by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest on the Greenland purchase dispute, which has driven down asset values around the globe. We next review several other international and US developments with the potential to affect the financial markets today, including more evidence that re-armament is likely to boost the broader European economy and signs of weakening economic growth in China.

United States-Europe: President Trump said on Saturday that he will impose an additional 10% import tariff on all goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, the United Kingdom, and Finland, effective February 1, to punish them for opposing his plan for the US to purchase Greenland. He also vowed to hike the tariffs further to 25% on June 1, which he stated would remain in place until a deal is reached.

• Trump’s anger at the Europeans was apparently sparked by a tiny deployment of Danish, German, French, British, and Finnish troops to Greenland last week to prep for military exercises designed to demonstrate to Trump that Europe can, indeed, help defend the island as he has demanded. Press reports suggest Trump misinterpreted the deployment as the Europeans thumbing their noses at him. The president later linked his tariff threat to his anger at not being awarded the Nobel Peace Prize.
• In response, legislators in the European Parliament have announced that they will delay approving the US-European Union trade deal reached last summer, which would cut tariffs on US goods flowing to the EU and EU goods going to the US.
• Earlier today, President Trump said he has agreed to discuss the crisis with various European leaders this week in Davos, Switzerland, where he is attending the annual conference of the World Economic Forum.
• The rekindling of trade tensions and the risk of further disruptions — potentially including military conflict — rattled global financial markets yesterday even as the US was closed for the Martin Luther King Day holiday. So far this morning, US stock index future prices are down more than 1.5%, European stock prices are down almost as much, the yield on 10-year Treasury notes has jumped to 4.2870%, and the dollar is down 0.3%.

United Kingdom: In parliamentary testimony today, Bank of England Governor Bailey warned that the US leadership’s threat to annex Greenland and end the Federal Reserve’s independence could pose substantial threats to Britain’s financial stability. Bailey appeared to be saying that dramatic moves in asset prices or changes in trade and investment flows have the potential to disrupt credit and payment flows in the UK, which could weigh on British stock values.

France-Ukraine: French automaker Renault today confirmed that it has teamed up with defense firm Turgis Gaillard to produce drones for Ukraine at two of its manufacturing sites. The report follows previous news that some civilian manufacturers in Germany have also taken on defense work recently. In our view, these developments illustrate how Europe’s sudden re-armament effort is likely to benefit the broader economy, including by making use of excess civilian production capacity.

Portugal: In Sunday’s first-round presidential election, António José Seguro of the center-left Socialist Party came in first with just over 31% of the vote. The result marked an upset for the expected winner, André Ventura of the far-right Chega party, who came in second with about 25% of the vote. Some observers are taking the result as a sign that support for the far right in Europe may be hitting a ceiling. Seguro and Ventura will now face each other in a runoff election on February 8, with Seguro expected to win.

Japan: Prime Minister Takaichi yesterday confirmed she will call parliamentary elections for February 8 to capitalize on her high support in opinion polls and boost her coalition’s control of the Diet. A strong win by the coalition could embolden Takaichi to push through tax cuts and spending hikes aimed at boosting economic growth. Since that would likely expand the budget deficit and boost debt issuance, Japanese government bond yields are surging today, with the yield on 10-year JGBs touching 2.330% — the highest since February 1999.

Chinese Economic Growth: The National Bureau of Statistics yesterday said China’s gross domestic product for the full-year 2025 was up 5.0% from the previous year, after stripping out price changes. That met the government’s target for the year, but GDP in the fourth quarter was up just 4.5% year-over-year, suggesting the economy was losing momentum in late 2025. The data also showed that the economy remains unbalanced, with strong growth in net exports partially offset by weak growth in domestic consumption and investment.

Chinese Population Growth: The National Bureau of Statistics also said yesterday that births in China totaled just 7.92 million, down 17.0% from the 9.54 million in 2024. That marked the lowest birth total since records began in 1949 and broke the previous record low set in 2023. Coupled with a rising death rate as the population ages, that meant that China’s total population fell by 3.39 million in 2025 to 1.4049 billion. As we have argued before, China’s poor demographics have become a key structural headwind for its economy and financial markets.

Chinese Gold Demand: With average rates on one-year deposits now down to just 0.95%, major domestic and foreign banks operating in China are reportedly expanding their offerings of gold-linked structured products with expected annual returns of 1% to 5%. The development suggests rising Chinese demand could now be contributing more significantly to the current upswing in global gold prices. If Chinese demand continues to rise, it would help boost prices for the yellow metal even further.

Indonesia: According to press reports based on confidential sources, President Prabowo has nominated his nephew to join Bank Indonesia’s board of governors, raising concerns about the central bank’s independence. As in other countries in which leaders are working to seize control over monetary policy, the risk for investors is that the central bank will cut interest rates sharply to boost economic growth and generate support for the country’s leaders, despite the risk of igniting consumer price inflation and undermining the value of the currency.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Note: Due to the holiday, there will be no Comment on Monday, January 19.

Our Comment begins by examining the resurgence of enthusiasm around artificial intelligence. We then analyze key domestic and international developments, including new signals from Federal Reserve officials on potential interest rate cuts, efforts by Canada and the European Union to diversify trade partnerships, and a proposal to advance Ukraine’s EU membership. We also explore a potential tax policy change that could affect sovereign wealth funds. The report concludes with a roundup of essential economic data from the US and abroad.

Chip Demand: AI stocks found fresh momentum following a stellar performance from TSMC. As the world’s leading foundry, TSMC’s ability to “drastically beat” expectations serves as a validation of the ongoing AI buildout. The company’s upgraded 2026 revenue outlook of 30% and its massive $52–$56 billion capital expenditure budget suggest that the hardware cycle is far from over. This guidance has bolstered confidence in the sector, proving that demand remains robust despite broader macroeconomic uncertainty.

• The robust results have helped soothe investor concerns regarding AI fatigue, which had begun to weigh on the market after two years of exponential growth. The company’s increased spending guidance serves as a powerful vote of confidence, suggesting that the infrastructure cycle is still in its expansionary phase rather than nearing a peak.
• Additionally, the capital expenditure from TSMC and other technology heavyweights is expected to provide a significant tailwind for the broader economy. As noted in our latest Asset Allocation Bi-Weekly Report, economic growth has become increasingly reliant on AI investment, which served as a crucial stabilizer during the uncertainties of 2025. This sustained spending provides strong evidence that the current expansion could accelerate throughout the year.
• Nevertheless, significant headwinds remain that could dampen this momentum, particularly as AI infrastructure becomes an increasingly sensitive political issue. Developers are struggling with data center buildouts due to acute shortages of power and critical components. Simultaneously, firms are facing growing a political push to pay a premium for energy usage, as regulators seek to mitigate the upward pressure that industrial demand is placing on household utility costs.
• The AI-driven bull market still shows strength, yet the need for portfolio balance is increasing. We have noted a recent shift toward broader market participation, which helps alleviate concerns regarding extreme sector concentration. This rotation is uncovering opportunities in quality companies that were previously overshadowed by AI. As such, we suggest investors look toward these “undervalued” segments to build a more resilient, diversified portfolio.

Fed Talk: Despite positive economic signals, key Fed officials are tempering expectations for near-term rate cuts. On Thursday, Atlanta’s Raphael Bostic and Kansas City’s Jeffrey Schmid stressed the need for ongoing restrictive policy amid lingering inflation. Conversely, Chicago’s Austan Goolsbee reiterated the 2% inflation goal but indicated potential future easing if the cooling trends continue. The comments precede a standard pre-meeting media blackout before the FOMC convenes on January 26.

• The latest data suggests a shift in the Federal Reserve’s priorities. With inflation showing signs of stabilizing, the focus is turning toward the maximum employment side of their mandate. Recent reports underscore this resilience: Initial jobless claims fell to a low of 199,000 last week, while the Chicago and Philadelphia Fed surveys both pointed to accelerating economic activity. These figures suggest the economy may be heating up again, complicating the need for future rate cuts
• At the same time, concerns are mounting over the reliability of the latest inflation figures. Although the CPI has shown improvement, critics argue the data may be skewed. Because of the government shutdown, some categories, such as shelter costs, were simply carried over from the prior month rather than updated with new data. This “downward bias” suggests that inflation might actually be higher than the current reports indicate.
• Market focus has shifted squarely onto the Fed as fears mount over AI-related spending and political overreach. Any suggestion that the White House is successfully pressuring the Fed to prioritize lower rates over price stability has provided a floor for benchmark yields. This market-led pushback has forced the administration to reaffirm Chair Powell’s position, yet the broader question of the Fed’s long-term independence continues to drive volatility.
• Due to an improving economic outlook and persistent uncertainty regarding inflation, Fed officials are likely to remain hesitant to lower the federal funds target at their next meeting. While we anticipate multiple rate cuts this year, we expect the timing to shift toward the second half of 2026, potentially following the appointment of a new Fed chair. However, this outlook remains contingent on the labor market as any significant signs of deterioration could accelerate the timeline for easing.

Canada Pivots to China: Canadian Prime Minister Mark Carney met with President Xi Jinping in Beijing this week, signaling a strategic effort to reduce Canada’s economic dependence on the United States. During the visit, the two leaders pledged to establish a high-level dialogue encompassing trade in oil and gas, as well as investments in nuclear and clean technology. Carney’s decision to pivot toward China underscores a growing trend of middle powers seeking greater autonomy by balancing their relationships between Washington and Beijing.

EU-Lite: The EU is drafting a proposal to streamline Ukraine’s accession process by bypassing certain stringent criteria. This framework, dubbed “enlargement lite,” would establish a two-tier system allowing smaller or conflict-affected nations to join the bloc with modified requirements. While designed to facilitate a peace settlement by satisfying President Zelenskyy’s domestic mandate, the move has rattled markets. Investors are concerned that a multi-speed Europe could dilute the bloc’s institutional integrity and complicate future fiscal integration.

Mercosur Outrage: The US has criticized a pending trade agreement between the European Union and South American nations as unfair. The deal is expected to be signed this weekend and would reduce tariffs while significantly boosting trade, particularly in meats and cheese. US officials argue that the agreement would grant the EU a monopoly over certain products, harming American farmers. This development is likely to heighten transatlantic tensions, especially at a time when the US has been seeking to strengthen its own influence in South America.

Foreign Taxes: The United States is considering changes to its tax code that would increase the tax liability of the US investments in sovereign wealth funds and certain public pension funds. This measure represents a further effort by the administration to deter countries from devaluing their currencies by limiting their ability to recycle dollar surpluses back into the United States as investments. Such a policy could place downward pressure on the dollar’s value and potentially reduce overall foreign holdings of US assets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of the White House’s discussions on Greenland and their implications for NATO’s future. We then transition to other developments, including a breakdown of the latest Fed Beige Book and the de-escalation of tensions between the US and Iran. Additionally, we provide a brief overview of the recent decline in silver prices. The report also includes a roundup of essential domestic and international data.

Greenland Talks: Tensions between the United States and its NATO allies have escalated as the White House continues to pursue the acquisition of Greenland. On Thursday, foreign ministers from Denmark and Greenland met with US officials to discuss Arctic security concerns. While the meeting established a formal dialogue, significant disagreements remain. In a sign of sharply deteriorating relations following the visit, NATO deployed its navy to the waters surrounding Greenland.

• The primary disagreement centers on the US rationale for the takeover. The White House claims the move would enhance security for all NATO allies; however, the logic is questionable. While ownership might slightly improve the US’s ability to counter Russian and Chinese threats, the 1951 defense treaty already provides the US with the necessary access to defend the region.
• A more plausible explanation for the US action is a deep-seated distrust of multilateral organizations, particularly NATO. The White House has long criticized the alliance over chronic underinvestment in defense by member states and clear deficits in military readiness for a major conflict. Consequently, US leadership doubts that these allies would fulfill their treaty obligations to defend the United States in the event of an attack.
• Under this view, the US may perceive Greenland as a de facto protectorate, despite it being under Danish sovereignty and the NATO security umbrella. This perception has likely fostered a sense of entitlement toward the territory and its strategic assets, particularly its vast reserves of rare earth elements.
• In short, the US push to acquire Greenland may signal a broader departure from the traditional framework of alliance building toward a foreign policy defined by territorial and resource accumulation. Consequently, this move represents a more assertive — and perhaps unilateral — America than the world has encountered in recent decades.
• The fracturing of relationships with European allies represents a pivotal shift in foreign policy, perhaps signaling a transition from a benevolent to a malevolent hegemon, which we’ve written on in the past. This adjustment suggests a future where the US prioritizes resource security over diplomatic alliances, a move likely to drive a surge in the demand for industrial commodities over the coming years.

Beige Book: The Federal Reserve’s latest summary of regional economic conditions shows a slight rebound in sentiment following a period of pessimism from respondents. According to the Beige Book, a majority of districts reported that growth has accelerated from “slight” to “moderate,” while the remaining regions saw no change and one noted a marginal decline. This upswing in sentiment, emerging in the wake of the government shutdown, may signal a shift in momentum after a year characterized by persistent uncertainty.

• The improvement in economic activity appears to be driven by increased consumer spending. Much of this surge followed the end of the government shutdown, with the holiday season providing additional momentum. However, the rise in purchases appears largely concentrated among high-income households, while low-income households continue to show signs of growing price sensitivity.
• Improved sentiment has also translated into a more stable employment outlook. Most districts reported that employment levels remained unchanged from the previous period, an improvement over November’s survey, which had indicated that employment was in decline. Contributing factors include firms’ strategic shifts from aggressively limiting headcount to now prioritizing the use of temporary workers and AI implementation.
• Despite an overall positive report, price pressures remain a focal point of concern. A majority of districts reported moderate cost increases, largely attributed to ongoing tariff anxieties. As pre-tariff inventories are exhausted, an increasing number of firms have expressed a willingness to pass these costs through to the consumer. Conversely, sectors such as retail remain hesitant, fearing a pullback from price-sensitive customers.
• The rise in optimism appears to be part of a broader trend, as firms begin to look beyond immediate tariff concerns to focus on future growth. Provided there are no material changes to regulation or fiscal policy, this change should bolster the prospects for a stronger economy. While it is too soon to recommend an increase in risk tolerance, these conditions could significantly enhance the investment climate, provided this sentiment persists.

Iran Strike Avoided: Tensions between Iran and the US have slightly eased following pledges from Tehran to halt protester executions. On Wednesday, the White House signaled it would withhold planned military strikes in response to these assurances, a move that coincided with the reopening of Iranian airspace. This cautious de-escalation comes as the Iranian regime continues its crackdown on domestic protests now entering their third week. While this easement has calmed global markets and lowered commodity prices, the risk of renewed conflict remains significant.

Data Center Consumption: PJM Interconnection, the largest US grid operator, has lowered its 2027 peak power demand forecast from 164 to 160 gigawatts. This revision serves as a reality check for the “AI boom,” as PJM cited a lack of firm construction commitments or electrical service agreements for many projected data centers. The new outlook is likely to pressure energy companies whose valuations have rallied on near-term AI energy demand.

Silver Prices Decline: The White House has deferred the imposition of new tariffs on silver, a move expected to alleviate immediate price pressures on the metal. This decision follows a November directive to study silver’s national security implications under Section 232. While the president has not ruled out future duties, he has signaled a shift toward protecting domestic producers through price floors rather than broad-based tariffs. This pivot has already begun to cool “bubble” concerns that had previously sent silver prices to record highs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the president’s pressure campaign on Iran, highlighting its significance for US foreign policy. We then examine key domestic initiatives, including the White House’s push to cap credit card interest rates and improve home affordability, as well as the notable geopolitical effort to acquire Greenland. We also address the global implications of China’s record trade surplus. Lastly, the report includes a roundup of essential domestic and international data.

Trouble for Iran? As protests in Iran continue, the United States appears to be positioning itself as a potential enforcer should the government’s crackdown become extreme. On Tuesday, the White House encouraged protesters to maintain pressure on the current regime and to occupy key institutions. Additionally, it offered assurances of US backing, suggesting possible intervention if Ayatollah Khamenei does not curb the violence. These comments signal another step in the president’s pivot toward a more assertive foreign policy.

• By challenging the internal stability of Tehran, President Trump is accelerating the erosion of China and Russia’s strategic reach. The recent capture of Nicolás Maduro served as the catalyst, throwing the stability of anti-US regimes into doubt. As Iran struggles to contain a brutal wave of domestic protests, Cuba stands as the next likely domino to fall, leaving the Sino-Russian alliance with fewer reliable footholds in the Western Hemisphere and the Middle East.
• Washington’s effort to flip key regional allies of China and Russia is gaining momentum. Following the ouster of Maduro, the president is balancing relations with the interim Venezuelan leadership and the Machado-led opposition to ensure a pro-US transition. These diplomatic inroads are mirrored in the Caucasus, where a new 49-year security corridor has been established, and in the Middle East, where the administration is directly engaging with the exiled former crown prince of Iran amid nationwide unrest.
• While the US has achieved recent strategic successes, these gains are not without risks. Russia, for example, has intensified its campaign in Ukraine in response to these advances and may feel emboldened to challenge NATO more directly after the conflict concludes. Meanwhile, China appears to be leveraging its influence by pressuring countries, such as Australia and Brazil, into aligning more closely with its geopolitical orbit.
• Recent US foreign policy moves, including its pointed comments on Iran, highlight a broader strategy of countering Russian and Chinese influence through expanded power projection. In our view, such actions risk provoking retaliatory measures from Moscow and Beijing, both of which are intent on solidifying their international standing. While we do not consider direct war likely, we recognize a clear pathway for miscalculation that could escalate into conflict.

Wall Street Responds: On Tuesday, the White House escalated its pressure on banks, using social media to demand they impose a one-year, 10% cap on credit card interest rates. He warned that institutions failing to comply by January 20 could face punishment, without citing a legal basis for the threat. This aggressive directive represents the latest in a series of populist economic interventions, including recent moves in housing policy, designed to deliver immediate consumer relief and improve the party’s electoral prospects ahead of the 2026 midterms.

• The president’s timing targets major banks just as they prepare to release their earnings reports. Revenue from credit card swipe fees has become a cornerstone of bank profits, driven by the widespread extension of household credit. While these fees have boosted profit margins, they have also fueled rising consumer debt and a surge in delinquencies — a trend that has now sparked calls for government intervention.
• While industry leaders have signaled their intent to contest the cap through aggressive lobbying and judicial challenges, emerging reports suggest the sector is already exploring strategic concessions. Potential compromises include a voluntary expansion of the 36% Military Lending Act (MLA) cap to all consumers and the introduction of a temporary one-year promotional rates to satisfy the White House.

• To further pressure the banks, the president has signaled his support for the Credit Card Competition Act. This legislation would require banks, specifically those with assets over $100 billion, to ensure that every credit card offers a payment network option beyond just Visa and Mastercard. This would grant merchants a choice of competing networks for processing transactions.
• Though the president’s formal power to act against financial institutions is limited, his public intimidation campaign is effectively testing the limits of unilateral executive action. If successful, it would likely embolden the White House to issue further directives, fueling an interventionist populist agenda that bypasses institutional norms and permanently expands the scope of presidential authority.
• The White House’s growing assertiveness is creating significant uncertainty for firms. This environment may compel companies to reconsider future plans as they work to ensure compliance and avoid regulatory entanglements. Consequently, equity market risks are becoming more elevated, underscoring the value of maintaining a well-diversified portfolio with exposure to both value and quality factors.

Homebuilders Under Fire: The White House has publicly criticized homebuilders for failing to sufficiently lower housing costs. The Federal Housing Finance Agency has specifically accused these companies of intentionally keeping prices elevated at the expense of potential buyers, citing their use of stock buybacks as evidence of their capacity to reduce home prices. This coordinated criticism signals to the industry that they are expected to prioritize affordability over excessive profits.

Greenland Talks: The United States continues to advocate within NATO for its ambition to annex Greenland. While the territory is already part of the alliance through Denmark, the White House has suggested that control by the US would enhance its strategic protection. These comments follow statements from Greenland’s leaders reaffirming their preference to remain under Danish sovereignty and are likely to raise questions about Washington’s commitment to NATO’s foundational principles.

China Surplus Rises: China’s trade surplus shattered records in 2025, punching through the $1 trillion ceiling for the first time to reach $1.19 trillion. This milestone confirms that manufacturers have successfully bypassed the 20% slump in US trade by pivoting toward the EU and ASEAN regions. While this shift highlights China’s increasing independence from US consumer demand, the massive global imbalance is fueling international concerns over industrial overcapacity, likely leading to a new wave of reciprocal tariffs from non-US nations in 2026.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today first discusses one way to understand the US’s new foreign policy now that we’ve had a year to observe it in practice, taking into account the administration’s new national security strategy and analysis of peak events such as the seizure of Venezuelan President Maduro. We next review several other international and US developments that could affect the financial markets today, including rising pushback to the Justice Department’s probe of Federal Reserve Chair Powell and a presidential social media post that may signal new federal regulation of electricity prices.

US Foreign Policy: More than a week has passed since the US seizure of Venezuelan President Maduro, and it may be useful to say some words about the US’s evolving new foreign policy. Coupled with the administration’s national security strategy and its other initiatives over the last year, the action in Venezuela suggests to us that the “spheres of influence” goal so many analysts are discussing may not be the most accurate. Rather, we wonder if “neo-colonialism” may be a better way of thinking about President Trump’s foreign policy and where it’s heading.

• First, it’s helpful to understand the terminology. We see colonialism as an economic and political relationship in which the mother country has some degree of control over foreign lands to use them as guaranteed markets and/or sources of raw materials and industrial inputs. People typically see spheres of influence as more tenuous control over a particular geographical area. Finally, imperialism is an even broader, stronger control over foreign countries through military, diplomatic, and economic power.
• Many observers, especially in weaker countries or former colonies, use “colonialism” as a pejorative term, but we don’t. We use the term only descriptively — to better understand the evolving system’s political, economic, and investment implications. Indeed, one could argue that foreign policy should be judged by whether it advances the interests of the country’s people, including its working class. Past colonial systems, such as that of the British, may well have been quite positive for their own people and working classes.
• Given the administration’s focus on economic and commercial interests, it’s possible to argue that it is seeking to build a new, US-centered, neo-colonial system established and maintained by hard power. In this system, more industrial production would happen within the US, but Washington would have some degree of explicit or implicit control over other countries to ensure they serve as valuable markets or as sources of raw materials or industrial and technological components.
• If this is true, administration officials seem to want the new US neo-colonial system to be centered on the Western Hemisphere, mostly because they prefer short, easily defensible supply lines. The problem is that there are many key minerals and industrial or technological inputs outside the Western Hemisphere. For example, many critical minerals are most available in Africa or the Asia-Pacific region. The most advanced computer chips are currently produced almost exclusively in Taiwan.
• The administration may hope to eventually source all key minerals and industrial inputs from the Americas, but for the time being, any evolving US neo-colonial system would have to be broader than that, extending out in the Pacific Ocean to places like Japan, South Korea, Taiwan, and the Philippines, and across the Atlantic to at least some countries in Europe, the Middle East, and Africa.
• How would this evolving system affect the global “bloc” system that we at Confluence have discussed so much in recent years? At first, the new US system may largely overlap the current US-led geopolitical and economic bloc. However, while the bloc system implies a certain static, stable grouping of countries, the evolving neo-colonial system could be more fluid. In fact, a new tension-filled “Great Game” may emerge, where China and other countries tussle with the US to bring key countries into their system.
• As the US works to draw these countries close as a source of demand and supply, Washington will likely push to ensure that their economic policies are aligned with those of the US. If this includes pressure for improved policies such as deregulation and fiscal stability, Washington’s embrace may signal improved growth and better stock market performance.
• Over time, however, the US embrace of countries further afield, with long supply lines to the US, may be abandoned. For instance, while the US currently may want to defend Taiwan to ensure access to its semiconductor supplies, Washington is trying to develop the US’s indigenous capacity for those goods. When and if that eventually happens, the US would have much less interest in supporting Taiwan. Similar logic could apply to countries such as Japan, South Korea, and much of Europe in the long term.
• We would caution that this is still not a definitive analysis. We continue to watch the administration’s approach and try to better understand where it is going. And importantly, we are still wrapping our head around the associated investment implications. Many of our current themes are likely to continue, such as our positive view on European defense stocks and precious metals. All the same, we suspect that our analysis will reveal some additional opportunities and risks going forward.

United States-Taiwan: The Wall Street Journal today reports that Washington and Taipei are nearing a trade deal in which the current 20% import tariff against Taiwan would be cut in return for Taiwan committing to more than $300 billion in investment and other spending in the US. That sum includes and expands on last year’s $165-billion investment commitment from Taiwan Semiconductor Manufacturing Company. Importantly, the expanded investment commitment would have TSMC building as many as a dozen new cutting-edge chip plants in Arizona.

• The new Arizona fabs would produce both logic chips, which are used for artificial intelligence, and packaging chips, which provide supporting functions.
• The deal underscores the US administration’s focus on building up domestic technology manufacturing. Tech now is clearly a favored sector in the US, which will likely support the prospects for tech stocks going forward. However, its favored status could make it more susceptible to government interference over time.
• By increasing and expanding the range of advanced semiconductor manufacturing in the US, the deal also would be consistent with the administration’s goal of shortening and securing key supply chains. Consistent with the discussion above, however, it could eventually reduce the US’s reliance on Taiwanese production and reduce the US’s security interests in Taiwan.

United States-Iran: To pressure Tehran to stop its violent repression against anti-government protestors, President Trump yesterday said he would immediately impose an additional 25% import tariff on any country doing business with Iran. Based on data from the first half of 2025, some 100 countries could be at risk of the added tariffs. However, the most exposed would likely be China, Turkey, Pakistan, and India, all of which could face a new round of trade disruptions and financial market volatility.

 US Monetary Policy: Several top Republicans in Congress have criticized the administration’s criminal investigation of Fed Chair Powell, with at least two Republicans in the Senate signaling that they would hold up the president’s next nominations to the central bank over the probe. The sudden pushback may force the administration to shelve its probe and simply wait until Powell’s term runs out in mid-May. Even then, however, we think the White House would continue to push the Fed to slash interest rates when a new chair is in place.

• JPMorgan Chase CEO Jamie Dimon this morning added his opinion, saying that “anything that chips away” at the central bank’s independence “is not a good idea.”
• Dimon also warned that political interference with the Fed would cause inflation and interest rates to rise, contrary to President Trump’s goal of lowering rates.

 US Critical Minerals Industry: Louisiana-based gallium producer Atlantic Alumina yesterday said the Pentagon has bought $150 million of preferred equity in the firm and will make further investments in the near future. The deal is the latest in a string of US government investments in firms producing minerals that are critical to advanced technology and defense goods. The aim is to break China’s near monopoly on producing many of the minerals — an aim that has boosted investor interest in critical minerals firms and other miners and processors.

US Housing Industry: New York Gov. Kathy Hochul today will reportedly propose exempting most new housing projects from the New York State Environmental Quality Review Act. If the reform is approved by state legislators, it would mark the latest state or local effort to make it faster and cheaper to build new housing supply by cutting regulations. If such state and local efforts hit critical mass, they could be positive for national homebuilders.

US Electricity Market: In a social media post last night, President Trump said he never wants “Americans to pay higher Electricity bills because of Data Centers.” Rather, he insisted that big tech companies building data centers “must ‘pay their own way.’” Given the president’s other proposed market interventions to address “affordability,” the statements may raise concerns that he will intervene in the electricity market to push down consumer bills ahead of the mid-term elections in November — a move that could roil technology and utility stocks.

European Union: New data from European trade body CLEPA shows auto parts manufacturers on the Continent eliminated over 100,000 jobs over 2024 and 2025, twice the total loss during the coronavirus pandemic. According to the organization, the losses reflect weak European auto demand and ultracompetitive pricing by Chinese auto exporters. The figures illustrate the dire straits faced by Europe’s auto sector and point to the possibility of further trade tensions between the EU and China.

United Kingdom: Air Chief Marshal Sir Richard Knighton, chief of the defense staff, told a parliamentary committee yesterday that the British armed forces are underfunded and that “We are not as ready as we need to be for the kind of full-scale conflict that we might face.” The statement shows how European countries probably will not be able to defend themselves against Russian threats in the near term, even if they want to rearm quickly. That suggests European defense firms will continue to see growing revenues, profits, and stock prices for years to come.

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