by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with further evidence that factors such as high energy costs and heavy regulation are stifling European economic activity. We next review several other international and US developments with the potential to affect the financial markets today, including a warning by the UK government that it could force British pension funds to invest more domestically and new signs that President-elect Trump is committed to big tariff increases once he is inaugurated.

European Union: In a new sign of Europe’s declining competitiveness, industry association Plastics Europe said the Continent’s production of virgin plastics fell 8.3% in 2023, even as global output rose 3.4%. Mechanical plastics recycling in Europe also fell last year for the first time since 2018. The fall in output largely stems from broader challenges identified by former European Central Bank chief Draghi in his recent report on European competitiveness, i.e., high energy prices, restrictive regulations, and lower production costs abroad.

United Kingdom: In an interview with the Financial Times, Pension Minister Emma Reynolds warned that the government may force pension funds to invest more in British assets if the reform proposals it made last week don’t channel enough funding to UK infrastructure and companies. The proposals called for the country’s 86 local-government pension schemes to transfer their assets into one of eight pools.

• Expanding the eight pools into larger, more professionally managed pension funds is expected to channel more resources to local assets.
• Currently, Britons invest very little at home. For example, the existing local-government pension funds only invest about 10% of their portfolios in UK stocks or infrastructure.

Japan: Bank of Japan Governor Ueda today said the central bank remains open to further interest-rate hikes, despite uncertainties regarding the global, US, and Japanese economies. Because of the yen’s (JPY) sharp depreciation following the US election earlier this month, we think the BOJ could well hike interest rates again at its next policy meeting on December 18-19.

China: In a mass stabbing attack on Saturday, a disgruntled former student killed eight people and injured 17 others at a vocational school in Jiangsu province. That marked China’s second mass killing in less than a week, after a man killed 35 people by deliberately driving his car into a crowd outside a stadium. General Secretary Xi himself has decried the attacks and ordered local officials to identify such risks earlier and take steps to stop them.

• Given Xi’s longstanding effort to strengthen the Communist Party’s ideological work, including by emphasizing its responsibility to clamp down on dissidents and social disrupters, then the spate of mass killings over the last year is likely to prompt stronger surveillance, proactive arrests, and other social-control initiatives.
• Since some of the recent attackers seem to have been motivated by economic and social frustrations, there is also some chance that the attacks could convince Xi to adopt stronger economic stimulus measures than he has been willing to accept so far.

United States-Ukraine-Russia: According to administration officials, President Biden has finally authorized Ukraine to use its US-supplied long-range missiles for strikes within Russia. The decision was reportedly spurred by the Kremlin’s decision to supplement its forces with troops from North Korea.

• The missiles, known as the Army Tactical Missile System, or ATACMS, will initially be used by Ukrainian forces to defend their salient in the Russian region of Kursk. The missiles could be used against both Russian and North Korean troops, in part as a warning to Pyongyang not to insert more military resources into the fight.
• The decision runs the risk of spurring a stronger response against the US or its NATO allies in the weeks running up to President-elect Trump’s inauguration in January. For example, it could prompt the Kremlin to ramp up its on-going sabotage operations against NATO countries in Europe — a move that could potentially spark a destabilizing security crisis and drive down asset prices.

US Economic Policy: As President-elect Trump continues to mull his nominee for Treasury Secretary, reports indicate that hedge-fund manager Scott Bessent and Cantor Fitzgerald co-chair Howard Lutnick remain at the top of the list. Officials with the presidential transition say they have sought assurances from both Bessent and Lutnick that they would fully implement Trump’s proposed import tariffs of 60% against China and up to 20% against other nations.

• The demand suggests that full support for the tariffs has become a litmus test for Trump’s economic nominees. The demand was probably targeted mostly at Bessent, who has panned the 60% and 20% figures as merely “maximalist” goals.
• Trump observers and supporters often assume his more far-reaching policy proposals are merely negotiating ploys. However, just because a proposal is far-reaching and outside the norm of what other politicians might propose, that doesn’t necessarily mean it’s just a ploy. It could well be that Trump sees his proposed import rates as bottom-line figures, especially after insisting on them so often and consistently on the campaign trail.

US Transportation Policy: Reports this morning say advisors to President-elect Trump are preparing regulatory changes that would make it easier to introduce self-driving autos. The changes are expected to be a boon to electric-vehicle giant Tesla, which is controlled and run by Trump advisor Elon Musk. In response, Tesla shares have surged some 8% in pre-market trading so far today.

US Immigration Policy: As the presidential transition team continues to signal that President-elect Trump will launch mass deportations of illegal immigrants, businesses ranging from food producers and manufacturers to hotels are reportedly hiring lawyers to audit their staffs and train them on how to handle visits from immigration authorities. Industry associations are also warning that large-scale deportations and tighter restrictions on legal immigration will worsen labor shortages, force some businesses to close, and drive up prices.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently assessing the latest retail sales data. In sports news, the USMNT soccer team defeated Jamaica in the first leg of the quarterfinals of Concacaf Nations League. Today’s Comment will discuss why the Federal Reserve may scale back interest rate cut expectations in 2025, why investors may be ready to take money off the sidelines, and why Marine Le Pen’s presidential bid may potentially be blocked. As usual, the report concludes with a roundup of international and domestic data releases.

Powell Speaks: The Federal Reserve chair gave the first indication that the central bank may be altering the path of interest rates following stronger-than-expected growth.

• On Thursday, Fed Chair Jerome Powell stated that the economy’s strength means that the central bank is not in a rush to cut interest rates. His comments followed a CPI report indicating stalled inflation in October and a tight labor market, with jobless claims at their lowest level since May. Although he didn’t specifically reference the upcoming December meeting, his remarks led the market to lower its expectations for an imminent rate cut. The latest CME FedWatch Tool fell from 82.5% to just above 60.0% on Thursday.
• His comment comes as the labor market shows signs of improvement since the Sahm Rule was triggered over the summer. In July, the three-month moving average of the unemployment rate rose 0.5 percentage points above its 12-month low for the first time since the pandemic. While such a sharp increase is typically associated with recessions, this time may have been a false alarm. As of October, the moving average is only 0.43 percentage points above the minimum, an elevated but not recession-indicative level.

• The Fed chair’s remarks indicate that policymakers may lower their expectations for rate cuts next year. The latest Summary of Economic Projections had forecast a 100-basis-point rate reduction in 2025, driven by concerns over potential labor market softening. However, given recent economic data indicating a less immediate recession risk, policymakers may opt to slow the pace of rate cuts for the next year. While a December rate cut remains possible, the chance of an indefinite pause is starting to increase.

Money on the Sidelines: Elevated interest rates and pre-election jitters have driven investors toward short-term funds, a shift that could carry significant implications for financial markets in the coming year.

• In September, US money market funds topped $7 trillion for the first time, according to the Office of Financial Research. This surge highlights investors’ sustained interest in higher deposit interest rates, even as the Federal Reserve has implemented a 50-basis-point rate cut and signaled further reductions. The milestone underscores a growing trend of investors favoring short-term cash holdings while awaiting clearer market direction. Notably, Warren Buffett, the highly respected investor, has begun reducing his stake in Apple and increasing his cash reserves, reflecting this cautious sentiment at the time.
• The significant rise in risk aversion was driven by uncertainty surrounding what appeared to be a closely contested election. With polls remaining tight in the days leading up to the vote, investors adopted a cautious stance, bracing for outcomes on either side. This nervousness was reflected in the increasing yields on 10-year Treasurys despite the Federal Reserve’s 50 bps rate cut in September. The yield rise was seen as a “Trump trade,” fueled by concerns over a potentially widening deficit driven by the prospect of additional fiscal stimulus and tariffs.

• With the election concluded and Republican President-elect Donald Trump securing a decisive victory, investor risk aversion is likely to diminish significantly. The market’s sharp reaction to the outcome hints at the potential for a broader rally if promises of tax cuts and deregulation are realized. Consequently, we anticipate that a substantial portion of sidelined capital could flow back into the equity market in 2025, assuming the Federal Reserve maintains a steady course and avoids having to make an embarrassing U-turn in its monetary policy. This should be bullish for risk assets.

Le Pen in Trouble: The leader of France’s right-wing National Rally party could miss out on the next presidential election following accusations of funds misappropriation.

• French prosecutors have accused Marine Le Pen and members of her party of misappropriating European Union funds by diverting them to domestic activities rather than their intended EU-related purposes. They have recommended a 300,000 EUR ($316,890) fine for Le Pen, a 2 million EUR ($2.1 million) fine for the party, two years in prison or house arrest, and a five-year ban on holding public office. While a ruling is not expected for months, the prosecutor has called for a “provisional execution” of the sentence, which could prevent her from running for office even if the decision is sent to the appeals court.
• Le Pen’s potential exclusion from the presidential race comes at a time when her popularity has surged, while her opponent’s has sharply declined. Her party not only secured the most votes in the European Parliament elections, but also led in the first round of the legislative elections, though it finished third in the second round. Meanwhile, French President Emmanuel Macron’s approval rating has fallen below 25% as he grapples with a loss of public trust following his controversial pension reform, which raised the retirement age from 62 to 64.

• While the immediate impact on French financial markets may be limited due to the presidential election taking place in 2027, the long-term implications of a popular leader’s legal troubles cannot be ignored. The perception of a politically motivated prosecution could erode public trust in the justice system, fueling a populist backlash that benefits the National Rally. This could, in turn, lead to increased market volatility, affecting French equities and bond yields. As the trial progresses, vigilant monitoring is crucial to assess its potential impact on the political landscape and financial markets.

In Other News: Argentina is considering withdrawing from the Paris climate accord, signaling that countries are increasingly resistant to burdensome environmental regulations. Meanwhile, China is finding it relatively inexpensive to borrow in the market as it seeks capital to help finance the fiscal stimulus necessary to revive its economy. Additionally, the ratings agency Moody’s has downgraded Mexico’s credit outlook due to the recent judicial reforms, indicating that these changes are sparking a backlash from investors.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are closely watching the latest producer price inflation data for insights into the Fed’s upcoming rate decision. In sports, the Cleveland Cavaliers extended their unbeaten streak to thirteen, becoming the sixth NBA team to reach this milestone. Today’s Comment will cover our analysis of the latest CPI data, explore why gold and the US dollar are moving in opposite directions, and provide an update on Brazil. As always, we’ll conclude with a roundup of key international and domestic data releases.

CPI on Target: While inflation progress showed signs of stalling in October, the report still leaves the door open for a December rate cut.

• October’s Consumer Price Index (CPI) data, released by the Bureau of Labor Statistics, revealed a slight uptick in annual inflation from 2.4% to 2.6%. While this figure met market expectations, it also underscored the persistence of inflationary pressures and the ongoing challenge of reaching the Federal Reserve’s 2% target. Core inflation, which excludes volatile food and energy prices, remained relatively stable at 3.3% year-over-year. This stability was attributed to a combination of factors, including a resurgence in used car price inflation and volatile shelter prices.
• The temporary pause in inflation progress can largely be attributed to seasonal adjustments. A more accurate picture emerges when examining non-seasonally adjusted data, which is not susceptible to annual revisions. This data reveals a deceleration in inflation from the previous month, with the October rate falling below the three-year pre-pandemic average and matching the previous year’s pace. This modest easing of price pressures likely explains the market’s increased confidence in a December rate cut, which accelerated from a projected 65% likelihood to over 80% yesterday.

• The true test of the Fed’s progress toward its 2% inflation target will come with the release of next month’s report, a week before the Fed’s upcoming meeting. November typically sees the year’s lowest inflation readings. If inflation doesn’t show signs of easing, the Fed may be reluctant to lower its benchmark interest rate. The Cleveland Fed’s current estimate of a 0.27% change for both core and headline CPI in November is unlikely to appease policymakers. As a result, we believe that market expectations of another rate cut may be overly optimistic.

Gold and the Dollar: Gold has plummeted but the dollar has gained since the election as investors weigh the impact of tariffs on the global economy.

• Since Trump’s election, gold bullion prices have dropped by 5% as investors grow increasingly concerned about the potential impact of US tariffs on the global economy. This recent sell-off reflects fears that US trade restrictions could further strain major exporters already facing weaker GDP growth. Bundesbank President Joachim Nagel cautioned that tariffs could reduce Germany’s GDP growth by 1%, while tariffs on Chinese goods risk exacerbating China’s overcapacity issues, complicating Beijing’s economic stimulus efforts.
• The decline in gold prices has coincided with a sharp appreciation of the US dollar, signaling a potential policy shift. Markets are factoring in the inflationary impact of import tariffs, which could constrain the Fed’s ability to cut rates next year. Speculation also suggests that policymakers in China and the EU may reconsider aggressive stimulus measures, aiming instead to keep exports competitive. Trump’s election has fueled expectations that China may ramp up fiscal spending, while Europe is anticipated to pursue deeper rate cuts.

• The inverse relationship between gold and the dollar is likely a short-term trend, as markets gain clarity on US fiscal and monetary policies. The market appears to have largely priced in the potential negative impacts of a trade war. We expect gold to bottom out in the coming days as growth concerns subside. We also anticipate that the central bank will prioritize protecting the labor market over counteracting inflationary pressures from tariffs. As a result, both the dollar and gold are likely to lose momentum in the near future.

Brazil’s Delicate Dance: Latin America’s largest economy will likely face a tough test as it decides whether it will prioritize its relationship with the US or China.

• Brazilian President Luiz Inácio Lula da Silva has prioritized deepening Brazil’s relationship with China, often at the expense of its ties with the United States. This shift will be highlighted as Xi Jinping meets with Latin American leaders at the APEC forum in Peru, attends the G-20 summit in Rio de Janeiro, and travels to Brasilia for a state visit. Lula is expected to advocate for an increase in Chinese infrastructure investment to reduce shipping times, elevate Brazil’s position in the global value chain, and boost its economic potential.
• Despite its traditional non-aligned stance, Brazil has increasingly tilted towards China, drawing US criticism. Last month, Brazil’s agriculture minister advocated joining the Belt and Road Initiative as a shield against Western protectionism. This move could further solidify Brazil’s position within China’s sphere of influence, potentially provoking a negative response from a Trump administration that favors clear-cut alliances. Furthermore, Brazil’s growing competition with the US agricultural sector in the Chinese market is likely to intensify tensions between the two countries.

• While our analysis indicates a slight tilt towards China, Brazil’s economic growth hinges on maintaining strong relationships with both the US and China. To navigate this delicate balance, Brazil must demonstrate its independence from either power. Failure to do so could lead to potential US retaliation, particularly in the form of reduced foreign direct investment. The Biden administration’s recent establishment of an outbound investment security program, aimed at monitoring countries supporting Chinese development, underscores this risk as this will be passed onto the next administration to use as well.

In Other News: President-elect Donald Trump has selected a slew of controversial leaders to take over various government positions, in what looks to be a test of his influence within the party. US dockworkers have decided to end negotiations in a sign that another strike could take place in January.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently reacting to the latest inflation data. In sports news, the University of Oregon has maintained its number one ranking in college football. Today’s Comment will cover our insights on monetary policy, discuss the recent breakthrough in nuclear fusion, and provide an update on the Bank of Japan. As usual, the report will include a summary of both international and domestic data releases.

Fed Cuts in Doubt: Uncertainty about inflation and the labor market has led the market to reassess its bets regarding the future path of rate cuts.

• Federal Reserve officials Neel Kashkari and Thomas Barkin presented contrasting views on the path of interest rates. Kashkari, the Minneapolis Fed President, advocated for a rate cut in December provided that inflation remains within expectations over the next two months. In contrast, Richmond Fed President Thomas Barkin adopted a more cautious stance. While acknowledging current restrictive conditions, he indicated the Fed’s readiness to adjust rates to address inflation or labor market risks, potentially signaling a preference for a December pause.
• While the central bank has implemented 75 basis points worth of rate cuts since September, growing concerns persist about the delicate balance between its price stability and maximum employment mandates. The latest unemployment data reveals a persistent rate above 4.0% over the past five months, while the Fed’s preferred inflation gauge, the core Personal Consumption Expenditure (PCE) price index, remains relatively stable at around 2.7%. The labor market’s resilience and persistent inflation have reduced rate cut expectations from 70% to 60% this week.

• Although the market is heavily favoring a rate cut in December, the decision is far from settled. A major determinant of the Federal Reserve’s decision to further ease monetary policy will be the November jobs report. A report indicating an uptick in the unemployment rate or another payroll figure below 100k could solidify the case for another interest rate cut. However, given the likelihood of hurricane-displaced workers reentering the labor force, we believe that the probability of a rate cut in the next month is still a coin flip.

Nuclear Fusion: A breakthrough in fusion technology is set to attract interest as investors seek innovations to make nuclear energy more efficient.

• A New Zealand startup has demonstrated a promising step towards fusion energy by generating a plasma cloud at 300,000 degrees Celsius for 20 seconds in its first experimental reactor. While this temperature and duration fall short of the requirements for practical fusion power, the experiment highlights the technology’s potential for future research and development. Over the last two years, public and private funding into nuclear fusion has waned due to a lack of progress, with investment growth falling from $2.8 billion in 2022 to roughly $900 million as of this year.
• Successful fusion energy development could revolutionize the global energy landscape by providing a virtually unlimited, inexpensive, and clean energy source. This is especially critical as global energy consumption is projected to skyrocket due to the rapid growth of AI and cryptocurrency mining. Morgan Stanley estimates that AI-related power consumption could increase fivefold in the next three years, prompting major tech companies to invest in their own nuclear reactors. This surge in demand for nuclear power has led to a significant mismatch in the supply and demand for uranium.

• While practical fusion energy remains years away, its potential to revolutionize the energy sector highlights the urgent need for ongoing research and development, particularly as global energy demands rise, and climate concerns intensify. We anticipate significant public and private investment across the industry as countries aim to achieve greater energy independence. Meanwhile, growing demand for uranium from the nuclear energy industry and the tech industry’s expanding data centers could further support elevated uranium prices.

Yen Back in the Spotlight: The weakening of the Japanese currency is likely to increase pressure on the Bank of Japan (BOJ) to tighten policy and potentially intervene in the foreign exchange market.

• The Japanese yen (JPY) weakened to 155 per dollar on Tuesday, affected by market reactions to the “Trump trade.” The decline stems from concerns that potential US policy shifts under the new administration could lead the Fed to cut rates less than anticipated, thereby maintaining a wide policy rate differential between the US and Japan. Additionally, there are fears that Japan may suffer in a potential tariff war, as the incoming administration has pledged to impose tariffs on imports, which could hamper Japan’s economic growth.
• Recent currency volatility has heightened market fears of impending monetary policy tightening by the central bank. The October meeting minutes from the BOJ revealed internal debates about the appropriate timing for such a move, with some policymakers expressing concerns about potential market volatility following the US election. While the bank ultimately decided to hold rates unchanged, the sentiment suggests that the central bank would need to take more action to prevent the currency from weakening, adding to inflationary pressures. Nevertheless, most policymakers favored a cautious approach to rate hikes.

• BOJ policymakers are expected to tighten policy at their December meeting, though the path forward will largely hinge on future Fed actions. Japanese officials are keen to avoid a repeat of July’s market turmoil, when the rapid unwinding of the yen carry trade led to widespread panic. As a result, the BOJ may be hesitant to hike rates if the Federal Reserve does not continue its easing cycle. If this scenario unfolds, we anticipate the BOJ may lean toward currency market interventions to prevent exchange rate fluctuations from adding to price pressures.

In Other News: President-elect Donald Trump is expected to sign an executive order to establish a board overseeing military generals. In southern China, a deadly attack resulted in 35 fatalities, exacerbating public anxiety amid significant economic concerns. The German government has admitted defeat in its quest to stop the acquisition of Commerzbank by UniCredit.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of an impending Russian and North Korean attack to push the Ukrainians out of their small foothold in the Kursk region. We next review several other international and US developments with the potential to affect the financial markets today, including new details on China’s latest fiscal stimulus program and President-Elect Trump’s latest personnel and policy moves.

Russia-Ukraine Conflict: US and Ukrainian officials say Russia has massed some 50,000 troops, including North Koreans, around the small Kursk area currently held by Ukraine. The officials believe the Kremlin will launch a major attack on the Ukrainians in the coming days, hoping to finally eject them from their only substantial position in Russia proper. If such an offensive is successful, it would leave the Ukrainians without a key bargaining chip in the event that the new Trump administration forces them into negotiations with the Russians.

Russia: The Kremlin is reportedly exploring a plan to merge Russia’s three largest oil companies into one national champion. The plan would fuse state-owned firms Rosneft and Gazprom Neft with independently owned Lukoil, forming what would be the world’s second-largest oil company after Saudi Aramco. If it’s consummated, the merger would also give President Putin more control over the Russian energy sector and global oil prices.

Japan: The Diet today voted to keep Prime Minister Ishiba in power, even though his long-ruling coalition between the Liberal Democratic Party and Komeito lost its parliamentary majority in the October election. Ishiba won his victory only with the support of the newly popular, center-right Democratic Party for the People. Going forward, that means Ishiba will be one of Japan’s weakest prime ministers, crimping his ability to enact new economic or security measures.

Chinese Fiscal Policy: We now have more detail on the new local-government refinance plan from the National People’s Congress, which we flagged in our Comment on Friday. The program gives local governments new debt quotas and budget flexibility to refinance 10 trillion renminbi (about $1.4 trillion) in high-cost, risky debt currently hidden in off-budget financing vehicles. Spread over five years, the plan could help local governments replace most of their current high-cost hidden debt with lower-cost, on-budget debt approved by Beijing.

• As part of the announcement, the government said local governments currently have about 14.3 trillion RMB (about $2.0 trillion) in hidden debt. The program aims to cut the total to just 2.3 trillion RMB (about $320 billion) by 2028.
• By replacing local investors’ high-interest loans with lower-cost, on-budget loans, the program aims to ease local governments’ current fiscal squeeze, giving a modest boost to overall economic growth.
• All the same, the main impact of the program might be to reduce the risk of defaults and financial crises by local governments. In other words, the priority may have been fiscal stability more than spurring economic growth. We continue to think the program will only provide a modest boost to Chinese economic growth going forward, meaning China will probably not regain its position as a prime engine of global economic growth.

Chinese Price Inflation: Reflecting China’s weak economic growth, the October consumer price index was up just 0.3% from the same month one year earlier versus a 0.4% rise in the year to September. The October producer price index was down 2.9% on the year compared with an annual 28% fall in the previous month. The deflation at the wholesale level is consistent with Western criticism that China has over-invested in its manufacturing sector and is now dealing with excess production, much of which is being exported at fire-sale prices.

United States-Taiwan-China: According to confidential sources, Taiwan Semiconductor Manufacturing Company (TSM) has told its mainland China customers that it will no longer accept their orders for advanced artificial-intelligence semiconductors. The move comes after reports that Chinese telecom equipment giant Huawei apparently used front companies to buy such chips from TSM despite US rules blocking it from acquiring the technology. New reporting over the weekend said the US Commerce Department ordered TSM to take the action.

• The TSM move is yet another example of how technology flows between the US geopolitical bloc and the China bloc are being curtailed.
• TSM’s move to stop all advanced sales to China is extreme, but we suspect it will be followed up by similar moves in the future. In our view, global fracturing into relatively separate geopolitical and economic blocs will continue. These conditions will result in less efficient global supply chains, higher costs, higher inflation, and higher interest rates going forward.

United States-Taiwan: The Taiwanese government is reportedly considering a large purchase of US ships, jets, missiles, and other weapons systems to signal to the new Trump administration that it is serious about defending itself against China. Of course, the large purchase could also be a boon to US defense firms such as Lockheed Martin and Northrop Grumman. If completed, the purchase would help validate our view that geopolitical tensions will spur higher defense spending worldwide in the coming years, producing good returns for global defense firms.

US Politics: President-Elect Trump said on Saturday that his new administration would not include either Mike Pompeo, his former secretary of state and CIA director, or Nikki Haley, his former ambassador to the UN. It seems highly likely that the announcement was retribution for Pompeo’s and Haley’s past attacks on Trump’s policies. An early, highly public punishment against them would help signal that Trump will prioritize loyalty in his new administration.

• Nevertheless, it is notable that both Pompeo and Haley are strong hawks regarding the national security threat from China.
• It still seems certain that Trump will be tough on China when it comes to trade and other economic concerns, but now that he’s jettisoned Pompeo and Haley, we’ll be looking closely at future personnel and policy announcements to gauge how tough he’ll be against China’s military and geopolitical aggressiveness, especially in the Indo-Pacific.

US Fiscal Policy: The Wall Street Journal today carries a useful article on the challenges Republicans now face in deciding how much of an expansion in the federal budget deficit they will accept to advance their tax cuts in 2025. According to the article, Republican leaders are kicking around various figures for “The Number,” but the negotiations are only beginning, and a final proposal may not be ready until early next year. The decision is considered a test of strength between the party’s deficit hawks and its tax cutters.

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