today, with polls showing that neither incumbent Prime Minister Netanyahu nor his leading opponent, former army chief of staff Gadi Eisenkot, would likely garner enough votes to form a coalition government outright. Final results may not be available until Wednesday or even later, after which President Herzog will designate the politician who he believes has the best chance to form a government. That means it could be some time before Israel’s new prime minister is known.

France: Trying to quell the recent mass demonstrations against the cost of living and poor education services, the government yesterday offered several concessions. For instance, freshman classes at public high schools will be capped at 28 students. The government will also create 15,000 new places in universities and offer regional authorities 4 billion EUR ($4.5 billion) in loans for school renovations. Protest leaders have said the government’s proposed measures are a step in the right direction, but not enough.

• The lukewarm response from protest leaders suggests more demonstrations may be in store this coming weekend. If the political unrest continues, it will likely help bolster support for right-wing populist leader Marine Le Pen as she campaigns against the centrist establishment for the presidential election in 2027.
• The expense of the government’s promises and the threat of further political unrest may well prompt investors to continue their recent heavy selling of French government bonds, driving yields even higher.

Brazil: As expected, investors yesterday dumped Brazilian assets in response to President Luiz Inácio Lula da Silva’s surprise re-election win on Sunday. The Brazilian stock market’s main price index dropped 13.9%, while the Brazilian real plunged 8.5% against the dollar. The renewed term for Lula will probably refocus investors on his campaign promises, from debt forgiveness to increased welfare benefits, and on the country’s huge government budget deficit, which equals about 9.5% of gross domestic product.

US Monetary Policy: The Fed begins its latest two-day policy meeting today, with its decision due on Wednesday at 2:00 PM ET. Based on current interest-rate futures prices, investors are nearly unanimous in expecting the policymakers to hold the benchmark fed funds interest rate steady at a range of 3.75% to 4.00%. However, since price inflation remains uncomfortably high, we believe they will probably hike rates one or two more times in the coming months, with the next move likely coming in December.

US Elections: In a social media post yesterday, President Trump said anyone who reports an instance of voting fraud in past elections or the upcoming midterm races will be entitled to a payout of $1 million if it leads to an arrest and conviction. The president’s offer marks the most recent in a series of promised cash payouts for political support. It isn’t clear how such a program would be funded, and the offer could help generate further political controversy around the upcoming election.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a new initiative to shut down Chinese influence operations in the US that could spoil the current effort by Washington and Beijing to reduce tensions and make their relationship more stable. We next review several other international and US developments that could affect the financial markets today, including new intelligence that suggests a renewal of US-Israeli attacks on Iran may be forthcoming and a brief overview of the Federal Reserve’s policy meeting this week.

United States-China: Despite the US and China embracing a new, détente-like policy of “Constructive Strategic Stability” (CSS) to ease tensions, the Pentagon on Friday said it has shut down dozens of Chinese cultural organizations on US college campuses. The targeted groups are seen as successors to Beijing’s infamous “Confucius Institutes,” which proliferated on campuses from the early 2000s to about 2022, ostensibly to promote the Chinese language and culture.

• In reality, the Confucius Institutes were believed to be intelligence-gathering operations and mouthpieces for the Chinese Communist Party. Even after the federal government forced most to close down by 2022, about 80 have been reborn under different names and charters.
• Even though President Trump and General Secretary Xi have embraced the CSS policy to steady relations, lower levels of the US and Chinese governments have continued to take steps aimed at weakening the other side. Actions such as the Pentagon’s could undermine the CSS policy and rekindle US-China tensions.

United States-Israel-Iran: According to a US intelligence memo leaked on Friday, Iran has “substantially increased” its efforts to target American diplomats and officials in the Middle East and beyond, with lethal plots reaching “advanced stages.” The memo is believed to be one reason why the US has been withdrawing nonessential diplomatic and security staff from the region. It also provides further evidence that the war against Iran could re-escalate after the US’s midterm congressional elections next week. If so, energy prices could surge again, hurting stock prices.

United States-Canada: The US administration on Friday said it will slash its 50% import tariffs on a range of Canadian goods linked to agriculture and forestry, including different types of machinery, packaging materials, and plastic crates. The move is reportedly a response to requests from Republican congressional candidates facing tough races in districts with close economic ties to Canada. The move could help cut costs of those Canadian goods, although probably not enough to have a noticeable impact on consumer price inflation.

US Monetary Policy: The Fed begins its latest two-day policy meeting tomorrow, with its decision due on Wednesday at 2:00 PM ET. Based on current interest-rate futures prices, investors are nearly unanimous in expecting the policymakers to hold the benchmark fed funds interest rate steady at a range of 3.75% to 4.00%. However, we do think that because price inflation remains uncomfortably high, they will probably hike rates one or two more times in the coming months, with the next move likely coming in December.

France: After another weekend in which hundreds of thousands of protesters marched against poor public services and rising prices, right-wing populist leader Marine Le Pen today launched her campaign for the 2027 presidential election with a surprisingly positive message that the country can tackle its current challenges and regain its past glory. Even though the protests this weekend were devoid of the mass rioting seen the week before, the contrast between the popular unrest and Le Pen’s positive message could further boost her prospects in the election.

Brazil: In an election yesterday, left-wing President Luiz Inácio Lula da Silva won a fourth term in office with 51.8% of the vote, handing a surprising defeat to conservative Flávio Bolsonaro, who garnered 48.2%. Last-minute controversies did arise when court officials extended voting in some places, but it doesn’t appear that will be enough to overturn the election. The result suggests Lula’s left-wing policies will remain in place and US-Brazil trade tensions will continue, so Brazilian stocks look set for a massive, historic sell-off today.

Venezuela: In another complication for the US administration’s hope of building a bloc of like-minded, compliant governments throughout South America, the Venezuelan opposition leader María Corina Machado returned home yesterday after nearly a year of self-imposed exile. Tens of thousands of supporters have greeted her so far, suggesting she could undermine the left-wing government that the US has been working closely with to secure energy supplies.

Saudi Arabia-Singapore: Saudi Arabia and Singapore have struck a deal under which Singapore will store Saudi crude oil in rock caverns to better protect Saudi inventories and help secure Southeast Asian energy supplies from conflicts in the Middle East. The oil will be stored in the Jurong Rock Caverns, an underground facility on a man-made island off Singapore’s southern coast that can hold up to nine million barrels.

• The development illustrates how the war against Iran has prompted a range of new investments and other deals to better secure global energy supplies.
• Those investments, which include new pipelines, are likely to continue for some time to come, dramatically changing, diversifying, and strengthening the world’s energy infrastructure.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our takeaways on the upcoming midterm elections. We then turn to fixed income and examine the recent rotation out of tech stocks and into bonds. Next, we briefly cover rising friction between the US and Canada, as well as Anthropic’s plans to expand its business into Europe. As always, we conclude with a review of recent domestic and international economic data.

Midterm Jitters: A little over 10 days ahead of the midterm elections, market indicators and polling models suggest a growing likelihood of a Democratic wave. According to Polymarket, odds favor Democrats sweeping both chambers, with a nearly 70% probability. Meanwhile, projections from RealClearPolling favor Democrats in the House while indicating a much tighter Senate contest, where each party is projected to win 46 seats and eight races are toss-ups. Though consensus is currently leaning toward a sweep by the Democrats, historical volatility suggests a Senate upset is still entirely possible.

• A Democratic takeover of the Senate remains far from guaranteed. To capture the chamber, Democrats would need to win at least five toss-up seats — a steep challenge. According to tracking from RealClearPolling, eight states are currently designated as toss-ups: Texas, Ohio, Kansas, Alaska, Iowa, Michigan, Minnesota, and Maine. Half of these states have historically leaned Republican or continue to be GOP strongholds, while two of the remaining four seats are currently held by Republican incumbents.
• Additionally, while prediction markets are still confident, actual polling points to much closer races. According to Polymarket odds, Kansas is the only state among those mentioned that leans Republican, with Iowa still the lone toss-up. In contrast, polling data from RealClearPolling shows five key states — Texas, Iowa, Kansas, Minnesota, and Maine — are separated by an average of two percentage points or less, placing them well within the margin of error.

• While control of the Senate remains in play, the House race appears to lean toward Democrats, who are expected to secure a majority of the 435 seats, according to polling averages and prediction markets such as Polymarket. RealClearPolling projections suggest Democrats could win up to 237 seats, while Polymarket gives the party an 80% chance of securing at least 230 seats. Taking control of at least one chamber would give Democrats a significantly stronger foothold in shaping legislative policy.
• A return to Democratic control in either chamber would likely bring added political theater, but it could also foster greater consensus-building. Over the past two years, fierce debates over fiscal and foreign policy have heightened partisanship given the narrow congressional margins. However, a divided Congress could empower moderate lawmakers to bridge the political divide, potentially opening the door to pragmatic policy solutions on the national debt, trade, and foreign conflicts.

Bond Returns: Tech sector anxieties have driven investors back into US Treasurys. Over the past few weeks, there has been speculation that the massive AI buildout has started to compete directly with sovereign debt for safe-haven status. As market jitters over CoreWeave’s debt load raise broader questions about the sustainability of the AI boom, demand for government bonds has surged. This trend suggests that despite mounting concerns over the national debt and inflation, Treasurys may remain attractive for investors.

• The latest market fears were reignited by Meta’s recent earnings report. On Thursday, the Facebook parent company posted strong results, beating revenue estimates while announcing plans to further increase capital expenditures for its infrastructure buildout. The move raised fresh concerns that Meta is expanding data centers too quickly and relying too heavily on debt. Following the announcement, Meta’s bond prices weakened, and its credit spread widened.
• Growing anxiety over AI spending comes as the corporate bonds used to finance the infrastructure expansion begin to saturate the credit markets. Over the past few months, traditionally cash-rich tech giants and their partners have amassed over $500 billion in debt. This surge in borrowing has strained the financial system, forcing companies to syndicate their loans across multiple lending institutions to secure sufficient capital.

• The massive scale of the AI buildout may be directly affecting the US government debt market as AI-linked assets emerge as formidable competitors for capital. Recent Treasury International Capital (TIC) data shows foreign investment flows shifting away from US Treasurys and toward US corporate bonds and equities. While the report does not pinpoint the exact destinations of these funds, the reallocation closely coincides with the latest surge in demand for AI-driven tech assets.
• Fears of an AI bubble bursting could spark a rotation into US Treasurys. A market pullback in AI would not only eliminate a key equity competitor for capital but also temper inflation concerns. A sector slowdown would curb demand for data center inputs while leaving surplus capacity for companies to leverage. That said, the exact timing of any market adjustment remains highly uncertain.

Northern Border Friction: Washington has accused Ottawa of election interference just days ahead of the US midterms by alleging that Canadian retaliatory tariffs were designed to sway voters. While Canada insists the duties are purely economic defenses for domestic industries, Ottawa has directed diplomats to avoid US political figures until the midterm voting concludes. The growing rift risks stalling the upcoming bilateral trade negotiations.

Europe Adopts AI: Anthropic has agreed to support the creation of a European consultancy aimed at expanding corporate AI adoption. By placing AI specialists directly within businesses, the initiative will help European firms integrate model capabilities into their operations. While the move poses a competitive threat to traditional consulting firms, it creates a lucrative new revenue stream for AI developers seeking to justify heavy capital expenditures and enter new regional markets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our thoughts on the recent attacks in Saudi Arabia. We then turn to cybersecurity, examining how AI can both uncover and create vulnerabilities. Next, we briefly cover expectations for the Bank of Japan’s upcoming rate decision, possible changes at Petrobras following Brazil’s elections, and a setback in peace talks between Russia and Ukraine. As always, we conclude with a review of recent domestic and international economic data.

Houthi Attacks: Saudi Arabia faces growing threats from Houthi forces as the conflict in the Middle East continues to broaden. On Wednesday, the US State Department ordered non-essential staff to leave Saudi Arabia following persistent strikes on the country. The escalation comes as the Iranian-backed group seeks to disrupt oil flows and preserve Iran’s leverage over the United States. Consequently, these ongoing attacks have disrupted global supply chains, forcing other regions to step in to offset the shortfall.

• The evacuation order occurred after two people were killed in drone strikes targeting regional oilfields. Over the past few weeks, the Houthis have escalated attacks against Saudi Arabia, targeting airports and critical infrastructure in a bid to disrupt oil production and capture key territory. On Monday, the United Kingdom deployed forces to help defend Saudi Arabia against further strikes, following the US’s reluctance to provide assistance.
• Renewed attacks in the region continue to put upward pressure on global energy prices. This week, WTI crude prices rose above $100 per barrel for the first time in over a month as hostilities escalated. Beyond recent strikes in Saudi Arabia, tension has intensified following Iran’s claims that it possesses missiles capable of striking US warships, a stark threat that comes even as both Washington and Tehran signal openness to renewed diplomatic talks.
• Conflict in the Middle East has triggered a surge in infrastructure investment across other regions, with North and South America emerging as primary targets. The US, Canada, and Brazil have seen their exports rise sharply following the conflict and are using the excess revenue to expand production capacity. The growing strategic importance of the Americas comes as other producers, including Venezuela, Suriname, and Guyana, also aim to attract fresh investment to build out their own energy infrastructure.
• Once the conflict between the US and Iran concludes, which is expected sometime after the midterm elections, oil prices could experience a longer-lasting downward trend than the market currently anticipates. Competition for market share will likely intensify as Middle Eastern producers lower prices to undercut competitors. The resulting decline in oil prices could provide a welcome economic boost to major net importers and clear a path for looser monetary policy.

Cyber Vulnerability: Critical flaws in a popular programming language have forced numerous websites offline. On Wednesday, reports surfaced that sites running on Hypertext Preprocessor (PHP) had been widely exploited, leaving administrators scrambling to secure their systems. The impact appears broad-based, with websites worldwide potentially exposed. With hacking on the rise in recent months due to increasingly sophisticated AI techniques, this incident raises fresh questions about the level of cybersecurity required to defend against modern threats.

• Amazon was the first to flag the threat using its AI tools. The cloud computing company discovered that hackers had attempted to exploit the vulnerabilities four days before they were made public. The exposure is believed to have affected more than 70% of websites, including many built on WordPress, Drupal, Joomla, and Magento, and is thought to have existed for at least a decade.
• The vulnerability was severe enough that operators of PHP-based websites were urged to update their systems immediately or take them offline. Several government and institutional websites across Europe were taken down as a precaution while the issue was resolved. Governments and developers also appear to be coordinating to identify vulnerable websites. The developers who maintain PHP have released a patch to close the security gap.
• This discovery of a security hole highlights the growing paradox of AI systems, as they can both help uncover vulnerabilities and cause breaches. The PHP vulnerability would likely have gone unnoticed far longer without the assistance of AI tools, and probably would have taken months to fix after its discovery. At the same time, these technologies possess the power to exploit those very same vulnerabilities or create new ones with ease, making them a significant threat, particularly in the hands of malicious actors.
• The role of AI in discovering vulnerabilities will likely improve public sentiment regarding its overall utility, especially as it becomes a greater part of our daily lives. AI-driven detection should help make the internet supply chain more resilient, particularly for firms that adopt these technologies. However, the risk that these same tools can be weaponized creates an even greater need for guardrails to prevent a broader crisis in the future.

Dovish BOJ: According to the Japanese publication Nikkei, the Bank of Japan is expected to hold interest rates steady at its meeting next week. BOJ officials are likely to signal that inflation remains consistent with their 2% target, even as headline inflation has risen to 1.9%. The overnight index swap market has priced in a 4% chance of a rate hike next week, but an 80% chance of a hike in December. The anticipated hold could weigh on the yen.

Petrobras Unleashed: According to an adviser to the front-runner in Brazil’s presidential race, the campaign has vowed to make changes at Petrobras. If elected, Flávio Bolsonaro, son of former President Jair Bolsonaro, is expected to grant the state-controlled oil company broad freedom to diversify its portfolio, which could include the sale of certain assets. The push to liberalize one of Brazil’s largest national assets has boosted regional equities, as the market welcomes prospective reforms designed to draw in greater foreign investment.

Russia Escalates: Moscow increased its missile strikes on Kyiv in a sign that it remains unwilling to agree to peace talks. The latest bombardment follows Russian President Vladimir Putin’s meeting with US special envoy Steve Witkoff regarding recent arrangements involving Ukraine. While Putin has stated a willingness to meet with Chinese and US leaders to discuss the situation, it remains unclear whether he would agree to any terms shaped or influenced by Kyiv. The increase in strikes suggests that the Kremlin may not be open to halting its attacks anytime soon.

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