by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the Iran war and its economic and financial market implications. We next review several other international and US developments that could affect the financial markets today, including a new free-trade agreement between the European Union and Australia and a potential deal in Congress to resolve funding for the Transportation Security Administration to quell airport security lines.

United States-Israel-Iran: Saudi Arabia, Kuwait, and Bahrain all indicated they have been hit by new Iranian drone and missile strikes this morning, but it isn’t clear whether the attacks caused new damage to their globally important energy infrastructure, commodity production, or shipping facilities. The strikes came despite President Trump’s vow yesterday that the US would postpone new attacks on Iranian power plants because of “productive” talks with the Iranians. New details suggest those talks are actually being led by Middle Eastern officials.

• According to reports, the foreign ministers of Turkey, Egypt, Saudi Arabia, and Pakistan are trying to drive talks with the Iranians forward, but they’ve struggled to locate a high Iranian official to engage with. They and the US now appear to think the speaker of Iran’s parliament, Mohammad-Bagher Ghalibaf, would be a viable interlocutor, but Ghalibaf has said Iran isn’t ready to talk. In any case, reports say Ghalibaf also fears that if he comes out of hiding for talks, he would be assassinated by the US or Israel.
• With Middle Eastern producers such as Aluminum Bahrain and Qatalum cutting output amid energy and shipping disruptions related to the war, new reports say global automakers are starting to engage in “panic buying” on fears that aluminum supplies could run out within months. Naturally, the result will likely be continued upward pressure on prices on top of the price pressures already hitting crude oil, natural gas, and fertilizers.
• Meanwhile, several major purchasing managers’ indexes from around the world today are pointing to a broad risk of “stagflation” because of the war (see tables in the data section below), with overall growth weakening and the subindexes on prices surging.

European Union-Australia: European Commission President von der Leyen and Australian Prime Minister Albanese yesterday signed a free trade agreement designed to shield their economies from the increasingly nationalist and protectionist policies of the US and China. The deal will drop bilateral tariffs and onerous regulations on a wide range of exports. The EU and Australia also signed several security deals, including one with a provision allowing Australian firms to participate in the EU’s big new rearmament program.

Italy: In a referendum yesterday, right-wing Prime Minister Meloni lost her bid to achieve several judicial reforms that critics said would have undermined the rule of law. With almost all ballots counted, the constitutional amendments were rejected by 53.7% of voters. Turnout was also unexpectedly high, with nearly 59.0% of registered voters taking part in the election. The results will likely weaken Meloni’s political power to some extent, although she is in no danger of being ousted.

US Labor Market: A new survey of corporate chief financial officers indicates that artificial intelligence had essentially no effect on employment in 2025 and will spur companies to trim only a small number of their overall jobs in 2026. In future years, however, the surveyed CFOs believe AI could prompt more significant job cuts for people in routine, clerical, and administrative roles such as bookkeeping and customer service, while workers with sophisticated technical skills, such as engineers and architects would more likely see their jobs enhanced.

US Air Travel Industry: As the Transportation Security Administration continues to shed workers and airport security lines continue to lengthen, angering travelers, Senate Minority Leader Chuck Shumer last night said Democratic and Republican leaders in the chamber are approaching a deal that would fund most parts of the Department of Homeland Security, including the TSA, but would still not provide funds for the Enforcement and Removal Operations branch of Immigration and Customs Enforcement.

• If consummated, the evolving deal would help end an increasingly disruptive situation for the US airline industry and avoid an additional political threat for the Republicans ahead of the Congressional midterm elections in November.
• Funds for that portion of ICE would still be held up over Democratic-Republican disputes over the conduct of immigration enforcement raids.

US Private Credit Industry: Apollo Global Management has become the latest major investment firm to limit withdrawals from one of its private-credit funds. According to Apollo, investors in its Apollo Debt Solutions BDC had requested to withdraw 11.2% of the $15-billion fund, triggering a rule limiting the withdrawals to 5.0%. As with similar incidents at other firms, this one shows how investors have suddenly soured on private-credit investments but have discovered just how illiquid they can be, triggering even more redemption requests.

US Prediction Markets: In response to the introduction of a bill in Congress to outlaw contracts on sports in prediction markets, as we reported yesterday, sources say Kalshi plans to block athletes, coaches, and officials from betting on their sports and to block political candidates from trading on their campaigns. The move shows that the prediction-market industry has finally seen that insider trading could throw it into reverse and is now moving more aggressively to address the issue.

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