by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, where the latest reporting hints that the US might continue its pause in attacks in order to let its new financial sanctions on Iran have an impact. We next review several other international and US developments that could affect the financial markets today, including a few words on the new sell-off in semiconductor stocks related to artificial intelligence and the latest expectations for this week’s Federal Reserve policy meeting.

United States-Israel-Iran: While initial reports suggested a key reason why the US paused its attacks on Iran over the weekend was concern about dwindling supplies of air defense weapons, new reporting suggests another key reason was a growing sense that more bombing would be less effective than a further tightening of financial sanctions on Tehran. New intelligence reportedly shows that the Iranian government is having trouble paying its troops, for example.

• If true, and if the administration is willing to be patient long enough for the new sanctions to have their full effect, the pause in hostilities could be more prolonged than earlier anticipated.
• If so, the risks associated with the conflict could be reduced, global energy prices could continue to retreat, and threats to the global economy and financial markets could cool.

Global Artificial Intelligence Industry: Semiconductor stocks related to AI remain under pressure so far this morning, a day after US chip stocks fell sharply on news of another “circular” investment deal in the AI space (this time between Nvidia and customer OpenAI). The sell-off today extended to Asia, pushing South Korea’s tech-heavy Kospi stock price index 10% lower and Japan’s Nikkei 4% lower. AI-related stocks could remain volatile this week as major US tech firms report earnings and China continues to announce new technology breakthroughs.

• With companies issuing mountains of new equity and debt to pay for their galloping AI investments, new data shows their cost of capital is also rising — a phenomenon that could help end the frenzy.
• New research from Bank of America indicates that the supply of new bonds this year from AI companies has already reached $270 billion in early July, almost double what was raised in all of 2025.

China-Germany: Mercedes-Benz has become the third German automaker to cut its 2026 sales forecast because of weakening sales in China. While automakers say they are still committed to the country, they face a range of headwinds there, from weak consumer demand to cutthroat competition from local brands. The news is likely to heighten Europe’s growing concern about its trade relationship with China, including not just challenges for European firms selling there but also a flood of cheap Chinese imports that are hurting European manufacturers.

Poland: Prime Minister Tusk’s main opposition, the right-wing Law and Justice party, will formalize a split today in which former prime minister Mateusz Morawiecki and other key politicians will establish a new, rival conservative party. The disarray in the right-wing opposition could help solidify Tusk’s political position ahead of next year’s parliamentary elections. If Tusk wins with a better position in parliament, Poland will likely continue to repair its ties with the European Union and be a stronger bulwark against Russian influence in the EU.

Singapore: The Monetary Authority of Singapore yesterday tightened monetary policy to address increased consumer price inflation because of the war in Iran. Since Singapore imports most of its goods, it tightens monetary policy by boosting the exchange value of the currency. In any case, the move highlights how global central banks are under pressure to tighten policy to address the rise in inflation resulting from the Iran conflict. Multiple other central banks are expected to hike interest rates, potentially putting new stress on the greenback.

US Monetary Policy: The Fed today starts its latest policy meeting, with its decision due on Wednesday at 2:00 PM ET. Based on current interest-rate futures trading, the policymakers are expected to hold their benchmark short-term interest rate, the fed funds rate, unchanged at 3.50% to 3.75%. However, the trading suggests investors see more than a 1-in-3 chance that policymakers could hike rates in response to persistently high price inflation and the new price pressures arising from the war in Iran. That highlights the risk of an unexpected rate hike that would unsettle markets.

US Trade Policy: The same small firms that brought the lawsuits that led to the invalidation or undermining of President Trump’s previous tariffs have now filed fresh lawsuits against the administration’s new tariffs announced last week. At this point, it’s still too early to know how vulnerable the new tariffs will be to legal scrutiny. Nevertheless, the new lawsuits will probably increase the sense of uncertainty regarding the US’s future trade policy and will therefore likely be a headwind for US economic activity.

US Stock Market: Reflecting the new headwinds for once high-flying AI stocks, Nvidia yesterday saw its market capitalization eclipsed by Apple. As of yesterday’s close, Apple was once again the world’s most valuable public company, with its market cap rising to $4.95 trillion while Nvidia’s market cap fell to $4.76 trillion. The development is likely to be especially welcomed by Apple, which one year ago was being criticized for what investors felt was a low-energy, lackluster AI program.

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