by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment section opens with an unraveling of the reasons behind the market’s recent breather. This is followed by a crucial look at US monetary policy, specifically analyzing how scant jobs data could constrain the Federal Reserve’s next interest rate decision. We also discuss a major quantum technology breakthrough, the latest in the US-China trade escalation, and North Korea’s weapons advancements. Finally, we provide a concise summary of the day’s essential US and global economic indicators.

Rally Cools: While many companies reported strong earnings, high-profile disappointments from several key players raised red flags. Tesla, for instance, saw record vehicle sales undermined by shrinking profit margins, fueling doubts about its adaptability in a less EV-friendly environment. Similarly, Netflix fell short of earnings targets, largely attributed to a regulatory dispute in Brazil, while Texas Instruments dampened sentiment with a pessimistic forward outlook.

• The market’s narrow focus reflects heightened anxiety over a lack of economic data due to the government shutdown, which has severely hampered the ability to assess the economy’s health. This is particularly concerning amid rising fears about consumer strain and a potential credit crunch. Auto loan troubles at firms like First Brand and Tricolor, coupled with mounting fears that small lenders are carrying a significant amount of bad debt on their books, has largely driven this anxiety.
• Investor confidence in the economy has been heavily reliant on the remarkable resilience of the consumer. Against all odds, consumer spending has consistently defied recessionary warnings, weathering several significant scares over the past three years — from the collapse of Silicon Valley Bank in 2023 to the triggering of the Sahm Rule in 2024 and the ongoing pressures of this year’s trade war.
• Thursday’s market action reflects a market in search of its next catalyst due to the lack of government data. We attribute the recent dip in sentiment to routine profit-taking following several strong quarters and view it as a temporary consolidation. We expect a more definitive market direction to emerge after the upcoming US-China trade talks and the Fed’s policy meeting. We believe that these two catalysts will ultimately provide a supportive backdrop for equities.

Central Bank Data: The Federal Reserve is now operating with a reduced level of vital information following a dispute that led private payroll processor ADP to halt its data sharing. ADP, which tracks payroll for approximately 20% of the US labor force, provided a crucial, high-frequency gauge of the job market. This data loss is particularly challenging now, as the government’s official labor reports are unavailable due to the shutdown, severely complicating the Fed’s ability to accurately assess the job market.

• The dispute stems from comments made by Fed Governor Chris Waller, who cited preliminary ADP estimates — before their public release — to justify his cautious outlook on the economy. This unusual disclosure inadvertently raised concerns (later debunked) that ADP was sharing proprietary client-level information, prompting the company to terminate the data feed.
• This data shortfall arrives at a critical juncture, amplifying a deep policy split among Fed officials regarding their dual mandate. One faction is advocating for accommodative policies to counteract persistent signs of labor market weakness. The opposing group, however, argues that rising price pressures — exacerbated by the effect of tariffs flowing through the economy — demand a cautious stance to prevent fueling inflation, making rate cuts ill-advised at this time.
• The absence of reliable ADP data, which has historically tracked the long-run employment trend despite short-term differences from monthly government figures, makes resolving the Fed’s internal policy debate considerably more difficult. However, clarity is expected tomorrow with the release of the Consumer Price Index (CPI) report. A softer-than-expected inflation reading would likely pave the way for the Fed to pursue another rate cut at its October 28-29 meeting.

Quantum Leaps: Alphabet, Google’s parent company, has announced a quantum computing breakthrough: It has successfully executed a novel algorithm on its “Willow” chip that outperformed the world’s leading classical supercomputers by a staggering 13,000%. This milestone bolsters the conviction that practical quantum technology could be within reach in five years, with near-term applications expected to revolutionize drug discovery and materials science. The achievement also reinforces the US’s dominant technological lead over China.

New US Curbs: The White House is threatening to impose extensive new curbs on software exports to China, a powerful countermeasure to Beijing’s recent restrictions on rare earth elements. This policy debate intensifies trade friction ahead of the preparatory trade talks scheduled for Friday in Malaysia, which precede the anticipated meeting between President Trump and President Xi Jinping in South Korea. Despite trade tensions, we remain optimistic that the two sides will come to an agreement.

Russia Sanctions: Following a recent breakdown in talks with Moscow, the White House is significantly escalating sanctions against Russian oil companies. The US is directly targeting oil giants Rosneft and Lukoil, which together account for 5% of global output. This move has contributed to a broader increase in oil prices. The sanctions are intended to cripple Russia’s ability to finance its war efforts and pressure the Kremlin back to the negotiating table.

US Drug Clash: The United States is intensifying its efforts against organizations it designates as narco-terrorists, extending its operational reach from the Caribbean into the Pacific. This new, more hawkish posture was demonstrated by two recent US military strikes on suspected narcotics vessels. While the current justification is disrupting the drug trade, this escalation in military force could set a precedent for armed intervention for other purposes in the future.

North Korea Weapons: North Korea has announced the successful test of a new hypersonic weapon, signaling significant advances in its weapons technology. These missiles are designed to travel at such high speeds that they are virtually undetectable by current missile defense systems, making them extremely difficult to intercept. The announcement comes as world leaders prepare to gather in South Korea for the APEC conference, a timing that underscores North Korea’s intent to project strength and military prowess to its rivals.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment section opens with a deep dive into the recent drop in gold prices and its stark implications for US-China trade tensions. We then explore the potential pathway to persuading Russia to end the war in Ukraine. Closer to home, a strong earnings season and a landmark AI deal could signal robust market momentum, while in the EU, there is mounting pressure to recalibrate climate strategy. As always, we include a summary of key economic indicators from US and global markets.

Gold Retreat: Precious metals, including gold and silver, sold off as the de-escalation of US-China trade tensions reduced the appeal of safe-haven assets. This decline was amplified by the post-Diwali lull in Indian demand and widespread concern that the metals were overbought, triggering significant profit-taking. While the retreat from gold and silver signals investors are shifting away from safe havens, the lack of a corresponding surge in equities suggests lingering investor caution.

• The market’s hesitation to embrace riskier assets reflects a standoff-ish posture as investors await for more details about US-China trade negotiations. This hesitation persists despite the White House’s upbeat remarks on Tuesday, expressing confidence in reaching a “fantastic deal.” Yet, skepticism lingers, with no meeting date set and the President Trump implying he will only attend if the talks show real promise of progress.
• The White House has indicated that it will seek a deal that includes provisions on rare earth exports, measures to curb the flow of fentanyl, and the resumption of US soybean purchases. In exchange, Washington could offer tariff relief. There has also been speculation that the US could soften its stance on Taiwan, particularly after the president suggested that Beijing is not currently inclined to pursue an invasion.

• We continue to anticipate a meeting between the two sides at the upcoming ASEAN Summit in Malaysia, ahead of the crucial November 1 tariff deadline. Our base case projects a minimal consensus with a commitment to extend negotiations supported by reciprocal minor concessions. Failure to achieve even this minimal step toward de-escalation, however, would likely serve as a negative catalyst, prompting immediate short-term profit taking across various market sectors.
• That said, a successful meeting yielding a “grand bargain” between the world’s two largest economies would be a highly positive event for markets. We believe this agreement would center on Chinese assurances regarding rare earth exports and a commitment to major purchases of American agricultural products. This outcome would provide a significant boost to both Chinese and US equities, with technology stocks and the US agricultural sector poised for the greatest immediate sectoral benefits.

No Putin Meeting: A high-stakes meeting with Russian President Vladimir Putin in Budapest is now off the table, the White House has confirmed. The decision to halt talks comes after Russia offered no reassurances regarding an end to its invasion of Ukraine, leading the US to conclude that the discussion would be unproductive. This cancellation follows reports of internal US debates, including a recent reversal on sending Tomahawk missiles to Ukraine and rumors of possibly pressing Kyiv for more territorial concessions to secure a deal.

• Two structural factors entrench the conflict’s persistence: a strategic imperative for Putin to obtain a definable victory that legitimizes the invasion’s staggering costs, and the Russian economy’s absorption of war-related production as a key driver of growth. Therefore, the war may be prolonged, as its continuation is directly tied to fulfilling these core strategic and economic objectives.
• While the path to ending the war is challenging, the US retains significant leverage. In addition to sanctions relief, a potent bargaining chip is the unsold, frozen Russian state assets, which could be used as a strategic tool in negotiations. Furthermore, Moscow may be incentivized by the potential for a diplomatic off-ramp, specifically the opportunity to re-establish a closer relationship with the US and secure a pathway for re-engagement with the European Union.
• Recent overtures point to potential avenues for de-escalation. For instance, Moscow has recently floated the idea of an Arctic tunnel connecting Russia and the US across the Bering Strait. On the European side, some speculation persists that the conclusion of the conflict could lead to a significant policy shift in Germany. This includes the possibility that a future German government might reconsider the Nord Stream 2 gas pipeline project.
• While the suspension of talks suggests a pushback on the immediate ceasefire timeline, we maintain an optimistic view that the conflict could be resolved by early 2026, if not sooner. A definitive end to hostilities is expected to be a strong catalyst for European equities. Conversely, the anticipated full resumption of Russian energy (oil, gas, and coal) flows to international markets would likely create significant downward pressure on global commodity prices.

Earnings Season: With only a fraction of S&P 500 companies having reported, the earnings beat rate (the percentage of companies surpassing consensus EPS estimates) this quarter is the highest in over four years. This outcome defies even high initial expectations and suggests better-than-anticipated corporate fundamentals. The primary pillars supporting this profit strength are robust consumer spending, expansive investment in AI technology and infrastructure, and the flow-through effects of ongoing federal deficit spending.

US-India Trade Deal: A pending US-India trade agreement aims to dramatically lower tariffs on Indian goods, cutting them from around 50% to 15-16%. The deal is part of a broader strategic bargain. In return for this tariff relief, India will reduce its reliance on Russian oil and increase imports of American non-GMO corn and soymeal. Successfully concluding this pact would mark a significant diplomatic achievement for the White House, demonstrating its capacity to broker deals that advance both economic and foreign policy objectives.

EU Under Pressure: The United States and Qatar have joined forces to pressure the European Union to revise its proposed climate regulations. The push comes as EU lawmakers debate legislation that would fine companies up to 5% of their global revenue for supply chain practices that harm the environment or violate human rights. Washington has warned that the measure could undermine economic growth and jeopardize the trade agreement reached with the EU in July.

Anthropic and Google: A major rival to OpenAI is negotiating a deal with Google for its cloud computing services. The agreement would grant Anthropic access to Google’s Tensor Processing Units (TPUs), which are specifically designed for machine learning workloads. This move comes as one of its largest suppliers, Amazon, is contending with outages of its cloud services. The deal reinforces an industry trend of heavy spending to build AI supply chain resiliency, while also highlighting the intensifying competition for dominance in AI infrastructure.

Japan Stimulus: Newly appointed Japanese Prime Minister Sanae Takaichi is proposing a targeted economic package to counter rising inflation. The proposal, which aims to mitigate rising costs of living, is believed to center on direct subsidies for winter energy bills and grants to local governments. Deliberately avoiding the broad stimulus spending that has unnerved financial markets, Takaichi’s strategy emphasizes targeted expenditures. However, key questions regarding the package’s total cost and financing have yet to be clarified.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with confirmation that the Japanese parliament has formally approved Sanae Takaichi as Japan’s first female prime minister. We next review several other international and US developments with the potential to affect the financial markets today, including a big corporate finance scandal in emerging-market darling Vietnam that has sharply pushed down its stock prices and an adjustment to the US administration’s new $100,000 fee for H1-B visas that will greatly limit its impact on the labor market.

Japan: As we flagged in our Comment yesterday, the Diet today has confirmed the ruling Liberal Democratic Party’s leader, conservative Sanae Takaichi, as the country’s first female prime minister. Takaichi is expected to push for strong ties with the US, a bigger defense budget, deregulation, and a return to stimulative “Abenomics” policies. However, her new coalition partner, the right-wing Nippon Ishin no Kai (Japan Innovation Party), is expected to resist overly loose fiscal and monetary policies and push idiosyncratic policies such as decentralization.

• Takaichi immediately named her cabinet, including Japan’s first female finance minister. In an effort to help unify the LDP, she also named several of her rivals in the recent party leadership race to positions in the government.
• Reflecting investor excitement and optimism about Takaichi, Japanese stock price indexes yesterday rose to a new record high, although they more recently have given up some of their gains.

Vietnam: The country’s main stock price index plunged 5.5% yesterday after a Friday report by government inspectors noted multiple irregularities in $17 billion of corporate bond issues from 2015 to 2023. The investigators also referred Novaland, one of Vietnam’s biggest property developers, to police for a criminal investigation. The scandal is a major fly in the ointment given that FTSE Russell lifted Vietnam from “frontier” status to “emerging market” just this month. Before yesterday, the main stock price index had been up 25% in dollars for the year-to-date.

United States-Australia: President Trump and Australian Prime Minister Albanese yesterday signed a deal designed to cut US dependence on Chinese critical minerals. Under the deal, the US and Australia will both invest $1 billion to develop Australian mines and processing facilities for unspecified critical minerals, while also supporting billions of dollars of private investments into the sector. The deal also involves minimum purchase prices for the mineral products to help incentivize the investments — a move that has helped spark intense investor interest in the sector.

• Trump also confirmed his support for the AUKUS submarine deal, under which the US and the UK are helping Australia develop a fleet of nuclear-powered submarines to bolster its defenses against China.
• The AUKUS deal is seen as a critical project to leverage Australia’s geographic location near China, but critics have worried that it will strain the beleaguered US shipbuilding industry, which is struggling to deliver submarines to the US Navy on schedule.

US Labor Market: US Citizenship and Immigration Services yesterday said the White House’s new $100,000 fee for H1-B visa applications would only apply to those seeking initial visas from outside the country. That’s likely to sharply narrow the impact of the new fee and allow many current visa holders who are already working or studying in the US to remain. The narrower policy probably stemmed at least in part from lobbying by companies worried that they would be left without qualified workers in technology and other fields.

European Union: The European Commission’s top health official, Olivér Várhelyi of Hungary, is under increasing pressure to resign over accusations that he helped the Hungarian government run a network of spies at EU institutions in Brussels. If the accusations are correct, they highlight just how bad the tensions have become between the EU and Hungary’s right-wing populist leader, Prime Minister Viktor Orbán, who is pushing against a number of EU initiatives in areas such as rule of law and relations with Russia.

Germany: In a sign of what could be coming for US and British investors, Deutsche Bank and other retail financial institutions in Germany have begun offering private equity funds to small investors. For example, Deutsche’s fund only has a 10,000 EUR ($11,600) minimum investment and merely requires that clients hold at least 200,000 EUR ($232,200) in assets with the bank. The US and UK are also working to change their retirement finance rules to allow everyday investors to invest in private equity, largely reflecting private equity firms’ difficulty in raising new capital.

United Kingdom: New data shows net borrowing by the UK government in the first half of the fiscal year (April through September) totaled 99.8 billion GBP ($133 billion), a record high excluding the pandemic year of 2020. Borrowing in the first half was 7.2 billion GBP ($9.6 billion) more than forecast and 11.5 billion GBP ($15.4 billion) higher than in the same period in 2024. The heavy borrowing reportedly reflects tepid economic growth and high costs. The burgeoning debt creates further pressure for the government to impose new taxes during its budget review in November.

Argentina: Despite the US Treasury buying some $400 million of Argentine pesos (ARS) since October 9 and offering a $20-billion swap line, the currency has continued to depreciate and yesterday fell 1% to a new record low of 1,477 per dollar. The continued decline in the peso suggests the unusual US intervention in support of the currency is so far proving ineffective. The peso, therefore, could keep weakening up until Argentina’s midterm elections on October 26, when libertarian President Milei is likely to fall short of earlier expectations for big legislative gains.

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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 Japan’s ruling party has struck a coalition deal that will allow conservative and investor favorite Sanae Takaichi to become the new prime minister. We next review several other international and US developments with the potential to affect the financial markets today, including a slowdown in Chinese economic growth and news of a major internet outage at Amazon Web Services that we suspect could be Chinese retaliation for US cyberattacks.

Japan: Reports yesterday said the ruling Liberal Democratic Party and upstart right-wing party Nippon Ishin no Kai (Japan Innovation Party) have broadly agreed to form a coalition government, setting the stage for Sanae Takaichi, the conservative leader of the LDP, to be voted in as Japan’s new prime minister tomorrow. Ishin will reportedly support Takaichi for prime minister but won’t have any cabinet positions in her government, Nevertheless, Takaichi’s stimulative economic proposals, which have made her an investor favorite, may have to be watered down to keep Ishin’s support.

China-United States: Amazon Web Services (AWS) early today suffered a major technology issue that disrupted internet services to thousands of major US companies, including Facebook, Venmo, and United Airlines. AWS hasn’t tied the outage to a cyberattack, but we note that the outage came just days after Beijing accused the US of launching cyberattacks against its National Time Service Center. According to AWS, the disruptions occurred in its data centers in northern Virginia, near Washington, suggesting China may have launched the attack to send a message.

• China’s National Time Service Center is affiliated with the Chinese Academy of Sciences and is responsible for generating and distributing China’s standard time.
• The NTSC also provides highly precise timing services for the country’s communications, finance, power, transport, mapping and defense sectors. Therefore, if the US really did attack the NTSC, it would represent a major threat to many of China’s key national systems and industries.
• By launching a retaliatory attack against AWS in northern Virginia, which is not only on the doorstep of Washington, DC, but also home to the Central Intelligence Agency, China could be sending a strong message that it will strike back against any US cyberattacks. Of course, this would add to the current US-China tensions over trade and could even more the current trade talks between the two countries harder.

China-Netherlands: After the Dutch government recently seized control of China-owned semiconductor firm Nexperia in response to US sanctions on the company, as we detailed in our Comment last week, reports over the weekend said Nexperia’s China unit told its workers to ignore directives from the company’s Netherlands-based managers. The move suggests China will fight back against the Dutch seizure. It also suggests that the US’s new, broader sanctions against China could mean that other firms in third-party countries could be caught in the crossfire.

Chinese Economy: According to newly released official data, Chinese gross domestic product in the third quarter was up just 4.8% from the same period one year earlier, slowing from the 5.2% increase in the year to the second quarter. The report suggested that the slowdown stemmed mostly from weaker consumer spending and slower investment, despite government stimulus programs. All the same, the average growth rate over the first three quarters of 2025 stood at 5.2%, staying on track to meet the government’s target of about 5.0% for the year.

Chinese Digital Currencies: The People’s Bank of China and the Cyberspace Administration of China have reportedly told several Chinese technology companies not to move forward with their plans to issue stablecoins under a new Hong Kong program. The affected firms include Alibaba-backed Ant Group and ecommerce group JD.com.

• The regulators evidently believe the tech firms are moving too fast to develop what would essentially be their own currencies, which would compete with the PBOC’s plan to issue its own digital currency.
• The move suggests stablecoins will face higher barriers in China than they are likely to face in the US. In turn, that highlights how the world is increasingly bifurcating between US and Chinese developments.

France: Wealth managers, bankers, and lawyers told the Financial Times that wealthy French citizens concerned about the fractured politics in their country have been shifting large amounts of their investments to Luxembourg annuities and safe-haven assets in Switzerland. Even though Prime Minister Lecornu survived a no-confidence vote in parliament last week by watering down President Macron’s signature pension reform, the government’s position remains tenuous, suggesting further capital flight and continued headwinds for French stocks and bonds.

Russia-Ukraine Conflict: A Ukrainian intelligence report based on captured Russian documents shows that the Kremlin’s forces suffered 281,550 casualties in the first eight months of 2025, or an average of 1,159 per day. The casualty count consisted of 158,529 wounded (652 per day), 86,744 killed (357 per day), and 36,277 missing or captured (150 per day). The figures suggest that Russia continues to lose enormous numbers of troops for only limited territorial gains, raising questions about President Putin’s willingness or ability to keep fighting so hard.

• Throughout the modern era of projectile warfare, the ratio of wounded to killed in battle has been remarkably steady at around 3 or 4 to 1. Defense economics nerds (like myself) typically attribute that ratio to the fact that only 20% to 25% of the surface of the human body covers vital organs. Arrows, bullets, or shrapnel striking the body at random are therefore several times more likely to merely wound rather than kill.
• If Russia’s data is correct, the country’s ratio of wounded to killed this year is only 1.83:1, suggesting a much higher-than-expected share of soldiers who were killed. That’s especially striking since modern body armor worn over the vital organs of the torso would suggest a smaller proportion of troops should be killed. It’s not clear why Russia’s ratio seems out of whack, but it could speak to the Russian military’s reputation for callousness toward its own troops and its willingness to use them as “cannon fodder.”

Canada: In an interview with the Financial Times, Industry Minister Mélanie Joly said her new industrial strategy to create jobs and attract more foreign investment would include steps to get Canadian pension funds to invest more of their portfolios at home. According to Joly, the moves are part of a new embrace of “economic nationalism,” which aim to reverse the longstanding trend of Canadian institutions investing less and less in Canada itself. We suspect the moves would create only very marginal headwinds for US stocks or the greenback.

Bolivia: In elections yesterday, centrist Senator Rodrigo Paz won the presidency with about 55% of the vote, ending two decades of rule by the socialists. Paz reportedly appealed to voters by promising stronger ties with the US and more investment in the country’s lithium mining sector. If Paz is successful in rebuilding Bolivia’s ties with the US, it would mark a stark turnaround from the socialists’ courting of US adversaries, such as China, Iran, and Venezuela.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a deep dive into emerging credit quality concerns that could signal vulnerability within the financial system. We then pivot to US diplomacy, assessing the latest efforts to broker a resolution in Ukraine. Our coverage also unpacks two key energy and trade updates: the extended tariff exemptions for automakers and the revived debate over the Keystone Pipeline. We also include a summary of key economic indicators from US and global markets.

More Credit Concerns: New concerns of financial stress have emerged. Western Alliance and Zions Bancorporation disclosed instances of fraud within their loan portfolios, specifically where non-defaulted borrowers improperly accessed funds. The primary concern centers on the insufficient level of collateral used to back these loans. While the direct exposure reported by the banks appears limited, there are broader market concerns that these institutions may not be alone in carrying a significant amount of poorly collateralized or “bad” loans.

• Equity markets sold off after two regional banks disclosed lending irregularities and fraud within their portfolios. This news amplified market fears that the collapse of subprime auto lender Tricolor and the bankruptcy of auto-parts supplier First Brands — both involving allegations of double-pledging collateral and missing funds — may be revealing wider systemic vulnerabilities in the credit market’s underwriting and monitoring standards.
• This renewed market anxiety is likely to draw intense scrutiny toward the private credit sector, which has significantly expanded its lending activity in recent years. This spotlight intensified following comments from J.P. Morgan CEO Jamie Dimon, who likened the sector’s risk exposure to finding “cockroaches” after the fallout from the auto lender and other distressed firms. Additionally, there have been signs that investors may be trying to limit their exposure to these funds.
• The turmoil in credit markets may be contributing to liquidity strains within the financial system. The surge in banks using the Standing Repo Facility (SRF) is indicative of funding stress. This activity could prompt the central bank to intervene, which should stabilize the situation relatively quickly assuming there isn’t a broader solvency issue at play.
• While we acknowledge some signs of credit stress in the market, we remain confident that there are no signs of an immediate financial market blow-up. We suspect the Federal Reserve will act decisively to provide liquidity when trouble emerges, which would be favorable for equities. Moreover, tightening credit conditions may encourage the central bank to ease policy more aggressively over the next few months.

Ukraine Focus: With one major geopolitical issue receding, the White House has now focused its attention on ending the conflict in Ukraine. President Trump is reportedly expected to meet with Vladimir Putin within the next two weeks in Budapest to discuss potential conditions for a peace settlement. Meanwhile, Ukrainian President Volodymyr Zelensky will continue to lobby the US for additional Tomahawk missiles when the two sides meet on Friday in order to inflict more damage on Russian forces.

• The upcoming peace talks coincide with the US becoming more open to Ukraine using its weapons to strike Russian oil refineries. Since August, Ukraine has launched more than two dozen strikes on these refineries, which has not only hindered Russia’s ability to export oil but has also led to domestic fuel shortages in certain regions of the country.
• That said, the White House views the continuation of military aid to Ukraine as a critical source of diplomatic leverage, as the US aims to conclude the conflict as peacefully as possible. Consequently, the president’s meeting with Ukrainian officials is intended to strengthen this negotiating position ahead of potential talks with Russia in the coming weeks.
• The biggest unknown remains Russia’s true willingness to negotiate. For President Putin, a key constraint is the need to secure enough territory to claim an unquestionable victory in Ukraine. Furthermore, a significant portion of the Russian economy has become heavily dependent on the war effort, creating a powerful internal incentive to prolong the conflict rather than end it.
• We remain optimistic that the conflict is moving toward an end, given the White House’s clear motivation to secure a resolution. We suspect an agreement could be reached within weeks, especially if Russia begins to fear the potential loss of its recent territorial gains. An end to the conflict would likely be bearish for oil prices but bullish for European equities.

Tariff Exemptions: US automakers are set to receive significant tariff relief on imported auto parts. The Commerce Department has announced a five-year extension of the import adjustment offset. This arrangement allows carmakers that assemble and sell complete vehicles in the US to mitigate the 25% tariff by claiming a credit of up to 3.75% of the vehicle’s value. This policy adjustment highlights the White House’s willingness to modify tariff policy to mitigate some of the economic strain on domestic manufacturing.

European Single Market: German Chancellor Friedrich Merz has called for the establishment of a unified capital market within the European Union. This strategic push is aimed at making it easier for European companies to finance themselves domestically, reducing their over-reliance on US capital markets. The initiative represents a long-term effort to boost the attractiveness and liquidity of European stocks for both domestic and foreign investment.

Keystone Pipeline: The US and Canada are reportedly in preliminary discussions to revive the Keystone Pipeline development. These talks are part of a broader negotiation where the US is seeking greater energy supply in exchange for easing existing tariffs on Canadian steel and aluminum. Both countries appear open to restarting the project, which, if completed, would help alleviate energy supply pressures.

Government Shutdown Pain: The economic fallout from the government shutdown is accelerating. The aviation sector is already experiencing significant disruptions, with flight delays and cancellations mounting as air traffic controllers work without pay. More alarmingly, the USDA warns that vital nutrition programs like WIC and SNAP are at severe risk of exhausting their funds. While short-term economic damage may be contained, the cumulative costs and systemic risks are poised to spike with each passing day.

Homebuilders Optimistic: The NAHB Housing Market Index (HMI) rose to its highest level in six months, reaching a reading of 37, a five-point increase over the previous month. This surge was primarily driven by the market’s expectations of easier monetary policy, which promises both more accessible project financing and improved consumer demand via greater housing affordability. However, the index remains significantly below the critical breakeven point of 50, suggesting that homebuilders still harbor substantial reservations about initiating new projects.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with Treasury Secretary Bessent’s analysis of China’s export restrictions and his recommendations for bolstering the US negotiating position ahead of trade talks. We then provide an overview of the Federal Reserve’s Beige Book, followed by an examination of the sustained momentum in the AI sector, easing US-India trade tensions, and the outcome of the no-confidence vote in France. We also include a summary of key economic indicators from US and global markets.

Bessent on China: The US is strategically calibrating its leverage ahead of crucial trade talks with China scheduled for the end of the month. On Wednesday, Treasury Secretary Scott Bessent adopted a noticeably conciliatory stance, offering to extend the current trade truce — a pause on tariffs — beyond the 90-day deadline. The major condition: China must lift its restrictions on rare earth exports. While markets welcomed the unexpected concession, the explicit linkage reveals how vital China’s mineral supply is for sustaining the recent stock market rally.

• The strategic importance of rare earth elements has become a major concern for the White House as it seeks leverage in trade talks. To address this, Secretary Bessent has suggested that China’s failure to remove export controls may lead to retaliation, including  coordinated action between the EU and the US to counter Chinese dominance. Furthermore, Bessent has floated proposals for a more assertive industrial policy, which could include the US government taking stakes in strategically important companies.
• The vulnerability of US technology due to its reliance on external sources for critical minerals has become a central challenge in diplomatic discussions, potentially weakening the US negotiating position. This geopolitical anxiety is reflected in the consistent market sensitivity observed in the NASDAQ throughout the escalation of these talks.
• Although we anticipate the talks will continue as planned, there is growing risk of a US withdrawal. Strategically, this move would be aimed at recalibrating the US negotiating position to secure greater leverage. The continued export ban of Chinese rare earth elements would likely exert downward pressure on US tech stocks. On the other hand, tangible progress toward an agreement would almost certainly trigger a market rally.

Fed Beige Book: In a worrying sign of broad economic stagnation, a recent Federal Reserve survey found that US economic activity showed little change over the past six weeks. This overall flatness, however, masks significant regional disparities. While some districts reported slight-to-modest growth, five saw no growth, and four noted a slight decline in activity, highlighting pockets of notable economic strain. In the absence of comprehensive government data, this report serves as a crucial substitute for gauging the economy’s underlying trends.

• According to the report, consumer spending growth is being propelled primarily by high-income households, even as lower- and middle-income groups contend with financial pressure from increased tariffs. This divergence is evident in spending patterns as high-income consumers are increasing expenditure on luxury accommodations, whereas those in lower income brackets are relying on discounts and promotions to manage the price pressures.
• While this report may not fully reflect upcoming economic data, as the latest Atlanta GDPNow model suggests, it does indicate that market sentiment remains weighed down by economic uncertainty. This dynamic is not necessarily negative, as investors in recent years have consistently used large cap tech equities and gold as safe havens during uncertain periods. We expect this investment trend to persist, barring an unforeseen economic shock, which we consider unlikely in the coming weeks.

AI Momentum: In a strong signal that the AI capital expenditure cycle still has considerable momentum, chipmaking giant TSMC has raised its revenue outlook. As the world’s largest semiconductor foundry, this upgraded guidance reflects TSMC’s confidence that its corporate clients will continue spending heavily to build out their AI infrastructure. This bullish move is likely to bolster confidence across the tech sector, which has been facing growing concerns about the sustainability of its recent gains.

US-India Agreement: India and the US have improved their trade relations following an agreement for India to end its purchases of Russian oil. The White House announced that India will cease buying Russian crude at a future date but did not specify a timeline or confirm whether the US will become the replacement supplier. This agreement likely paves the way for reduced trade tensions, which had escalated after the US imposed secondary tariffs and immigration crackdowns affecting sectors with a high concentration of Indian workers.

Farm Bailout: The White House is developing a bailout plan to assist farmers facing severe financial pressure from rising trade tensions, which have caused declining sales and increased costs for essential inputs like fertilizer and equipment. While the government shutdown has complicated the rollout of these funds, the administration appears determined to provide relief. This support is critical as failure to do so could have significant ripple effects across the economy, potentially leading to reduced agricultural supply and higher food prices nationwide.

No Confidence Avoided: French Prime Minister Sébastien Lecornu has survived a no-confidence vote. He managed to secure the necessary support from the Socialist party by agreeing to delay the contentious 2023 pension reforms until after the 2027 elections. This political compromise is expected to pave the way for the approval of a budget that has strained the government and weighed on France’s credit quality. The government hopes this will help it avoid another credit rating downgrade, which could trigger forced selling of its sovereign debt.

Private Credit Concerns: JPMorgan Chase CEO Jamie Dimon sparked an uproar by suggesting there may be more “cockroaches” hidden within the private credit market. His comment has intensified scrutiny of the sector, which is already facing pressure from the collapse of Tricolor, the bankruptcy of First Brands, and rising delinquencies on subprime loans. While there are no immediate signs of systemic trouble, concerns are mounting that further pain may emerge. However, we suspect the broader financial system is likely to be insulated from a significant fallout.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with the latest escalation in US-China trade tensions. We then analyze shifting monetary policy expectations and the market’s growing conviction for an imminent rate cut. Our coverage continues with an examination of sustained AI infrastructure investment, potential regulatory moves against AI chatbots, and emerging signals that Putin may be facing pressure to end the war in Ukraine. We also provide a summary of key economic indicators from the US and global markets.

US-China Trade Tensions: In another tit-for-tat move, the United States has threatened to ban all imports of Chinese cooking oil in response to China’s pause of US soybean purchases — an act the White House has described as “economically hostile.” This escalation underscores heightened trade tensions as both sides position themselves ahead of the upcoming Asia-Pacific Economic Cooperation (APEC) summit, scheduled for October 31 to November 1. The White House has expressed uncertainty about its attendance, further complicating the prospect for dialogue.

• The market’s attention on US-China trade negotiations is intensely focused on the technology sector, which faces a dual vulnerability: deep supply chain reliance on China for production and China’s critical importance as a foreign sales market. This dependence on both the supply and demand sides exacerbates the risk during trade conflicts, despite companies increasingly taking steps to diversify their manufacturing and sourcing away from China.
• The escalating trade and technological conflict between the US and China, which has been underscored by disputes over rare earth minerals, export restrictions, and critical maritime shipping, is forcing a dramatic expansion in the scope of their bilateral discussions. Consequently, these high-stakes negotiations are now inevitably dominated by core geopolitical flashpoints, including the rising military tensions in the Taiwan Strait and Beijing’s sustained strategic support for Russia amidst the ongoing Ukraine conflict.
• While tensions are escalating between the two sides, we remain optimistic that there will be a grand bargain of sorts. In our view, a larger deal will likely include some form of Chinese investment in US manufacturing and purchases of US agricultural products, in exchange for more favorable trade terms and more access to US technology.

Powell Opens the Door? Federal Reserve Chair Jerome Powell has signaled a potential interest rate cut as early at the next FOMC meeting this month, citing a notable cooling in the labor market. In a speech to the National Association for Business Economics, he indicated that the ongoing decline in job openings could foreshadow a rise in unemployment. These remarks suggest that the Fed, despite navigating with limited recent data, may be shifting its priority toward upholding the maximum employment side of its dual mandate, even as concerns about price stability persist.

• With the government’s official jobs report delayed or unavailable, private data validates Federal Reserve concerns over the weakening labor market. The latest ADP National Employment Report for September showed that private employers cut 32,000 jobs, marking the sharpest decline in months. This deceleration is mirrored by surveys of consumer sentiment from the University of Michigan and the Conference Board, which show that households remain pessimistic about their job prospects.
• That said, inflation is also likely to be a key topic, as several FOMC members have signaled concern over recent increases. Over the last two weeks, both Dallas Fed President Lorie Logan and Fed Governor Michael Barr have emphasized that inflation remains a top priority. Consequently, the upcoming September CPI report, scheduled for release on October 24, will be critical in shaping their perspective.
• So far, momentum appears to be building for another rate cut at the October 28-29 FOMC meeting, driven by growing concern among Fed officials about the labor market. We anticipate a 25bps cut, after which the Fed will likely adopt a “wait-and-see” stance. While market pricing, per the CME FedWatch Tool, suggests a 93% probability of a further 25bps cut in December, this remains contingent on clear, continued signs of a cooling labor market.

More AI News: A wave of mega-deals is propelling the tech industry, driven by soaring capital expenditures for massive data centers. On Thursday, Nscale’s agreement to build a Microsoft data center using Nvidia’s AI chips highlighted this trend. The ripple effect was immediately evident in the supply chain, with ASML — a critical maker of chipmaking equipment — reporting a sharp jump in new orders. Ultimately, the market sees these deals as the core engine powering the tech sector’s ride on the AI wave.

US to Leave Argentina? Argentine President Javier Milei visited the White House on Tuesday to finalize a crucial $20 billion US currency swap line, a lifeline intended to stabilize the Argentine peso. However, President Trump explicitly conditioned this support, directly linking its continuation to the electoral success of Milei’s coalition in the upcoming October 26 legislative elections. This direct intervention introduces a significant risk of market turmoil, as a poor showing for the ruling party could now trigger an immediate withdrawal of US financial backing.

AI Chatbot Restrictions: Missouri Senator Josh Hawley has introduced a bill to ban the use of AI chatbots for minors. The legislation reflects growing political scrutiny of tech companies as AI becomes more omnipresent. The bill has gained traction amid concerns about the negative impact of chatbots on the mental health of teenagers who confide in them. While this specific restriction is unlikely to dampen the current market rally in AI, it signals initial political pushback against the largely unregulated technology.

Aluminum Import Limits: The US Aluminum Association has publicly called for increased trade restrictions on imported scrap metal to protect domestic markets. Key measures proposed include a complete ban on the import of used beverage containers from outside North America and stricter controls on “mill ready” scrap metal shipments. Additionally, the Association is advocating for enhanced tracking of the aluminum scrap flow and stronger enforcement mechanisms for existing trade regulations.

French Pension Reforms: French Prime Minister Sébastien Lecornu has proposed suspending controversial pension reforms, including raising the retirement age from 62 to 64, until after the 2027 presidential election. This concession comes ahead of a no-confidence vote, as the reform has been a major obstacle to passing the national budget. While Lecornu’s proposal has eased tensions, opposition parties are pushing for the complete abandonment of the reforms to secure the budget’s approval.

Moscow Plot: Russian authorities have accused Mikhail Khodorkovsky, a former Russian oligarch and once the country’s richest man, of conspiring to overthrow the government. The Federal Security Service (FSB) alleges that Khodorkovsky and others are planning a coup to remove Vladimir Putin from power. This action appears to be part of a larger effort to intimidate domestic critics of the war in Ukraine and could signal that Putin’s power may be under threat. We suspect that internal political division in the Kremlin could pave the way for peace talks with the US and Ukraine.

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