by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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