by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a discussion of potential challenges surrounding the leadership transition at the Federal Reserve. We then provide updates on developments in Iran, the implications of the global memory chip shortage, the potential for renewed tariff increases, and signs of additional strain in the relationship between the United States and its allies. As always, we include an overview of recent domestic and international economic data.

 Fed Pressure: Nearly a month before Fed Chair Jerome Powell’s term is set to expire, controversy is mounting over what will follow. His potential successor, Kevin Warsh, has made financial disclosures that have raised questions about potential conflicts of interest. Separately, US prosecutors have dropped by a Federal Reserve construction site, a move that suggests that Powell may still be under investigation. These developments are likely to fuel scrutiny of the Federal Reserve’s future composition in the coming months.

• Ahead of his Senate confirmation hearing, Kevin Warsh released financial statements showing a net worth of nearly $131 million, making him potentially the richest Fed chair in history. While he has not been accused of any wrongdoing, his wealth is likely to become a target for lawmakers questioning whether he will take advantage of his position for personal gain. In preparation for the hearing, Warsh has announced that he will step down from his advisory roles with various companies.
• Meanwhile, a recent visit by federal prosecutors to the Federal Reserve’s Washington headquarters project underscores that Powell remains entangled in a criminal inquiry over whether he misled Congress about the ballooning cost of the renovation. Although the Fed chair has not been formally charged, the renewed attention to the case is widely seen in Washington as a reminder that the White House will look to discourage him from remaining at the Fed beyond the official end of his term in May.
• The potentially rocky confirmation of Kevin Warsh, together with an ongoing investigation by US authorities, underscores the uncertainty surrounding Powell’s position at the end of his term. At the March FOMC press conference, Powell affirmed that he would remain as Fed chair until a successor is formally appointed. He has also left open the possibility of remaining on the Federal Reserve Board, which would make him the first former chair to do so since Marriner Eccles in 1948.
• Although Senator Thom Tillis has stated he will vote against Kevin Warsh’s confirmation as long as the investigation of the Fed is ongoing, Warsh is still expected to be confirmed as Fed chair this month. His hearing is likely to be more contentious than those of prior nominees, as he is expected to face questions about his independence given the White House’s attempts to pressure the central bank to lower rates. He may also face scrutiny over some of his outside ties, which could further dent his chances.
• The fate of Kevin Warsh and Fed Chair Powell is likely to have an impact on bonds. If Warsh were not confirmed, it would likely reduce the chance of a rate cut this year and potentially add volatility to the bond market, as the FOMC clearly feels content standing pat. Meanwhile, Powell’s decision to stay on could lead to a power struggle over the direction of policy. Although we remain confident that the transition will be orderly, we will be looking for any signs that it may not be.

 Iran Update: US and Iranian officials are showing signs of progress as they work toward a peace deal. President Trump has suggested that extending the ceasefire may be unnecessary, noting that the war is close to being over. Meanwhile, Israel has praised the US-brokered talks between it and Lebanon as a potential breakthrough toward ending hostilities, a key condition for Iran before it would agree to a deal with the United States. Although no formal agreement has been reached yet, there is growing optimism on both sides that one could be finalized imminently.

• The two sides are expected to meet for a second round of talks sometime this week. Discussions between Washington and Tehran to end the conflict are largely being built around Iran’s nuclear program. As mentioned in yesterday’s Comment, the two are in disagreement over how long to suspend Iran’s uranium enrichment program, with the US preferring 20 years and Iran offering only five years. However, the president has also pushed for a permanent end.
• While there has been consistent talk about a pathway to end the conflict since it began in late February, there does seem to be some momentum to get a deal done. At the start of this month, the president stated that he would not like the conflict to extend beyond two to three weeks, a timeline that gives negotiators roughly nine more days to find a solution.
• The end of the conflict is likely to trigger a sizable relief rally; however, its sustainability will depend largely on the next phase. As companies report their results over the coming weeks, we will pay close attention to their outlooks to gauge how the conflict is impacting their supply chains. Companies that demonstrate resilience are likely to perform better, while those hurt by the conflict may experience greater volatility. At this time, we remain optimistic that domestic firms should be well positioned following the conflict.

 Tech Supply Crunch: The escalating conflict in the Middle East, coupled with the surging demand for AI infrastructure, has triggered a significant shortage in memory chips. This supply-demand imbalance is projected to drive up consumer electronics prices — particularly smartphones — while forcing margin compression on manufacturers. Ultimately, this shortage underscores the persistent vulnerability of global supply chains and highlights how the intensive resource needs of AI are beginning to disrupt adjacent industries.

 Tariff Return: The US plans to return tariff rates to their previous levels by July. On Tuesday, Treasury Secretary Scott Bessent stated that the new round of Section 301 tariffs will allow the rates to remain in place, citing prior legal victories. The clause would permit the US to intervene if a study reveals that certain countries have benefited from trade due to excessive industrial capacity or forced labor practices. The move is expected to raise tariffs while also giving firms more certainty about future rates.

 UK-US Trade: In a sign of deteriorating diplomatic ties with the US and its allies, President Trump indicated that he may revise the trade agreement he negotiated with the UK last year. The move follows Prime Minister Keir Starmer’s recent criticism of Washington’s actions and its reluctance to assist in ongoing international efforts. In Washington, the prime minister’s remarks are being viewed as evidence that the once “special relationship” between the US and the UK is under growing strain.

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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 a tanker loaded with Iranian cargo has passed through the Strait of Hormuz today to challenge the new US blockade on the country. We next review several other international and US developments with the potential to affect the financial markets today, including data showing a marked decline in China’s trade surplus and Canadian Prime Minister Carney’s success in finally cobbling together a majority in his country’s parliament.

United States-Israel-Iran: Less than a day after the US began enforcing its blockade against Iranian ports, reports today say Saudi Arabia is urging the US to reverse course. According to the reports, the Saudis fear Iran will carry out its threat to retaliate against the blockade by attacking ports in Saudi Arabia and elsewhere in the region or closing the Bab el-Mandeb — a Red Sea chokepoint crucial for the kingdom’s remaining oil exports.

• In an early test of the blockade, the shadow-fleet tanker Elpis this morning passed through the Strait of Hormuz after taking on a cargo in Iran. The transit of the Elpis is likely intended to see just how strongly the US will enforce its blockade. As of this moment, we’ve seen no indication of whether the US Navy will stop the ship or not.
• New reports say one key point of contention in the talks to end the war is that the US is insisting on a 20-year moratorium on Iran’s nuclear activity, including uranium enrichment. In response, Iran is insisting it will not commit to more than five years. While that sounds like an unbridgeable gap, it does suggest that an eventual compromise could be reached with a moratorium somewhere in the middle, such as 10 years.
• Separately, the Organization of the Petroleum Exporting Countries said oil production in March was down 27.5% to just 20.8 million barrels per day, marking the biggest OPEC output drop on record. The decline in production illustrates how dramatically the war has disrupted output and exports in the region.
• Meanwhile, the International Energy Agency today said global oil demand fell 3.4% in March and is expected to drop a further 1.1% in April to just 100.4 million barrels per day, reflecting price hikes and supply disruptions from the war in Iran. Excluding the coronavirus pandemic, the quarterly drop in demand was the steepest since the Great Financial Crisis and will leave demand at its lowest in more than three years.
• Even as the US and Iran engage in negotiations to end the war, commentators in recent days have increasingly warned that Israel’s effort to create strategic buffer zones in southern Lebanon, Syria, and Gaza could lead to it being involved in “forever wars” similar to the US experience in Iraq and Afghanistan. If such a scenario comes to pass, it could threaten social cohesion in Israel and tarnish the country’s hard-won reputation as a rising star in stock sectors such as technology.

China: The March trade surplus totaled just $51.0 billion, less than half the surplus in March 2025. Exports in March were up just 2.5% on the year, slowing sharply from the 22.0% rise in January and February. The slowdown in exports reflected not only the continued fall in Chinese exports to the US, but also a decline in shipments to the Middle East because of the war in Iran. Meanwhile, Chinese imports in March were up 28.0% year-over-year, accelerating from their increase in January and February. In sum, the data points to more economic headwinds.

China-Philippines: The Philippine government today said it found cyanide on Chinese boats seized around a disputed shoal where Manila had grounded a warship to use as a base and assert its sovereignty. According to Philippine officials, it appears that the Chinese planned to poison the local fish population to deny a vital food source for the troops on the grounded ship and also weaken the reef supporting the vessel. The incident could signal renewed China-Philippine territorial tensions in the South China Sea and a renewed risk of conflict.

Singapore: Citing higher energy prices caused by the war in Iran, the Monetary Authority of Singapore yesterday said it would allow the country’s currency to appreciate more than previously expected, essentially implementing a tightening of monetary policy. That marked Singapore’s first monetary tightening in approximately four years. The move will likely threaten to slow economic growth in Singapore and could weigh on the country’s stock prices.

Canada: In by-elections yesterday, Prime Minister Carney’s Liberal Party was expected to win enough seats to take a slim majority in the national parliament. Carney was also able to convince several lawmakers to switch parties to join the Liberals in recent months. If Carney is successful in achieving a majority for the Liberals, he would be more likely to pass economic reforms that could help Canada weather the US administration’s tougher trade policies against Canada.

US Economic Growth: New studies from Goldman Sachs and Stanford University suggest the boost in consumers’ tax refunds this year will be essentially offset by the rise in energy and other commodity prices because of the war in Iran. As a result, many economists are now tempering their expectations for US economic growth this year. Importantly, while the increased tax refunds will be matched by the rise in energy prices on a macro basis, the research suggests that lower-income households’ refunds will be more than offset by their increased energy costs.

US Electric Utility Industry: New research says a group of 51 investor-owned utilities now plan a combined $1.4 trillion in capital spending in the coming five years, up from a five-year projection of $1.1 trillion just last year. The jump largely reflects a need to upgrade the national power grid for data centers and other facilities related to the artificial intelligence boom. For the utility companies, a key risk is whether state regulators will approve the plans. For consumers, approval of the plans threatens to raise electric rates and boost price inflation.

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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, including a new US threat to blockade ships traveling to and from Iranian ports and an Iranian warning that it would respond by attacking regional ports. We next review several other international and US developments that could affect the financial markets today, including new signs that the UK is working to at least partially reverse Brexit and new reports that the artificial intelligence boom is producing a shortage of computational power.

United States-Israel-Iran: The US-Iran peace talks in Pakistan at the weekend ended with no deal, mostly because the Iranians wouldn’t accept US demands to reopen the Strait of Hormuz to free and unfettered shipping or promise to give up their nuclear program. The Iranian side said lower-level technical officials would keep talking, but President Trump later said the US would up the ante by blockading passage through the strait to prevent Tehran from re-arming or selling its oil on world markets. Iran threatened to retaliate for the blockade by attacking regional ports.

• The failure of the talks will raise the odds that the US, Iran, or both could soon re-start their attacks, especially with a third US aircraft carrier and more ground troops set to arrive in theater within days. For the US, the focus would likely be an attempt to open the strait – an effort that could involve ground troops or other risky operations. In turn, that could mark a return to unbridled attacks and even more disruptions to the world’s energy and commodity markets.
• President Trump yesterday also said the US Navy would hunt down and stop any commercial vessels that pay a toll to Iran to pass through the strait. The statement will further raise the risk when shipping through the waterway.
• Of course, countries around the world are already suffering economic damage from the war. Researchers at Capital Economics have issued a new forecast that Qatar’s gross domestic product will shrink by 13% this year, the United Arab Emirates’s by 8%, and Saudi Arabia’s by 6.6%.
• Separately, media reports over the weekend said the Chinese government is preparing to send new shoulder-fired anti-aircraft missiles to Iran in the coming weeks. Although it has already been reported that China has been aiding Iran with chemicals, dual-use equipment components, and the like, any provision of lethal weapons would mark a significant escalation and eventually risk drawing China into the conflict.
• Iranian sources said the country’s new Supreme Leader, Mojtaba Khamenei, suffered severe facial and leg injuries during the US-Israeli airstrike that killed his father at the start of the war. However, the sources say Khamenei is recovering. Going forward, any facial scars on Khamenei could have political significance, providing a reminder of the US-Israeli attacks with every public appearance.
• Reflecting the failure of the Pakistan talks and the new US threat to blockade Iranian ships, the price for Brent crude oil so far today has jumped 6.7% to $101.55 per barrel.

China-Taiwan: As the leader of Taiwan’s opposition Kuomintang Party, Cheng Li-wun, ended her visit to China and wrapped up her talks with General Secretary Xi, the Chinese government said it will take nearly a dozen steps to ease travel to and from the mainland, such as restoring direct flights to Taiwan. The announcement likely aims to bolster Cheng’s political stature in Taiwan and undermine the current conservative, anti-China government.

• Separately, a senior Taiwanese official said the government will carry out its first-ever joint exercise between the Interior Ministry and other departments to escort ships carrying natural gas and oil during a potential Chinese naval blockade.
• The drills suggest the war in Iran has alerted Taiwan to the risk of disrupted energy supplies, which China could use as a nonlethal way to pressure the island to unify with the mainland.

European Union-United Kingdom: As opinion polls increasingly show Britons now regret Brexit, Prime Minister Starmer is reportedly planning to propose legislation that would insert EU rules into UK law with minimal parliamentary oversight. The law would apply to rules in certain policy areas, such as food safety standards. According to Starmer, the legislation would help cut business costs and bring down prices. In our view, it may also signal further re-integration of the EU and UK as the British try to reignite economic growth.

Hungary: In parliamentary elections yesterday, the opposition Tisza Party won approximately 138 of the 199 seats in parliament, beating pro-Russia populist Prime Minister Orbán and securing the two-thirds majority needed to ensure Orbán’s policies can be jettisoned. With this election result, Hungary will probably cease to be a major impediment to the European Union’s anti-Russia policies and will be more likely to hew to basic EU policies such as rule of law.

• The European Commission said it has already begun “immediate engagement” with the expected new prime minister, Péter Magyar.
• Besides pushing Magyar to mend ties with Ukraine, officials in Brussels are urging him to start long-demanded reforms to unlock 35 billion EUR ($41 billion) in frozen EU funds for Hungary.

US Artificial Intelligence Industry: The Wall Street Journal yesterday published an interesting article asserting that the rapid growth in “agentic” AI systems has caused the demand for computing resources to outstrip capacity, forcing firms to ration the resource and even drop product offerings. Anthropic and other AI firms have even faced service outages over the issue. The development illustrates the challenges firms face as AI becomes more widely adopted and may portend higher prices going forward.

US Stock Market: Nasdaq announced on Friday that software maker Atlassian will be replaced by memory chipmaker Sandisk in the Nasdaq 100 index. The move illustrates how the AI boom has scrambled the fortunes of major tech firms, weighing on the market values of software makers while boosting any equipment suppliers to the data-center buildup.

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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 growing concerns that AI tools may be becoming too dangerous. We then examine Hungary’s upcoming elections and their implications for the EU, provide an update on developments in Iran, discuss why OpenAI has delayed expansion plans in the UK, and review a new lawsuit over US tariffs. As always, we conclude with a summary of recent domestic and international economic data.

AI Fears: Treasury Secretary Scott Bessent and Fed Chair Jerome Powell recently met with several Wall Street CEOs to discuss emerging risks from AI. The conversation focused on the cybersecurity threats posed by Anthropic’s latest Mythos models and similar systems. These advanced tools, which can be weaponized to identify and exploit vulnerabilities in servers and web browsers, raise the possibility of AI-driven hacking. Such capabilities reinforce growing concerns that AI could evolve into a source of systemic financial risk.

• The efforts by the White House and the Federal Reserve to assess Wall Street’s vulnerabilities come as the financial system braces for a potential new era of hacking, one marked by increased sophistication and accuracy. According to Anthropic, the company has developed AI tools with offensive capabilities comparable to those of sophisticated state-level actors, which is why it considers the system one of its riskiest products.
• Although the tool has not yet been released publicly, a select group of major technology firms have accessed a sample version. These companies will be able to use the preview version to scan their platforms for bugs and uncover blind spots in their security frameworks. The decision to restrict access reflects the company’s concerns over AI safety and security, which are issues that lie at the heart of its dispute with the Pentagon and that trace back to why its founders, formerly from OpenAI, launched the company in the first place.
• The development of Anthropic’s Mythos has started to expose a troubling reality. The uses of the technology are evolving faster than our ability to understand its implications. This discovery is likely to add further pressure on the US government to establish potential guardrails to help shield the public from the tool’s capabilities. It also highlights the risk and danger that these AI tools could, and likely will, fall into the hands of bad actors.
• The rapid rise of AI is expected to trigger major disruption while simultaneously creating new vulnerabilities in the financial system. If a bad actor were to use, or develop, their own AI tools to hack into the banking system, it could undermine confidence in global finance and potentially spark a bank run. While this is not our base case, we believe that the development of AI‑enabled hacking tools represents a clear and present danger for markets if it is not taken seriously.

 A New Hungary: Hungarian President Viktor Orbán faces his toughest political challenge yet in this weekend’s presidential election. Recent polls place his party behind the opposition, 52% to 39% among decided voters, in what many see as a referendum on Hungary’s future within the European Union. The vote follows mounting criticism of Orbán’s restrictions on free speech, his alignment with Moscow during the war in Ukraine, and speculation that Budapest may seek to further distance itself from Brussels.

• While polls currently favor the opposition, victory is far from assured, as a significant share of voters, nearly one-fifth of those surveyed, remain undecided. Orbán continues to command strong loyalty among his base, and recent redistricting may improve his chances of outperforming expectations. The range of possible outcomes remains wide, with some analysts suggesting the opposition could secure a supermajority while others believe Orbán’s party may still retain its governing majority.
• The election has drawn attention from the White House, which remains closely aligned with Viktor Orbán. Earlier this week, US Vice President JD Vance traveled to Hungary to express support for Orbán and criticize the European Union, accusing it of exerting undue influence over the election. Vance’s visit underscores Washington’s effort to strengthen one of its closest regional partnerships amid mounting geopolitical tensions.
• Moreover, an Orbán defeat could strip Moscow of a key ally within the EU as Brussels seeks to intensify pressure over Russia’s war in Ukraine. Since the conflict began, Orbán has repeatedly obstructed EU and NATO initiatives to deliver financial and military assistance to Kyiv. His removal would likely open the door for a more assertive European stance toward Russian aggression and strengthen regional coordination on security and sanctions policy.
• The Hungarian election is unlikely to have a significant market impact — except perhaps a modest effect on the euro. However, its political implications could prove consequential for Europe. Orbán’s potential removal would likely ease coordination within the bloc on defense policy and military spending. We believe the EU is gradually pursuing greater security independence from the United States, a shift that could benefit European defense and aerospace firms positioned to meet rising regional demand.

 Iran Update: The US and Iran are set to meet in Islamabad to discuss a potential ceasefire agreement. Despite earlier US warnings over Tehran’s efforts to assert control of the Strait of Hormuz, diplomacy now appears to be gaining traction. Israel has agreed to enter direct talks with Lebanon, while Iran remains open to negotiations, though it continues to demand an end to Israeli strikes on Lebanese territory. With the strait still largely closed and the truce largely intact, the upcoming discussions may offer valuable insight into the prospects for a lasting peace.

 UK Stargate: Rising energy costs and red tape have led OpenAI to halt the construction of data centers within the UK. The move comes as the company looks to rein in costs ahead of its planned initial public offering. Its decision to pause construction has been influenced by energy prices related to ongoing conflicts, which have made costs less palatable. Additionally, the company has pushed for regulatory changes to make building more favorable. However, OpenAI does plan to resume construction at a later date.

 New Tariff Fight: A coalition of state governments and small businesses has filed suit against the White House over its new 10% tariffs. The plaintiffs argue that the tariffs, implemented after the recent Supreme Court ruling, effectively undermine that decision. Although the new measures were enacted under a different legal provision, critics contend that the administration’s justification, addressing large and persistent trade deficit, lacks a valid legal basis.

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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 next phase of the conflict following the cease-fire agreement. We then examine the latest FOMC meeting minutes and their implications for monetary policy. Other discussions include the inroads that the US is making in South America, the potential impact of low fertility rates on economic growth, and signs of backlash against higher energy prices in the EU. As always, we include a summary of recent domestic and international economic data.

The New Phase: A day after the United States and Iran agreed to a two‑week ceasefire, it remains unclear whether the lull in fighting will hold, as early signs suggest both sides are not fully adhering to the deal. On Wednesday, Saudi Arabia reported that its east‑west pipeline had been struck by Iranian drones, while Israel has continued its strikes against Hezbollah targets in Lebanon. The uncertainty has not derailed the planned talks scheduled for Friday, but it has prompted Iran to impose additional restrictions on shipments transiting the Strait of Hormuz.

• The renewed hostilities appear to be driven in part by factions that never fully embraced the ceasefire. Vice President JD Vance has said the US–Iran agreement applied only to Iran, not Lebanon, underscoring Washington’s view that Israeli operations against Hezbollah can continue under the deal. At the same time, Iran-aligned proxy groups are widely suspected of being behind continued drone and missile attacks on Gulf states and regional infrastructure.
• The ongoing attacks have raised the stakes for both sides ahead of Friday’s talks. It appears that Washington and Tehran are exploring an arrangement to jointly oversee trade through the Strait of Hormuz, with Iran reportedly pressing for a $1 per‑barrel transit toll paid in crypto‑assets and the United States floating a joint‑venture structure that would also entitle it to a share of shipping fees.
• The talks also appear likely to center on Iran’s nuclear program. Vice President Vance, who is set to lead the US delegation on Friday, has stressed that Washington’s stance on uranium enrichment remains unchanged, with meaningful sanctions and tariff relief conditioned on strict limits that prevent Tehran from obtaining a nuclear weapon. Meanwhile, Iran’s 10‑point proposal asserts its right to continue uranium enrichment, which underscores the significant gap that negotiators will need to bridge at the table.
• Additionally, Europe is expected to play a major role in helping secure the strait. The US has asked a UK-led coalition of European allies, as well as Canada and Japan, to present a plan to help manage the strait. At the same time, Iran has pushed for Europe to help ensure that the US and Israel are able to follow through on their commitments to the ceasefire. Europe, which had previously agreed to assist in keeping the strait open prior to the ceasefire, has also backed Iran in its effort to stop attacks in Lebanon.
• Although market sentiment has improved, a sustained recovery will ultimately depend on companies’ earnings outlooks, particularly as they offer insight into their overall exposure to the conflict and how they plan to address these vulnerabilities. In this environment, we think firms that have a solid history of having resilient earnings as well as those who issue dividends should do well as investors are likely to start to prioritizing value over growth.

 Fed Divided: The latest FOMC meeting minutes revealed that Fed officials remain divided on how best to approach policy going forward. While most officials seem to favor holding rates steady for now and cutting later in the year, there was pushback from some members over whether there should be a reference to the possibility of a rate hike, given that inflation continues to run above target. The wide range of opinions reflects the reality that Fed policy could change quite radically over the next few months, depending on the data.

• The main concern stated by Fed officials was the trajectory of inflation. Many argued that price pressures had not eased enough to justify cutting rates even before the recent conflict. They paid particular attention to core goods and especially core services, with the latter seen as more worrisome given its historical stickiness. Others expressed confidence that the adoption of new technologies and ongoing deregulation could lift productivity over time, helping to relieve some of the upward pressure on prices.
• Views on the labor market also appear somewhat divided. Some committee members have voiced concern that job gains remain relatively modest and are concentrated in sectors such as education and health services. Others have emphasized that the unemployment rate has changed little and argue that recent payroll growth is broadly consistent with a cooling labor market and slowing labor‑force growth, suggesting conditions are roughly in line with expectations.
• On the Middle East conflict, Fed officials commented on the risks but acknowledged it was too early to draw firm conclusions. They noted that the recent spike in oil prices could complicate progress toward the 2% inflation target, while also warning that higher energy costs might weaken the labor market by squeezing household consumption. In all, there seems to be more concern with the potential downside risk to employment, even as officials recognized the twin risks of higher inflation and softer labor conditions.
• The latest minutes suggest the Fed is inclined to keep policy on hold for now, while preserving the option to cut rates later if conditions warrant. The officials note the possibility of further tightening but offer little indication if the committee is seriously considering a rate hike this year. This stance is likely to cap further upside in the dollar, especially as other major central banks, including the Bank of Japan and the ECB, appear to be gradually tilting in a more restrictive or less dovish direction.

US-Ecuador: In a sign of Washington’s growing clout in South America, Ecuador has moved to deepen security cooperation with the United States. In a recent interview, President Daniel Noboa said he would support the deployment of US troops in the country to help combat powerful drug cartels. His comments underscore Washington’s efforts to rebuild influence in the region and tighten security ties, which over time could translate into increased US investment and broader market opportunities across South America.

Low Fertility Rates: US fertility fell to a record low in 2025, signaling that population growth is continuing to slow. The decline largely reflects women having children later in life, which tends to reduce lifetime birth rates. Combined with tighter immigration policies, a persistently low birth rate is likely to slow overall population growth, making the economy increasingly reliant on gains in productivity rather than demographics to drive long‑term output.

Energy Outrage: The rise in energy prices has begun to trigger public backlash in Ireland. Protesters have blocked oil refineries in an effort to force officials to address the soaring energy costs that are being driven by the conflict. This outrage reflects the growing pressure that European lawmakers face as they try to soften the impact of higher energy prices. In our view, this could lead to increased efforts to offer subsidies aimed at reducing cost pressures, but it might also prompt the EU to loosen regulations to allow more mining and drilling.

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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 de-escalating tensions in the Middle East following a cease-fire agreement. We then examine the mounting political headwinds facing AI, North Korea’s growing assertiveness, and the New York Fed president’s latest outlook on inflation. As always, we include a comprehensive summary of recent domestic and international economic data.

The De-escalation: The US and Iran have agreed to a two-week ceasefire that will reopen the Strait of Hormuz, marking a major step toward de-escalation. The breakthrough comes ahead of scheduled peace talks on Friday, which are aiming to reach a broader agreement to end the conflict. Although strikes are still ongoing, markets have responded positively to the easing of tensions, reflecting growing optimism that the worst of the confrontation may be over.

• The emerging ceasefire framework reportedly draws on a 10-point Iranian proposal. This blueprint calls for the lifting of all sanctions, an end to Israeli strikes against Hezbollah and Lebanon, and security guarantees against future attacks. Additionally, it also includes a demand for formal recognition of Iran’s right to levy regulated transit tolls in the Strait of Hormuz. These terms currently represent an opening negotiating position rather than a finalized deal.
• Whether the newly announced two-week ceasefire will hold remains uncertain. Iran has tied the reopening of the Strait of Hormuz to a controversial $2 million transit fee per vessel, framed as a mechanism to help fund reconstruction. Despite this diplomatic opening, Kuwait, Qatar, and the UAE were all hit by Iranian strikes in the hours following the announcement. At the same time, Israel has halted direct attacks on Iran but continues its assault on targets in Lebanon.
• Easing tensions have supported a broad improvement in risk sentiment. Domestic and international equity futures, along with US Treasurys, rallied overnight on the back of the ceasefire reports. At the same time, crude futures and other commodities have retreated on expectations of smoother supply chains and reduced disruption risk. The dollar also weakened as optimism grew that potential Federal Reserve rate cuts may remain on the table.
• Assuming the ceasefire holds, the next phase will center on how the global economy absorbs the damage from the conflict. Much of the immediate focus will be on how quickly trade flows normalize as vessels resume shipments through the Strait of Hormuz. Attention will also turn to assessing the extent of the damage to energy and port infrastructure and how long it will take to bring key facilities back online.
• In turn, any recovery in activity is likely to remain fragile over the coming weeks as markets watch for concrete progress in fully restoring traffic through the strait. We do not anticipate an immediate reversal in prices, as the supply shock is likely to linger and may be exacerbated by increased demand. Even so, in the near term, greater clarity around supply conditions and geopolitics should underpin renewed risk appetite, particularly toward domestic equities.

Silicon Valley Charm: Growing concerns about AI’s impact on society are beginning to slow its nationwide expansion. Several states are weighing new limits on data center construction because of their heavy consumption of electricity and water. Fears over potential labor market disruption are also fueling public backlash, with some arguing that the pace of AI adoption should be deliberately restrained. As the midterm elections near, the pushback is increasing the chance that AI could face more legal hurdles as it looks to expand.

• AI has emerged as one of the most polarizing topics in America. A recent NBC News poll reveals a dismal -20 net favorability rating for the technology, placing it below even ICE in the public’s esteem. In fact, among all categories surveyed, only the Democratic Party and Iran received lower marks. This widespread skepticism suggests that curbing the downside effects of AI is becoming a top priority for voters.
• So far, lawmakers in more than 10 states have introduced bills to restrict or temporarily halt new data center development. Two other states, including Wisconsin and South Dakota, have already rejected similar proposals. Maine has gone further, becoming the first state to impose a moratorium on new data centers until November 2027 while it studies the facilities’ economic and environmental impacts.
• Tech companies are increasingly turning to public outreach to improve perceptions of AI and shape opinion. OpenAI, for example, has floated populist‑sounding ideas such as a four‑day workweek and the creation of a public wealth fund that would widely distribute gains from AI to citizens. More broadly, there are growing signs that major firms now accept that some form of regulation is inevitable and see cooperating with policymakers as a way to reassure a wary public and reduce political blowback.
• We remain confident that the AI infrastructure buildout still has substantial momentum, but we also see early signs that it could lose steam in the coming months as political and energy constraints intensify. A moderation in spending could, in turn, lend relative support to more fundamentally sound companies, as investors may increasingly prioritize current profitability and balance sheet strength over distant growth potential in an environment of elevated uncertainty.

North Korea: Pyongyang has stepped up its power projection in an effort to send a message to its rivals. On Tuesday, North Korea launched its second missile in as many days, following an incident in which a South Korean drone reportedly entered its airspace. The provocation appears to be driven in part by a desire to pressure the US to resume talks without any preconditions for denuclearization. While Iran dominates the headlines, investors should not lose sight of the geopolitical risk posed by North Korea.

Fed Talks: New York Fed President John Williams has offered a fairly modest view of inflation following the conflict in Iran. During an interview with Bloomberg, Williams acknowledged that while the rise in energy prices is likely to impact headline inflation, he does not believe it will have a major effect on core inflation. His view suggests that he is unlikely to favor a rate hike this year. It also serves as another sign that the Fed may be more patient with raising rates and could be open to at least one rate cut before the end of the year.

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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 it increasingly appears that the Iranian leadership won’t meet President Trump’s 8:00 PM ET deadline to open the Strait of Hormuz. We next review several other international and US developments that could affect the financial markets today, including a slump in Japanese government bond prices that has pushed yields on the benchmark 10-year JGB to a 27-year high and new details on President Trump’s proposal for a massive hike in US defense spending.

United States-Israel-Iran: In a press conference yesterday afternoon, President Trump reiterated his threat to have the US military destroy Iran’s electricity plants and bridges if it doesn’t open the Strait of Hormuz by Tuesday evening, despite the likelihood that such a broad targeting of civilian infrastructure would violate international law. At the same time, a peace deal proposed by Middle Eastern mediators failed to gain the support of both the US and Iran, which raises the chance that the president will follow through with his threat tonight.

• The widescale destruction of Iran’s electricity plants and bridges could well invite the country’s leaders to intensify and broaden their attacks on regional energy facilities and civilian infrastructure, potentially worsening the developing global energy crisis and driving up commodity prices around the world. We believe such Iranian retaliation could be a catalyst for renewed aggressive stock selling by investors.
• As a reminder that disrupted energy supplies and higher fuel prices will likely drive up food prices worldwide, a report in the South China Morning Post today says some farmers in the Philippines have elected to let their crops rot in the fields rather than incur the fuel cost needed to harvest and transport them to market.
• Separately, a report late last week said the US has informed Japan that its planned purchase of about 400 Tomahawk cruise missiles will be disrupted by the war in Iran. According to the report, the US is burning through its arsenal of Tomahawks so quickly that the Pentagon needs to prioritize rebuilding the US inventory once the war ends. As a result, Japan will take longer to develop the long-range strike capability that it has decided is needed to help deter Chinese aggression in the Western Pacific Ocean.

Japan: Little noticed amid all the news from the Iran war, the yield on 10-year Japanese government bonds have been rising and today surged to 2.43%, reaching their highest level since 1999. The jump in yields reflects not only inflation concerns driven by the war, but also the Bank of Japan’s gradual rate hikes and the Takaichi government’s big budget increases. Meanwhile, the yen has weakened to nearly 160 per dollar as investors get more skittish about the impact of rising prices and the general policy stance in Japan.

China-Taiwan: Cheng Li-wun, the leader of Taiwan’s opposition Kuomintang Party, is visiting China today in hopes of meeting General Secretary Xi. Given that the Kuomintang has traditionally been China-friendly, the visit will likely be used by Beijing for propaganda purposes to suggest that many Taiwanese support reunification with the mainland. Cheng’s visit could also embolden the Kuomintang’s current effort to block the Taiwan’s government from implementing its planned surge in defense spending to deter a Chinese takeover.

Vietnam: The National Assembly elected Communist Party chief To Lam today as the country’s new president, making him the first Vietnamese leader to be elected to hold both positions, consolidating control over party and state. The former police officer is expected to continue pursuing his key policy goals, including a crackdown on corruption and reforms to the public and private sectors to further boost Vietnam’s manufacturing sector. In turn, that could further Vietnam’s goal of becoming an alternative production center to China.

US Politics: While it now appears that the key issues in November’s mid-term Congressional elections will be the war in Iran, consumer prices, and artificial intelligence, reports today say a controversial new book on the Trump administration will be out on June 23 and may also reveal secrets that could help swing the election. The book, Regime Change, by Maggie Haberman and Jonathan Swan of the New York Times, could potentially reveal politically charged information just as voters are starting to focus more on the upcoming balloting.

US Fiscal Policy: In a development from late last week, President Trump’s proposed federal budget for the fiscal year starting in October would hike the US defense budget by a massive 44%, or $441 billion, to a total of about $1.5 trillion. Key program hikes would include the president’s “Golden Dome” missile defense system and doubling the number of navy ships to be ordered. Congress is unlikely to pass the budget as proposed, but the draft plan suggests a massive hike in defense spending that could benefit key defense stocks.

US Artificial Intelligence Industry: Yesterday, AI lab Anthropic said it has entered a deal in which it will buy billions of dollars of computer chips and cloud services from Google. Some of the associated chips will come from semiconductor giant Broadcom as well. The announcement shows that big AI deals are still happening, despite growing investor pushback over the huge costs and circular deals that may not make economic sense. In turn, that could potentially be a harbinger of a rebound in AI stock values.

• Separately, Samsung Electronics last night projected that its operating profit would increase eightfold in its first quarter, largely reflecting surging AI-related demand for its memory chips.
• The guidance was much better than analysts had anticipated, boosting Samsung’s share price by about 5% in South Korean trading.

US Healthcare Industry: The government yesterday said its Medicare Advantage payment rates will rise 2.48% in 2027, far better than its January proposal to keep the payments unchanged. The increase is expected to boost payments to health insurers by about $13 billion next year. The news therefore gave a boost to health insurers’ stock prices yesterday, with additional follow-through possible in the coming sessions.

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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 US is again threatening a massive attack on the Iranian electricity sector if the country doesn’t open the Strait of Hormuz by tomorrow evening. We next review several other international and US developments that could affect the financial markets today, including an unusual closure of airspace off the Chinese coast that has raised worries of imminent military activity there. Being Easter Monday, with much of the world on holiday today, it has been a very light news day so far.

United States-Israel-Iran: In perhaps the most dramatic moment of the war so far, the wounded US fighter pilot lost in Iran was recovered over the weekend, eliminating the risk of a hostage or prisoner-of-war situation. Nevertheless, the downing of the F-15 illustrates how the Iranian military maintains important capabilities, despite White House assurances that it has been “obliterated.”

• Reports say the US-Iranian talks that had been going on to end the war hit an impasse on Friday and are now suspended.
• Also, today marks the end of the 10-day deadline that President Trump gave the Iranians late last month to open the Strait of Hormuz to all shipping. That hasn’t happened, so the president has set his new deadline of Tuesday evening.
• By our count, the president has set more than a dozen deadlines for the Iranians to open the strait, so it would be tempting for many investors to assume that he won’t follow through with his threat to destroy Iran’s electricity generating capacity. However, reports say the US and Israel have drawn up concrete plans for just such an attack, and the political and military pressures on the US could lead to the strike actually happening. Such an offensive, and Iranian reprisals, would likely be a further risk for the markets.
• The risk of more Iranian reprisal attacks on Middle Eastern energy infrastructure and further closure of the strait will continue to threaten a major energy crisis in Asia and Europe. For example, Malaysian budget airline AirAsia today said it has cut about 10% of its flights and will boost fuel surcharges by about 20% and base ticket prices by as much as 40%.
• Separately, reports this morning say Turkey, Egypt, and Pakistan have given the US and Iran a proposal for a 45-day ceasefire, which has provided a bit of a lift to US stock futures this morning and pushed energy prices down slightly. However, it appears that the proposal is simply a re-submittal of a previous proposal, so it could ultimately have little impact on the war.

China-Taiwan: The Chinese military has announced two unusual 40-day airspace restrictions covering areas off the coast of Shanghai and north of Taiwan, with no explanation of what’s behind them. Press reports have raised the possibility that the restrictions could be related to an effort to seize control of Taiwan now that the US is tied down with the war in Iran. However, the location of the restricted areas doesn’t seem consistent with that hypothesis. In any case, the new restrictions will likely have investors on edge about a possible new geopolitical crisis.

China-Cuba: The Financial Times reports that Chinese exports of green-energy technology to Cuba have soared in recent months and are on track to rise even further to help the island cope with the effective US oil embargo on it. In our view, the development provides added evidence that one result of the new US foreign policy and the war in Iran will be to rekindle the demand for green energy around the world as a way to diversify energy supplies. In turn, that could boost the value of green-energy stocks.

Japan-Philippines-China: Japanese combat troops today have begun drills in the Philippines as part of the annual US-Philippines military exercises known as Salaknib. That marks the first time Japanese combat troops have been involved in drills in the Philippines since World War II and illustrates the new cooperation between Japan and the Philippines as they face the threat of Chinese territorial aggression in Taiwan and the South China Sea.

• Separately, Japanese Defense Minister Koizumi earlier today visited Iwo Jima, the site of the iconic US-Japanese battle.
• During his visit, Koizumi decried what he described as a “defense vacuum” over a vast swath of the Pacific and vowed that Japan would continue to partner with like-minded countries to strengthen its deterrence capabilities.

US Financial Markets: In his annual letter to shareholders, JPMorgan Chase CEO Jamie Dimon warned that when the credit cycle finally turns, soured loans to the private-credit industry are likely to be higher than investors now expect. Dimon specifically flagged loosening lending standards amid the explosive growth of private lending. More broadly, Dimon assessed the US economy to still be resilient, but he warned of higher inflation and interest rates because of the war in Iran.

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