Author: Amanda Ahne

Asset Allocation Bi-Weekly – Stablecoin: Treasury’s Next Big Bet? (July 21, 2025)

Posted on by Amanda Ahne

by Thomas Wash | PDF

Mounting national debt and tightening financing conditions are pushing the US Treasury to rethink traditional funding strategies, and stablecoins have emerged as an unexpected contender.

Minutes from April’s Treasury Quarterly Refunding meeting reveal that officials are actively evaluating the use of stablecoins for buying US debt. This signals a strategic shift in government financing, blending innovation with necessity as the US recalibrates its fiscal approach in a changing global landscape.

Why Stablecoins?

Stablecoins are a type of cryptocurrency designed to maintain a stable value, typically by being pegged 1:1 to the US dollar, although any currency, in theory, could be used. Under the proposed GENIUS Act (recently passed by the House), the issued stablecoin must be supported by reserves that often include highly liquid assets like Treasury bills, insured bank deposits, and repurchase agreements (repos). Commercial paper has been used previously as a reserve, but if the legislation passes, then the reserve asset for stablecoins will be restricted.

Widespread adoption of stablecoins could spur new demand for short-duration bonds, aligning with the Treasury’s recent pivot toward issuing shorter-term debt to fund spending. Currently, an estimated 80% of the stablecoin market, which represents about $200 billion, is invested in either Treasury bills or repos. Projections indicate this market could expand to $2 trillion by 2028 if legislation is enacted that creates a regulatory framework.

How Stablecoins Work

A stablecoin comes into being when a user exchanges another asset, such as fiat currency or a different cryptocurrency, with an issuer. Once the issuer receives this asset, they mint an equivalent amount of stablecoin and deposit it into the user’s account. These transactions are recorded on a distributed ledger (commonly known as a blockchain), which involves a network of participants.

The attractiveness of stablecoins lies in their use as a store of value. Their backing by real-world assets, such as fiat currency or other liquid instruments, allows the stablecoins to trade freely as a digital currency. This stability is maintained by the ability to convert the stablecoin back into its underlying reserve asset (e.g., US Treasurys) upon demand. In this way, stablecoins function similarly to money market funds with one important exception. Under current legislation, stablecoins cannot provide a yield to their holders. Doing so would make stablecoins a security.

Why Are Stablecoins Important?

Establishing a clear and enforceable regulatory framework is crucial for stablecoins to unlock their full potential as a reliable medium of exchange. As more individuals and businesses integrate stablecoins into their payment processes, a corresponding surge in demand for their underlying reserve assets, particularly US Treasury bills, is anticipated.

A core premise driving stablecoin adoption is their ability to offer individuals and entities worldwide exposure to the US dollar without requiring direct engagement with the traditional US banking system. This characteristic uniquely positions stablecoins as a potential alternative for efficient and cost-effective cross-border payments. By facilitating such transactions, stablecoins could further reinforce the US dollar’s dominant role in international trade and finance.

Market Ramifications

The increased use of stablecoins could facilitate the Treasury’s reallocation of funding away from long-term bonds in favor of shorter-duration instruments. This shift would not only improve Treasury auction performance but should also help exert downward pressure on long-term interest rates, thereby reducing overall borrowing costs across the economy.

The primary downside, however, is the possibility that stablecoins could attract capital that would typically flow into the traditional banking system, specifically money market funds, which have historically been a lynchpin of the financial system. Although, the inability of stablecoins to pay interest may reduce disintermediation. At the same time, the advent of stablecoins could force banks and money market funds to increase their yields. A significant concern we will monitor is the potential for stablecoin runs, given that some stablecoins have “broken the buck” during periods of uncertainty in recent years. This highlights the risk of instability if not properly managed.

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Daily Comment (July 18, 2025)

Posted on by Amanda Ahne

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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Asset Allocation Quarterly (Third Quarter 2025)

Posted on by Amanda Ahne

by the Asset Allocation Committee | PDF

  • The likelihood of recession has declined during our three-year forecast period, as such we increased equity exposure.
  • We anticipate below-trend economic growth due to persistent trade and fiscal policy ambiguity weighing on business investment, as well as consumer and investor confidence.
  • Domestic equity exposure includes large and mid-caps, with an even-weighted value-growth tilt.
  • We added to international developed equities which are supported by a weakening US dollar and attractive relative valuations.
  • Gold and Treasurys remain in the portfolios as strategic allocations to help dampen volatility.

ECONOMIC VIEWPOINTS

The economy is expected to avoid a recession over the next three years, supported by the fiscal policy backdrop, including tax cut extensions and industrial policy initiatives. Despite continued uncertainty surrounding trade policy, there is a growing expectation that the administration will stop short of destabilizing the economy or the markets. Although potential for a policy error remains elevated, continued fiscal support and the prospect of easier monetary policy are expected to support risk markets. While recession risks have receded, the economic expansion will likely be restrained until trade policies are finalized and their resultant impact on businesses and consumers are known.

Inflation is expected to moderate within a 2–3% range; however, tariff policies, global supply chain realignment, and persistent wage pressures are likely to keep inflation uneven. In the interim, under Chair Powell, the federal funds rate is likely to remain relatively stable. With a change in Fed leadership anticipated in May 2026, we expect a gradual decline in rates over the next three years.

Recent indicators point to continued, albeit slowing, economic growth. The ISM Services PMI (in brown on the chart), which comprises the majority of US economic activity, remains above the critical 50 level, signaling ongoing expansion in the services sector. However, the level does not reflect robust growth. This moderation is also mirrored in real GDP growth (in blue), which has softened but remains in positive territory, reinforcing our base case for a soft landing. While the Q1 real GDP declined 0.5% quarter-over-quarter, real year-over-year GDP grew 2.0%, indicating a slowing rate of expansion.

The US shift toward more protectionist trade policy has accelerated global diversification, prompting investors to allocate capital toward regions with independent growth prospects. Europe stands to benefit, supported by substantial fiscal initiatives, including increased defense spending and the Recovery and Resilience Facility, which are driving investment into defense, infrastructure, and strategic manufacturing. Easing regulations in Europe around fiscal stimulus have enabled policy actions that were previously considered politically or structurally unlikely, creating a more supportive environment for investment.

This chart highlights a projected rise in eurozone government spending as a share of GDP, with IMF forecasts (in orange) indicating a steady upward trend through 2030. This increase reflects expanded fiscal commitments to support growth. However, the scale of bond issuance required to fund these initiatives raises questions about long-term debt sustainability. Yield levels and market appetite will remain key indicators to watch. A failure to maintain fiscal discipline could reintroduce fragmentation risks within the eurozone.

STOCK MARKET OUTLOOK

Lower recession risk prompted us to rebalance our growth-value tilt to 50/50 to capture upside while managing valuation risk. The recently passed “One Big Beautiful Bill” includes significant provisions for immediate R&D expensing and capital investment incentives, designed to stimulate innovation and bolster long-term industrial competitiveness. This should further support domestic equities. Large cap equities should continue to benefit from passive flows, while mid-cap equities offer valuation expansion potential. We continue to hold dividend-focused ETFs in the large and mid-cap allocations as dividends become more important as volatility rises. In sector weights, we maintain the exposure to advanced military technologies given continued geopolitical tensions. With the reduced likelihood of recession, we exited the Consumer Staples overweight position. We remain void of small cap stocks. US small cap equities may face stronger headwinds as a result of tariff policies due to potentially higher costs of capital, tighter financial conditions, and margin compression due to limited pricing power.

We expect the US dollar to weaken as a result of both policy shifts and macroeconomic factors, enhancing the return potential of foreign assets for US-based investors. We increased the allocation to foreign developed markets as valuations remain attractive, with Europe particularly well-positioned to benefit from its gradually improving growth outlook. Within international developed equities, we maintain a broad-based index and added a Europe-focused allocation and an international developed small cap value equity position. International developed small cap value stocks may outperform amid global trade realignment as they’re less exposed to cross-border disruptions and benefit directly from regional fiscal stimulus. With high allocations to industrials and materials, they are well-positioned for infrastructure and defense spending. Valuation and profitability screens further enhance return potential in this segment. At the same time, we exited the Swiss franc currency ETF in favor of more attractive opportunities in general European equities.

BOND MARKET OUTLOOK

In the near-term, we expect the federal funds rate to remain relatively stable, while inflation stays above the Fed’s longstanding 2% target due to tariff-induced pressures. Beyond that, we foresee a gradual decline in rates over the next three years, following a change in leadership at the Federal Reserve in early 2026. As a result, we anticipate an upward-sloping yield curve to reemerge, shaped by a few Fed rate cuts and a normalization of intermediate-term rates relative to long rates. Importantly, we believe rates will continue to be in excess of inflation, offering continued real returns for fixed income investors.

We hold a barbell duration strategy — balancing shorter maturities with longer-dated exposures to capture attractive yields, while managing interest rate sensitivity. Credit markets are expected to experience some spread widening from currently tight levels over the forecast period, though we do not anticipate a spike that is normally associated with a default cycle. A key driver of the widening will be the substantial corporate refinancing needs that must be addressed before the end of the forecast period. Within the fixed income allocation, we continue to emphasize US Treasurys and mortgage-backed securities (MBS). Many MBS loans were originated during the low-rate environment. Because these loans remain well below current mortgage rates, seasoned MBS prepayment speeds are very low, limiting duration extension risk. At the same time, discounted prices on seasoned MBS provide potential upside if interest rates move lower.

For income-seeking strategies, we have added modest exposure to speculative grade bonds, focusing exclusively on higher-quality BB-rated credits. These positions offer attractive yields with less sensitivity to economic softness than lower-rated speculative bonds.

OTHER MARKETS

We maintain gold exposure across all strategies. Persistent central bank accumulation highlights gold’s relevance as both a reserve asset and an inflation hedge. Rising geopolitical tensions, along with global efforts to diversify away from US dollar dependence, are expected to sustain demand, reinforcing gold’s strategic value in a diversified, risk-aware asset allocation framework.

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Asset Allocation Fact Sheet

Daily Comment (July 17, 2025)

Posted on by Amanda Ahne

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few words on President Trump’s apparent readiness to fire Federal Reserve Chair Powell. We next review several other international and US developments with the potential to affect the financial markets today, including new measures to protect Canada’s steel industry and Trump’s announcement of a blanket import tariff against about 150 countries around the world.

US Monetary Policy: News reports yesterday said President Trump polled House Republican leaders about whether he should fire Fed Chair Powell, and when they answered affirmatively, he showed them a termination letter that has already been drafted. Trump later denied that he was contemplating Powell’s removal, but we believe he remains intent on eventually replacing Powell with a Fed chair that he thinks would cut interest rates aggressively, even if doing so would risk higher inflation and higher yields on US Treasury obligations.

  • Separately, New York FRB President Williams asserted in a speech last night that the Fed’s current interest-rate setting should not yet be eased. According to Williams, “Maintaining this modestly restrictive stance of monetary policy is entirely appropriate” because incoming data now shows that the Trump administration’s big import tariffs are finally starting to push up consumer price inflation.
  • The threat of Powell being quickly replaced by an overly dovish new chair temporarily drove US stocks sharply lower yesterday, although they later recovered on Trump’s assertion that he wasn’t planning to fire Powell. Nevertheless, at least some investors remain rattled by the incident. Stock index futures at this moment suggest stock prices will be relatively steady at market open.
  • Similarly, investors also sold off the dollar when the news hit yesterday, but the greenback later clawed back its losses and ended little changed. Measured by the US Dollar Index, the currency has appreciated about 0.4% so far this morning.

United States-China: According to the Wall Street Journal today, Beijing has threatened to block the preliminary March deal for Western investors to buy more than 40 ports now owned by Hong-Kong based CK Hutchison, including two key ports associated with the Panama Canal. Beijing is reportedly demanding that Chinese shipping firm Cosco also get an equal stake alongside BlackRock and Mediterranean Shipping Co. BlackRock and MSC are open to the inclusion of Cosco, but Beijing’s late demand could heighten US-China tensions.

Italy: New reports say the government this month will approve spending $15.8 billion for a bridge linking the Italian mainland with the island of Sicily. Importantly, Rome has mulled the idea of counting the bridge funding as defense spending, consistent with the new NATO deal in which member countries have committed to hike their formal defense outlays to 3.5% of gross domestic product and spend an additional 1.5% of GDP on “strategic infrastructure.”

  • Through much of the Cold War, the Soviet Union tried to obscure how much it was spending on its military by hiding much of its defense spending in ostensibly civilian budget accounts and off-budget. We have long expected that the European members of NATO could try to do the same thing in reverse, thereby artificially inflating their defense spending to reach the levels demanded by President Trump.
  • While that would violate the principle of budget transparency, we note that such spending — on Italy’s big bridge, for example — would still be stimulative to the European economy. Looking forward, we think Europe’s economic prospects have brightened not just because of higher defense spending per se, but because global military and economic threats have spurred it to adopt generally looser fiscal policy and cap regulation.

Canada: Prime Minister Carney yesterday said his government will impose a series of import caps and tariffs against steel from countries other than the US and Mexico, claiming Canada has been “disproportionately open” to steel imports over time. The new policy appears aimed at cushioning the blow for Canadian steel firms dealing with President Trump’s 50% tariff on US steel imports. The policy illustrates how Trump’s embrace of protectionist policies for the US will also probably spur more protectionism by foreign countries, impinging on global trade.

US Fiscal Policy: The Senate overnight narrowly passed a bill to cut $9 billion in federal spending for foreign aid programs and domestic public broadcasting. The bill, which now goes to the House for its approval, essentially rescinds funds previously appropriated for the programs. Although the spending cuts in the bill make up only a tiny share of total federal outlays, the legislation represents an effort to codify some of the controversial cuts pushed by President Trump’s “Department of Government Efficiency” earlier this year.

US Trade Policy: President Trump yesterday said he plans to impose a blanket import tariff of 10% to 15% on about 150 countries around the world. The blanket tariff would evidently apply to the many lower-profile nations that aren’t major US trading partners and haven’t been a focus of the administration so far. Markets appeared to like the news, probably because it suggests a relatively mild US approach to the targeted countries, with less potential trade disruption.

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Daily Comment (July 16, 2025)

Posted on by Amanda Ahne

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market remains squarely focused on the latest earnings reports as we navigate through this busy season. Today’s Comment will highlight where the effects of tariffs are becoming more apparent in the inflation data, provide updates on ongoing trade discussions, and cover other market-moving developments. As always, we’ll include key domestic and international data releases to keep you informed.

Tariff Pressure: Although inflation was lower than expected, there are increasing signs that tariffs are beginning to drive prices higher.

  • The Consumer Price Index (CPI) rose to 2.7% year-over-year in June, up from 2.4% the previous month, marking the fastest pace of inflation since February. While the increase aligned with market forecasts, it represented a notable acceleration from May’s reading. Core CPI, which excludes volatile food and energy prices, climbed more modestly, edging up from 2.8% to 2.9%, just below the consensus estimate of 3.0%.
  • While the inflation report appears benign at first glance — with the increase largely driven by volatile year-over-year base effects — underlying trends indicate inflation may be diverging from the disinflationary path observed earlier this year. As the chart below illustrates, June’s monthly increase was the largest since 2023, signaling potential reacceleration.

  • Much of the increase has been driven by goods subject to tariffs, including household appliances, toys, and home furnishings. Additionally, there are also signs that core services inflation, which excludes housing, is beginning to heat up, suggesting that rising input costs — and potentially even wages — are picking up again.
  • While the inflation uptick was widely expected, debate persists about its duration as the Fed weighs policy changes. Advocates of the transitory view maintain that price pressures will moderate as businesses adapt to new tariff regimes. Skeptics, however, warn that diminished competition may encourage firms to exercise greater pricing power, potentially sustaining higher inflation.

 

  • The latest inflation reading will likely discourage many FOMC members from supporting a July rate cut. As a result, the September meeting may now be the earliest they will consider easing policy, barring another significant inflation setback. We’re closely watching the increased reliance on estimated data rather than actual inputs within the inflation index, as this could undermine the Fed’s confidence in the readings.

Indonesia Trade Deal: President Trump announced a trade deal with Indonesia, but the final details of the arrangement have yet to be disclosed.

  • In a post on Truth Social, the president announced that Indonesia has agreed to reduce tariffs on all US exports while committing to purchase $15 billion in American energy products, $4.5 billion in agricultural goods, and 50 Boeing aircraft. In return, the US will raise its tariff rate on certain Indonesian imports from the current 10% to 19% — still well below the potential maximum of 32%.
  • While final details have not been revealed, the Indonesian government has confirmed that a deal was reached. Speculation suggests the arrangement may grant preferential treatment to Indonesia’s copper exports (potentially a reduction in rates or an outright exemption) when tariffs are scheduled to increase to 50% after August 1.
  • Tariffs are gradually increasing with minimal market reaction, suggesting the economic impact may already be priced in or that the market is awaiting earnings data for clearer judgment. While progress on trade deals boosted confidence last quarter, resilient earnings and positive guidance will be key to stabilizing market expectations now.

Trump Trade Threats: Having secured the Indonesia trade agreement, the administration is now intensifying its global trade negotiations.

  • President Trump has announced potential increases to import taxes on pharmaceuticals and semiconductors, set to begin by month’s end. This escalation in tariff threats represents a strategic push to pressure trading partners into negotiations while encouraging manufacturers to reshore operations. While specific rates remain undefined, the administration has floated pharmaceutical tariffs as high as 200%. Semiconductor duties could rise to approximately 25%.
  • Meanwhile, signs of international pushback are emerging. The EU has accused the US administration of stalling negotiations and has finalized a $72 billion list of potential countermeasures, including tariffs on bourbon, automobiles, and Boeing aircraft, should talks with the US fail. Separately, Japan appears increasingly reluctant to engage, likely due to dissatisfaction with the Trump administration’s demands in exchange for a deal.
  • While we anticipate ongoing trade negotiations in the coming weeks, there is a fear of renewed conflicts. The primary concern is the administration’s apparent prioritization of speed over comprehensive agreements. Though this may serve as a negotiating tactic, it risks escalating tensions with our major trading partners and potentially laying the groundwork for future trade disputes.

Earnings From Banks: Leading financial institutions delivered strong Q1 earnings, with their reports shedding new light on the state of consumer spending patterns.

  • Several major financial institutions exceeded earnings estimates this week. On Wednesday, Bank of America reported stronger-than-expected results, indicating that the bank remains in good financial standing. This performance echoes positive results from peers including Goldman Sachs and Citigroup. However, bank executives did voice some cautious notes during their earnings calls.
  • The banking sector’s strongest performance driver was supported by increased market activity due to trade uncertainty, which boosted trading revenue as investors capitalized on shifting market sentiment. Furthermore, household credit quality remained stable, with consumers continuing to meet payment obligations while increasing credit utilization. However, challenges emerged as some commercial clients experienced higher write-offs, and lower-income segments began showing signs of financial stress.
  • The banking sector’s strong performance thus far is encouraging for the broader economy, given that recessions typically stem from financial system vulnerabilities. With both corporate and household balance sheets remaining healthy, the likelihood of a severe economic downturn appears limited in the near term.

Middle East Turmoil: Israel has ramped up attacks in Syria as it looks to protect a minority group in the struggling nation.

  • On Wednesday, Israel launched an airstrike targeting the entrance of Syria’s military headquarters, citing the need to protect the Druze minority amid ongoing clashes with Bedouin tribes in the Sweida province. The operation also served to strengthen Israel’s security position along its border regions.
  • The ongoing conflict underscores the transitional challenges of the Syrian government in asserting authority over the region following the fall of the Assad regime. While we do not anticipate a broader regional war, we are closely monitoring the situation due to its potential implications for global commodity markets.

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Daily Comment (July 15, 2025)

Posted on by Amanda Ahne

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with further evidence that President Trump has soured on Russia and President Putin, creating a risk of greater US-Russia tensions. We next review several other international and US developments with the potential to affect the financial markets today, including surprisingly strong economic growth in China in the second quarter and new pressure on Federal Reserve Chair Powell to resign.

United States-Ukraine-Russia: In perhaps the most surprising sign of President Trump’s recent souring on Russian President Putin, the Financial Times today reports that Trump has privately encouraged Ukrainian President Zelensky to step up deep military strikes on Russian territory. According to the report, Trump has even asked Zelensky whether Ukraine could hit Moscow and St. Petersburg if the US provided long-range weapons. Indeed, the report says Trump encouraged Zelensky to do so.

  • Sources cited in the report say Trump wants to “make them [Russians] feel the pain” and force the Kremlin to the negotiating table to end its war against Ukraine. Of course, the risk is that Ukrainian attacks on Moscow or St. Petersburg using US weapons could prompt Putin to retaliate against the US.
  • The news comes just a day after Trump threatened to impose severe tariffs on Russia and its trading partners if Putin doesn’t come to the negotiating table to end his war against Ukraine within 50 days.
  • Domestically, Trump’s apparent new antagonism toward Russia will likely exacerbate the growing schism between him and his more isolationist political base. Many in the “Make America Great Again” camp are already angered by recent Trump actions, such as his decision to join Israel’s attacks on Iran and his government’s report that Jeffrey Epstein died by suicide and left no “client list” of compromised officials.

European Union-United States: EU officials yesterday published a list of US goods on which they say they will impose tariffs if Washington and Brussels can’t soon agree on a trade deal. The tariffs would be imposed if President Trump slaps his threatened 30% import tariff on the EU on August 1. After Trump issued his latest tariff threat, EU officials had said they wouldn’t immediately retaliate. However, the new list raises the risk that any failure in the negotiations could lead to a spiral of tariffs and counter-tariffs between the two economies.

United States-China: Semiconductor giant Nvidia today said it has been assured by the Trump administration that it will soon be allowed to sell its H20 artificial-intelligence chip to China again. The firm still won’t be allowed to sell its most advanced AI chips in China on concerns about that country gaining military or technological superiority over the US. Still, reports say Beijing sees today’s news as a concession in the ongoing US-China trade talks, which could help facilitate a deal. The news is also driving Nvidia’s stock price sharply higher so far today.

China: Official data today showed second-quarter gross domestic product was up 5.2% from the same period one year earlier, slightly beating expectations. The annual growth rate in the second quarter was still a bit weaker than in the previous two periods, but it still pointed to unexpected resilience in the face of the US-China trade war. In turn, that suggests Beijing could still hit its goal to have the economy grow 5.0% for all of 2025.

Japan: The yield on 10-year Japanese government bonds (JGB) today rose to the highest level since 2009, closing at 1.58%. The jump in JGB yields appears to reflect investor concerns that the ruling Liberal Democratic Party (LDP) will lose its majority in the upper house of parliament in Sunday’s elections. If the LDP does lose its majority, it might have to make fiscal concessions to smaller parties to form a coalition, and those concessions could blow out the deficit and drive Japanese debt even higher.

US Politics: Former New York Governor Andrew Cuomo yesterday said he will run as an independent in the upcoming election for mayor of New York City. The move comes after Cuomo lost in the Democratic Party primary election to avowed socialist Zohran Mamdani. Many moderate Democrats around the country fear that a Mamdani victory in the general election could paint their party as too liberal, so Cuomo and a number of other Democrats are running in the election as independents.

US Monetary Policy: To force out Fed Chair Powell before his term is up in May and replace him with someone more apt to cut interest rates, officials in the Trump administration have started to accuse Powell of malfeasance related to what press reports say are “renovations” at the central bank’s headquarters in Washington. However, as this author can attest after seeing the site many times over the last year, the project isn’t a mere renovation, but a major teardown and reconstruction of the north half the building.

  • Such a major project often suffers from major cost overruns as unexpected reconstruction issues arise. That suggests that the attacks on Powell may be unfounded.
  • If so, the attacks could set a bad precedence in which presidents would be free to conjure up legal reasons to sack a Fed chair, undermining the central bank’s independence and setting the stage for overly loose monetary policy and higher inflation.

US Drone Industry: The Commerce Department yesterday said it has launched national security probes into foreign drones and a raw material used for chips and solar panels. The investigation into unmanned aircraft systems would focus on the US’s dependency on foreign drones and whether foreign countries (such as China) could hurt US national security by suddenly cutting off supplies. The investigations could well lead to new import tariffs on foreign drones to help spur the development of the US drone industry, which is widely seen as lagging.

US Food Prices: As announced in April, the US yesterday officially exited a nearly 30-year old trade agreement with Mexico and slapped a 20.91% antidumping tariff on tomatoes from south of the border. Some economists have predicted that the move will boost prices for tomatoes and tomato products by as much as 10% in the near term. However, that expectation may be wrong, given that the US imports few fresh tomatoes during the summer (when tomatoes can be grown even in Maine), and processing tomatoes come largely from California.

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