by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the weekend events related to the war in Iran. We next review several other international and US developments that could affect the financial markets today, including the naming of a new prime minister in the United Kingdom and the latest Chinese threat to the US’s cutting-edge artificial intelligence models.

United States-Israel-Iran War: The Iranian military continued to launch missile and drone strikes against US military bases throughout the Persian Gulf region over the weekend, killing at least two US troops at the Muwaffaq Salti Air Base in Jordan. The US had already been escalating its attacks on Iran again to short-circuit its effort to control the Strait of Hormuz, but we believe that because of President Trump’s “Jacksonian” approach to foreign policy, he will likely respond to the US troop deaths by ratcheting up the attacks even further.

• The expectation of US retaliation caused global oil prices to surge over the weekend, with the price of near Brent futures jumping about 6% to more than $90.00 per barrel. Nevertheless, oil prices have retreated so far this morning. As of this writing, they are only slightly above where they were late last week.
• Separately, Iran’s successful attacks have prompted questions about how the country is improving its technology so rapidly. US officials and military analysts say Iran’s missiles now fly faster and are more maneuverable than before, suggesting the country is getting help from Russia and/or China. If so, the continued attacks could inflame US tensions with those countries as well.

Russia-Ukraine War: At a defense industry conference late last week, CIA Director Ratcliffe said the average Russian recruit arriving on the front lines in Ukraine survives only 20 to 30 minutes before being killed or wounded. The statistic shows how violent the Russia-Ukraine war has become and how efficiently Ukrainian drones and other military technologies can kill. It also helps explain why so many Western defense firms have begun seeking deals with Ukrainian companies to gain access to their technologies and processes.

Japan: Defense Minister Koizumi on Friday said in an interview that Japan must begin debating whether and how it might adopt nuclear weapons, especially considering the precedent of Russia’s invasion of Ukraine and the way that France and Finland have responded by seeking a stronger nuclear deterrent. The statement underlines our expectations that the world could be on the cusp of a new nuclear arms race. Such a development would likely boost uranium prices.

China: Investment funds closely aligned with the government yesterday announced that they have bought approximately $8.9 billion worth of domestic stocks related to artificial intelligence, taking advantage of the sharp pullback in prices for the equities on Friday. The purchases by the “national team” suggest the government is deliberately trying to prop up the market. In response, the Chinese market has performed better today than many other Asian markets.

India: Thousands of youth-led “Cockroach” protesters demonstrated against India’s weak educational system today in New Delhi as the national legislature opened a new session. In response, police tried to disperse them by firing tear gas and beating the protesters with sticks and plastic batons. Even though Prime Minister Modi’s pro-business party recently did well in regional elections, the incident illustrates how the Cockroach movement appears to be gaining steam and could eventually threaten Modi’s grip on power.

European Union: The EU this week begins enforcing new rules that largely ban companies from destroying unsold clothes or footwear. The ban was approved in 2024 to help curb overproduction, reduce waste, and keep valuable materials in circulation for longer. Under the new rules, large companies will be prohibited from incinerating or sending to landfills unsold clothes, accessories, and footwear, including products returned by customers.

• The ban is anticipated to be especially problematic for luxury goods makers, which try to support their products’ high prices by strictly limiting what’s available on the market.
• Now, rather than destroying unsold merchandise, luxury firms may be forced to hold it in inventory and offer discounts to get it sold — initiatives that could hurt their ability to maintain high prices.

United Kingdom: Former Manchester mayor Andy Burnham today becomes the UK’s seventh prime minister in the last decade. Based on his left-wing reputation, Burnham is expected to push for an early package of spending hikes to boost economic growth. Over the longer term, he is also likely to push for measures to shift power out of London, give voters more control over public utilities, and increase spending on public housing.

US Artificial Intelligence Industry: Chinese AI firm Moonshot unveiled its new Kimi K3 open-source model on Friday, with third-party assessments suggesting it is more capable than the most cutting-edge US models, at a far lower price. The development has caused deep concern that the US models could soon become uncompetitive on both performance and price. In turn, that could prompt investors to rethink the value of the US’s leading AI firms and other stocks dependent on the AI investment boom.

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