by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with the latest escalation in US-China trade tensions. We then analyze shifting monetary policy expectations and the market’s growing conviction for an imminent rate cut. Our coverage continues with an examination of sustained AI infrastructure investment, potential regulatory moves against AI chatbots, and emerging signals that Putin may be facing pressure to end the war in Ukraine. We also provide a summary of key economic indicators from the US and global markets.

US-China Trade Tensions: In another tit-for-tat move, the United States has threatened to ban all imports of Chinese cooking oil in response to China’s pause of US soybean purchases — an act the White House has described as “economically hostile.” This escalation underscores heightened trade tensions as both sides position themselves ahead of the upcoming Asia-Pacific Economic Cooperation (APEC) summit, scheduled for October 31 to November 1. The White House has expressed uncertainty about its attendance, further complicating the prospect for dialogue.

• The market’s attention on US-China trade negotiations is intensely focused on the technology sector, which faces a dual vulnerability: deep supply chain reliance on China for production and China’s critical importance as a foreign sales market. This dependence on both the supply and demand sides exacerbates the risk during trade conflicts, despite companies increasingly taking steps to diversify their manufacturing and sourcing away from China.
• The escalating trade and technological conflict between the US and China, which has been underscored by disputes over rare earth minerals, export restrictions, and critical maritime shipping, is forcing a dramatic expansion in the scope of their bilateral discussions. Consequently, these high-stakes negotiations are now inevitably dominated by core geopolitical flashpoints, including the rising military tensions in the Taiwan Strait and Beijing’s sustained strategic support for Russia amidst the ongoing Ukraine conflict.
• While tensions are escalating between the two sides, we remain optimistic that there will be a grand bargain of sorts. In our view, a larger deal will likely include some form of Chinese investment in US manufacturing and purchases of US agricultural products, in exchange for more favorable trade terms and more access to US technology.

Powell Opens the Door? Federal Reserve Chair Jerome Powell has signaled a potential interest rate cut as early at the next FOMC meeting this month, citing a notable cooling in the labor market. In a speech to the National Association for Business Economics, he indicated that the ongoing decline in job openings could foreshadow a rise in unemployment. These remarks suggest that the Fed, despite navigating with limited recent data, may be shifting its priority toward upholding the maximum employment side of its dual mandate, even as concerns about price stability persist.

• With the government’s official jobs report delayed or unavailable, private data validates Federal Reserve concerns over the weakening labor market. The latest ADP National Employment Report for September showed that private employers cut 32,000 jobs, marking the sharpest decline in months. This deceleration is mirrored by surveys of consumer sentiment from the University of Michigan and the Conference Board, which show that households remain pessimistic about their job prospects.
• That said, inflation is also likely to be a key topic, as several FOMC members have signaled concern over recent increases. Over the last two weeks, both Dallas Fed President Lorie Logan and Fed Governor Michael Barr have emphasized that inflation remains a top priority. Consequently, the upcoming September CPI report, scheduled for release on October 24, will be critical in shaping their perspective.
• So far, momentum appears to be building for another rate cut at the October 28-29 FOMC meeting, driven by growing concern among Fed officials about the labor market. We anticipate a 25bps cut, after which the Fed will likely adopt a “wait-and-see” stance. While market pricing, per the CME FedWatch Tool, suggests a 93% probability of a further 25bps cut in December, this remains contingent on clear, continued signs of a cooling labor market.

More AI News: A wave of mega-deals is propelling the tech industry, driven by soaring capital expenditures for massive data centers. On Thursday, Nscale’s agreement to build a Microsoft data center using Nvidia’s AI chips highlighted this trend. The ripple effect was immediately evident in the supply chain, with ASML — a critical maker of chipmaking equipment — reporting a sharp jump in new orders. Ultimately, the market sees these deals as the core engine powering the tech sector’s ride on the AI wave.

US to Leave Argentina? Argentine President Javier Milei visited the White House on Tuesday to finalize a crucial $20 billion US currency swap line, a lifeline intended to stabilize the Argentine peso. However, President Trump explicitly conditioned this support, directly linking its continuation to the electoral success of Milei’s coalition in the upcoming October 26 legislative elections. This direct intervention introduces a significant risk of market turmoil, as a poor showing for the ruling party could now trigger an immediate withdrawal of US financial backing.

AI Chatbot Restrictions: Missouri Senator Josh Hawley has introduced a bill to ban the use of AI chatbots for minors. The legislation reflects growing political scrutiny of tech companies as AI becomes more omnipresent. The bill has gained traction amid concerns about the negative impact of chatbots on the mental health of teenagers who confide in them. While this specific restriction is unlikely to dampen the current market rally in AI, it signals initial political pushback against the largely unregulated technology.

Aluminum Import Limits: The US Aluminum Association has publicly called for increased trade restrictions on imported scrap metal to protect domestic markets. Key measures proposed include a complete ban on the import of used beverage containers from outside North America and stricter controls on “mill ready” scrap metal shipments. Additionally, the Association is advocating for enhanced tracking of the aluminum scrap flow and stronger enforcement mechanisms for existing trade regulations.

French Pension Reforms: French Prime Minister Sébastien Lecornu has proposed suspending controversial pension reforms, including raising the retirement age from 62 to 64, until after the 2027 presidential election. This concession comes ahead of a no-confidence vote, as the reform has been a major obstacle to passing the national budget. While Lecornu’s proposal has eased tensions, opposition parties are pushing for the complete abandonment of the reforms to secure the budget’s approval.

Moscow Plot: Russian authorities have accused Mikhail Khodorkovsky, a former Russian oligarch and once the country’s richest man, of conspiring to overthrow the government. The Federal Security Service (FSB) alleges that Khodorkovsky and others are planning a coup to remove Vladimir Putin from power. This action appears to be part of a larger effort to intimidate domestic critics of the war in Ukraine and could signal that Putin’s power may be under threat. We suspect that internal political division in the Kremlin could pave the way for peace talks with the US and Ukraine.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with yet another blow-up in the US-China trade war, with Beijing imposing sanctions on South Korean firms that allegedly assisted a US probe into the Chinese shipping industry. We next review several other international and US developments with the potential to affect the financial markets today, including another big artificial-intelligence deal and the first new record in silver prices since 1980.

United States-China: Beijing added five subsidiaries of South Korean shipbuilder Hanwha Ocean to its sanctions list overnight for allegedly helping a US investigation into China’s shipping industry. Because of the action, Chinese individuals and entities will now be banned from working with the Hanwha firms. More importantly, the Chinese action is being seen as another provocative move in the US-China trade war. The news has therefore sparked a new sell-off in equity markets, setting the stage for a decline in the US market at its open.

• One concerning aspect of Beijing’s move against Hanwha Ocean is that it signals China’s willingness to punish US allies and their companies for supporting US geopolitical and military goals. That raises the prospect that US-China tensions will broaden.
• Indeed, in a Financial Times interview yesterday, US Treasury Secretary Bessent slammed China’s recent moves in the trade war, saying, “they want to pull everybody else down with them.” The statement detracted mightily from Bessent’s encouraging statement in another venue yesterday that President Trump and General Secretary Xi still plan to meet later this month, despite the sudden rekindling of US-China trade tensions over the last week.

United States-Netherlands-China: New reports say the Dutch government’s recent seizure of Chinese-owned, Netherlands-based semiconductor firm Nexperia arose after the US warned that it wouldn’t remove the company from its sanctions list as long as its Chinese chief executive remained in control. That means Nexperia could have been left to “wither on the vine,” depriving the Netherlands of an important technology company. The news shows how third-party countries and their companies are increasingly being caught in the trade crossfire between the US and China.

US Artificial Intelligence Industry: In the latest big AI deal, OpenAI and Broadcom said they are working jointly to develop and deploy 10 gigawatts of custom AI processors and related computing systems. The firms didn’t release financial details, but sources said the deal will result in billions of dollars of new revenues for Broadcom, boosting its stock price dramatically.

• Along with OpenAI’s recent deals to buy chips from Nvidia and Advanced Micro Devices, it appears the company has sealed commitments to buy 26 gigawatts of chips in the coming few years, worth hundreds of billions of dollars.
• As large as that amount is, sources say OpenAI plans to buy a total of 250 gigawatts of chips by 2033, for a total commitment of about $10 trillion. If its actual purchases are anywhere near that goal, it suggests chip designers and manufacturers still have plenty of AI business in front of them.
• Of course, OpenAI’s rising purchase commitments and firms’ vast AI investments are also raising the risk of wasted resources and over-extension. The AI frenzy is therefore looking more risky, although there are few signs of problems in the near term.

Global Precious Metals Market: Prices for near silver futures yesterday surged to $50.13 per ounce, up almost 7% on the day and 85% for the year-to-date. The action brought silver prices to their first record high since 1980. Silver prices typically move in the same direction as gold prices, though with a lag and greater volatility, like a skier to a motorboat. Given the recent surge in gold prices, the jump in silver is no surprise, and silver prices could well continue to rise in the near term.

US Auto Industry: General Motors today said it will cut its electric-vehicle manufacturing capacity and take a $1.6-billion charge against it as demand falls in response to reduced government subsidies and regulatory requirements. While companies across the industry look forward to reduced regulatory burdens under the new US administration, the charge is a reminder that policy changes could also generate at least short-term adjustment costs that could affect stock and bond prices.

German Defense Industry: Defense firm Thyssenkrupp said it will spin off its Marine Systems warship business on Monday, when the shipbuilder has its initial public offering on the Frankfurt stock exchange. Thyssenkrupp will retain a 51% stake in the company, while the rest will be floated to the public.

• The IPO shows that Thyssenkrupp is trying to take advantage of the continuing frenzy for European defense stocks.
• As we’ve noted many times before, growing concern about Russian territorial aggression and questions about US defense commitments continue to spur European countries to boost their defense spending, creating new opportunities for European defense firms.

German Labor Policy: The government of center-right Chancellor Merz reportedly plans to introduce a measure that would allow German pensioners to work and earn up to 2,000 EUR ($2313) a month tax-free. The new “active pension” plan is designed to address the country’s severe labor shortages as birth rates continue to fall, and European governments clamp down on immigration. However, it’s not clear whether the new program will be effective enough to boost German companies’ growth prospects.

Russia-NATO: Officials at the North Atlantic Treaty Organization say the Russian navy has sharply reduced its presence in the Mediterranean Sea in recent months, likely because of resource constraints amid the continued fighting in Ukraine and a need to put more focus on the Arctic and Baltic Seas. Despite widespread concern about Russian territorial designs on Central and Western Europe, the development suggests the threat is not necessarily acute, at least as long as Russian forces remain bogged down in their invasion of Ukraine.

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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 dramatic policy announcements on US-China relations, which drove stock prices sharply lower on Friday before a reversal gave stocks a boost this morning. We next review several other international and US developments with the potential to affect the financial markets today, including a big new investment in US defense firms, mineral producers, and artificial-intelligence firms by JPMorgan and a growing chance that the long ruling Liberal Democratic Party could lose power in Japan.

United States-China: There was a sudden rekindling of US-China tensions on Friday, when President Trump said he would impose an additional 100% tariff on US imports from China, restrict critical US exports, and possibly cancel his summit with General Secretary Xi this month. However, Trump and Vice President Vance both made more conciliatory statements over the weekend. The renewed trade tensions had weighed heavily on global stock and cryptocurrency assets on Friday, but the more conciliatory statements have boosted asset values so far today.

• The initial move by Trump on Friday was in response to Beijing’s decision to further tighten its curbs on Chinese exports of critical minerals and the technology to mine and process them, which we described in our Comment last week.
• The renewed US export curbs apparently would have included critical software and aircraft parts. That’s a reminder that US producers of those items could face reduced sales in China if the trade dispute worsens again.
• Months ago, the reciprocal US and Chinese export controls of critical products helped prompt a truce in the US-China trade war. All the same, the experience during the spring has taught each side where its economic leverage really lies. Despite China’s huge reliance on exports to the US, perhaps the key takeaway is that Beijing has developed important leverage against Washington with its control of critical minerals and its ability to shut its domestic market to US goods ranging from soybeans to semiconductors.
• Coupled with China’s growing military, technological, and diplomatic strength, its newly realized economic strength raises the likelihood that the US will have to back down and accept a long-term compromise such as the one we described in our Comment last week, i.e., US acquiescence in a Chines takeover of Taiwan and a cut in US import tariffs in exchange for more Chinese investment in the US. Indeed, the White House’s reversal at the weekend helps confirm that this is a possibility.
• In the short-to-medium term, such a deal would likely be positive for US and Chinese stocks, as it would remove an important geopolitical risk. By allowing China to increase its global influence, however, such a deal would likely be negative for US economic and financial prospects in the long run.

US Defense Industry: JPMorgan Chase today said it will directly invest $10 billion of its own capital over the next 10 years in a range of companies deemed critical to US national security and economic resiliency. The targeted firms are expected to include defense contractors, mineral producers, and artificial-intelligence firms. According to the bank, its investments will facilitate a total of $1.5 trillion in additional capital for the firms.

• We think the program also underscores our longstanding belief that rising Great Power competition will spur stronger defense spending and programs for economic resiliency across the globe, although we continue to believe that the threat from Russia will make the trend more pronounced in Europe.
• JPMorgan is probably also responding to the US administration’s penchant for taking direct stakes in critical companies, which has often sharply boosted their share prices.

US Critical Minerals Industry: The Pentagon’s Defense Logistics Agency has said it’s looking to buy up to $1 billion of critical minerals to add to the US’s national security stockpile as it seeks to reduce China’s ability to crimp US defense production by withholding supplies. Some of the targeted minerals have not previously been stockpiled. The program could give a boost to many mining and mineral processing firms.

US Economy: In its latest regular survey of economists, the Wall Street Journal found that the respondents have ratcheted up their forecasts of near-term US economic growth, with an average expectation that fourth-quarter gross domestic product will be up 1.7% from a year earlier, compared with a forecast of just 1.0% in July. However, they maintained their forecast of 1.9% growth for 2026. The increased growth forecasts generally reflect looser monetary and fiscal policy combined with reduced policy uncertainty.

• Despite expecting less Federal Reserve independence and improved growth, the economists have lowered their forecasts for consumer price inflation.
• In part, that reflects their expectation for a much softer labor market and a modest rise in unemployment.

Netherlands-China: In a sign of continued Europe-China tensions, the Dutch government said it has taken control of Netherlands-based semiconductor company Nexperia from its Chinese owner to keep Europe from losing “technological knowledge and capabilities” necessary for its economic security. According to Dutch officials, the move was taken after the government picked up “signals of serious governance shortcomings and actions within Nexperia.”

• Nexperia’s Chinese owner, Wingtech Technology, suggested the Dutch move resulted from the US’s recent blacklisting of several Chinese firms, including Wingtech, along with their subsidiaries. Nexperia evidently could have been subject to US sanctions, raising the risk that Wingtech would bring its operations back to China.
• In any case, the incident is the latest evidence of how countries are working feverishly to secure their critical supply chains and shore up their domestic industrial and technological capabilities. These moves will create both risks and opportunities for investors.

Japan: The centrist Komeito party is talking with several smaller opposition parties about backing Yuichiro Tamaki, leader of the Democratic People’s Party, in the upcoming Diet vote for a new prime minister. Komeito quit its long role as junior partner to the ruling Liberal Democratic Party only on Friday, so the sudden coalescing of opposition parties against the LDP is a shock to Japan’s political system. It also raises doubts as to whether the LDP’s new chief, the conservative, pro-market Sanae Takaichi, will really become the new prime minister as expected.

• Optimism that Takaichi would again implement the stimulative “Abenomics” policies of former Prime Minister Abe had given a big boost to Japanese stock prices in recent weeks. Now that Komeito has pulled out of the ruling coalition and is talking with other parties about supporting a rival candidate, investors are much less certain about Takaichi’s ascension.
• As a result, Japanese stock values have pulled back over the last few days. If Takaichi’s future becomes even more uncertain, Japanese stocks could soften further.

France: Late Friday, President Macron again nominated Sébastien Lecornu to be prime minister, just days after Lecornu resigned from his first stint in the position after only a month. Macron’s decision has been widely criticized as a sign that the president is running out of options for his government. Popular opinion also increasingly criticizes Macron for refusing to respect the people’s rejection of his plan for fiscal tightening to cut France’s rising debt. The political chaos in France is likely to continue weighing on French and European asset values.

Pakistan-Afghanistan: The Pakistani and Afghan armed forces have engaged in a series of border skirmishes in recent days, culminating in dozens of deaths on each side over the weekend. The fighting has sparked concerns that the violence could lead to a broader conflict between the two countries, whose governments have become increasingly hostile to each other in recent months over Islamabad’s accusation that Afghanistan is harboring anti-Pakistani militants on its side of the border.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an in-depth analysis of US intervention in the Argentine currency market. We then examine the latest strategic moves by the US and China ahead of pivotal trade talks. Our coverage continues with a discussion of the accounting controversy surrounding First Brands and explores the potential for a capital markets union in the EU. We also provide a summary of key economic indicators from the US and global markets.

US Intervenes: The United States has taken exceptional steps to stabilize Argentina’s economy, with Treasury Secretary Scott Bessent announcing a $20 billion currency swap and direct support for the peso (ARS). The intervention is a clear signal of support for President Javier Milei amid market turmoil ahead of the October 26 legislative elections. Bessent defended the policy by declaring Argentina’s free-market reforms to be of “systemic importance” to the US and promising to do “whatever exceptional measures are warranted” to ensure their success.

• This marks the first attempt to prop up a foreign currency since the 1995 financial support package for Mexico (known as the “Tequila Crisis”). While the bailout for Mexico was primarily justified as an effort to prevent a systemic financial crisis from impacting the US economy and its regional interests (like NAFTA), the measures for Argentina appear less focused on systemic risk and more overtly aimed at ensuring the viability of the current administration’s specific economic reform agenda.
• The move is a significant demonstration of US influence aimed at countering China’s deep economic ties in Latin America. China has cemented its role as a key financial partner through its currency swap line with Argentina and by increasingly becoming a major buyer of regional agricultural exports to diversify its sourcing from the US.
• Another strategic benefit of the US financial package is currency stabilization, which prevents a peso collapse that would otherwise sharply reduce the export price of Argentine goods, thereby safeguarding the global price competitiveness of US agricultural producers.
• The efficacy of the currency intervention in preventing a financial collapse is debatable, but the move signifies the US’s willingness to deploy its financial tools for geopolitical ends. This strategic use of the dollar as a lever of hegemony could undermine the dollar’s perceived credibility and neutrality. As a result, market participants may become more inclined to seek stability and diversification in other currencies, presenting a structural resistance to the dollar’s continued strength.

Trade Tensions Escalate: The US and China are continuing to escalate tensions ahead of their next meeting through a series of reciprocal economic measures. In a significant move, US senators have endorsed a bill to prohibit federal funding from reaching Chinese firms and to bar American investment from key Chinese industries. Simultaneously, Beijing has retaliated by launching an anti-trust probe into the American chipmaker Qualcomm and imposing new fees on US vessels using Chinese ports.

• We interpret these maneuvers as strategic posturing in advance of trade negotiations scheduled for later this month, suggesting no imminent setback. Both the Congressional move to ban funding and the Chinese probes into US firms are likely performative acts. Furthermore, the fees levied on US vessels at Chinese ports are a direct, reciprocal response to American charges on Chinese-built ships, reflecting China’s clear intent to counter the US push for increased use of domestically manufactured vessels.
• We remain optimistic that talks between the US and China will culminate in a significant grand bargain, one that should yield benefits for both markets. Our premise is that the agreement must improve the trade relationship, particularly in technology, by granting China greater access to advanced chips in exchange for US access to critical minerals. Crucially, we anticipate that substantial Chinese investment into the US economy will be a major component of the final agreement.

First Brands: The auto parts giant is facing a formal investigation by the Department of Justice following its bankruptcy filing amid concerns over accounting irregularities. The crisis centers on approximately $2.3 billion in undisclosed off-balance-sheet financing, a debt structure that concealed the true scale of the company’s liabilities. The failure has amplified concerns regarding the credit quality of borrowers across the private credit space, potentially casting a wider net of scrutiny on the loan portfolios of major consumer finance firms, such as Affirm.

Finally, More Data! The US government is recalling furloughed employees to ensure the release of the Consumer Price Index (CPI) report. Although the report was originally scheduled for October 15, it is now expected by the end of the month. This data is critical as it determines the cost-of-living adjustment (COLA) for Social Security. It is also vital for Federal Reserve policy; a strong inflation reading could lead the Fed to keep interest rates unchanged at its October 29 meeting.

Japan Coalition Collapse: Coalition talks between Japan’s Liberal Democratic Party (LDP) and its junior partner, Komeito, collapsed on Friday, complicating efforts to form a new government. This breakdown poses a significant challenge for new LDP leader Sanae Takaichi, who must now secure a partner to become prime minister. The difficulty in forming a stable government raises fresh concerns about political instability in a country that has had four prime ministers since Shinzo Abe stepped down in 2020.

EU Capital Markets: Germany has signaled its willingness to grant European financial regulators more authority, a significant move indicating the EU is advancing toward a capital markets union (CMU). This policy shift is expected to enhance the competitiveness of European markets against global rivals like the US and China. The CMU concept, championed by former ECB chief Mario Draghi, aims to deepen and integrate the bloc’s capital markets, potentially making European equities and investment opportunities more attractive to global investors.

Shutdown Prolonged: The political standoff over federal funding has dragged the US government into its second week of shutdown, with no resolution in sight. The core legislative fight centers on the demand by Senate Democrats to permanently extend the enhanced Affordable Care Act (ACA) tax credits as part of any stopgap funding bill. Republicans have so far refused to negotiate policy matters while the government is closed. So far, shutdown troubles have not impacted equity markets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a deep dive into the new ceasefire agreement between Israel and Hamas. Next, we turn to the global economic stage and break down the latest maneuvers from the US and China ahead of critical trade negotiations. From there, we decode the revealing Fed minutes that have markets buzzing and investigate fresh signs of an escalation in tensions between NATO and Russia. We also provide a summary of key economic indicators from the US and global markets.

Hamas and Israel Deal: Israel and Hamas are reportedly set to agree on a ceasefire on Thursday. The plan centers on the release of all hostages, a withdrawal of Israeli forces from the front lines, and a substantial increase in humanitarian aid to the war-torn territory. Although the deal will face some resistance from hardliners within the Israeli government, Prime Minister Netanyahu is expected to get it approved easily. The news led to a drop in global oil prices and a rally across US and international equity markets.

• The agreement was achieved after the White House successfully mediated an outline for a 21-point peace plan among all negotiating parties, though the document has yet to be formally finalized. While the full details remain pending, the plan is widely anticipated to leverage and expand upon the framework of the Abraham Accords, aiming for broader normalization and reengagement between Israel and its Middle Eastern allies.
• This political shift is expected to facilitate the long-planned US “pivot” by freeing up resources and attention currently committed to the Middle East. With the immediate conflict addressed, Washington can intensify its focus on China, which it designates as the main strategic threat. Crucially, a stable Middle East will enable the US to be able to strengthen alliances more readily and mitigate Chinese influence across the region.
• The broader agreement is likely to ease market anxieties regarding Middle Eastern supply chain stability. A key focus is the Strait of Hormuz, a critical chokepoint that has seen attacks escalate due to regional hostilities. By reducing this security threat, the pact should help keep oil prices in check and prevent volatility in global shipping rates.

China Crackdown: The US and China escalated their trade war with dueling security-related actions this week. Beijing imposed stringent new export controls on critical minerals, requiring authorization for any goods containing even trace amounts. Concurrently, Washington sanctioned a network of Chinese firms for allegedly supplying components to Iran’s military and its proxies. The tit-for-tat measures, justified by both sides on national security grounds, cast a shadow over upcoming bilateral trade talks.

• China’s decision to restrict exports of critical minerals is a strategic response to US controls on advanced semiconductors. By targeting goods with even trace amounts of these materials, Beijing is mirroring the US “foreign direct product rule,” effectively using its own strategic resource as a counterweight by adopting a key tactic from the American regulatory playbook.
• Additionally, the US sanctions on Chinese firms serve as a form of pressure, aiming to secure Beijing’s cooperation in restraining its allies. While these recent measures primarily target Iran, their underlying goal is to enlist China’s help in persuading Tehran to cease backing groups hostile to Israel. This tactic reflects a broader US strategy of seeking foreign policy coordination, as Washington has also repeatedly urged Beijing to end its support for Russia to help end the war in Ukraine.
• While the recent tit-for-tat actions by Beijing and Washington have undoubtedly raised tensions, they may also be setting the stage for more comprehensive negotiations. We believe these talks are likely to extend beyond trade to encompass critical issues of technology and foreign policy. A resulting “grand bargain” between the two powers, should it materialize, could provide a significant boost to US equities.

Fed Noncommittal: Federal Reserve officials were hesitant to cut interest rates at the last Federal Open Market Committee (FOMC) meeting, according to the recently released minutes, suggesting a potential division within the committee. The minutes indicate that while many members saw the labor market softening, significant concern over elevated inflation persisted. A few officials even suggested that tariffs were hindering the path to the Fed’s 2% inflation target, though this view was met with some internal pushback.

• The Federal Reserve’s lack of policy certainty likely stems from the conflicting signals within its dual mandate. While some officials acknowledge the cooling of the labor market, the persistently low unemployment rate suggests that economic conditions have not deteriorated sufficiently to warrant an aggressive policy shift.
• Although inflation has ticked slightly higher, several committee members believe this increase was less than anticipated and project that price pressures will ease in the coming months, complicating the decision on whether to prioritize employment or price stability.
• The latest FOMC minutes confirm that members have retained the option for at least one final rate cut before the year ends. Our view is that the upcoming September labor market data — currently delayed by the shutdown — will be the critical pivot point. A report showing a marked deceleration in hiring will provide the necessary evidence for officials to proceed with easing monetary policy at the October 29 meeting.

NATO Escalation: The Western military alliance is debating a shift toward a more forceful deterrent strategy against Russian provocation. Recent discussions have focused on potential escalations, including deploying armed drones along the Russian border and authorizing pilots to shoot down Russian aircraft. This proposed reinforcement is designed to counter what the alliance now describes as Russian “hybrid warfare.” Such measures, however, are likely to significantly raise the risk of direct conflict as both sides test the new boundaries of engagement.

EU Port Strikes: Twin strikes by lashers — workers who secure and unload ships — at the key European hubs of Rotterdam and Antwerp-Bruges is escalating existing supply chain chaos. The industrial action, driven by demands for a 7% wage hike, comes immediately after recent storms had already strained port capacity. A prolonged stoppage at these critical gateways threatens to severely impede international trade and trigger adverse ripple effects across global commerce.

Finland-US Ties: The United States and Finland are set to sign a defense cooperation agreement focused on icebreaker vessels, reflecting the Arctic’s growing strategic importance. The deal will facilitate joint work on ships capable of navigating ice-covered waters, a capability essential for maintaining access and presence in the region. This move signals the US’s increased commitment to asserting control and ensuring freedom of navigation in the increasingly contested Arctic seas.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis regarding new concerns about AI profitability, following the reported leak of internal documents from Oracle. We then assess a strategic pivot in global trade, as the EU considers more protectionist measures to counter US economic policy. We also examine the recent surge in gold prices and evaluate spillover risks from the First Brand bankruptcy. As always, we conclude by providing a summary of key economic indicators from the US and global markets.

 AI Concerns: Fears that Oracle may be unable to hit profit targets following its sizable Nvidia chip order triggered a massive AI-related sell-off. The core concern, fueled by leaked internal documents, is that profit margins in Oracle’s cloud computing business are lower than anticipated from the chips it currently leases from Nvidia. The reports raise doubts about Oracle’s $40 billion commitment to purchase Nvidia chips earlier this year to support data centers, reportedly for OpenAI.

• Following the report, Oracle shares plunged as much as 7.1% as investors scrambled to gauge the implications for the broader technology sector. The report, citing internal documents, revealed that Oracle’s Nvidia-powered server rentals generated approximately $900 million in revenue but yielded a gross profit of only $125 million. Even more concerning was the fact that the company incurred losses on smaller, less utilized quantities of chips.
• The revelations are likely to put a spotlight on chipmakers, underscoring their sensitivity to customer purchasing decisions. Since only a few companies can afford this cutting-edge technology, chipmakers face significant risk from potential pullbacks, prompting them to actively diversify their client base. This pressure was immediately evident when, on the same day the Oracle report broke, Nvidia announced a chip deal with Elon Musk’s xAI.
• Despite widespread skepticism regarding a potential bubble in the AI sector, these companies’ affiliation with the US government through the Stargate Project could sustain investor confidence. However, any concerns about the long-term commercial viability of these ambitious technologies could trigger a significant market correction. Consequently, we recommend investors maintain a well-diversified portfolio, utilizing exposure to value-oriented assets as a strategic hedge against a potential AI bubble.

EU Pushback: The EU is adopting an assertive trade posture on two fronts. First, it has raised concerns over new US demands perceived as an effort to compel regulatory concessions. Second, it is advancing a plan to cap steel imports and slapping a 50% tariff on any country that exceeds the quota — a measure that has already provoked a sharp response from the UK. Together, these developments illustrate the bloc’s strategic pivot in order to navigate a more protectionist global trade landscape.

• Despite a lack of public details, the US has consistently pressured the EU to overhaul its regulations across several critical sectors, including digital and technology rules, corporate compliance, and climate-related policy. While the EU has opened the door for discussions, it has characterized the US proposals as “maximalist” and has vowed to resist significant changes.
• The EU’s decision to resist trade pressures and impose new tariffs demonstrates a strategic play to assert both its independence and its trade power. This move has particularly impacted the UK steel industry, which sends over 80% of its exports to the bloc. The blow is especially sharp as the UK is still waiting for the US to lower its own steel tariffs from 25% to 0%.
• The EU’s assertive new trade posture is a double-edged sword: it shields vulnerable domestic industries from US pressure but risks provoking retaliatory actions. While a compromise remains possible as the European Parliament debates its response, a failure to reach an agreement could trigger an escalation. In such a scenario, the US would likely impose higher tariffs, forcing the EU to reciprocate with defensive measures of its own.

Gold Price: Gold prices soared to a record $4,000 an ounce on Tuesday as investors sought safety amid political and economic uncertainty. The rally was driven by a looming US government shutdown and a broader market shift away from the 10-year Treasury note. Investor skepticism toward US debt is growing due to concerns over rising national debt and higher inflation expectations.

First Brand: The demise of First Brand, a critical auto supplier, has exposed concentrated financial vulnerabilities among its creditors. The fallout underscores substantial exposure at several institutions, including a UBS fund with a highly concentrated 30% position and an estimated $500 million in total exposure for the firm. Jefferies is confronting an even larger estimated exposure of $715 million, with Blackstone and Onset Financial also having some exposure. This incident, while isolated, serves as a clear indicator of stress in the financial system.

France Stalemate: A breakthrough on France’s national budget appears imminent, with outgoing Prime Minister Sébastien Lecornu expressing confidence that a deal can be finalized ahead of the December 31 cutoff, notwithstanding remaining policy disputes. Following his announcement, a French legislator proposed withdrawing the controversial increase in the retirement age as a critical concession for parliamentary approval. The forthcoming budgetary resolution is anticipated to reduce market pressure on French sovereign bonds.

Shutdown Standoff: As the government shutdown enters its second week, the White House is considering withholding back pay from furloughed workers. This move would intensify the financial strain on federal employees, who have already gone without one paycheck. There is now concern that the threat of lost wages could compel essential staff — who are currently working unpaid — to walk off the job. Such an action would cripple vital government services and potentially weigh on market sentiment and investor confidence.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news of another US government investment in a key critical minerals company. We next review several other international and US developments with the potential to affect the financial markets today, including signs that the Trump administration may be ready to negotiate with Democrats in Congress to end the federal government shutdown and expectations that the European Union will impose its own big, new tariffs on imported steel today.

US Private Property Policy: The White House yesterday said it will take a 10% stake in Canadian critical minerals firm Trilogy Minerals in return for approving a controversial road infrastructure project in Alaska. The road project will allow access to remote mineral resources sought by the company. In response to the news, shares in Trilogy tripled in value, mimicking the stock surges in other recent deals where the federal government has taken partial ownership of firms.

• It’s becoming obvious that a profitable near-term strategy for investors is to purchase private-sector enterprises that are in good graces with the administration, in which case they are likely to receive special treatment in terms of regulatory relief, contracts, or state investment and other support.
• Of course, the long-term risk is that mass “state ownership of the means of production” could lead to unprofitable decisions, high costs, and less economic efficiency.

US Fiscal Policy: President Trump late yesterday hinted that Republicans in Congress are in talks with Democrats over healthcare subsidies to potentially reach a funding compromise and end the ongoing federal government shutdown. Democratic leaders said no such talks are taking place, which suggests the president’s statement may have been a smokescreen or just a hint that he wants to discuss such a deal. Nevertheless, Trump also said he would like to see a deal on healthcare, pointing toward a potential path toward a funding deal and an end to the shutdown.

US Tariff Policy: In a social media post yesterday, President Trump said he will impose a 25% tariff on imports of medium and heavy trucks starting November 1. The announcement came just a day before Trump’s scheduled meeting with the prime minister of Canada, which would be heavily affected by the new truck tariffs. In the past, Trump has sometimes exempted Canadian and Mexican imports compliant with the USMCA trade deal, but his post yesterday made no mention of such an exemption.

US Artificial Intelligence Industry: In the latest AI-related tech deal, private AI model developer Anthropic is in talks to include its Claude model in IBM’s latest integrated developer environment, or IDE. If completed, the deal would make Claude available to software engineers using IBM’s tools at large businesses for tasks such as modernizing code or building proprietary AI agents. In pre-market trading so far today, IBM’s share price has risen about 4.6%.

US Energy Industry: Research by energy consulting firm Wood Mackenzie shows US firms plan to invest $50 billion in new and expanded pipelines in the next five years to cash in on booming natural gas demand and deregulation under President Trump. That amounts to some 8,800 miles of new pipelines aimed at removing bottlenecks that have arisen because of booming production, meeting record liquefied natural gas exports, and fueling electricity generation for data centers. Midstream firms involved in the boom include Kinder Morgan and Enbridge.

US Auto Industry: Novelis, which produces some 40% of the sheet aluminum used by US auto manufacturers, has announced that one of its major plants in New York has been knocked offline until early next year because of a fire three weeks ago. The shutdown is expected to disrupt production for major automakers. Reports suggest Ford is especially at risk, as its profit-driving F-150 pickup is particularly dependent on aluminum from the shuttered plant. Other automakers that could be affected include Toyota, Hyundai, Volkswagen, and Stellantis.

European Union-United Kingdom: According to the Financial Times, the EU today plans to impose a 50% tariff on all imported steel. All steel-exporting countries would face the tariff above quotas set at 2013 levels. If fully implemented, the protectionist tariff would likely be devastating for the UK, which currently sends some 80% of its steel exports to the EU. In response, trade association UK Steel warned that many of the UK’s remaining steel firms could go extinct unless the British government imposes its own protectionist tariffs.

Germany: The German government has recently granted domestic arms makers a string of “direct award” contracts with no public tenders, such as a 390-million EUR ($455 million) contract to Rheinmetall to develop anti-drone lasers. The direct-award contracts have sparked complaints by foreign defense contractors and members of parliament who say the deals could be wasteful. Another key takeaway is that Berlin may be prioritizing the development of its own defense technology to reduce its reliance on foreign suppliers, potentially including US defense firms.

Japan: Now that the ruling Liberal Democratic Party has selected conservative Sanae Takaichi as its new leader, putting her in position to become prime minister and push economic policy back toward stimulative “Abenomics,” one of her key advisors has said the Bank of Japan shouldn’t hike interest rates as expected this month. The statement by influential advisor Etsurō Honda suggests the central bank’s next rate hike might be delayed, which helps explain why the yen (JPY) has weakened further today, falling about 0.4% to 150.80 per dollar ($0.0066).

New Zealand: The Reserve Bank of New Zealand has established a new body with enormous powers to ensure financial stability and address prudential issues for banks. The central bank’s new Financial Policy Committee will set debt-to-income and loan-to-value ratios for banks, so it will also have enormous power over the country’s housing sector.

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