by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a concerning new development in the Russia-Ukraine war, where heightened attacks by both sides in the Black Sea are now threatening global grain supplies as well as energy shipments. We next review several other international and US developments that could affect the financial markets today, including a report of healthy economic growth in the United Kingdom despite the impact of the Iran war and new data confirming that tariff refunds are now boosting profits and economic growth in the US.

Russia-Ukraine War: As Russia and Ukraine step up their attacks on each other around the Black Sea, reports say a Ukrainian drone strike last night has closed three important grain terminals at the Russian port of Novorossiysk. Coupled with new attacks on oil tankers in the area, the strikes suggest the globally important Black Sea chokepoint may now be closing. If so, both oil and grain exports could be affected, putting further upward pressure on global energy and food prices but benefiting energy and food producers outside the region.

Russia-Japan: President Putin has sparked new tensions with Japan today by visiting the disputed Kuril Islands, which the Soviet Union seized from Japan at the end of World War II. In a move that suggests the visit was meant to be provocative, Putin preceded the trip by attending military drills, criticizing Japan’s government, and donning a naval uniform to meet senior officers to discuss protecting Russia’s eastern borders. The visit has prompted a sharp rebuke by the Japanese government and risks new discord that could threaten bilateral trade.

Japan: The yen weakened modestly again early today, approaching the important benchmark of 160 per dollar as traders continue to test the resolve of US and Japanese officials to further support the currency following the intervention on July 31. That intervention had helped take the yen from about 162.80 per dollar to around 155, but it has retreated from that territory. If the currency breaks 160 again, it would probably prompt the US and Japan to embark on another intervention to support it.

South Korea: In an effort aimed at reining in the country’s hugely volatile stock prices, the government has imposed a new requirement that investors must complete a week-long course before they can trade in exchange-traded funds that invest in a single stock. Investors wanting to trade single-stock ETFs must now complete at least one hour of simulated trading a day for five days. The move comes as South Korean stock prices jumped 76% in 2025, doubled again from January to June this year, and then plunged 22% in July.

United Kingdom: Second-quarter gross domestic product rose by a seasonally adjusted 0.4%, essentially matching expectations but decelerating a bit from the 0.6% increase in the first quarter. The main source of growth was the UK’s dominant service sector, with particular strength in information and communications services and professional and scientific activity. The relatively strong growth suggests the economy is on track to meet the Bank of England’s forecast that full-year GDP growth will come in at 1.1%.

United States-China: In a speech in Manila earlier this week, US Undersecretary of Defense for Policy Elbridge Colby avoided naming Beijing or addressing escalating tensions in the South China Sea, prompting concern among commentators and Philippine officials. In our view, Colby’s failure to name the key threat to an important US treaty ally or discuss its territorial issues with China is additional evidence that the White House is trying hard to avoid ruffling Beijing’s feathers ahead of General Secretary Xi’s visit to the US next month.

• At this point, it’s still not clear whether the US administration wants a long-term détente with China or just a short-term one to ensure the summit is a success.
• In any case, the effort to avoid stepping on China’s toes is likely being noticed by US allies and will raise further questions about whether the US would live up to its commitments to help defend them. The uncertainty is likely to keep boosting defense budgets around the globe.

US Fiscal Policy: The Wall Street Journal last night released an analysis showing that over 40 S&P 500 companies have reported some $9.6 billion in tariff refunds in the past quarter or so, including at least $2.1 billion in cash already received. The refunds, resulting from the Supreme Court’s invalidation of many of the administration’s initial tariffs, have given the firms a meaningful boost to earnings in some cases. That’s consistent with other analyses suggesting the refunds are acting as a kind of stimulus to the economy while also boosting the budget deficit.

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