by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a focus on the president’s new tariffs following the expiration of the August 1 deadline. We then assess major international and domestic developments impacting financial markets, including the ongoing legal challenges to the president’s tariff authority in federal appeals court, and the administration’s expanding campaign to put pressure on monetary policy, which has now extended from Fed Chair Powell to the broader Federal Reserve Board regarding interest rate cuts.

 Deadline Passed: New tariff rates have been announced by President Trump for countries that were unable to finalize a deal by the August 1 deadline. Although rates for most nations are still lower than the April 2 levels, Brazil and Switzerland are notable exceptions as both are seeing an increase in their rates. It is worth noting that the new tariffs will not be imposed for seven days.

• While many countries received their new tariff rates, a few notable exceptions were granted extensions. China and Mexico, for instance, received deadline extensions beyond August 1 from the Trump administration as negotiations continue. This suggests that potential trade deals could be close to finalization with these nations. While Canada was hit with 35% tariffs, goods covered under USMCA were excluded.
• On a more positive note, some countries successfully negotiated more favorable terms. Australia, for example, secured a baseline tariff of 10%, a rate comparable to that granted to the UK, another country with a trade surplus with the US. Additionally, Taiwan has stated that it expects its tariff rate to be cut after talks.
• However, the president has established a global baseline tariff rate of 10%, signaling the permanence of this policy. Our view is that these country-specific tariffs are intended to be the president’s primary tool to generate revenue from abroad, which would thereby help fund US spending.

Tariff Court Showdown: The administration’s tariff plans faced a cool reception on Thursday. At the heart of the dispute are the reciprocal tariffs, which the White House defends under the International Emergency Economic Powers Act (IEEPA). During the hearings, judges expressed broad skepticism as the act does not explicitly mention tariffs. Given the high stakes and the challenge to presidential authority, the case is almost certain to reach the Supreme Court, irrespective of the appellate court’s ruling, since the losing side is very likely to appeal.

 Fed Board Targeted: President Trump has called on the Federal Reserve Board to take over for Fed Chair Powell if interest rates aren’t lowered at the upcoming policy meeting. This latest demand reflects the president’s ongoing campaign for rate cuts, which he argues would alleviate the government’s debt burden. While the previous meeting saw two dissenting votes against the rate decision, there is no indication that the board has lost confidence in its chair. However, four opposing votes by Fed governors have previously led to a chair’s resignation.

 Asian Factory Pessimism: Asian manufacturing sentiment has plummeted due to concerns about Trump’s tariffs. According to the S&P Global Manufacturing PMI, confidence in output among surveyed businesses in the region has fallen to its lowest level since July 2020. While a surge in demand from “tariff front-running” was observed, doubts persist about the ability of these manufacturers to sell to the US market given the new levies.

 AI Wariness: Investors are growing wary after Amazon reported weaker-than-expected operating income and cloud revenue, which lagged that of key rivals. The disappointing earnings arrive at a critical juncture, as markets scrutinize whether massive AI investments by tech giants will deliver returns. AI-driven optimism has fueled the market rally for the past three years, but if sentiment sours, a shift in leadership could emerge.

 Lower Drug Prices: President Trump has demanded that pharmaceutical companies lower drug prices by September 29. His administration sent letters to 17 major firms with a warning that if they fail to act, the White House will use all available tools to prevent price abuses. This aggressive stance underscores the executive branch’s willingness to leverage its authority — potentially at the expense of corporate interests — in a bid to appeal to populist sentiment.

 Eurozone Inflation: The eurozone’s July flash CPI estimate showed prices rose 2.0% year-over-year, broadly stable from the prior month but marginally exceeding the 1.9% consensus forecast. The subdued inflation reading may fuel speculation about further ECB rate cuts, as concerns over slowing growth and elevated debt levels could push the central bank toward more accommodative monetary policy.

 Firm Merger & Acquisitions: Dealmaking activity has picked up as investors gain greater clarity on tax and trade policies, according to Ares Management’s CEO. The comments follow a wave of recent takeovers across the railroad, cybersecurity, and industrial sectors. This trend suggests that when investors have more predictable policy outlooks, they become increasingly willing to assume additional risk.

 No Term Limit: El Salvador’s legislative assembly has voted to abolish presidential term limits, clearing the path for Nayib Bukele to potentially remain in power indefinitely. This consolidation of executive authority follows a regional pattern where leaders have eroded democratic institutions in the name of combating crime. Notably, Latin America has a complex history with strongman leaders, and while they are often politically controversial, their regimes have at times maintained relative stability for financial markets.

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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 latest trade agreements, paying close attention to the strategic use of tariffs and their broader implications. We then examine key international and domestic developments shaping financial markets, including insights on the Federal Reserve’s recent rate decision and noteworthy trends involving major US tech companies.

 Trade Updates: While some uncertainty remains, there seems to be growing momentum toward securing trade agreements ahead of the August 1 deadline. Once the current negotiations over country-specific tariffs are concluded, the president may shift focus toward using tariffs for more targeted purposes, such as advancing sector-specific goals or diplomatic objectives. This strategy could further legitimize tariffs as an economic tool to project US power on the global stage.

• President Trump announced that the United States and South Korea have reached a new trade agreement. In a post on Truth Social, the president revealed that South Korea will invest $350 billion in US-owned projects overseen by his administration, along with a commitment to purchase $100 billion worth of US energy exports. In return, South Korea will benefit from lower tariffs on its exports, including vehicles that previously faced a 25% duty, with rates now reduced to 15%.
• The president has also leveraged tariffs to pressure an end to the war in Ukraine. On Wednesday, he imposed a 25% tariff on India — plus an additional penalty — due to its purchases of Russian oil and weapons. This move followed Tuesday’s warning to Russia to make meaningful ceasefire progress within 10 days or face retaliatory tariffs. While Wednesday’s tariff rate is slightly lower than the 27% announced on Liberation Day, the added penalty could push the total higher.
• Demonstrating flexibility on sector-specific tariffs, the administration has granted targeted relief by excluding refined metals from the 50% copper tariffs. This move addressed warnings from American metal producers that insufficient domestic production capacity could lead to severe shortages if imports were restricted. The policy reversal triggered an immediate market response, with US copper prices falling sharply after the announcement.
• Meanwhile, significant momentum remains as multiple countries rush to finalize trade agreements with the US before the August 1 deadline. The most critical negotiations involve Mexico, Canada, and Taiwan — all strategically important for global supply chains. Officials remain hopeful that agreements can be concluded before the deadline passes.

 Fed Rate Decision: As anticipated, the Federal Reserve maintained its target range for the policy rate at 4.25% to 4.50%. This decision, however, revealed a growing division among FOMC members regarding inflation and the economy’s direction. Notably, for the first time since 1993, two Fed governors, Michelle Bowman and Christopher Waller, dissented in favor of a rate cut.

• While not explicitly stated, Federal Reserve officials appear increasingly concerned about the potential for short-term stagflation. During Wednesday’s press conference, Chair Jerome Powell acknowledged downside risks to the economic outlook while emphasizing that, in the Fed’s baseline assessment, the inflationary impact of tariffs would likely prove transitory.
• The central bank is sending mixed signals. While Chair Powell affirmed the labor market’s strength by pointing to low unemployment, he also underscored weak demand and stagnant hiring. This contradictory framing implies that the labor market’s resilience stems from a limited labor supply, rather than vigorous job creation. In essence, supply-side constraints are currently overshadowing demand-side frailties. This shift away from the Fed’s usual emphasis on demand-driven policy is notable given policy uncertainty.
• With a divided Federal Reserve, the upcoming meeting among officials could be particularly contentious. We anticipate the next two months of data will provide strong guidance for the next rate move. Given the central bank’s acknowledgment of a temporary inflation bump due to tariffs, the likelihood of a rate cut will likely hinge more on labor market data than inflation figures.

 Treasury Quarterly Refunding: The Treasury Department announced plans to maintain its current pace of longer-term debt issuance, consistent with volumes from the previous five quarters. This measured approach is designed to mitigate any adverse impact on long-term interest rates, given their particular sensitivity to the pace of debt issuance. As a result, our expectation is that long-term rates will largely remain stable.

 Nvidia Caught in the Middle: Chinese officials summoned the chipmaker to discuss security risks associated with its H20 chips. These concerns stem from comments by a US lawmaker advocating for tracking capabilities in advanced chips. While Nvidia aims to operate in both markets, it might be forced to choose between the US and China in their race for technological supremacy. Such a decision could significantly weigh on the sentiment of certain tech stocks, given the sector’s substantial revenue exposure to China.

 AI Demand Robust: Meta and Microsoft both surpassed market expectations for their AI-related earnings, reflecting strong demand for their services. AI continues to be a major driver of market sentiment, easing investor concerns about the significant spending on capacity building. While the AI rally might seem crowded, there are still signs that its momentum will continue over the coming months.

 Nuclear Talks: Iran has declared it will not discuss its nuclear program until the US agrees to compensate it for past attacks and provides guarantees against future aggression. These demands emerge as both sides seek to establish terms for talks following the recent 12-Day War between Iran and Israel, which concluded with US intervention. Further negotiations could pave the way for a long-term resolution to the dispute over Iran’s nuclear program.

 Industrial Espionage: Australia alleges that foreign spies have targeted its sensitive rare earth sector, Antarctic research, and its involvement in the AUKUS submarine pact to gather intelligence. The country estimates that this espionage cost its economy $8 billion in 2024, specifically citing China, Russia, and Iran as particularly active. This report underscores the escalating tensions between Western nations and their adversaries.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an assessment of the current FOMC meeting, focusing on the potential timing of interest rate cuts. Additionally, we will explore a range of other impactful international and domestic developments influencing financial markets, including the latest in trade policy and the ongoing situation with China.

Fed Meeting: Today, Federal Reserve officials are anticipated to conclude their two-day meeting by holding interest rates at the current target range of 4.25% to 4.50%. This decision is poised to move financial markets, with investors closely scrutinizing the Fed’s statements for any indication of when rate cuts might occur later this year. Although market expectations lean towards a September rate cut, Fed officials might choose to be more noncommittal in their guidance, allowing them to keep their policy options open.

• The market will closely monitor any dissents during this meeting. In the weeks leading up to it, Fed officials have expressed differing views on whether the central bank should cut rates this month. Two Fed governors — Christopher Waller and Michelle Bowman — are seen as likely to dissent if rate cuts are not implemented.
• The monetary policy debate arises amid concerns over tariffs’ economic impact. While most agree that tariffs will fuel higher inflation, officials disagree on whether the effect will be temporary or more structural.
• So far, tariffs have had a relatively modest impact on inflation. In June, overall CPI edged up from 2.4% to 2.7%, while core inflation saw a smaller increase, rising from 2.8% to 2.9%.
• We expect that any sign of dovishness from the Fed would likely boost equities, though the bond market reaction could be mixed, particularly if rates are left unchanged. Potential dovish signals might focus specifically on labor market inertia, where firms have shown reluctance both to hire or to lay off workers.

China Truce: Following two-day trade talks in Stockholm, the US and China concluded their meeting with no plans to extend the August 12 deadline for a new trade deal or reintroduce previous, more onerous tariffs. This meeting follows earlier discussions held in Geneva in May and London in June, as the world’s two largest economies strive to prevent escalating trade tensions.

• While trade talks have made progress, any final deal still requires President Trump’s approval. There is growing speculation that failure to extend the tariff truce could trigger a return to triple-digit tariffs on Chinese goods.
• Any easing of US-China trade tensions would likely boost US equities, with technology stocks positioned to benefit disproportionately given their significant revenue exposure and supply chain dependence on the world’s second-largest economy.

Yen in Trouble?: The Japanese currency is under significant pressure amid political and monetary policy uncertainty. The recently negotiated US trade deal has raised concerns that the government may increase fiscal spending and delay Bank of Japan tightening to support the economy. While this could provide a tailwind for Japanese equities, it may further strain the already-challenged bond market.

Tariff Stimulus Checks: Senator Josh Hawley (R-MO) has proposed legislation that would provide $600 rebates to American households to help offset rising costs from new tariffs. While the bill faces significant political hurdles following recent tax-cut stimulus measures, President Trump has indicated he might support the idea, particularly if tariff revenues continue to surpass expectations. Additional stimulus could provide further support to equity markets while reducing recession risks.

South Korea-US Trade Talks: Both parties are working diligently to reach an agreement before the August 1 deadline. While the Japan trade deal is largely viewed as a framework agreement, reports indicate several notable exceptions may be included, particularly provisions requiring South Korea to allow its currency to appreciate against the dollar while increasing imports of US beef and rice. While such a deal would likely boost Korean equity prices, it could potentially slow the country’s economic growth.

Eurozone Resilience: The eurozone maintained modest growth despite escalating trade tensions with the US, as GDP expanded 0.1% quarter-on-quarter in Q2, slightly exceeding expectations of flat growth. However, this aggregate performance masked divergences among member states, as economic contractions in Germany and Italy highlighted emerging vulnerabilities. While we maintain a constructive outlook for regional growth, we are closely monitoring these signs of weakness.

Climate Deregulation: The Trump administration is now pushing to roll back Obama-era regulations to limit carbon emissions. The EPA is expected to rescind its endangerment finding that classified carbon dioxide and other greenhouse gases as public health threats. This regulatory reversal would support the administration’s broader deregulation agenda, aimed at streamlining investment and accelerating development in key sectors.

Beijing Meets: China’s Communist Party will convene its next plenary session in October to deliberate on the 2026-2031 Five-Year Plan. Although the report didn’t specify an exact date, the meeting is expected to draw close scrutiny from global investors seeking clarity on China’s economic strategy amid escalating trade tensions.

Pacific Tsunami: A major earthquake off Russia’s far east coast has triggered tsunami waves, which are expected to impact Japan, Hawaii, and the West Coast of the United States. Evacuations are underway in affected regions as residents seek higher ground. While initial signs don’t point to a catastrophic outcome, the risk remains elevated.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest US-China trade talks, which mostly aim to extend the current trade truce between the two countries. We next review several other international and US developments that could affect the financial markets today, including new signs that the threat from Russia is sparking more public investment in Europe and new details on an unexpected industrial tax break in President Trump’s recent “big, beautiful” tax-and-spending bill.

United States-China: Last night, US Treasury Secretary Bessent, Chinese Vice Premier He, and other top economic officials from the US and China began a new round of trade talks in Stockholm. Following previous talks in Geneva and London, the Stockholm talks aim to extend the current 90-day trade truce, which ends August 12. If the officials fail to extend the deal, President Trump’s ultra-high tariffs on Chinese imports would be applied again, and the Chinese would likely renew their debilitating embargo on rare-earth exports.

United States-Taiwan: The Financial Times late yesterday said President Trump has denied Taiwanese President Lai’s request to transit through New York on an upcoming trip to Central America to avoid riling Beijing. The move is consistent with the FT’s previous report that Trump has also frozen new curbs against US technology exports to China to avoid spoiling the prospects of a US-China trade deal.

• Trump’s ban on new US technology curbs against China comes despite national security concerns about the Chinese military gaining access to advanced US technologies.
• The reporting suggests that Trump is extremely focused on getting a US-China trade deal over the goal line. Given Beijing’s demonstrated willingness to play tough in the talks, that suggests Trump could accept unfavorable terms from Beijing. Any such deal could be taken well by the financial markets because it would eliminate a lot of uncertainty, but the result could be longer-term disadvantages for the US.

China: New data from cloud computing platform PPIO indicates that China’s well-known DeepSeek artificial-intelligence models are rapidly losing market share to Alibaba’s Qwen model. DeepSeek burst into the world’s consciousness earlier this year with its low-cost, open-source models. Qwen’s success in catching up rapidly is a reminder for investors that in today’s hyper-competitive AI industry, the current leading firms can easily lose their rank, while apparent laggards have the potential to catch up quickly.

Japan: The government has announced a new “employment for skill development” system to bring in foreign workers and address labor shortages in higher-skill job categories. The new system will replace the current technical-intern training program, which many firms have abused to simply bring in low-cost labor from developing countries. That has displaced many Japanese workers with lower skills, helping spark an anti-immigrant backlash that boosted the right-wing nationalist Sanseitō Party in this month’s elections for the upper house of parliament.

Philippines: The Supreme Court, which is dominated by judges appointed by former President Rodrigo Duterte, has ruled that procedural errors nullify the congress’s February impeachment of Vice President Sara Duterte-Carpio, the daughter of the former president. As a result, the pending Senate trial of Duterte-Carpio must be cancelled, at least temporarily thwarting current President Ferdinand Marcos, Jr.’s effort to sideline the China-friendly Duterte-Carpio ahead of the 2028 presidential election.

European Union: In an interview yesterday, Transport Commissioner Apostolos Tzitzikostas warned that the EU’s roads, bridges, and railways would be unfit for rapid military mobilization in case of war with Russia. To remedy that, Tzitzikostas noted that the EU’s proposed 2028-2034 budget includes 17 billion EUR ($19.6 billion) for military mobilization projects, such as strengthening and widening bridges. The plans illustrate how Europe’s improved near-term economic prospects don’t just reflect higher defense spending per se, but also broader fiscal loosening.

• As we have often noted, economies often get a bigger-than-expected boost from an external military threat, since the threat helps justify investments that otherwise wouldn’t get made.
• A prime example in the US was the interstate highway system, officially designated the “Dwight D. Eisenhower National System of Interstate and Defense Highways.” It was the brainchild of former President Eisenhower based on his logistics experience leading allied forces in Europe in World War II.
• Many aspects of the interstate highway system were designed to support military mobilization and evacuations in case of war with the Soviet Union. Building out the system is widely assessed to have boosted US economic growth, especially in the 1960s.

Eurozone: A workers’ committee at the European Central Bank has written a scathing letter to ECB President Lagarde and her staff, accusing them of operating in an anti-democratic manner and mistreating employees through favoritism and unreasonable work expectations. The letter is only the most recent example of bad labor relations at the ECB. There is no sign that the unrest threatens Lagarde’s position, but it could influence who becomes her successor when her term ends in October 2027.

US Monetary Policy: The Fed today begins its latest policy meeting, with the decision due tomorrow at 2:00 PM ET. Based on interest-rate futures trading, investors are almost unanimous in expecting the policymakers to hold the benchmark fed funds rate steady at 4.25% to 4.50%. Traders expect the next rate cut at the September meeting. However, all eyes will be on Chair Powell and whether he gives a hint of other plans in his post-decision press conference.

US Manufacturing Industry: The Wall Street Journal today highlights a previously unreported detail of President Trump’s recent “big, beautiful” tax-and-spending bill that should cut income taxes for many big, capital-intensive industrial firms. The provision restructures and broadens the Foreign-Derived Investment Income deduction to make it more useful for capital-intensive firms with international operations. It has therefore given big US exporters an unexpected tax break and added incentives to move production back home.

US Railroad Industry: Railroad giant Union Pacific today said it has made a deal to purchase rival Norfolk Southern for $85 billion. One notable aspect of the deal is that, if approved, it would create the nation’s first coast-to-coast freight railroad, allowing shippers to send goods all the way across the country using just one company. However, while that sounds positive, we note that past railroad mergers have sometimes faltered because of the difficulty in tying firms’ operations together safely and efficiently.

Current Union Pacific and Norfolk Southern rail networks

(Source: US Bureau of Transportation Statistics)

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the big news of a trade deal between the United States and the European Union. We next review several other international and US developments with the potential to affect the financial markets today, including more trade tensions between the EU and China and a brief overview of this week’s Federal Reserve policy meeting.

United States-European Union: The US and the EU yesterday said they had reached a trade deal in which the US will impose a 15% tariff on most EU imports, including automobiles, while the EU drops its tariffs against US goods. However, the US would still impose a 50% tariff against EU steel and aluminum. The deal provides some certainty for US and EU businesses, but the new tariffs will likely disrupt trade supply chains and create inefficiencies over time, as well as potentially raising costs for US firms and consumers.

• President Trump said the EU also committed to spend an additional $750 billion on US energy products and “hundreds of billions of dollars” on US military equipment. He also said the EU had agreed to invest $600 billion in the US.
• The EU commitment to invest in the US appears similar to the Japanese government’s commitment to invest under its trade deal with the US. These investment promises are important because they appear to give Trump an extraordinary opportunity to intervene in the US economy by influencing where those funds are invested.
• In any case, investors are reacting positively to the news. The S&P 500 price index for large cap US stocks at this writing is up about 0.5%, while the Stoxx Europe 600 is up about 0.9%. The US Dollar Index has also increased, up 0.6% so far today.

United States-China: Over the weekend, the Financial Times said White House officials told the Commerce Department to freeze new export controls on US technology going to China to avoid spoiling President Trump’s trade negotiations with General Secretary Xi. The report is consistent with the way the administration has backtracked over its springtime threat to further clamp down on sensitive exports to China. The news suggests Trump is prioritizing his trade talks over the national security goal of keeping advanced US technology away from the Chinese military.

European Union-China: Brussels today issued preliminary findings that Chinese e-commerce platform Temu has breached the EU’s new Digital Services Act by failing to prevent fake and harmful products from being sold on its platform. If confirmed as guilty, Temu could face a fine of up to 6% of its global revenue. The move will probably further poison EU-China relations after Brussels and Beijing held a tense, cool summit late last week.

China: In its latest effort to boost the country’s birthrate and arrest its population decline, the Chinese government has launched a program that will annually give families the equivalent of about $503 for each child under the age of three. However, the program is already being panned by demographers and other observers, who believe the sum is much too small to encourage more births.

Taiwan: Over the weekend, voters cast ballots in the recall election of 24 lawmakers from the opposition Kuomintang Party (KMT), with recall elections on seven more planned for late August. Preliminary results indicated that voters rejected the recall in every single constituency, leaving the China-friendly KMT in control of the legislature. That means China-Taiwan tensions will likely be contained in the near term.

Thailand-Cambodia: Border clashes continued into the weekend, with Thailand deploying naval ships near the Cambodian border and President Trump threatening to stop talks toward a US trade deal with each country if they keep fighting. The two countries today agreed on a ceasefire to start tonight, but it remains to be seen if it will really be implemented. For US investors, the conflict is especially concerning with regard to Thailand, which has a relatively large stock market capitalization and is popular with emerging market investors.

United States-Israel: A report by SpyTalk last night said multiple hedge funds have bankrolled a private investigation into the source of pedophile Jeffrey Epstein’s wealth, evidently to clarify whether Epstein was indirectly funded by Mossad, the Israeli intelligence service, to blackmail President Trump and other powerful US business people and politicians. While Trump’s past association with Epstein has already been an irritant to Trump and angered his political base, any link to Israel would likely threaten to further strain US-Israeli relations.

US Monetary Policy: The Federal Reserve this week will hold its latest policy meeting, with the decision due out on Wednesday at 2:00 PM ET. Based on current interest-rate futures trading, investors are virtually unanimous in expecting the policymakers to hold the benchmark fed funds rate steady at its current range of 4.25% to 4.50%. Traders don’t expect the next rate cut until the September meeting.

• In the meantime, since the policymakers won’t be releasing their “dot plot” of economic projections at this meeting, investors will be closely watching the policy statement and press conference for any sign that Chair Powell is ready to succumb to the Trump administration’s pressure for aggressive, near-term rate cuts.
• Assuming that Powell is not forced out before the end of his term in May, we continue to expect only a limited number of rate cuts over the coming year. However, we expect President Trump to then replace him with someone he perceives to be much more dovish, raising the risk of aggressive rate cuts and overly loose monetary policy later in 2026.

US Lumber Industry: The Wall Street Journal today carries an article on how President Trump has directed the US Forest Service to develop a five-year plan to contribute to a 25% increase in the overall volume of timber harvested from national forests. The Agriculture Department has also begun to ease regulations limiting timber cutting. Along with tariffs on imports from Canada and other countries, the moves could potentially mean that more of the wood used in US home construction will be domestic, boosting the domestic lumber industry but possibly raising costs.

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