by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a deep dive into the new ceasefire agreement between Israel and Hamas. Next, we turn to the global economic stage and break down the latest maneuvers from the US and China ahead of critical trade negotiations. From there, we decode the revealing Fed minutes that have markets buzzing and investigate fresh signs of an escalation in tensions between NATO and Russia. We also provide a summary of key economic indicators from the US and global markets.

Hamas and Israel Deal: Israel and Hamas are reportedly set to agree on a ceasefire on Thursday. The plan centers on the release of all hostages, a withdrawal of Israeli forces from the front lines, and a substantial increase in humanitarian aid to the war-torn territory. Although the deal will face some resistance from hardliners within the Israeli government, Prime Minister Netanyahu is expected to get it approved easily. The news led to a drop in global oil prices and a rally across US and international equity markets.

• The agreement was achieved after the White House successfully mediated an outline for a 21-point peace plan among all negotiating parties, though the document has yet to be formally finalized. While the full details remain pending, the plan is widely anticipated to leverage and expand upon the framework of the Abraham Accords, aiming for broader normalization and reengagement between Israel and its Middle Eastern allies.
• This political shift is expected to facilitate the long-planned US “pivot” by freeing up resources and attention currently committed to the Middle East. With the immediate conflict addressed, Washington can intensify its focus on China, which it designates as the main strategic threat. Crucially, a stable Middle East will enable the US to be able to strengthen alliances more readily and mitigate Chinese influence across the region.
• The broader agreement is likely to ease market anxieties regarding Middle Eastern supply chain stability. A key focus is the Strait of Hormuz, a critical chokepoint that has seen attacks escalate due to regional hostilities. By reducing this security threat, the pact should help keep oil prices in check and prevent volatility in global shipping rates.

China Crackdown: The US and China escalated their trade war with dueling security-related actions this week. Beijing imposed stringent new export controls on critical minerals, requiring authorization for any goods containing even trace amounts. Concurrently, Washington sanctioned a network of Chinese firms for allegedly supplying components to Iran’s military and its proxies. The tit-for-tat measures, justified by both sides on national security grounds, cast a shadow over upcoming bilateral trade talks.

• China’s decision to restrict exports of critical minerals is a strategic response to US controls on advanced semiconductors. By targeting goods with even trace amounts of these materials, Beijing is mirroring the US “foreign direct product rule,” effectively using its own strategic resource as a counterweight by adopting a key tactic from the American regulatory playbook.
• Additionally, the US sanctions on Chinese firms serve as a form of pressure, aiming to secure Beijing’s cooperation in restraining its allies. While these recent measures primarily target Iran, their underlying goal is to enlist China’s help in persuading Tehran to cease backing groups hostile to Israel. This tactic reflects a broader US strategy of seeking foreign policy coordination, as Washington has also repeatedly urged Beijing to end its support for Russia to help end the war in Ukraine.
• While the recent tit-for-tat actions by Beijing and Washington have undoubtedly raised tensions, they may also be setting the stage for more comprehensive negotiations. We believe these talks are likely to extend beyond trade to encompass critical issues of technology and foreign policy. A resulting “grand bargain” between the two powers, should it materialize, could provide a significant boost to US equities.

Fed Noncommittal: Federal Reserve officials were hesitant to cut interest rates at the last Federal Open Market Committee (FOMC) meeting, according to the recently released minutes, suggesting a potential division within the committee. The minutes indicate that while many members saw the labor market softening, significant concern over elevated inflation persisted. A few officials even suggested that tariffs were hindering the path to the Fed’s 2% inflation target, though this view was met with some internal pushback.

• The Federal Reserve’s lack of policy certainty likely stems from the conflicting signals within its dual mandate. While some officials acknowledge the cooling of the labor market, the persistently low unemployment rate suggests that economic conditions have not deteriorated sufficiently to warrant an aggressive policy shift.
• Although inflation has ticked slightly higher, several committee members believe this increase was less than anticipated and project that price pressures will ease in the coming months, complicating the decision on whether to prioritize employment or price stability.
• The latest FOMC minutes confirm that members have retained the option for at least one final rate cut before the year ends. Our view is that the upcoming September labor market data — currently delayed by the shutdown — will be the critical pivot point. A report showing a marked deceleration in hiring will provide the necessary evidence for officials to proceed with easing monetary policy at the October 29 meeting.

NATO Escalation: The Western military alliance is debating a shift toward a more forceful deterrent strategy against Russian provocation. Recent discussions have focused on potential escalations, including deploying armed drones along the Russian border and authorizing pilots to shoot down Russian aircraft. This proposed reinforcement is designed to counter what the alliance now describes as Russian “hybrid warfare.” Such measures, however, are likely to significantly raise the risk of direct conflict as both sides test the new boundaries of engagement.

EU Port Strikes: Twin strikes by lashers — workers who secure and unload ships — at the key European hubs of Rotterdam and Antwerp-Bruges is escalating existing supply chain chaos. The industrial action, driven by demands for a 7% wage hike, comes immediately after recent storms had already strained port capacity. A prolonged stoppage at these critical gateways threatens to severely impede international trade and trigger adverse ripple effects across global commerce.

Finland-US Ties: The United States and Finland are set to sign a defense cooperation agreement focused on icebreaker vessels, reflecting the Arctic’s growing strategic importance. The deal will facilitate joint work on ships capable of navigating ice-covered waters, a capability essential for maintaining access and presence in the region. This move signals the US’s increased commitment to asserting control and ensuring freedom of navigation in the increasingly contested Arctic seas.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis regarding new concerns about AI profitability, following the reported leak of internal documents from Oracle. We then assess a strategic pivot in global trade, as the EU considers more protectionist measures to counter US economic policy. We also examine the recent surge in gold prices and evaluate spillover risks from the First Brand bankruptcy. As always, we conclude by providing a summary of key economic indicators from the US and global markets.

 AI Concerns: Fears that Oracle may be unable to hit profit targets following its sizable Nvidia chip order triggered a massive AI-related sell-off. The core concern, fueled by leaked internal documents, is that profit margins in Oracle’s cloud computing business are lower than anticipated from the chips it currently leases from Nvidia. The reports raise doubts about Oracle’s $40 billion commitment to purchase Nvidia chips earlier this year to support data centers, reportedly for OpenAI.

• Following the report, Oracle shares plunged as much as 7.1% as investors scrambled to gauge the implications for the broader technology sector. The report, citing internal documents, revealed that Oracle’s Nvidia-powered server rentals generated approximately $900 million in revenue but yielded a gross profit of only $125 million. Even more concerning was the fact that the company incurred losses on smaller, less utilized quantities of chips.
• The revelations are likely to put a spotlight on chipmakers, underscoring their sensitivity to customer purchasing decisions. Since only a few companies can afford this cutting-edge technology, chipmakers face significant risk from potential pullbacks, prompting them to actively diversify their client base. This pressure was immediately evident when, on the same day the Oracle report broke, Nvidia announced a chip deal with Elon Musk’s xAI.
• Despite widespread skepticism regarding a potential bubble in the AI sector, these companies’ affiliation with the US government through the Stargate Project could sustain investor confidence. However, any concerns about the long-term commercial viability of these ambitious technologies could trigger a significant market correction. Consequently, we recommend investors maintain a well-diversified portfolio, utilizing exposure to value-oriented assets as a strategic hedge against a potential AI bubble.

EU Pushback: The EU is adopting an assertive trade posture on two fronts. First, it has raised concerns over new US demands perceived as an effort to compel regulatory concessions. Second, it is advancing a plan to cap steel imports and slapping a 50% tariff on any country that exceeds the quota — a measure that has already provoked a sharp response from the UK. Together, these developments illustrate the bloc’s strategic pivot in order to navigate a more protectionist global trade landscape.

• Despite a lack of public details, the US has consistently pressured the EU to overhaul its regulations across several critical sectors, including digital and technology rules, corporate compliance, and climate-related policy. While the EU has opened the door for discussions, it has characterized the US proposals as “maximalist” and has vowed to resist significant changes.
• The EU’s decision to resist trade pressures and impose new tariffs demonstrates a strategic play to assert both its independence and its trade power. This move has particularly impacted the UK steel industry, which sends over 80% of its exports to the bloc. The blow is especially sharp as the UK is still waiting for the US to lower its own steel tariffs from 25% to 0%.
• The EU’s assertive new trade posture is a double-edged sword: it shields vulnerable domestic industries from US pressure but risks provoking retaliatory actions. While a compromise remains possible as the European Parliament debates its response, a failure to reach an agreement could trigger an escalation. In such a scenario, the US would likely impose higher tariffs, forcing the EU to reciprocate with defensive measures of its own.

Gold Price: Gold prices soared to a record $4,000 an ounce on Tuesday as investors sought safety amid political and economic uncertainty. The rally was driven by a looming US government shutdown and a broader market shift away from the 10-year Treasury note. Investor skepticism toward US debt is growing due to concerns over rising national debt and higher inflation expectations.

First Brand: The demise of First Brand, a critical auto supplier, has exposed concentrated financial vulnerabilities among its creditors. The fallout underscores substantial exposure at several institutions, including a UBS fund with a highly concentrated 30% position and an estimated $500 million in total exposure for the firm. Jefferies is confronting an even larger estimated exposure of $715 million, with Blackstone and Onset Financial also having some exposure. This incident, while isolated, serves as a clear indicator of stress in the financial system.

France Stalemate: A breakthrough on France’s national budget appears imminent, with outgoing Prime Minister Sébastien Lecornu expressing confidence that a deal can be finalized ahead of the December 31 cutoff, notwithstanding remaining policy disputes. Following his announcement, a French legislator proposed withdrawing the controversial increase in the retirement age as a critical concession for parliamentary approval. The forthcoming budgetary resolution is anticipated to reduce market pressure on French sovereign bonds.

Shutdown Standoff: As the government shutdown enters its second week, the White House is considering withholding back pay from furloughed workers. This move would intensify the financial strain on federal employees, who have already gone without one paycheck. There is now concern that the threat of lost wages could compel essential staff — who are currently working unpaid — to walk off the job. Such an action would cripple vital government services and potentially weigh on market sentiment and investor confidence.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of another US government investment in a key critical minerals company. We next review several other international and US developments with the potential to affect the financial markets today, including signs that the Trump administration may be ready to negotiate with Democrats in Congress to end the federal government shutdown and expectations that the European Union will impose its own big, new tariffs on imported steel today.

US Private Property Policy: The White House yesterday said it will take a 10% stake in Canadian critical minerals firm Trilogy Minerals in return for approving a controversial road infrastructure project in Alaska. The road project will allow access to remote mineral resources sought by the company. In response to the news, shares in Trilogy tripled in value, mimicking the stock surges in other recent deals where the federal government has taken partial ownership of firms.

• It’s becoming obvious that a profitable near-term strategy for investors is to purchase private-sector enterprises that are in good graces with the administration, in which case they are likely to receive special treatment in terms of regulatory relief, contracts, or state investment and other support.
• Of course, the long-term risk is that mass “state ownership of the means of production” could lead to unprofitable decisions, high costs, and less economic efficiency.

US Fiscal Policy: President Trump late yesterday hinted that Republicans in Congress are in talks with Democrats over healthcare subsidies to potentially reach a funding compromise and end the ongoing federal government shutdown. Democratic leaders said no such talks are taking place, which suggests the president’s statement may have been a smokescreen or just a hint that he wants to discuss such a deal. Nevertheless, Trump also said he would like to see a deal on healthcare, pointing toward a potential path toward a funding deal and an end to the shutdown.

US Tariff Policy: In a social media post yesterday, President Trump said he will impose a 25% tariff on imports of medium and heavy trucks starting November 1. The announcement came just a day before Trump’s scheduled meeting with the prime minister of Canada, which would be heavily affected by the new truck tariffs. In the past, Trump has sometimes exempted Canadian and Mexican imports compliant with the USMCA trade deal, but his post yesterday made no mention of such an exemption.

US Artificial Intelligence Industry: In the latest AI-related tech deal, private AI model developer Anthropic is in talks to include its Claude model in IBM’s latest integrated developer environment, or IDE. If completed, the deal would make Claude available to software engineers using IBM’s tools at large businesses for tasks such as modernizing code or building proprietary AI agents. In pre-market trading so far today, IBM’s share price has risen about 4.6%.

US Energy Industry: Research by energy consulting firm Wood Mackenzie shows US firms plan to invest $50 billion in new and expanded pipelines in the next five years to cash in on booming natural gas demand and deregulation under President Trump. That amounts to some 8,800 miles of new pipelines aimed at removing bottlenecks that have arisen because of booming production, meeting record liquefied natural gas exports, and fueling electricity generation for data centers. Midstream firms involved in the boom include Kinder Morgan and Enbridge.

US Auto Industry: Novelis, which produces some 40% of the sheet aluminum used by US auto manufacturers, has announced that one of its major plants in New York has been knocked offline until early next year because of a fire three weeks ago. The shutdown is expected to disrupt production for major automakers. Reports suggest Ford is especially at risk, as its profit-driving F-150 pickup is particularly dependent on aluminum from the shuttered plant. Other automakers that could be affected include Toyota, Hyundai, Volkswagen, and Stellantis.

European Union-United Kingdom: According to the Financial Times, the EU today plans to impose a 50% tariff on all imported steel. All steel-exporting countries would face the tariff above quotas set at 2013 levels. If fully implemented, the protectionist tariff would likely be devastating for the UK, which currently sends some 80% of its steel exports to the EU. In response, trade association UK Steel warned that many of the UK’s remaining steel firms could go extinct unless the British government imposes its own protectionist tariffs.

Germany: The German government has recently granted domestic arms makers a string of “direct award” contracts with no public tenders, such as a 390-million EUR ($455 million) contract to Rheinmetall to develop anti-drone lasers. The direct-award contracts have sparked complaints by foreign defense contractors and members of parliament who say the deals could be wasteful. Another key takeaway is that Berlin may be prioritizing the development of its own defense technology to reduce its reliance on foreign suppliers, potentially including US defense firms.

Japan: Now that the ruling Liberal Democratic Party has selected conservative Sanae Takaichi as its new leader, putting her in position to become prime minister and push economic policy back toward stimulative “Abenomics,” one of her key advisors has said the Bank of Japan shouldn’t hike interest rates as expected this month. The statement by influential advisor Etsurō Honda suggests the central bank’s next rate hike might be delayed, which helps explain why the yen (JPY) has weakened further today, falling about 0.4% to 150.80 per dollar ($0.0066).

New Zealand: The Reserve Bank of New Zealand has established a new body with enormous powers to ensure financial stability and address prudential issues for banks. The central bank’s new Financial Policy Committee will set debt-to-income and loan-to-value ratios for banks, so it will also have enormous power over the country’s housing sector.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest market-moving deal in the US artificial intelligence industry. We next review several other international and US developments with the potential to affect the financial markets today, including the outlines of a potential US-China trade deal, prospects for a new, market-friendly prime minister in Japan, and the latest on the US government shutdown.

US Artificial Intelligence Industry: Artificial intelligence developer OpenAI and chip designer Advanced Micro Devices (AMD) this morning announced a deal under which Open AI will equip its data centers with gigawatts worth of AMD chips, leading to tens of billions of dollars in new revenue for AMD over the next five years. OpenAI will also get warrants for up to 160 million AMD shares (roughly 10% of the firm) at 1 cent per share, if OpenAI hits certain targets and AMD’s stock price rises.

• The requirement for AMD’s stock to rise doesn’t look like a problem, as its shares are trading approximately 25% richer as of this writing.
• The deal is the latest in a string of AI-related linkups that have further fueled the excitement over AI’s prospects. However, concerns are also rising about excessive exuberance and daisy-chain deals that could ultimately lack economic substance.

China-United States: Bloomberg reported over the weekend that Beijing is pressing the Trump administration to lower national security restrictions on Chinese investment in the US to resolve the current US-China trade war. The proposed deal would involve Chinese firms investing up to $1 trillion in new factories and other industrial facilities in the US. It would also require the US to lower its tariffs on Chinese inputs used in the Chinese-owned facilities built under the deal.

• Other reporting suggests that China is also seeking a commitment from the US to oppose Taiwanese independence under the deal. Such a move would be a fundamental change to the US’s traditional policy of “strategic ambiguity,” under which it doesn’t say how it would respond to a Chinese effort to take control of the island.
• Such a deal might be hard for the US administration to swallow, given that it would likely generate strong opposition from domestic China hawks and could be seen by the public as capitulation to Beijing. It would also pose the risk that massive Chinese investment would allow Beijing to eventually dominate the US economy.
• Still, such a deal could have some positive economic benefits as well. For example, it would likely reduce the risk of a costly, destabilizing war. It could also allow the administration to cut its high tariffs against China and thereby reduce the risk of higher consumer price inflation. It could spur faster re-industrialization in the US. Also, producing more Chinese goods in the US could help rebalance bilateral trade and re-channel Chinese investment from Treasurys into fixed investment.
• If announced, the deal could be a headwind for gold, at least temporarily, while faster US re-industrialization would likely be positive for other commodities. US defense stocks would likely fall in value, but European defense equities would probably be less affected. In any case, such a deal would likely be positive for the broader US and Chinese stock markets.

China-Mexico-United States: Late on Friday, Beijing issued a strong condemnation of Mexico’s 11 on-going anti-dumping investigations against Chinese imports, which it said were masterminded by the US to help crimp China’s economic growth. Importantly, the statement also implicitly threatened to retaliate against Mexico if the probes lead to new tariffs against Chinese goods. Of course, various reports say the US is trying to enlist other countries to constrict Chinese exports. This incident shows how third-party countries can be caught in the crossfire.

Japan: The ruling Liberal Democratic Party on Saturday chose former Economic Security Minister Sanae Takaichi as its new leader, virtually guaranteeing the arch conservative will become Japan’s next prime minister due to the recent resignation of incumbent Shigeru Ishiba. If the Diet approves her as expected, Takaichi would serve out the remainder of Ishiba’s term, which ends in September 2027. Her policies are expected to include being tough on China, supporting big increases in the defense budget, and promoting faster economic growth.

• The prospect that Takaichi would win and return Japan to the pro-market economic policies of former Prime Minister Shinzo Abe has helped boost the country’s stock prices in recent weeks, even though the LDP’s lack of a majority in either house of parliament will make it hard to push through new reforms.
• So far today, Japanese stock prices have surged approximately 4.8%, while the yen (JPY) has weakened about 1.7% to 149.94 per dollar ($0.0067).

Philippines: New reports say the wave of coup rumors that have risen in recent weeks in conjunction with mass anti-corruption protests can be traced to loyalists and influencers aligned with former President Rodrigo Duterte, the chief political rival of incumbent President Ferdinand Marcos, Jr. The coup rumors, claims of foreign interference, and accusations of military disloyalty are increasingly seen as destabilizing, and may potentially set the stage for major disruption in a key US ally and major Asia-Pacific economy.

France: Prime Minister Lecornu resigned today after less than a month in office and less than one day after presenting his proposed government. Lecornu’s departure, driven by difficulties in pushing a vital deficit-cutting budget through parliament, makes him the fourth French prime minister to resign in the last year and the shortest-serving prime minister in the Fifth Republic. Since the move is further evidence of the political chaos in one of the European Union’s biggest economies, the news is weighing heavily today on the euro and on EU stocks and bonds.

Czech Republic: In parliamentary elections at the weekend, the Ano party of right-wing billionaire and former prime minister Andrej Babiš came in first, allowing Babiš to try to form a government and become prime minister again. Although the Ano party supports Czech membership in the North Atlantic Treaty Organization, it is more skeptical of the European Union and wants to reduce the country’s aid to Ukraine while it pursues more conservative economic policies. The result could be reduced aid to Kyiv and more friendly relations with Russia.

US Fiscal Policy: The federal government shutdown appears set to continue in the coming days, as Republican and Democratic leaders look committed to their budget positions, meaning Senate votes on a new funding bill continue to fail due to lack of the 60 votes needed for it to pass. However, President Trump is still holding in reserve his threat to use the shutdown to implement mass firings of federal employees — a move that could substantially worsen the economic impact of the shutdown.

US Labor Market: In a little-noticed development amid the federal shutdown, some 100,000 federal employees who had taken the administration’s deferred buyout deal earlier this year dropped off the federal payroll as of October 1. Another 55,000 or so will go off the payroll in the coming weeks. The newly unemployed workers are expected to add to the increased softness in the US labor market, raising the risk of a near-term economic slowdown despite expectations for faster growth in 2026.

Global Oil Market: The Organization of the Petroleum Exporting Countries and its Russia-led partners said eight of their members will boost their oil output by a modest 137,000 barrels per day starting November 1. The move, led by Saudi Arabia, will likely help keep the global oil market well supplied and keep a lid on prices in the near term, especially if slowing economic growth weighs on demand.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of fresh signs of escalating tensions between NATO and Russia. We then pivot to the positive momentum in trade negotiations between the US and China. Further into the report, we delve into the rising hype surrounding Chinese tech stocks, examine a significant new milestone in Italy’s fiscal situation, and detail the emerging signs of trouble within the consumer credit market. We also provide a summary of key economic indicators from the US and global markets.

Rising NATO-Russia Tensions: The possibility of a direct conflict between NATO and Russia continues to intensify as the US weighs a significant policy shift. Specifically, the White House is reportedly considering providing Ukraine with intelligence for its deployment of Tomahawk missiles and drones to strike Russian energy infrastructure. This assertive step, though unconfirmed, is seen as a strategic lever designed to compel Moscow to the negotiating table, given its continued attempts to stall talks in order to gain more territory in Ukraine.

• While Moscow has downplayed the development by stating that the US was already sharing intelligence, it has concurrently expressed strong frustration with NATO’s increased assistance with strikes on Russian territory. These strikes, which have targeted at least 15 Russian oil refineries, have been highly effective, forcing refinery throughput to below five million barrels per day. This drop is a significant financial blow, directly undermining the oil revenue Moscow relies on to finance its military campaign.
• In response, Russia continues to test NATO’s resolve through repeated airspace violations. The most recent incident occurred late on Thursday when Munich Airport in Germany was forced to temporarily suspend all flight operations due to multiple drone sightings in its airspace, affecting approximately 3,000 passengers. These incursions prompt calls for the drones to be shot down, an action Russia could deem a declaration of war.
• This standoff has devolved into a dangerous game of chicken, with Washington and Moscow each betting the other will yield to prevent a major conflict. This geopolitical brinkmanship is inherently hazardous, as it increases the potential for miscalculation and accidental escalation. Although the likelihood of direct military confrontation remains low, we believe the risk is greater than current market sentiment would suggest.

China Trade Progress: The White House has announced a potential breakthrough in trade talks with China. Treasury Secretary Scott Bessent suggested that the two nations could be nearing an agreement during their fifth round of talks, which are being held in South Korea. The secretary’s comments underscored the ongoing US effort to persuade China to resume purchases of American agricultural products and lift restrictions on the export of rare earth minerals. A potential trade deal could open the door for a new phase in the two countries’ complicated relationship.

• The US is believed to be using trade talks as a way to convince China to pivot away from an export-driven model toward one powered by domestic demand. Yet, Beijing has reframed the dialogue, shifting the focus from economics to also include geopolitics. China is demanding both the removal of US tariffs and an explicit US denial of Taiwan’s sovereignty. While the US has denied agreeing to a change in its stance, these discussions show how China plans to use talks to achieve its aims beyond trade.
• However, while trade tensions show signs of cooling, the geopolitical rivalry is clearly heating up. Earlier this week, a senior Chinese diplomat expressed displeasure with the newly appointed US consul general to Hong Kong, warning her not to collude with “anti-China forces.” This warning is particularly pointed since under the previous administration, US officials were photographed conversing with student leaders in Hong Kong.
• A trade deal between the US and China would be highly supportive of equities in both countries, as their economies remain strongly linked despite efforts to decouple. That said, even as commercial uncertainty dissipates, we anticipate that the strategic competition for influence will continue as both nations pursue the development of their respective global spheres of influence.

Japan Elections: Following a series of electoral setbacks, Japan’s ruling Liberal Democratic Party will choose its new leader on Saturday. Five candidates are in the running, with Shinjirō Koizumi and Sanae Takaichi being the clear favorites to win and subsequently become the next prime minister in mid-October. This incoming leader faces an immediate and difficult agenda consisting of handling cost-of-living discontent, managing US trade and security tensions, and tackling increasingly urgent immigration concerns.

China AI Hype: The global AI rally is broadening, propelling Chinese tech companies into focus. Alibaba’s deep commitment to AI, which aligns with China’s policy push for technological self-reliance, is seen as a primary driver for the recent surge in returns. Investors are also attracted to the stark valuation gap where the Hang Seng Index carries a P/E ratio of approximately 26.4×, which is dramatically lower than the NASDAQ Composite’s multiple of about 57.1×, according to Bloomberg data.

Italy Deficit Improves: Italy’s improving fiscal health is set to give its government crucial political flexibility, with the budget deficit projected to drop below 3% by 2026. Achieving this would bring Italy into compliance with EU rules for the first time since 2019 and would likely lead to its exit from the EU infringement procedure. This timing is opportune, as the freedom from restrictive EU oversight could immediately open the door for new government initiatives, including significant defense spending increases and substantial tax relief.

AI Integration: Walmart is increasing its investment in AI to optimize supply chain management, signaling a strategic shift to reduce its dependence on manual labor for specific tasks. This move is expected to boost profitability, especially as the company adapts its business model to navigate challenges like tariffs. While AI adoption is becoming widespread across industries, its integration will be a gradual process. The most immediate impact will likely be seen in a reduced pace of hiring for roles susceptible to automation.

Credit Problems? Despite the economy’s overall resilience, significant vulnerabilities are surfacing in the consumer credit market. The collapse of subprime auto lender Tricolor Holdings, combined with weak earnings from CarMax and the bankruptcy of First Brands Group, points to an intensifying credit crunch in the subprime auto sector. This distress is a key indicator that, beneath strong macroeconomic headlines, a segment of the population is increasingly burning through savings and accumulating debt to sustain their standard of living.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an update on Stargate’s latest ventures. We then shift our focus to global developments, including stricter EU tariffs on Chinese steel and Beijing’s strategy to counter potential isolation from the West. Further analysis covers the decline in ADP private payrolls, the US defense pledge to Qatar, and the latest on the government shutdown. We also provide a summary of key economic indicators from the US and global markets.

Stargate Deals: Market optimism remains underpinned by the public-private AI infrastructure push. On Wednesday, OpenAI solidified this trend by securing key agreements with Samsung Electronics and SK Hynix for its ambitious Stargate projects. Crucially, the deal involves both the supply of next-generation chips and a commitment to jointly build AI data centers in Seoul. This strategic expansion is a clear indicator of the effort by the US-led AI ecosystem to diversify its computation capacity and deepen alliances with key global hardware partners.

• Stargate’s deal with a South Korean tech company forms part of its broader strategy for international growth. This follows closely on the heels of a similar infrastructure agreement with the UAE as well as with the UK, demonstrating a coordinated push to establish a global footprint that spans both advanced technology and critical data center capacity.
• The US push to develop AI infrastructure is a key component of a broader strategy to solidify its position as the global epicenter of artificial intelligence. The administration’s approach appears to be one of expanding US influence through technological supremacy, while simultaneously reducing the rest of the world’s reliance on international trade.
• The central challenge to watch for is the US’s ability to compete with China as both nations expand their AI reach abroad. US success hinges on convincing more countries to adopt US-based AI infrastructure and technology over Chinese alternatives. Successfully winning these build-out contracts will directly increase US market share, making it significantly easier for US tech companies to justify their aggressive, high-growth valuations.

EU Trade Restrictions: The EU has proposed doubling tariffs on imported steel to 50% in an effort to shield its domestic industry from dumping by China and other Asian nations. This new rate is designed to align with the US tariff level, a move intended to prevent steel exports that are being diverted by US policies from flooding the European market. Although the EU has steel import quotas in place already, this new plan is far more granular, introducing specific quotas based on individual product types and originating countries.

• The global move to restrict imports reflects a concerted effort to economically isolate China, as US trade policy is prompting a worldwide realignment. In response, key US partners and regional powers — including Canada, Mexico, Japan, and India — have enacted new anti-dumping measures targeting Chinese goods.
• Concurrently, efforts are underway to counter China’s potential to weaponize its own imports in retaliation. Last month, G-7 members began talks to establish price floors for rare earths. This strategy aims to incentivize investment in alternative production and reduce collective reliance on China. The group is also considering targeted tariffs on Chinese exports of these critical minerals.
• As Western nations toughen their stance, China is expected to deepen its ties with the Global South to reduce its own economic dependencies. This shift is already visible, with Chinese exports being increasingly redirected to Africa and Latin America, leveraging existing investment partnerships. We can expect this trend to accelerate as China works to establish an alternative trading bloc.

Cook Safe for Now? The Supreme Court will hear arguments in January on the president’s authority to fire Federal Reserve Governor Lisa Cook, a case that will define the limits of presidential power over independent agencies. The delayed hearing has, for now, secured Cook’s position on the FOMC. However, her eventual removal could undermine confidence in the Fed’s independence, potentially weighing on the US dollar.

ADP Payrolls: Private sector payrolls recorded their steepest decline since 2023, falling by 32,000 jobs in a fresh sign of a cooling labor market. The downturn appears broader than initially thought, as the prior month’s data was revised down from a gain of 51,000 to a loss of 4,000. Although the ADP report and official government data can differ, they typically move in tandem, offering a critical glimpse into the labor market while the federal government’s release is suspended.

China Soybean Purchases: The White House is preparing to confront China over its halted purchases of American soybeans, a critical point in the ongoing trade negotiations. China’s shifting of its massive agricultural orders to competitors like Brazil and Argentina has damaged the US farm sector. While a resumption of Chinese buying would offer significant relief, the agreement hinges on unspecified concessions that Beijing is expected to demand. The two nations face a November deadline, after which previously suspended tariffs are slated to be reinstated.

Qatar Protection: The White House has pledged to defend Qatar in the event of an attack, a move aimed at securing the country’s continued participation in the Abraham Accords. This assurance comes in response to a recent Israeli airstrike on Qatari soil targeting Hamas leaders — an act Israel has since apologized for but was seen as a severe breach of trust. By extending US protection, the Trump administration hopes to reassure Qatar that such an incident will not be repeated.

Federal Job Cuts: The White House is considering permanent layoffs to pressure Democratic lawmakers into ending the government shutdown. This escalation comes as the two parties remain deadlocked over a spending agreement to fund the government. While the threat of layoffs suggests the stalemate could persist longer than expected, there are indications that both sides remain willing to negotiate a deal.

View PDF