by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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

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

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