by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets remain squarely focused on US-China trade developments as key deadlines approach. Today’s Comment will discuss the latest progress on the administration’s trade legislation, implications of downward GDP revisions, and other market-moving headlines. We’ll conclude with our regular roundup of critical international and domestic data releases.

Big, Beautiful Test: The Senate is set to start voting on the final changes on the Trump tax bill, but there still seem to be major differences within the party.

• Republican senators are preparing to advance their flagship tax bill, though growing dissent in both chambers threatens to derail passage despite looming deadlines. While both Senate and House leadership have endorsed moving forward with votes to meet the president’s July 4 target, substantive disagreements over key provisions continue to surface, raising doubts about whether the legislation can clear Congress in its current form.
• Currently, the bill faces revisions ahead of its scheduled vote, with the Senate parliamentarian emerging as a key obstacle. In her advisory role on procedural compliance, she has ruled against several provisions, most notably a measure that would have reduced state tax charges for Medicaid providers from 6% to 3.5%. This change alone would have generated significant federal savings, and its rejection forces lawmakers to reconsider their fiscal approach.

• Significant disagreement persists among House and Senate Republicans regarding the SALT deduction cap. Lawmakers from high-tax states continue to push for a substantial increase above current levels, with some threatening to withhold support for the bill without modifications. Meanwhile, conservatives from low-tax states oppose raising the cap, arguing it would disproportionately benefit wealthier households.
• While the bill remains in legislative limbo, passage this week appears likely, though a short extension remains an option. Approval would likely provide sufficient momentum to propel the S&P 500 to record highs. Looking ahead, we anticipate market attention will quickly shift to the outlook for rate cuts and economic growth, both of which face unusual uncertainty due to ongoing trade policy developments.

GDP Overstated: The third reading of the GDP showed that the economy did worse than originally expected.

• Economic output took a hit with the latest revision, which now reflects an annualized contraction of 0.5%, notably worse than the initial estimate of a 0.2% decline. This more significant downturn was largely fueled by moderation in personal consumption, specifically a slowdown in spending on services. While minor downward revisions to investment spending also contributed, a slight offset came from a less severe decline in net exports and government spending within the GDP figures.
• The sharper downturn in Q1 will likely prompt investors to closely monitor the Q2 economic performance. Current estimates from the Atlanta Fed’s GDPNow project a significant rebound, with an annualized growth rate of 3.4%. This anticipated increase is primarily attributed to a strong positive contribution from net exports and a pickup in consumer spending.

• Business investment will be a critical indicator for assessing whether recession risks have truly receded. Notably, first-quarter spending, particularly on information technology projects, served as a key buffer that possibly prevented an even deeper economic contraction. Going forward, we’ll be closely monitoring whether this resilience in capital expenditures persists amid tighter financial conditions and lingering uncertainty.

Updates on Trade Deals: With less than two weeks until the trade deadline expires, the president continues to make progress on key trade negotiations.

• Commerce Secretary Howard Lutnick announced that the administration has reached a trade deal with China. The agreement, pending signatures from Presidents Trump and Xi, would grant the US access to rare earth minerals. In return, the US is expected to resume ethane shipments to China upon finalization of the deal.
• The agreement should prove particularly beneficial for US tech stocks, as it secures access to critical production inputs. Rare earth minerals, essential components in everything from smartphones to advanced jet engines, represent just one example of the vital resources now more reliably available to these companies under the deal’s framework.

• While import tariffs dominate trade policy discussions, export controls represent a more systemic economic vulnerability. The fundamental asymmetry lies in substitution dynamics — markets can typically be replaced more readily than critical supply chains. Consequently, the economy’s resilience (and by extension, market performance) will depend heavily on its ability to prevent material shortages before they emerge.

Germany’s Past: The Social Democrats are set to clash over differences on how to deal with Russia.

• The party will convene on Friday to deliberate its future stance toward Russia, as members seek to reconcile their historical advocacy for détente — a policy many credit with helping to topple the Berlin Wall — with current demands for heightened defense expenditures. This strategic reassessment comes amid escalating geopolitical tensions.
• The ongoing dispute risks undermining the government’s ability to approve critical defense legislation. With the ruling coalition holding a fragile 13-seat majority, even limited defections from SPD members could stall key votes, potentially paralyzing security funding efforts.
• While German equities have been among this year’s top performers, much of the rally has been fueled by expectations of higher defense spending. As a result, we are closely monitoring intra-coalition tensions, particularly their potential to disrupt fiscal commitments, to assess whether this market strength reflects a sustainable trend or merely short-term optimism.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are intently focused on the latest Fed developments. Today’s Comment examines the growing conservative support for wealth taxes, the potential White House pressure on Chair Powell, and the new challenge facing the leader of the European Commission. As always, we’ll wrap up with a snapshot of today’s most important domestic and international data releases.

Taxing the Rich: Some conservative legislators now support raising taxes on top earners as part of efforts to protect low-income households from bearing disproportionate fiscal pressures.

• Senator Susan Collins (R-ME) has proposed raising taxes on individuals earning over $100 million annually. Her plan would allow the Trump-era tax cuts to expire for the wealthiest Americans and redirect the revenue to fund tax relief for middle- and lower-income households. If enacted, the top marginal rate would revert from 37% to 39.6%, matching the rate under the Obama administration.
• Collins’ tax proposal emerges as Republicans seek to prevent drastic cuts to essential social programs like Medicaid and Medicare. Previous attempts to reduce funding for these programs raised alarms about potential service disruptions for vulnerable populations. The debate over required funding levels has intensified, with Collins advocating for $100 billion in allocated funds while Florida Republican Senator Rick Scott has proposed a $6 billion alternative.

• According to Social Security Administration data, fewer than 293 taxpayers reported annual incomes above $50 million in 2023. Using this group as the sample, the proposed 2.6 percentage-point increase in their tax rate would theoretically generate an estimated $750 billion in additional revenue over 10 years. While exact figures aren’t available for those earning over $100 million specifically, it demonstrates how even a modest tax increase targeting ultra-high earners can yield substantial government revenue.
• As conservative lawmakers deliberate the path forward for the president’s $4.2 trillion tax cut proposal, political pressures, including the impending debt ceiling deadline, may ultimately compel passage. While the final legislation may incorporate some revenue-raising measures to reduce long-term costs and support bond markets, the package’s overall tax reductions could provide an economic boost, partially offsetting the dampening effects of current tariffs.

Shadow Fed Talks: The president is considering naming a successor for the Fed chair before Powell’s term expires in May of next year.

• The president is evaluating three to four potential nominees to lead the Federal Reserve. While no official announcement timeline has been established, speculation suggests a decision may coincide with the September-October window, the same period Chair Powell has indicated could warrant potential rate cuts. This consideration comes amid ongoing tension between the administration and the Fed, which has maintained its rate policy despite pressure for cuts from the White House.
• The president’s shortlist for Federal Reserve chair features both administration officials and current Fed leadership. Among the leading candidates are Treasury Secretary Scott Bessent, White House Economic Advisor and former Fed Governor Kevin Warsh, National Economic Council Director Kevin Hassett, and sitting Fed Governor Christopher Waller.

• The Fed leadership race appears increasingly likely to narrow to Warsh and Waller. Warsh, a previous Fed chair finalist, has notably softened his once hawkish stance from his first board tenure, a shift that is likely to raise suspicions about his ability to resist political pressure when setting policy. In contrast, Waller’s research correlating job openings with labor demand provides a data-driven case for rate cuts, though his votes this year to maintain current rates could lead Trump to go in another direction.
• That said, the uncertainty with leadership is likely to fuel bond market volatility and weaken the dollar. While Fed policy and long-term interest rates are closely linked, prolonged ambiguity could exacerbate rate swings and even intensify inflationary pressures. Moreover, diminished central bank credibility may reduce the appeal of US assets to foreign investors. One potential hedge against this risk is diversification into international markets, as a weaker dollar could enhance returns for domestic investors.

EU Head in Trouble: A recent ruling may present challenges for European leaders as they work to maintain unity amid growing pressures facing the bloc.

• European Commission President Ursula von der Leyen faces a no-confidence vote following allegations connected to pandemic-era vaccine procurement. Far-right lawmakers have reportedly gathered sufficient signatures to advance a motion — widely referred to as “Pfizergate” — seeking the removal of current leadership. While the motion is expected to fail, it highlights the deepening divisions within the EU.
• The controversy centers on transparency regarding vaccine negotiations. While von der Leyen successfully secured contracts for the bloc, questions persist about missing text messages between her and Pfizer CEO Albert Bourla during critical negotiation periods. The apparent deletion of the messages became a focal point after a European court ruled in May that the Commission must either locate the communications or provide a credible explanation for their absence.
• While the no-confidence vote is unlikely to succeed, its political ramifications could still trigger a parliamentary shake-up. The 1999 precedent of Jacques Santer’s Commission, which resigned en masse amid fraud and transparency allegations despite surviving a no-confidence vote, looms large. That said, four subsequent motions failed, underscoring the high threshold for actual removal.

• The broader concern is how the scandal might impact the EU’s trade negotiations with the US. Although recent progress includes a provisional deal on non-tariff measures, the bloc remains prepared to retaliate if the US imposes new tariffs, a possibility the Trump administration has floated with rates as high as 50%. The uncertainty risks complicating delicate talks, particularly if the leadership changes disrupt the EU’s strategic cohesion.
• That said, we do not expect the controversy to have significant short-term market implications. However, it warrants close monitoring as the EU navigates a delicate balancing act between trade pressures, primarily from the US and, to a lesser extent, China. The White House has historically preferred bilateral negotiations, meaning any fragmentation within the bloc could strengthen Washington’s hand in securing more favorable trade terms.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are breathing a sigh of relief as tensions in the Middle East show signs of easing, helping stabilize risk sentiment. In today’s Comment, we’ll break down the key takeaways from Fed Chair Jerome Powell’s first day of congressional testimony, analyze the latest drop in consumer confidence, and cover other market-moving headlines you need to know. As always, we’ll wrap up with a snapshot of today’s most important domestic and international data releases.

Powell Speaks: Fed Chair Powell addressed markets regarding the timeline for interest rate cuts but stopped short of offering any clear signals on when the first reduction might occur.

• During his congressional testimony, Fed Chair Powell pushed back against calls for an immediate rate cut but left the door open to potential easing in September. He stressed that the central bank would first need to evaluate June and July inflation data before considering any policy adjustments later this year. His remarks follow recent criticism from the president, who has accused the Fed of lagging behind other major central banks in lowering interest rates.
• The decision to cut rates appears to have deepened divisions within the FOMC, as Fed officials grapple with how to interpret inflation data amid recent tariff impacts. As highlighted in Tuesday’s report, Fed Governor Waller has advocated a data-dependent approach, arguing the central bank should act on incoming figures rather than wait for full confirmation. Meanwhile, Kansas City Fed President Jeffrey Schmid has endorsed Chair Powell’s more cautious “wait-and-see” stance.

• Despite the Fed’s ongoing debate over whether to cut rates now or later, its hesitancy to act without confirmation has been a consistent pattern. In 2024, even though the Fed ultimately cut rates by 100 basis points, it initially resisted calls for earlier reductions. This cautious approach stems partly from inflation’s seasonal patterns, as historically, price growth slows most during summer months. If incoming data aligns with this trend, the Fed will likely conclude inflation is converging toward its target.
• The key factor we’re monitoring closely is data quality. Over the past three months, the proportion of inflation components derived from estimates rather than actual measurements has surged from 10% to 30%. This increase suggests we may see significant revisions later this year. While we maintain confidence in the overall accuracy of these figures, the growing reliance on estimates could prompt the Fed to exercise additional caution before implementing its first rate cut of the year.

Confidence Slips: While inflation expectations have eased, households are now worried that tariffs could hurt their job prospects.

• Consumer confidence unexpectedly declined in June amid growing household concerns about the potential impact of tariffs on employment. The Conference Board’s index dropped to 93.0 from 98.4 in May, significantly missing economists’ consensus forecast of 100. The deterioration was primarily driven by the present situation component, which fell to its lowest level this year, while the expectations index declined further below the 80-point threshold typically indicative of impending recession.
• A closer examination reveals a nuanced shift in consumer sentiment. Respondents reported easing inflation concerns and growing confidence in equity markets. Yet this optimism is tempered by emerging labor market anxieties, with fewer consumers perceiving abundant job availability compared to early 2024. The survey also detected early warning signs of deteriorating household perceptions regarding business conditions.

• The divergence between labor market expectations and equity market performance reflects how financial markets have discounted uncertainty while households remain cautious. This suggests that despite the stock market rebound, consumers are maintaining vigilance against potential economic volatility.
• There’s often a disconnect between consumer sentiment and actual spending behavior. While declining confidence surveys might suggest economic pessimism, most hard indicators still point to continued expansion. That said, the weakening outlook does signal potential caution among households, who may begin restraining discretionary spending in coming months. This divergence warrants attention but doesn’t yet justify significant concern.

 Damaged, Not Destroyed: New information has surfaced concerning the US bombing of an Iranian facility, indicating remaining persistent risks that were perhaps not entirely diffused.

• A recently leaked intelligence report suggests that the impact from the US strike on Iran’s nuclear program was limited, estimating a setback of only a few months. This assessment directly contradicts the president’s assertion that the Iranian nuclear facility was “obliterated” and fuels concerns about the conflict escalating. Defense Secretary Pete Hegseth acknowledged the report’s existence but stated that the intelligence community had “low confidence” in its accuracy.
• Despite these tensions, diplomatic progress appears underway as Iran and Washington have agreed to resume negotiations regarding Tehran’s nuclear program. The White House’s Middle East envoy Steve Witkoff confirmed preliminary discussions are promising, with both sides working toward a comprehensive peace agreement. In a conciliatory gesture, the US has eased sanctions on Chinese vessels involved in Iranian oil purchases, signaling a potential openness to economic concessions.
• The primary challenge facing both parties will be determining a path forward. Israeli intelligence operatives who surveyed the Fordow enrichment facility reported mixed operational results, with one source characterizing the outcome as  “really not good.” The assessment noted troubling signs that Iran may have relocated enriched uranium prior to the strike, while the operational status of many centrifuges remains uncertain.
• While the president has recently warned that the US would conduct additional strikes if Iran resumes its nuclear enrichment program, we view this as an unlikely near-term outcome given ongoing negotiations. However, should another strike occur, markets would likely focus less on the military action itself and more on whether Washington intends to pursue regime change — a scenario that currently appears off the table, suggesting limited market volatility for now.

Populist Takeover: The New York mayoral race provided more evidence of a shift in sentiment concerning the established norms.

• In a surprising upset, 33-year-old democratic socialist Zohran Mamdani defeated former New York Governor Andrew Cuomo for the Democratic nomination. A relative unknown, Mamdani built a winning coalition across Queens, Brooklyn, and Manhattan, even making inroads in the Bronx, where Cuomo had believed his support was strongest. Mamdani’s victory signals a potential shift within the Democratic Party as it seeks to rebrand itself as more progressive and grassroots oriented.
• This election underscores a broader erosion of traditional politicians’ ability to maintain power through conventional means. Voters are increasingly rejecting the Washington Consensus that has shaped policy for the past three decades, demanding more disruptive leadership instead. President Trump’s populist ascent exemplifies this shift, reflecting a growing appetite for leaders willing to challenge established norms and institutions.
• Broadly speaking, shifts in sentiment can be viewed through the lens of the equality-efficiency trade-off, a concept famously articulated by economist Arthur Okun. He argued that an inherent tension exists between maintaining robust productivity and ensuring that no segments of society are left behind. While policies promoting greater equality may lead to inefficiencies due to disincentives for production or misallocation of capital, a sole focus on efficiency can exacerbate wealth and income inequality.
• We have experienced a prolonged era of policymaking that prioritized productivity over social welfare, fueling aggregate wealth but exacerbating income inequality in the process. The dynamics of the New York mayoral race appear to reflect a broader shift away from this efficiency-driven paradigm, which could introduce greater uncertainty into markets. In such an environment — where monetary policy and inflation are likely to remain volatile — we believe active investing will outperform passive in the long term.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The markets are carefully assessing the implications of the latest truce between Iran and Israel. In today’s Comment, we’ll analyze the ongoing Middle East conflict and its potential market impact, examine why a Fed rate cut at next month’s FOMC meeting is now a realistic possibility, and highlight other key developments shaping the financial landscape. As always, we’ll conclude with a concise overview of today’s most important domestic and international economic data releases.

Respond and Relax: Iran’s retaliation to the US attack on its nuclear facility has paved the way for de-escalation.

• Iran launched an attack on a US military base in Qatar, home to the US Central Command’s headquarters. The initial strikes sparked market concerns over a widening conflict. However, reports indicated that most of the missile attacks were intercepted, resulting in relatively limited damage and no reported casualties, which helped ease fears. Additionally, it was later revealed that Iran had provided advance warning of the strike, suggesting the move may have been more for show than a genuine escalation.
• Following the attack, Iran moved to de-escalate tensions by announcing it planned no further strikes and agreed to a tentative ceasefire with Israel and the US. This sentiment echoed Washington’s stance after its own strikes on Iranian nuclear facilities, when the US similarly declared it sought no additional attacks and had no intention of pursuing regime change.

• Assuming the dust will settle soon, the two sides appear poised to resume nuclear talks. However, it remains unclear who holds the upper hand, as the full impact of US strikes on Iran’s nuclear program is still uncertain. For instance, there are no traces of the 400kg of enriched uranium, suggesting Iran may have relocated it to a secure facility before the attack. Moreover, initial assessments indicate that while targeted sites sustained severe damage, they may not have been fully destroyed.
• So far, the ceasefire remains in place but is fragile. Israel has accused Iran of violating the truce — a claim Tehran denies. Meanwhile, Iran’s refusal to allow IAEA inspections of its nuclear facilities is likely to heighten international concerns. That said, the attacks appear to have significantly degraded Iran’s nuclear enrichment capabilities, reducing the immediate threat level. Barring a renewed escalation, we expect minimal disruption to financial markets in the short term.

July Rate Cut: Nearly a week after the Federal Reserve concluded its two-day meeting, there are signs that Fed officials may now be favoring a rate cut.

• On Monday, Fed Vice Chair for Supervision Michelle Bowman said she would support easing monetary policy if inflation demonstrates sustained progress toward the 2% target and labor market conditions deteriorate meaningfully. Her comments align with recent remarks from Fed Governor Christopher Waller, who emphasized that future rate decisions should be based on incoming data rather than speculation. Waller also noted the likely temporary nature of tariff-related inflationary pressures.
• Their comments on future monetary policy follow the latest Summary of Economic Projections (SEP), which revealed growing divergence among policymakers regarding the path of policy rates. While the median federal funds target rate for year-end remained unchanged from the March meeting at 3.9%, projections for the next two years showed one fewer rate cut anticipated for both years. This suggests that despite dovish rhetoric from some Fed officials, the FOMC’s overall stance has turned slightly more hawkish.

• That said, despite diverse views among FOMC members, the committee has maintained remarkable unity in actual policy rate decisions. Fed Chair Jerome Powell has presided over one of the lowest dissent rates in modern Fed history compared to his predecessors. We believe this reflects Powell’s leadership approach — allowing members to voice differing opinions publicly while maintaining consensus in formal policy votes.
• Moreover, this consensus may come under increasing pressure as the president continues to urge the central bank to lower interest rates, both to mitigate the economic impact of tariffs and reduce government debt servicing costs. We expect these pressures could prompt the Fed to deliver roughly 50 basis points of rate cuts this year if economic conditions remain stable. However, a material deterioration in labor market conditions might necessitate more aggressive easing.

NATO Defense Spending: At its two-day summit, the Western military alliance is set to address key issues, including Iran and defense spending.

• The central topic of the summit will be Europe’s plan to raise defense spending to 5% of GDP by 2035. While most member states broadly agree on this target, Spain has emerged as a key dissenter. Prime Minister Pedro Sánchez has called the goal disproportionate, arguing that Spain can fulfill all its NATO commitments, in terms of personnel and equipment, by spending just 2.1% of GDP. Its decision to hold out has called into question whether or not all countries will be able to meet spending obligations.
• That said, the larger European countries appear to be on track to ramp up spending and meet the ambitious target. The UK has pledged to increase defense spending to 5% of GDP, allocating 3.5% to core defense and an additional 1.5% to other defense-related expenditures. France’s President Emmanuel Macron has long advocated for the bloc to boost its military spending. Meanwhile, Germany has accelerated its military buildup, with plans to increase defense spending by two-thirds by 2029.
• Beyond defense spending, divisions are emerging among European allies over US involvement in the Iran and Ukraine conflicts. While Germany and NATO’s leadership have backed President Trump’s decision to strike Iranian nuclear facilities, France and others have denounced the move as a violation of international law. Separately, discussions are expected on bolstering Ukraine’s defense against Russia, with the bloc pushing for Kyiv’s potential NATO membership, a prospect Trump continues to resist.
• While tensions over defense spending and foreign policy priorities will dominate the summit, financial markets remain acutely attuned to any signs of alliance fragmentation. A deepening rift between European members and the US has become increasingly apparent, driven by Washington’s desire to shift away from providing Europe with security towards countering China in the Indo-Pacific. This shift has sparked concerns about a premature reduction of US forces in Europe before continental allies are ready.
• Although no immediate withdrawal announcement is expected, even subtle indications of such a move could exacerbate geopolitical anxieties. Market reactions would likely manifest through a rotation out of European sovereign bonds and into defense-sector equities, as investors anticipate accelerated military spending. Such a shift would pressure government balance sheets through increased borrowing while boosting revenues for aerospace and defense contractors.

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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 on the Israel-Iran conflict and the US’s bomber and missile attacks on Iran over the weekend. We next review several other international and US developments with the potential to affect the financial markets today, including signs that some US allies in both Asia and Europe are pushing back against President Trump’s demand that they hike their defense spending to 5% of gross domestic product and an update on the progress of Trump’s “big, beautiful” tax-and-spending bill in the Senate.

United States-Iran-Israel: As we warned in our Comment on Friday, the US on Saturday launched a bomber and missile attack on Iran’s key nuclear facilities. The attacks included massive “bunker buster” munitions dropped by B-2 bombers at Fordow and Natanz, and cruise missile attacks on Isfahan. US officials say they believe the attacks caused “severe damage” to Iran’s nuclear program, but full damage assessments will take time, and officials admit they don’t know where Iran’s enriched uranium stockpiles are.

• Trump administration officials say they have no plans for further attacks on Iran, and that the weekend attacks are not the beginning of an open-ended war. However, President Trump also warned that he will launch more attacks if Iran retaliates. On Sunday, he also hinted that he may pursue regime change in Iran.
• In any case, if the bomb damage assessments indicate Iran’s nuclear program has not been destroyed definitively, there is some chance that Israel, potentially backed by the US, might have to deploy special forces or bigger military units to Iranian territory to seek out and destroy the remnants of the program. More broadly, regime change may be the only way to ensure that Iran’s menacing program is finally destroyed.
• A key issue now is how Iran might respond to the US attack. Iran retains many possible retaliatory options including: attacks on US and allied forces and/or energy facilities in the region, shipping restrictions in the Strait of Hormuz, renewed terrorism, seizures of Western hostages, cyberattacks, withdrawal from the Non-Proliferation Treaty, and reconstitution or acceleration of its nuclear program. Any of these options could force the US to attack again, potentially with ground troops.
• In the longer term, we believe the US attack will encourage Iran and other nations to rush toward acquiring their own nuclear weapons. For example, an advisor to Iranian supreme leader Khomeini warned on X that “Enriched materials, indigenous knowledge [and the] political will remain” for Iran to keep pursuing its own nukes. As we have warned before, today’s increasing geopolitical chaos risks sparking a new, global nuclear arms race.
• We also note that China, Russia and other Iranian allies merely condemned the US attack but offered no obvious tangible help to Iran. In our view, that reflects China’s continued inability and/or unwillingness to support the members of its bloc with real military aid. As we have written in the past, Beijing is managing its geopolitical bloc largely on economic, neocolonial lines. Beijing’s failure to offer Iran more tangible benefits risks undermining the cohesion of the entire China bloc.
• Despite the risk of Iranian retaliation and disruptions to global energy supplies, near oil futures as of this writing are essentially unchanged, with Brent currently changing hands at about $76.95 per barrel and WTI trading at $73.52.

Taiwan-China: Taiwanese President Lai Ching-te launched a series of “national unity” speeches yesterday, ahead of a July 26 recall vote against nearly half of the parliament members from the China-friendly Kuomintang opposition party. In a statement sure to anger Chinese leaders, Lai stressed in his speech that “of course Taiwan is a sovereign state!” That assertion will likely provoke dangerous, market-concerning retaliation from Beijing, such as more military exercises around the island or restrictions on trade and capital flows between Taiwan and the mainland.

Japan-United States: Late last week, Tokyo reportedly canceled its participation in the annual US-Japan “two-plus-two” meeting between the countries’ top foreign relations and defense officials. That meeting had been scheduled to take place in Washington on July 1. According to the report, Tokyo’s cancelation stemmed from its anger over recent US pressure to hike Japanese defense spending to as much as 5% of GDP. The move illustrates the type of pushback it can expect as it pressures its allies into politically painful defense spending hikes.

Japan: In an interview with the Financial Times published Saturday, the chief investment officer for global fixed income at bond giant PIMCO said the firm has been buying long-term Japanese government bonds (JGB) in the belief that the market is being too pessimistic about the obligations despite rising consumer price inflation in Japan and the central bank’s effort to reduce its buying.

• With the yield on 30-year JGBs now approaching 3.0%, PIMCO believes the obligations now offer an enticing opportunity.
• The firm’s interest in long-term JGBs shows how some sophisticated bond investors still see opportunities in the debt of even highly indebted developed countries. While we’ve recently seen early signs of capital flight from the US because of debt concerns and policy uncertainty, PIMCO’s decision shows why a large-scale sell-off in long-term US Treasurys is not yet set in stone.

Germany-Italy-United States: An article in today’s Financial Times indicates that lawmakers in Germany and Italy have begun to urge their central banks to reduce the amount of their gold reserves held in the US. The calls reflect not only foreign concerns about US policy uncertainty under President Trump, but also their increased prioritization of gold as a key part of their reserves.

United States-European Union: A report late Friday said the US and the EU are mulling a draft agreement reforming dozens of non-tariff trade barriers posed by the Europeans, including the EU’s Digital Markets Act, its carbon-based border tariffs, shipbuilding and more. The draft deal doesn’t address the Trump administration’s tough tariffs on EU imports or the EU’s planned retaliatory tariffs against US goods and services. However, it does suggest the two sides are making some progress in their trade dispute, raising hopes for reduced US-EU tensions

North Atlantic Treaty Organization: With NATO leaders set to meet for their annual summit at The Hague on Wednesday, Spanish Prime Minister Sánchez yesterday said he has struck a deal with the alliance to opt out of its new target of spending 5% of GDP on defense. That target is due to be officially agreed at the summit. However, a Spanish opt-out would raise questions about what spending goals the allies will ultimately agree to. In turn, that could spark volatility in global defense stocks later this week.

US Fiscal Policy: Senate leaders aim to vote this week on President Trump’s “big, beautiful” tax-and-spending bill, but the chamber’s parliamentarian has ruled several key provisions related to spending cuts as out of bounds for the fast-track reconciliation procedure. That could slow the process in the Senate. In turn, that would delay returning the bill to the House for reconciliation and final passage.

US Artificial Intelligence Industry: Masayoshi Son, founder of giant Japanese tech investor Softbank, has reportedly pitched the Trump administration with a proposal to invest $1 trillion in a new industrial project in Arizona that would focus on producing artificial intelligence, AI robots, and related products. The “Project Crystal Land” complex would aim to compete with China’s massive high-technology manufacturing cluster in Shenzhen.

• Son has also reportedly asked a range of top technology firms to join in the project, including leading semiconductor maker Taiwan Semiconductor Manufacturing Company and Samsung Electronics.
• The reporting doesn’t make clear whether the Trump administration or other big tech firms would be interested in joining the Crystal Land project. Nevertheless, Son’s vision illustrates the continuing momentum toward more US investment in high-tech manufacturing and AI.

US Labor Market: An article in the New York Times over the weekend said on-line job postings are now being inundated with applicants, not only reflecting a recent softening in labor demand but also the ease of using AI to generate tailored resumes and applications. For example, the article says the number of applications submitted on LinkedIn has surged more than 45% in the past year, and the platform is now receiving an average of 11,000 applications per minute. The result is likely to complicate hiring for both firms and applicants.

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