by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with President Trump’s recent visit to the Federal Reserve, a key event highlighting the ongoing tensions between the president and the Fed chair, which continue to influence market sentiment. We will also analyze other significant international and domestic developments impacting financial markets, including updates on trade policy and discussions concerning US economic health.

Powell Safe for Now: President Trump and Fed Chair Jerome Powell toured the renovations happening in the Federal Reserve Building. The project has faced sharp criticism after its costs exceeded the budget proposed in 2019. Though tensions have arisen between Powell and the president, particularly over revised estimates with Powell challenging Trump’s claim that costs were escalating further, the president concluded the visit by affirming that Powell would not be fired.

• Though speculation about Fed Chair Powell’s resignation due to perceived pressure has been widespread, we contend that this is not the most probable outcome. We surmise that a significant portion of the discourse surrounding Powell serves as a means for the presidency to create an uncomfortable environment for the incumbent Fed chair, particularly if a reduction in interest rates does not materialize in the foreseeable future.
• While we do not anticipate a rate cut at the Fed’s next meeting under our baseline scenario, we believe the committee could signal potential conditions for a September rate cut. This may reflect members’ growing inclination to reduce rates based primarily on inflation trends, even if labor market data shows signs of resilience. That said, we expect that the Fed could cut rates by as much as 75 bps by year’s end.

Economic Resilience: The June flash S&P Global PMI survey revealed that business activity expanded at a faster-than-expected pace. While the manufacturing PMI fell back into contraction territory (dropping from 52.0 to 49.5), the services sector, which accounts for roughly two-thirds of the economy, climbed to its highest level this year, rising from 52.9 to 55.2. A surge in business activity drove the rebound as firms hired more workers to address backlogs. However, the report indicated that the broader economic outlook remains subdued.

ECB Holds: The European Central Bank (ECB) opted to hold interest rates steady following Thursday’s policy meeting, citing the notable resilience of the eurozone’s economy. The decision appears partly driven by optimism that the US and EU will reach an agreement to avoid economically damaging tariffs. We also suspect that the ECB may be seeking to appease President Trump, who has repeatedly criticized foreign central banks for cutting rates while US rates remain relatively high.

Palestine Recognition: French President Emmanuel Macron has announced his intention to formally recognize Palestine as a state during September’s United Nations General Assembly. This decision has drawn sharp criticism from the United States, which strongly opposes the move, arguing it could legitimize Hamas propaganda. The announcement comes amid growing international unease over Israel’s military operations in the West Bank and risks the further diplomatic isolation of Israel.

Starmer Looks for Deals: UK Prime Minister Keir Starmer is expected to push President Trump to consider accepting more UK steel and Scottish whisky imports when the US president visits Scotland on Monday. While the existing US-UK trade agreement reduced tariffs for automakers and aerospace manufacturers, it excluded steel due to concerns about British supply chain reliability. These negotiations demonstrate how trade agreements can continue evolving even after their initial frameworks are established.

US-Japan Trade Arrangement: While both parties have acknowledged reaching a trade agreement in principle, there are still disagreements over specific terms. Japan’s chief negotiator clarified three key points: (1) the deal contains no provisions regarding defense purchases, (2) the reported 90-10 split favoring the US would fluctuate based on bilateral investment ratios, and (3) no fixed quotas were established. These discrepancies reveal deliberately broad language in the agreement that may lead to future interpretive disputes.

EU Digital Crackdown: Meta will no longer permit political advertising on its Facebook and Instagram platforms in the EU, citing what it describes as unworkable regulations under the bloc’s new Transparency and Targeting of Political Advertising rules set to take effect in October. This decision marks the latest flashpoint in ongoing tensions between US tech giants and EU regulators. The Trump administration has consistently sought to protect American technology companies from foreign regulatory measures, making this a key area of transatlantic contention.

Chinese Demographics: Kindergarten enrollment has declined by 25% over the past four years, reflecting the country’s deepening demographic challenges. This sharp decrease threatens to undermine population growth — a critical driver of economic expansion. This trend may exacerbate existing deflationary pressures as the nation continues to grapple with industrial overcapacity and weak consumer demand.

VW Seeks Deal: The carmaker hopes to secure a tariff exception by committing to increased investments within the US. This proposal comes after the company reported a substantial 1.3 billion EUR ($1.5 billion) hit to its bottom line in the first half of the year, directly attributed to a 25% tariff. If successful, this could pave the way for other companies to pursue similar deals with the US, especially if their home countries can’t secure favorable trade arrangements.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today begins with a focus on US trade policy, specifically the growing concerns about the recent agreements. We will also examine other significant international and domestic developments impacting financial markets, including the increasing influence of AI and escalating geopolitical tensions.

US Trade Policy: President Trump has announced plans to impose new tariffs, with rates starting at 15% and potentially reaching as high as 50% on specific countries. The move appears to be a response to criticism that his recent trade deal with Japan could undermine efforts to bring manufacturing back to the US. His comments are likely to fuel concerns that the administration will intensify pressure on nations that have yet to establish trade agreements with the United States.

• Following the trade deal with Japan, the Trump administration is now pursuing similar agreements with other nations, including South Korea. The two sides are negotiating a deal that would lower tariffs from 25% to 15% in exchange for an investment commitment. Additionally, the agreement is expected to include provisions for South Korea to increase purchases of US goods in key sectors.
• While the trade reprieve has boosted confidence in global equities, US producers — particularly automakers — have raised concerns. The reduction of auto tariffs is expected to give Asian manufacturers a competitive edge over their American counterparts. A key issue is that while foreign automakers will still face tariffs, they may avoid the added cost burden faced by US companies, which are paying more due to tariffs imposed earlier this year.
• Additionally, optimism persists for a US-EU trade agreement. Observers expect the bloc to adopt a framework similar to Japan’s as both sides push to finalize a deal by August 1. This potential agreement could help the EU avoid the worst impacts of an escalating trade war with the US.
• While countries without trade agreements may face higher tariffs, we expect the overall market impact to be limited once major trading partners reach deals. Consequently, investor focus could gradually shift toward other themes in the coming months.

Thai-Cambodia Conflict: Thailand conducted airstrikes against Cambodia following renewed border clashes, marking an escalation in tensions between the two Southeast Asia nations. The longstanding territorial dispute, which dates back decades, intensified earlier this year after a Cambodian soldier was killed in a skirmish. This conflict could have significant regional implications, particularly for nations viewing Thailand and Cambodia as potential alternatives to China in their supply chain diversification strategies.

EU-China Relations: EU leaders have arrived in China for a summit marking 50 years of bilateral relations, with both sides seeking to bridge differences on trade and the Ukraine war. While expressing mutual interest in strengthening ties, EU officials have cautioned that the relationship may be approaching a turning point. The talks occur as China attempts to prevent further EU distancing amid its own escalating tensions with the United States.

Export Controls Failing: According to the Financial Times, over $1 trillion worth of Nvidia chips have been sold to China in the three months following the tightening of US export restrictions. This development underscores growing concerns about the significant loopholes and effectiveness of current trade restrictions as both nations vie for dominance in the critical AI technology sector, which is increasingly viewed as the next frontier in global technological competition.

Alphabet to Spend More: Google’s parent company Alphabet exceeded second-quarter sales estimates as it capitalizes on growing AI demand. The tech giant reported that surging interest in its cloud services has driven capital expenditures to $85 billion this year, with further increases anticipated in 2025. While the initial frenzy around AI has moderated from its peak two years ago, the technology remains a key driver of market sentiment.

Amazon Under Pressure: The e-commerce giant faced intense competition from Walmart during its highly anticipated Prime Day event. Despite extending the promotional period for subscribers, early indicators suggest many shoppers turned to Walmart for better deals. This heightened competition emerges as rising tariffs pressure retailers’ pricing strategies, while consumers grow increasingly price-sensitive in the current economic climate.

Iran-US Tension: A tense standoff occurred between US and Iranian forces in the Gulf of Oman after the US Navy allegedly entered waters claimed by Iran. Although no shots were fired, both sides exchanged threats, with Iran later asserting that the American vessel withdrew. This confrontation marks the first major incident since the US airstrike on Iranian targets and underscores the ongoing volatility in bilateral relations.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the new US trade deals with Japan, Indonesia, and the Philippines, which were announced late yesterday. We next review several other international and US developments with the potential to affect the financial markets today, including several news items related to European security issues and an industry official’s suggestion that the US should start to develop a strategic reserve of critical minerals.

US Trade Policy: President Trump last night said the US and Japan have agreed to a trade deal in which the US will set a 15% tariff on Japanese imports (including autos), the Japanese will open to trade including cars and trucks, rice and other agricultural products, and Japanese entities will invest $550 billion in the US, with the US receiving 90% of the profits from those investments. However, it isn’t clear whether Japan will be spared Trump’s “sectoral” tariffs of 50% on imported steel and aluminum products.

• Separately, Trump also said Indonesia has agreed to a framework deal in which the US will set a 19% tariff against most Indonesian imports, with a 40% rate charged on goods from Indonesia with a high level of foreign content, especially from China. Indonesia will eliminate almost all tariffs on US goods, supply the US with critical minerals, and buy billions of dollars of US airliners, farm products, and energy goods.
• Trump also said Manila has accepted a trade deal in which the US will impose a 19% tariff on Philippine imports while US goods will enter the Philippines tariff-free.
• On the heels of the news, the S&P 500 stock price index rose to a new record high, likely on investor relief that the US tariffs are coming in near the levels expected and provide some hope for an end to the recent uncertainty regarding trade policy.
• Still, looking forward, it’s not clear how successful Trump’s trade policy will be in promoting US re-industrialization and improving the lot of his working-class base. His tariffs and other policies will likely encourage added investment in some US industrial sectors, but in other sectors, domestic and foreign firms will probably continue to prefer investing abroad for structural reasons, such as the availability of low-cost workers, better supply chains, production expertise, or the opportunity to produce close to customers.

Asia-Pacific Region: The Asian Development Bank today again lowered its economic growth forecasts for member countries, citing the US’s evolving high-tariff policy. The institution said it now expects the developing countries of Asia — including China, India, and South Korea — to see their gross domestic product growth to slow from 5.1% in 2024 to just 4.7% in 2025 and 4.6% in 2026. The forecasts are consistent with expectations that the new US tariffs will be especially challenging for emerging markets.

Japan: With the US-Japan trade deal prompting investors to shift their buying to equities, and with some starting to bet that Prime Minister Ishiba will now resign, today’s auction of 40-year Japanese government bonds (JGB) generated extremely weak demand. Indeed, its bid-to-cover ratio came in at just 2.127, marking the lowest ratio for a 40-year auction since 2011. In response, yields on 10-year JGBs today have rebounded to the 17-year high of 1.597% reached last week.

Germany-France-Spain: In a key test of Europe’s re-armament effort, the leaders of Germany and France today are meeting today to settle a dispute over which country should lead the effort to build a joint German-French-Spanish fighter jet. The project, known as the Future Air Combat System (FACS), could be important to the fortunes of European defense contractors such as Airbus and Dassault, but it is in danger of being further delayed by the leadership dispute.

United Kingdom-Germany-Turkey: Berlin today reportedly approved the UK’s sale to Turkey of up to 40 Eurofighter Typhoon fighter jets, Europe’s current joint fighter that is produced by the UK, Germany, Spain, and Italy. We expect that Europe’s re-armament effort will continue to boost sales for firms in the Eurofighter program until the FACS program begins production.

Russia-Germany: In an interview this week, Berlin’s military counterintelligence chief warned that Russian spying and sabotage efforts in Germany in the first half of 2025 have doubled from 2024. Strikingly, she said Russian operatives have even been able to sabotage German navy ships by cutting cables, putting oil in water systems, and dropping metal shrapnel into a motor drive train. The incidents illustrate President Putin’s aggressive, risk-tolerant stance toward European democracies, which we think will fuel continued rearmament in the West.

Russia: According to Ukrainian intelligence, the Russian defense industry can now produce 170 large Shahed-class strike drones per day. The analysis says Russia’s increased production is allowing it to stage large-scale drone attacks on Ukraine with ever-greater frequency and will soon let it launch 2,000 or more drones in a single attack. As we have noted previously, Russia’s frequent drone-swarm attacks are a key reason why its forces have recently accelerated their territorial gains in their invasion of Ukraine.

• While Russia and other countries ramp up their output of cutting-edge drones, making the weapons perhaps the most dominant part of the modern battlefield, a video this week illustrates how behind-the-curve the US effort is.
• In the video, the US Army touts a new ability to drop hand grenades from small drones that have been modified to pull the safety pin from the weapons before dropping them. The video, which celebrated the Army’s first-ever drop of ordinance from a drone, was widely panned for how minor the accomplishment was in comparison to the advanced drones being developed by Russia, Ukraine, and other countries.

US Critical Minerals Industry: Randall Atkins, CEO of Ramaco Resources, said yesterday in an interview with the Financial Times that the US is “long overdue” in establishing a stockpile of critical minerals to blunt China’s near monopoly on them. Atkins argued for stronger public involvement in the industry, such as the recent deal in which the US government bought a stake in rare-earth producer MP Minerals. The statement may portend ever greater government support and guaranteed prices and demand for firms in the sector going forward.

US Stock Market: The meme-stock frenzy has suddenly returned to US stock markets, but with a new cast of characters. Among the fast-rising stocks over the last week or more, retailer Kohl’s yesterday saw its stock price double before ending up almost 40%. Other members of the new meme-stock craze include real-estate platform Opendoor Technologies, QuantumScape, and Rigetti Computing.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news that China is preventing yet another US citizen from leaving the country, a move that will likely raise US-China tensions. We next review several other international and US developments that could affect the financial markets today, including a UK review of its public pension system that could lead to a rise in the retirement age and news that JPMorgan is exploring the possibility of lending against its clients’ cryptocurrencies.

China-United States: The US Embassy in Beijing today said the Chinese government has imposed an exit ban on a US citizen who works for the US Patent and Trademark Office. The unidentified USPTO employee reportedly flew to China earlier this year to visit family and didn’t reveal his affiliation with the US government on his visa application. Reports say he has been detained since mid-April as Chinese authorities question him about his work and his former service with the US military.

• The exit ban on the USPTO employee comes just a week after news that a Wells Fargo bank employee visiting family in China was also told she couldn’t leave, ostensibly for purposes of a criminal investigation. The Chinese government has also recently detained or imprisoned other Western business executives.
• As we noted in our Mid-Year Geopolitical Outlook published last week, the intense media focus on US-China trade tensions this year shouldn’t distract investors from the fact that military, technological, and other aspects of the bilateral relationship are still worsening.
• Indeed, the spate of exit bans could be meant to remind US officials that China has a range of non-economic levers to resist the Trump administration’s aggressive tariff policies.
• Not only do the exit bans and detentions portend increased US-Chinese political tensions, but they also are likely to further discourage Western firms from investing in China.

China: An article in the Wall Street Journal late yesterday discusses how Beijing has sharply curbed China’s oil demand in recent years to make the country less vulnerable to a supply cutoff by the US and its allies. The article says China has achieved this mostly by rekindling its domestic oil output and rapidly building out its fleet of electric vehicles.

• China’s successful strategy shows how green energy technologies – such as wind, solar, and EVs – can boost national security by cutting the need to import energy from abroad.
• Political leaders in the US and the rest of the West are currently pushing hard to roll back green-energy subsidies and incentive programs, but the national security value of green energy could potentially limit how far those programs are cut.

Japan: Kansai Electric Power today said it will resume planning for a new nuclear generating plant in Fukui prefecture after suspending the project in 2011 in the wake of the meltdown at the Fukushima reactors. The Kansai project would mark Japan’s first new nuclear plant from scratch since the disaster at Fukushima, potentially signaling a resumption and revitalization of Japan’s nuclear industry. It’s also consistent with an expected rebound in the global nuclear industry.

United Kingdom: The government of Prime Minister Starmer yesterday said it will begin a new review of the public pension age, four years before the legal deadline to have it finished by 2029. The current state pension age is 66, but it is scheduled to rise to 67 in 2026 and 68 in the coming years. The review could well result in a further boost to those ages, especially considering the government’s big budget deficit and Starmer’s flailing effort to rein in spending.

Nigeria: The National Bureau of Statistics says an updated method for calculating the country’s gross domestic product shows GDP totaled $244 billion in 2024, or 30% more than previously estimated. The new method better captures the contribution of new industries, such as digital services. Based on data from the International Monetary Fund, the new figure would make Nigeria’s economy slightly bigger than that of Hungary and somewhat smaller than that of Greece. Importantly, it would also make Nigeria’s debt-to-GDP ratio modestly lower.

US Monetary Policy: In an interview yesterday, Treasury Secretary Bessent called for a probe into “the entire Federal Reserve institution and whether they have been successful.” The call came one day after the Wall Street Journal said Bessent had talked President Trump out of firing Fed Chair Powell last week. The apparent reversal may reflect a Trump effort to take Bessent down a peg after the Journal’s report. If so, it raises questions about how much influence Bessent really has in trying to tone down Trump’s economic policies.

US Banking Industry: An article in the Financial Times today says banking giant JPMorgan is exploring the possibility of lending against clients’ cryptocurrency holdings. If the bank decides to move forward with the idea, it could offer its first loans collateralized by cryptocurrencies, such as Bitcoin and Ethereum, by next year. The news shows how cryptocurrencies are increasingly being accepted as a normal financial asset and integrated into the financial system.

US Housing Industry: Even as apartment builders struggle with high interest rates, rising costs for materials, and labor shortages, a Trump administration proposal to slash low-income housing subsidies is reportedly starting to freeze affordable housing projects. The freeze stems from the administration’s plan to cut the Department of Housing and Urban Development budget by some 44%. Because of all these challenges, the outlook remains unclear for significant new housing supply to help bring down rent rates unless broader plans for deregulation are implemented.

US Pharmaceutical Industry: Faced with President Trump’s threat to impose tariffs of up to 200% on imported drugs, British pharmaceutical maker AstraZeneca today said it will invest some $50 billion in the US by 2030, including a new manufacturing facility focused on drugs for chronic diseases. That follows similar announcements of new drug manufacturing investments by the likes of Eli Lilly, Merck, and Roche in recent weeks. The news is consistent with our expectation for continued re-industrialization of the US economy over time.

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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 update regarding the damage inflicted on Iran’s nuclear program by last month’s US and Israeli attacks. We next review several other international and US developments with the potential to affect the financial markets today, including the Japanese ruling party’s loss in yesterday’s election for the upper house of parliament and new reporting on how Treasury Secretary Bessent helped talk President Trump out of firing Federal Reserve Chair Powell last week.

Iran: According to reports late last week, intelligence analysts now believe the US attacks on Iran’s underground nuclear facilities in June “badly damaged, and potentially destroyed” only the one at Fordo, while the facilities at Natanz and Isfahan were less damaged. The evolving damage assessments suggest most of Iran’s uranium-refining centrifuges were destroyed and that its stockpile of refined uranium is mostly inaccessible, but analysts are less clear on how long it would take Tehran to restart its nuclear program.

• Analysts believe that Iranian leaders still want to get their hands on a nuclear weapon to deter attacks by Israel and other nations, but the June attacks and the threat of follow-on attacks have made them unsure of the best way forward.
• US officials say any Iranian effort to repair and restart Natanz or Isfahan would be detected, allowing the US and/or Israel to attack them again. Israeli officials have also repeatedly said that they are willing to periodically “mow the lawn” to stop Tehran from restarting its program.
• All the same, it’s safe to say that the US and Israeli attacks have significantly disrupted Iran’s nuclear program, pushing back the day when Tehran could threaten its enemies with obliteration. However, Iran might still gain nukes sometime in the future, keeping alive its potential to threaten and disrupt the US, Israel, and other nations.

Russia-Ukraine War: The New York Times on Saturday carried a useful update on Russia’s invasion of Ukraine explaining why the Kremlin’s forces have recently been able to accelerate their advances, as we noted in our Mid-Year Geopolitical Outlook. The article ascribes Russia’s recent success to its overwhelming advantage in manpower and equipment, including the growth of its domestic drone industry. However, it also notes that Russia’s high military spending is likely unsustainable for its economy, especially if the US recommits to helping Kyiv militarily.

European Union-United States: EU officials still haven’t given up on a trade deal with the US and don’t plan to retaliate for President Trump’s tariffs before his August 1 deadline, but new reports say Germany has now joined France and other EU nations in wanting tough retaliatory measures, beyond mere tariffs, if Trump hikes duties after the deadline. For example, the EU could use its anti-coercion law to tax or restrict US digital services, ban US firms from the EU’s public procurement programs, or restrict investment by US firms.

Japan: In elections for the upper house of parliament yesterday, the ruling Liberal Democratic Party and its Komeito partner came at least two seats short of holding their majority, mimicking their performance in the lower-house election last year. Despite now having to rely on the finicky support of several small parties in each chamber, LDP Prime Minister Ishiba has vowed to stay in power and address the issues angering voters, such as high consumer price inflation and rising immigration. That continuity could help Japan reach a trade deal to minimize new US tariffs.

China: The State Administration for Market Regulation on Friday summoned major online food delivery platforms to demand that they avoid “irrational” competition amid their fierce price war. The firms summoned included units of Alibaba, Ele.me, Meituan, and JD.com. The move shows how Beijing has become increasingly concerned about debilitating price competition as the effect of excess capacity spreads throughout the economy. Importantly, observers widely expect Beijing to soon clamp down on the price war in China’s key electric-vehicle market.

United States-China: The US Department of Agriculture last week said it has fired 70 foreign researchers — mostly from China, but also from Russia, Iran, and North Korea — who had been working for USDA on contract. The firings apparently stem from the department’s new farm security plan, which aims to protect the US food supply from threats by those countries (the plan also says nationals from China, Russia, Iran, and North Korea can’t buy US farmland). The firings are also the latest example of continued US-China decoupling.

United States-Israel: Axios yesterday said White House officials are furious at Israeli Prime Minister Netanyahu for his bombing last week of Syria’s military headquarters in Damascus and a Catholic church in Gaza. The officials increasingly see Netanyahu as too prone to use military force in the region even as President Trump tries to calm things down. They are also angry over Tel Aviv’s growing restrictions on Christian Evangelicals trying to visit Israel.

• At this point, it isn’t clear to what extent Trump shares the officials’ concerns.
• Still, the report suggests there are growing disagreements between the countries that could undermine US security and economic interests in the region going forward.

US Monetary Policy: The Wall Street Journal reports that Treasury Secretary Bessent was instrumental last week in talking President Trump out of firing Fed Chair Powell. Illustrating how Bessent provides key ballast to Trump’s economic decisionmaking, he reportedly told Trump there was no need for the move right now because the economy and financial markets are doing well even with interest rates high, and the Fed is ready to cut rates further in any case. Bessent also warned the move could invite political, legal, and financial-market blowback.

US Trade Policy: New reports say President Trump is mulling several new “sectoral” import tariffs that would kick in along with the “reciprocal” tariffs against individual countries that are due to be imposed August 1. Complementing Trump’s existing sectoral tariffs on imported steel, aluminum, autos, and auto parts, the new tariffs would hit imports of lumber, critical minerals, copper, pharmaceuticals, and semiconductors. The news could potentially rekindle investor concerns about future US tariff levels and therefore weigh on stock prices.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with escalating Ukrainian drone attacks on Moscow, St. Petersburg, and other areas of Russia that could potentially prompt Kremlin retaliation against the US. We next review several other international and US developments with the potential to affect the financial markets today, including a new US anti-dumping tariff against Chinese graphite materials used in electric vehicles and the latest in the Trump administration’s angling to fire Federal Reserve Chair Powell.

United States-Ukraine-Russia: The Ukrainian military yesterday staged aerial drone attacks against Moscow, St. Petersburg, and other areas around Russia, suggesting that President Trump’s apparent greenlighting of the concept may have encouraged Kyiv to become more aggressive. As we reported in a Comment earlier this week, Trump urged Ukrainian President Zelensky to attack Moscow and St. Petersburg to help force the Kremlin into peace talks. The risk is that Russia could decide to retaliate, in some way, directly against the US.

United States-China: The Trump administration yesterday said it will set a 93.5% anti-dumping tariff against Chinese graphite and other anode-active materials used to make electric-vehicle batteries. As an anti-dumping tariff, the graphite duty is unrelated to Trump’s “reciprocal” tariffs, sectoral tariffs, and national security tariffs. In response, the share prices of non-Chinese graphite producers are surging so far this morning.

China: New research by Griffith University in Australia shows China is once again spending lavishly on its “Belt and Road Initiative” to build ports, railroads, and other infrastructure in less developed countries around the world in what is likely an attempt to curry good will and facilitate greater trade with China. The report says Chinese BRI spending in the first half of 2025 was higher than in any other six-month period in history, driven largely by new energy-related investment.

• China’s renewed BRI spending comes after bad loans and bad publicity led to a sharp pullback in the program from 2020 to 2023.
• The rebound in BRI spending could spur economic growth in a number of emerging markets, albeit with the risk that the countries are again becoming overly indebted to China.

(Source: Griffith University)

Japan: Excluding the volatile fresh foods category, the June “core” consumer price index was up 3.3% from the same month one year earlier, matching expectations and cooling from the 3.7% gain in the year to May. Nevertheless, inflation remains well above the Bank of Japan’s target, so the data is not expected to stop the central bank from hiking rates further. Persistent inflation is also expected to hurt the ruling Liberal Democratic Party in this weekend’s elections for the upper house of parliament.

Israel-Syria: Israeli forces continue to operate in Syria today as they implement Tel Aviv’s new policy to help protect the Druze Christian minority group there and establish a demilitarized zone along the Israel-Syria border. The Druze community in Israel numbers about 150,000 and has played an active role in the Israeli military. That has made Tel Aviv sensitive to the community’s demand to support the fellow Druze in Syria who have been attacked amid the political chaos following the fall of Syrian dictator Bashar al-Assad late last year.

Iran: Officials in Lebanon, Syria, and Yemen say they have recently intercepted multiple weapons shipments sent by Iran to allied militants in the region, including Hezbollah. Despite the military setback that Iran suffered from Israeli and US strikes in June, the shipments suggest Tehran has not yet been pacified. That raises the risk that Iran will directly or indirectly launch new, destabilizing attacks against its enemies in the future.

Argentina: Moody’s yesterday hiked its sovereign foreign-currency debt rating on Argentina to Caa1, up from Caa3 previously, with a stable outlook. As justification, the firm cited Argentina’s recent macroeconomic reforms, such as removing distortive exchange controls and cutting public spending, which have helped stabilize the economy. Moody’s also said it couldn’t hike the credit rating further until Buenos Aires addresses other needed reforms, such as removing barriers to investment, but yesterday’s move is still likely to be positive for Argentine stocks and bonds.

US Monetary Policy: Federal Reserve Chair Powell yesterday sent a letter rebutting the Office of Management and Budget’s accusation that he has grossly mismanaged the on-going renovation at the Fed’s headquarters and misled Congress about it. Nevertheless, as we’ve said before, the project — essentially rebuilding the headquarters — is so big and complex that Trump officials could probably find some cost overrun or other problem to justify firing Powell, if they’re willing to accept the likely disruption in the financial markets.

US Cryptocurrency Industry: The House yesterday passed a bill that would establish the first comprehensive set of rules for the US cryptocurrency industry. The vote was 294-134, signaling bipartisan support, but passage by the Senate is nevertheless considered less certain. In any case, the “Digital Asset Market CLARITY Act” lays out a new category of registered digital assets and establishes the government’s regulatory responsibilities for them, all aimed at spurring rapid growth in privately developed digital assets.

• Separately, the House yesterday also approved the Senate-passed GENIUS Act to regulate stablecoins, sending the bill to President Trump to sign it into law. The act establishes the US’s first-ever regulatory framework for issuers of stablecoins, aiming to spur development of that industry.
• Yet another report says Trump, as early as today, will sign an executive order directing regulators to let 401(k) plans invest in cryptocurrency assets, gold, private equity, and other nontraditional assets. If true, the order would likely force investment managers to adjust to a much broader set of investment possibilities, while introducing new risks for investors and the broader economy.

US University Endowment Funds: Even as Trump preps to let 401(k) investors take positions in nontraditional assets like cryptocurrencies and private equity, the University of California’s endowment board has voted to exit its remaining 10% allocation to “absolute return portfolios,” which are essentially made up of hedge funds. The UC investment manager lambasted hedge funds for not providing an effective hedge against volatility and providing far worse performance than traditional stocks and bonds in recent years.

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