by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is focused squarely on new tariff developments. Today’s Comment will give our thoughts on President Trump’s latest trade threats. We’ll also explain the escalating US stance on Russia, focusing on the proposed “Sanctioning Russia Act of 2025.” The report will also cover other market-moving news and key domestic and international economic data releases.

Tariff Broadening: The president continues to broaden his trade fight, threatening higher tariffs for countries and materials.

• President Trump has threatened to impose steep tariff hikes, raising duties on most trading partners to 15–20%. This follows an earlier warning of a potential 35% levy on Canadian goods not covered by the USMCA. Additionally, the existing 50% tariff on copper is expected to be expanded to include semi-finished products. The president also signaled a willingness to escalate tariffs further if deemed necessary.
• This escalation in trade tensions coincides with the administration’s push to secure negotiated agreements before the August 1 deadline, when the president is expected to formalize new tariff rates. The president faces mounting pressure to deliver concrete trade deals after his controversial decision to extend negotiations beyond the original July 9 cutoff date.
• While markets have largely priced in the “Trump Always Chickens Out” (TACO) trade, growing evidence suggests that the president faces mounting pressure to deliver on trade deals. Many businesses have so far avoided passing higher costs on to consumers, having stockpiled inventories ahead of potential tariffs in anticipation of more favorable terms that could prevent sharp price hikes.

• The primary challenge for firms will be navigating new tariffs if they remain in place at current levels or increase after August 1, while also attempting to replenish inventories. Current stock levels sit modestly above figures from a year ago but elevated costs could drive them lower. We anticipate businesses may offset these pressures through price increases, production cuts, or potential workforce reductions.
• That said, the president has consistently employed a pattern of Friday market warnings followed by Monday resolutions — a tactic we’ve dubbed FAME (Friday Alarm, Monday Excitement). Historically, he uses end-of-week volatility to amplify pressure, only to announce negotiated deals at week’s start. If this pattern holds, we may see another round of agreements announced Monday.

Tough on Russia: President Trump is expected to make a major statement on Monday about Russia as he pushes to end the war in Ukraine.

• The president has grown increasingly frustrated with the Kremlin’s persistent obstruction of peace negotiations with Ukraine. This frustration comes amid reports that Russia has adopted an uncompromising stance in talks, with the Trump administration dismissing Moscow’s demands as unrealistic. In response to Russia’s intensified aerial attacks on Ukrainian cities, the White House has authorized new missile shipments to strengthen Ukraine’s defensive capabilities.
• President Trump’s forthcoming policy announcement coincides with rising bipartisan pressure to take stronger action against Russia. This sentiment is reflected in new Senate legislation, the Sanctioning Russia Act of 2025, which would impose unprecedented 500% tariffs on nations purchasing sanctioned Russian goods. The bill, introduced by Senators Lindsey Graham (R-SC) and Richard Blumenthal (D-CT), would specifically target countries like India and China.

• Russia’s war persistence stems largely from domestic political calculus, as leaders look to maintain the appearance of control while avoiding any perception of defeat. After three years of devastating conflict, the war has paradoxically boosted military-dependent industries while leaving Russia increasingly isolated, making a settlement without tangible gains politically risky for the Kremlin.
• We anticipate a negotiated settlement in the coming months, likely extracting further Ukrainian concessions while offering tentative discussions on restoring European ties. The outcome hinges on Russia’s need for face-saving terms against Ukraine’s sovereignty demands, with Western support remaining the decisive factor.

 Treasury Auction Success: There has been strong demand for long-dated securities; however, global-debt burden remains a problem.

• The US Treasury’s $22 billion 30-year bond auction cleared at a high yield of 4.889%, closely aligning with the pre-auction “when-issued” rate. The solid bid-to-cover ratio of 2.38 demonstrated healthy investor appetite, a significant test following last week’s passage of expansive fiscal legislation. This outcome suggests that the market remains capable of absorbing the increase in long-dated supply, at least for now.
• Sovereign bond issuance is drawing intense scrutiny as governments ramp up fiscal stimulus worldwide. Facing upward pressure on long-term yields, many central banks, including the US Treasury and the Bank of Japan, are strategically shifting issuance toward shorter maturities to alleviate yield curve strain.

• While increased sovereign debt issuance may provide short-term economic stimulus, it risks tightening global financial conditions through upward pressure on interest rates. This tension could compel central banks to deploy unconventional measures, including rate cuts or renewed quantitative easing, as they navigate the dual challenges of supporting growth while preserving debt sustainability.

ECB Under Pressure: As US lawmakers push for additional fiscal cuts this year, European governments are urging their central banks to maintain accommodative monetary policies.

• While the ECB has cut rates three times this year, French Prime Minister François Bayrou is pushing for more accommodative monetary policy to shore up the economy. This comes as European nations face the dual challenge of a slowing economic environment, growing budget deficits, and the need to adjust to an increasingly protectionist and less dependable US ally.
• This rare criticism coincides with US lawmakers’ efforts to pressure Fed Chair Jerome Powell for an interest rate cut at the upcoming meeting. They argue a cut would help offset the rising budget deficit and promote domestic growth. Adding to this, Ohio Senator Bernie Moreno has reportedly initiated efforts to garner GOP backing for Powell’s resignation.

• The imperative to lower interest rates in the face of burgeoning budget deficits will likely compel the market, particularly foreign investors, to favor shorter-duration government securities. This diminished appetite for longer-dated bonds could consequently exacerbate interest rate volatility.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is focused on the latest trade updates. Today’s Comment will dive into the newly released Federal Reserve meeting minutes. We’ll also explore what Nvidia’s impressive surge reveals about the increasing influence of technology on equity performance. Plus, we’ll cover other breaking market news. As always, you’ll find a comprehensive summary of recent international and domestic data releases in the report.

A Divided Fed: FOMC members continue to favor a wait-and-see approach on rate cuts, despite their differing views on the long-term inflationary impact of tariffs.

• The minutes from the June 17-18 meeting revealed that while most committee members believed tariffs would remain a long-term inflationary challenge, a significant contingent argued that the effects might be temporary. The disagreement centered largely on firms’ ability to pass price increases on to consumers. Skeptics of sustained inflation questioned whether businesses had sufficient pricing power, whereas proponents doubted whether profit margins could absorb higher input costs without raising prices.
• The discussion also revealed divisions over how tariffs were affecting the labor market. While the committee agreed that labor conditions remained strong, several officials noted that some firms had paused hiring due to trade policy uncertainty. Others pointed to tighter immigration enforcement as a growing constraint on labor supply. The overall view is that labor demand could soften over the next few months.
• In short, the meeting minutes suggested that Fed officials were prioritizing inflation over labor market concerns, a sign that the committee may be adopting a more hawkish stance. This heightened focus on inflation stems partly from uncertainty over whether current data fully reflects the tariffs’ impact on prices. Recently, Minneapolis Fed President Neel Kashkari warned that the effects could be delayed, citing firms’ reluctance to raise prices, high inventory levels, and even efforts to bypass tariffs altogether.

• Although two Fed officials, Fed Governors Christopher Waller and Michelle Bowman, have expressed support for a July rate cut, most committee members appear unconvinced unless a labor supply shock materializes. That said, September may be a more likely candidate for action. Historically, summer months tend to produce softer inflation readings, and if the trend of tame inflation readings hold, it could reinforce the view that tariff-related price pressures remain contained.

 

Nvidia Sets Record: The chipmaker has become the first $4 trillion company as investors pour into the tech sector, betting on its resilience amid easing trade policy concerns.

• The sharp increase reflects growing investor confidence that AI spending will remain robust. The stock overcame earlier concerns following the release of China’s language model, DeepSeek, which demonstrated comparable performance to some US models despite using less advanced chips. Additionally, reduced fears of a severe trade war — and its potential impact on capital spending — provided further support. As a result, the stock rebounded 74% from its 2025 low in April.
• Nvidia’s meteoric rise underscores the market’s fixation on companies driving the AI revolution. That enthusiasm is no longer confined to the Magnificent 7 tech giants, as investors increasingly turn to smaller, more agile tech firms with higher growth potential. This shift is already showing up in market performance. While the NASDAQ 100 continues to outperform the S&P 500 this year, only three members of the Magnificent 7 have kept pace, with most now trailing the broader index.

• While the surge in technology stocks (including Nvidia) has been remarkable, we believe it represents a key market vulnerability. Earnings reports in the coming weeks will serve as a critical test of the rally’s sustainability. As long as tech companies demonstrate sales growth, investor enthusiasm will likely persist. However, any signs of softening demand could trigger a pullback, potentially undermining market sentiment.

More Tariff News: President Trump issued a series of tariff letters to emerging markets, notifying them of increased rates and pressing for additional requirements.

• The president issued eight additional letters to countries, notifying them of updated tariff rates targeting emerging market economies. Of these, only two nations, the Philippines and Brunei, faced increases, with rates rising by 1% and 3%, respectively. The remaining countries saw their tariffs either hold steady or drop by as much as 25%. The adjustments dealt a blow to hopes that country-specific rates would fall uniformly to 10% across the board.
• The president escalated tensions with Brazil by threatening to impose tariffs of up to 50%, citing political disputes between the two nations. The warning specifically referenced Brazil’s treatment of former President Jair Bolsonaro and its government’s crackdown on social media platforms accused of spreading election misinformation. The announcement immediately rattled markets, triggering a sell-off of Brazilian equities, while President Lula da Silva vowed retaliatory measures in response.
• The president’s treatment of emerging market economies suggests a broader shift in US strategy from benevolent hegemony toward a more malevolent approach. His willingness to impose harsh tariffs on countries with limited import capacity implies they may be viewed as a form of tribute. Furthermore, his targeting of Brazil reinforces the perception that tariffs are being weaponized to influence foreign policy, signaling a departure from cooperative engagement in favor of coercive economic leverage.

• If our assessment is correct, this is likely to further damage global perceptions of the United States, potentially weakening confidence in holding the US dollar. Recent surveys indicate a notable shift in international sentiment, with more countries now favoring China over the US — a stark reversal from just a year ago. Data from Morning Consult and Nira Data reveals that not only does the US trail China in global favorability but it has also fallen into net-negative territory, while China maintains a positive image.

Canary in the Coal Mine: There are some warning signs that the economy may be heading toward a slowdown.

• Amazon Prime Day’s opening sales fell sharply short of expectations, with preliminary data showing a 41% year-over-year decline in purchases. The event — traditionally a bellwether for consumer demand — has long served as a key indicator of household spending trends. While the drop may partly reflect Prime Day’s extension from two days to four, the weak start will likely fuel concerns about consumers tightening their budgets amid economic uncertainty.
• Additionally, WPP, the world’s largest advertising agency, reported a sharp decline in ad spending during the first half of the year and expects the trend to persist through the second half. While some losses may stem from the disruptive impact of AI on the industry, WPP has primarily blamed the slowdown on deteriorating macroeconomic conditions. Advertising budgets are often among the first cuts businesses make when bracing for an economic downturn.
• While we maintain optimism about the economy’s resilience in the coming quarters, we are closely monitoring for any shifts in the business cycle. Currently, economic conditions remain favorable and should continue to support equity markets. However, as new signals emerge, we may recommend investors adjust their risk exposure accordingly.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are actively assessing the latest trade developments. Today’s Comment will delve into the president’s evolving trade strategy, particularly as he considers new tariffs. We’ll also examine the reasons behind calls for Fed Chair Powell’s resignation and other key market-moving news. As always, the report concludes with a comprehensive summary of the latest domestic and international data releases.

From Countries to Sectors: Despite agreeing to push back the tariff deadline from July to August, President Trump has intensified his trade war measures, suggesting prolonged trade uncertainty.

• The president announced that he does not plan to extend the deadline further for country-specific tariffs set to expire on August 1. Although he expects trade deals to be finalized in the coming days, he still intends to ramp up tariffs, even for countries that are likely to agree on a framework in the near future. He specifically targeted the EU, accusing it of unfairly fining and taxing US technology firms, and threatened unilateral tariffs in response.
• Furthermore, the president appears to be shifting his focus from country-wide tariffs to specific sectors. He has announced plans to impose a 50% tariff on copper by the August 1 deadline, followed by 200% tariffs on foreign-made pharmaceuticals a year later. The threat has already driven COMEX copper prices to a record high, while also weighing on the stocks of drugmakers.

• The shift from country-specific tariffs to sector-specific tariffs may represent a long-term strategy for the president as he seeks to use tariffs to balance the dual objectives of generating revenue and incentivizing the reshoring of manufacturing. We expect he may lower broad, country-wide tariffs to maintain trade flows while imposing sharply higher tariffs on strategic sectors, effectively implementing a restrictive trade policy where it matters most.
• The overall impact of tariffs on equities remains uncertain, as investors have largely begun tuning out the president’s trade actions. However, this dynamic could shift if the next round of earnings reports reveals squeezed corporate margins. We believe the sustainability of the S&P 500’s rally will likely depend on companies’ ability to either absorb higher costs or pass them along to consumers.

Powell Resignation? President Trump called for Federal Reserve Chair Jerome Powell to resign if allegations that he misled Congress prove to be true.

• Fed Chair Powell faces accusations of misleading Congress regarding reports of extensive renovations to the Fed’s headquarters. When questioned about claims that the central bank was undergoing a “lavish overhaul,” Powell dismissed the reports as inaccurate. However, a New York Post report revealed the renovation costs had ballooned to $2.5 billion, a 32% increase from the initial $1.9 billion estimate, with many of these upgrades documented in official filings that contradict Powell’s testimony.
• The accusation is likely to fuel speculation that the president is attempting to oust Powell. He has consistently pressured Fed Chair Powell to resign, criticizing his refusal to cut interest rates over what the president deems to be unfounded concerns that tariffs could exacerbate inflation. Although the president has limited authority to dismiss a sitting Fed chair, he retains the power to do so if justified cause exists.
• According to The Wall Street Journal, two leading contenders are in line to succeed Powell if he is removed. The first is Kevin Hassett, the president’s director of the National Economic Council and former chair of the Council of Economic Advisers. The second is Kevin Warsh, a former Fed governor who was previously a runner-up for the role during the president’s last attempt to fill the position. The president is expected to value loyalty over qualifications.

• Yet, market reactions could upend those expectations. When President Jimmy Carter accepted Fed Chair William Miller’s resignation, markets plunged into chaos after Vice Chair Frederick Schultz, a prominent Democratic donor, was named interim Fed chair. The intense backlash, fueled by fears that Schultz would be too politically beholden to the president, ultimately led Carter to appoint market approved Paul Volcker, even against the advice of some of his own advisors.
• One name that could emerge as a consensus pick, and would likely soothe market concerns, is Fed Governor Christopher Waller. His research focusing on job openings as a key indicator of labor market tightness gives him a unique advantage, providing a data-driven framework to justify potential rate cuts. Moreover, his selection would extend a longstanding tradition of elevating sitting Fed governors, a pattern unbroken since the days of Paul Volcker.

RN Under Fire: France’s far-right movement is confronting intensified scrutiny as the ruling party grapples with eroding popularity.

• French authorities have raided the headquarters of the far-right National Rally party (RN) as part of an investigation into alleged misuse of EU parliamentary funds to finance political campaigns. The operation comes amid ongoing scrutiny of the party’s finances, including a recent conviction against its leader, Marine Le Pen, for embezzling EU funds — a ruling she is currently appealing.
• The crackdown coincides with French President Emmanuel Macron regaining the authority to call snap elections, a power he last exercised a year ago in a failed attempt to curb the far-right’s rising influence. This time, however, Macron appears far less inclined to take such a risk, particularly as his approval ratings have plummeted to near-record lows.

• We believe the crackdown on the far right may inadvertently boost support for the National Rally. Such an outcome could rattle European equities, as it raises the risk of a renewed push for “Frexit,” potentially destabilizing the EU itself. Moreover, markets may get a preview of how populist leaders would navigate increasingly strained US-Europe trade relations.

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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 chapter in President Trump’s tariff war with other countries, including big new tariffs on major trading partners including Japan and South Korea. We next review several other international and US developments with the potential to affect the financial markets today, including a decision by Trump to resume arms exports to Ukraine and a new executive order that will further weigh on the US green energy industry.

US Tariff Policy: As he promised, President Trump announced major tariff hikes yesterday for multiple countries that have failed to strike trade deals with the US during the 90-day pause that runs out tomorrow. The threatened new tariffs, which will take effect on August 1, include levies of 25% for Japan and South Korea, 30% for South Africa, and 40% for Laos and Myanmar. The high rates reignited concerns about trade wars and economic disruptions, driving risk asset values sharply lower yesterday.

United States-Ukraine-Russia: President Trump yesterday said the US will resume sending weapons to Ukraine to help it defend against Russian attacks. The turnaround follows public and private complaints by Trump that the Kremlin refuses to give up its maximalist territorial and political demands against Ukraine. In Trump’s words, “I’m disappointed, frankly, that President Putin hasn’t stopped.”

• As we and other observers have noted previously, it’s been unclear why Trump has long been so deferential to Putin and supportive of Russia, despite the country’s authoritarian political system and threats to US interests. Trump’s new statements suggest he may be reassessing the nature of Putin’s Russia and could potentially adopt a more mainstream view of the regime.
• As we noted in our Comment yesterday, Trump’s experience with trade negotiations since Inauguration Day also appears to have been a learning experience for him, highlighting the limits of US economic leverage and his own negotiating skill. Going forward, such learnings in geopolitics and economics could subtly shift Trump’s foreign policy toward something more akin to traditional US approaches, even if his rhetoric remains just as aggressive.

North Atlantic Treaty Organization: The Financial Times yesterday carried an article showing how the Dutch port of Rotterdam and the Belgian port of Antwerp are preparing for a potential war with Russia. The efforts are focused on identifying and reserving the port facilities that would be needed to move large amounts of military cargo from the US, the UK, and Canada onto the Continent in wartime. The planning is further evidence that Europe has gotten serious about rebuilding its defenses in the face of Russian aggression and uncertain US support.

Germany: The Ministry of Defense is reportedly mulling a massive 25-billion EUR ($29.3 billion) program to buy thousands of new armored vehicles and tanks to help outfit seven new combat brigades that Berlin has promised to add to the North Atlantic Treaty Organization’s defense capability over the coming decade. The plan would include up to 2,500 GTK Boxer infantry fighting vehicles and as many as 1,000 Leopard 2 main battle tanks, all of which would boost sales by top German defense industry firms, such as Rheinmetall.

United Kingdom: Prime Minister Starmer’s office yesterday declined to rule out tax increases on the rich to help fill the hole in public finances after parliamentary backbenchers in Starmer’s center-left Labour Party last week forced him to retreat on his planned welfare cuts. Analysts are now increasingly expecting Chancellor of the Exchequer Reeves to announce such tax hikes in her autumn budget statement. Expectations of higher taxes on the wealthy could further exacerbate the recent modest retreat in British stock values.

Japan-Philippines: New reports say Tokyo is mulling the transfer of one or more of its six Abukuma-class naval destroyers to the Philippines. If a deal is struck, it would mark Japan’s first transfer of a complete weapon system in decades. Pacifist legal restrictions had barred such transfers for many years, but the contemplated new deal shows how Tokyo is gradually dropping those limits as it tries to bolster its allies’ ability to help defend against Chinese aggression.

China: Little noticed amid the global news of war and trade disputes recently, General Secretary Xi and other top officials have launched a broad campaign against what they call “involution,” meaning excessive price competition arising from excess capacity and production. Excess supply, weak domestic demand, and now greater export barriers have put the country’s producer price inflation in negative territory since late 2022, putting many firms out of business and creating the risk of social disruption.

Australia: The Reserve Bank of Australia today voted 6-3 to keep its benchmark short-term interest rate steady at 3.85%, dashing expectations for a 25-basis point cut to 3.60%. In its policy statement, the RBA said conditions are sufficiently stable and that it can take more time to assess whether consumer price inflation remains on track to fall to the central bank’s 2.5% target. In response, the Australian dollar has appreciated 0.8% so far today, reaching $0.6544.

US Clean Energy Industry: After his “big, beautiful” tax-and-spending bill signed into law last week curtailed the Biden tax credits for green energy projects, President Trump yesterday signed an executive order tightening the standards that wind and solar farms must meet to be eligible for the remaining credits. While the law said facilities had to be “under construction” within the next 12 months to be eligible, the order says a “substantial portion” of the facility must be completed by the deadline. In response to the news, green energy stocks are trading lower today.

US Air Travel Industry: In a move that is sure to spark calls for a national day of celebration, the Transportation Security Administration is reportedly planning to end the rule that most airline passengers take their shoes off for screening before boarding a flight. The requirement is apparently the top complaint that travelers have with TSA. Passengers above the age of 75 and 12 or under are already exempt, as are those in TSA’s PreCheck program.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with more evidence of growing friction between the European Union and China. We next review several other international and US developments that could affect the financial markets today, including plans for an unexpectedly large output boost by a key group of oil exporters and news of another major US tech company succumbing to Trump administration pressure for lower prices on its services to the federal government.

European Union-China-Russia: New reports say Beijing wants to cancel the second half of a two-day summit with EU officials scheduled for later this month in China. The souring Chinese mood on the summit provides added evidence that the short-lived EU-China rapprochement has now run its course. As we have argued before, Brussels and Beijing had hoped that the rapprochement would insulate them from President Trump’s trade policy pressures, but the effort has faltered due to the two sides’ own economic and political frictions.

• One key political dispute between Brussels and Beijing is China’s continued support for Russia in its invasion of Ukraine.
• Signaling that Beijing won’t back down on that issue, Trade Minister Wang Yi said on a trip to Europe this week that China doesn’t want Russia to lose its war against Ukraine because if it did, the US could shift its diplomatic and military energy toward the broad Asia-Pacific region and China. Wang insisted Beijing isn’t helping Russia militarily or financially, but at the very least, it is providing the Kremlin with political support and dual-use goods with both military and civilian uses.
• Separately, China implemented its threatened import tariffs against EU brandy on Friday. Those tariffs are widely seen as retaliation for the EU’s own various anti-dumping tariffs and investigations against Chinese imports.

US Tariff Policy: President Trump on Friday said he would send his “take-it-or-leave-it” tariff rate offers to 12 countries on Monday, although he declined to name the countries or the offered rates. The unilateral offers would come just two days before Trump’s July 9 deadline for trade deals to be completed before his big “reciprocal” tariffs snap back into place. Trump also threatened to impose an additional 10% duty on imports from the BRICS countries, which have called for policies to reduce the dominance of the dollar in world markets.

• Resorting to the take-it-or-leave-it approach suggests that Trump now sees that his boast to strike dozens of trade deals over the 90-day suspension period was overly ambitious. As we and other observers noted at the time the reciprocal tariffs were suspended and the dozens of trade negotiations kicked off, history has shown that trade deals typically require many months or even years of detailed talks.
• An important question now is what Trump may have learned from his inability to push through all the trade deals he promised. His inability to force the EU, Japan, China, and India to quickly capitulate could give Trump a better sense of the US’s relative economic power. That could change Trump’s calculus in future disputes and/or force him to take a broader view of the US’s “cards” in future negotiations.

Global Oil Market: Saudi Arabia, Russia, the United Arab Emirates, and five other members of the “OPEC+” group of major oil exporters on Saturday said they will collectively boost output by 548,000 barrels per day starting in August. The group has been gradually reversing its output cut of 2.2 million bpd from two years ago, but the announced production increase for next month was bigger than expected. The increase will raise concerns about excess supply and potentially cap or push down global oil prices in the second half of 2025.

China: The Chinese government has reportedly been buying up huge amounts of nickel to boost its state reserves amid growing trade tensions with the US. According to the reports, Beijing has bought up to 100,000 tons of the metal since December, essentially doubling its reserves as it seeks to ensure supplies for the production of stainless steel, electric-vehicle batteries, and other products. The report underscores Beijing’s strategy to secure its supplies of key minerals and leverage those minerals, such as rare earths, where it has a near monopoly on global production.

South Korea: At the behest of the newly installed center-left president, Lee Jae-myung, the National Assembly has approved new fiscal stimulus measures valued at about $20 billion. The new measures include cash handouts and coupons for citizens to spur private consumption, financial aid for troubled households or small businesses, and new investments in infrastructure for AI. The aim is to arrest a worsening slowdown in economic growth, but by our calculations, the new spending will only amount to about 1.1% of last year’s gross domestic product.

US Politics: On Saturday, Tesla CEO and former Trump ally Elon Musk said he’s formed a new “America Party” aimed at slashing government spending and reining in the national debt. It’s not clear how much Musk will really focus on the new party, but with his vast financial resources, he and the party could affect the 2026 mid-term elections, where he’s vowed to challenge the Republican lawmakers who voted for Trump’s deficit-expanding “big, beautiful” budget bill. Fearing retaliation by Trump, investors have driven Tesla shares sharply lower so far today.

US Fiscal Policy: The Wall Street Journal today says Oracle has agreed to give the federal government a 75% discount on its database and analytics software licenses through November, as well as a “substantial” discount on its cloud services. That makes Oracle the latest tech firm to succumb to Trump administration pressure for lower prices. That administration initiative has been much quieter than the “Department of Government Efficiency” effort to shed government workers, but it has notched some significant successes.

US Treasury Market: The Financial Times today reports that crypto companies and investors are rapidly buying up tokenized versions of money market and US Treasury mutual funds. Total assets held in tokenized Treasury products have reportedly jumped to $7.4 billion, up 80% so far this year. The surge in part reflects the interest of crypto traders, who find the funds a better place to park funds than stablecoins. Other investors like the product as an easy-to-trade form of collateral in crypto derivatives transactions.

US Venture Capital Industry: New data from PitchBook shows that fully 64% of all US venture capital investments in the first half of 2025 went to artificial-intelligence firms. Globally, 53% of all venture investment in the period went to AI. Even more striking, these investments have been extremely concentrated, with one-third of US investments going to just five firms in the first half. The figures underscore how investors of all stripes continue to expect extraordinary returns from AI in the future.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Note: There will not be a Daily Comment tomorrow due to the holiday.

Our Comment today opens with an important sign that foreign central banks may be preparing to support the dollar and drive their currencies back down — a move that could have a big impact on the relative prospects of foreign stocks versus US stocks. We next review other international and US developments with the potential to affect the financial markets today, including fiscal policy turmoil in the UK that has sparked volatility in British bond markets and the latest on today’s House vote regarding President Trump’s “big, beautiful” tax-and-spending bill.

Eurozone: Several officials at the European Central Bank’s international policy conference in Portugal this week signaled that the euro may have appreciated too much versus the dollar this year and that the ECB may need to take action to push it down. Of course, ECB jawboning or policy actions may fail to lift the dollar now that many global investors have become skittish about economic and political stability in the US. Still, any major effort to push down the dollar would risk undermining the current case for foreign stocks versus US stocks.

France: Anyone flying to Europe this week for the Independence Day holiday should be aware that a strike by French air traffic controllers is reportedly disrupting flights and causing delays across Europe. Regulators have asked airlines to cancel about half the flights into and out of Paris today and tomorrow, when the strike is scheduled to end.

UK Fiscal Policy: Prime Minister Starmer has capitulated to a rebellion by his Labour Party’s parliament members and gutted an important welfare reform aimed at reining in costs in the coming years. The failure to cut disability payments has sparked intense concern that the government will have to hike taxes and/or cut other spending.

• In response, investors yesterday aggressively sold off the British pound and UK government bonds. The currency depreciated by about 0.8% to $1.3632, while the yield on 10-year gilts rose to approximately 4.62%.
• So far this morning, however, British markets have stabilized and even rebounded modestly.

UK Stock Market: The chief executive of pharmaceutical giant AstraZeneca is reportedly mulling a transfer of the firm’s stock listing from London to New York, largely due to concerns about oppressive regulation and shallow financial markets in the UK. If the firm does move, its price/earnings ratio could well rise toward the US average. In addition, the FTSE stock price index would lose its largest component, British stocks in general could face increased challenges, and the government of Prime Minister Starmer would suffer a political black eye.

Turkey: The June consumer price index was up 35.1% from the same month one year earlier, marking a slightly cooling from the 35.4% rise in the year to May. Inflation is now only about half the 71.6% rate reached last year, so the renewed cooling at the beginning of summer could encourage the central bank to resume cutting interest rates.

United States-Vietnam: President Trump yesterday said Washington and Hanoi have struck a deal under which Vietnam will charge no tariffs on US imports, while the US will impose 20% tariffs on Vietnamese imports. The deal also calls for a US tariff of 40% on imports from third countries (including China) that are transshipped through Vietnam.

• The agreed tariff rate on Vietnamese imports is less than half the 46% “reciprocal” tariff Trump announced in early April. However, we judge that it is probably still high enough to have a noticeable negative impact on Vietnamese exports and economic growth.
• Given that so many companies have tried in recent years to skirt the US-China trade spat by setting up operations and transshipment operations in Vietnam, the deal could also potentially weigh on exports from China and other countries.

United States-South Korea: President Lee Jae Myung of South Korea said that his country’s trade negotiations with the US are proving “very difficult” and that the two sides are unlikely to reach a deal before President Trump’s July 9 deadline. If the deadline is missed, South Korea would be at risk of Trump reimposing his 25% “reciprocal” tariff on the country. Given that the South Korean economy relies heavily on exports, any such snapback in US tariffs would likely weigh on growth and hurt South Korean stock prices.

United States-Iran: A spokesman for the Department of Defense yesterday said the US attack on Iran last month only set back the country’s nuclear weapons program by about two years, despite President Trump’s assertion that the attack “obliterated” the effort. If the statement is correct, it highlights the risk that Iran will now double down on its effort to build a nuclear weapon, likely leading to renewed tensions with the West in short order.

US Fiscal Policy: Dozens of Republican fiscal hawks in the House pushed back against the newly-passed Senate version of President Trump’s “big, beautiful” tax-and-spending bill yesterday, but arm twisting by Trump, House Speaker Johnson, and their aides has apparently turned the tide, and a final vote is set for later today. If it passes, the bill will go to Trump to be signed into law by his July 4 deadline.

• There is probably still some chance that the House could vote down the Senate’s bill, in which case a reconciliation committee would have to negotiate a compromise.
• The outlook for US tax and spending policies in the near term therefore remains unclear as of this moment. Nevertheless, the longer-term outlook still probably calls for continued big budget deficits, rising federal debt, and higher interest rates or even a potential fiscal crisis at some point in the future.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the US Senate’s passage yesterday of President Trump’s singular “big, beautiful” tax-and-spending bill. We next review several other international and US developments with the potential to affect the financial markets today, including monetary policy discussions by a range of global central bankers and new data pointing to a burgeoning use of robots in a key US firm.

US Fiscal Policy: By the slimmest possible majority, the Senate yesterday passed its version of President Trump’s “big, beautiful” tax-and-spending bill. The final tally was 51-50, with Vice President Vance providing the tie-breaking vote. In broad contours, the bill would cut spending on Medicaid, food stamps, and green-energy subsidies while hiking defense outlays and extending Trump’s 2017 tax cuts. The bill, as passed, is estimated to widen the federal budget deficit by more than $3 trillion over the coming decade, versus the House bill’s $2.4 trillion.

• The bill now goes back to the House of Representatives for its approval, but dozens of Republicans in that chamber have said they can’t accept the Senate’s changes and will vote no. President Trump, House Speaker Johnson, and his whips are expected to spend the next few days furiously arm-twisting the hold outs to pass the bill
• If the House can’t accept the Senate bill as written, the two chambers’ leaders would need to hash out a compromise that can be approved by both bodies, in which case the bill probably wouldn’t get to Trump’s desk for signing until after his deadline of July 4.
• As we’ve noted previously, the likely expansion of the budget deficit in the final bill would provide some stimulus to the economy in the near term, but bond investors could well look askance at the rising deficits, become even less avid in their purchases of Treasury debt, and drive interest rates higher over time.

Global Oil Market: According to the Financial Times today, at least five oil tankers around the world have been attacked by limpet mines so far this year, shortly after visiting Russian ports. The attacks, which haven’t sunk any of the tankers, are suspected of being carried out by Ukrainian operatives as a way to discourage ship owners from helping Russia export its oil. If so, the effort likely aims to reduce Russian oil profits that are helping fund its invasion of Ukraine. The risk is that a high-profile attack or sinking could at some point roil the world’s energy markets.

China-United States: In a Fox News interview yesterday, Treasury Secretary Bessent said Chinese rare-earth magnets are again being shipped to the US after last week’s agreement on the issue, but they still aren’t flowing in the volumes seen before Trump’s announcement of “reciprocal” tariffs in early April. In the interview, Bessent expressed confidence that Beijing will further ramp up the critical shipments, but his statement suggests that the Chinese continue to crimp supplies in a way that could spark a new flare-up in tensions in the coming weeks.

United States-Japan: President Trump yesterday said he doubted the US and Japan could reach a trade deal by his July 9 deadline, so he likely will reinstate his “reciprocal” tariff on Japanese imports at a rate of 30% of more. The tough line on Japan comes despite reports that officials in the administration are now willing to accept narrow interim deals with many countries. As we noted in our Comment yesterday, the EU has also been pushing back strongly against Trump’s tariffs, raising the specter of a snap-back of reciprocal duties on it.

Japan: Bank of Japan Governor Ueda yesterday said his central bank’s benchmark short-term interest rate of 0.50% remains below “neutral” and therefore will contribute to increasing consumer price inflation in the near term. The statement suggests that the BOJ’s next move will be to raise rates again after holding them steady since late January.

Eurozone: The May unemployment rate rose to 6.3%, compared with expectations it would remain at the record-low rate of 6.2% in April. The increase in joblessness was driven in large part by the volatile Italian unemployment data, but the rebound is still being seen as a sign that European businesses have become more cautious about headcount levels amid modest economic growth and the threat of disruptive tariffs by the US.

United Kingdom: In contrast with the upward trend in Japanese interest rates, Bank of England Governor Bailey said cooling economic growth and wage rates will likely prompt further rate cuts by his central bank. Investors expect the BOE to cut its benchmark short-term rate again in August.

Iran: As widely expected after the US and Israel struck Iran’s nuclear sites last month, Tehran today said it is suspending its cooperation with the International Atomic Energy Agency. The announcement means IAEA inspectors and monitoring systems will no longer be able to track Iran’s nuclear activities or assess any damage from the US and Israeli attacks. The IAEA will also be inhibited from helping determine the whereabouts of the uranium that Iran has already enriched, which raises the chance of Iran making a dash for a nuclear bomb.

US Monetary Policy: Fed Chair Powell yesterday said the US economy’s continued “solid” growth has allowed the monetary policymakers to hold their benchmark fed funds interest rate steady while they analyze the effect of President Trump’s tariff policies. However, despite growing market expectations for a rate cut at the Fed’s next policy meeting in late July, Powell gave no hint of what he might be planning for that meeting. We therefore believe that investors may still be too optimistic regarding further monetary easing.

US Technology Industry: According to the Wall Street Journal, retail giant Amazon now has more than one million industrial robots working in its warehouses and other facilities, largely focused on dangerous or difficult tasks such as heavy lifting. The firm is reportedly on track to soon have more robots than human employees. The report illustrates the growing demand for robots in the economy, as well as the threats and opportunities for workers as robots take over some jobs.

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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 US trade policy. Specifically, we note that the Trump administration has apparently shifted tactics as the president’s July 9 deal deadline approaches. We next review several other international and US developments with the potential to affect the financial markets today, including a rebound in eurozone price inflation and the latest on the fate of Trump’s “big, beautiful” tax-and-spending bill in the US Senate.

US Tariff Policy: With it looking increasingly unlikely that the Trump administration will meet its July 9 deadline to strike comprehensive trade deals with dozens of countries, officials are now reportedly shifting gears to focus on achieving only narrow “agreements in principle” on specific trade issues, with the hope of striking broader deals later.

• As we’ve noted in the past, it was always a stretch to think the administration could finalize so many big trade deals in just a few months. If Trump officials really are prepared to accept that, trade tensions between the US and some countries could cool.
• All the same, it would not be a surprise for Trump to ratchet up threats this week against major trading partners such as the European Union and Japan. Talks with both economies have proven tough and given how significant they are for the US trade balance, Trump may well decide to focus his guns on them.

Eurozone: The June consumer price index was up 2.0% from the same month one year earlier, matching expectations and bringing inflation back to the European Central Bank’s target after the rise of 1.9% in the year to May. However, excluding volatile categories such as food and energy, the June “core” CPI was up 2.3% on the year, matching its annual rise in May. The data supports the idea that the ECB will soon stop reducing its interest-rate cuts out of fear that core inflation won’t fall to target.

China: The Communist Party late last week removed the Chinese military’s top ideology officer, Miao Hua, from his role on the powerful Central Military Commission. Miao had been ousted from the National People’s Congress earlier this year, after the government said he was being investigated for corruption last November. Separately, the Party also kicked the navy’s chief of staff and a top nuclear scientist out of the NPC. The moves suggest the Chinese military remains in the grip of corruption, which is a problem some observers think has hurt military readiness.

China-Japan: The Chinese government yesterday said it will allow the partial resumption of seafood imports from Japan. Beijing had banned all Japanese seafood imports in mid-2023, after Tokyo’s release of wastewater from the wrecked Fukushima No. 1 nuclear power plant. Given that fishing and aquaculture are important industries in Japan, the partial lifting of the ban is likely an effort by Beijing to curry favor with Japan and discourage it from cooperating with the US’s effort to isolate China militarily and economically.

Thailand: The Constitutional Court today suspended Prime Minister Shinawatra from power as it considers her handling of a border crisis with neighboring Cambodia. As we noted in an earlier Comment, the country’s powerful royalist-military elites have targeted Shinawatra after a leaked recording of a phone call with former Cambodian leader Hun Sen showed her castigating the Thai military. In its final decision, the court could well force Shinawatra from power, adding to the political uncertainty in the country.

United States-Iran: According to the Washington Post, the US intelligence agencies have intercepted a communication between senior Iranian officials in which they are heard saying the US military attacks on Iranian nuclear sites last month were not as devastating as they expected. The Trump administration admitted the existence of the intercept but continues to insist that the attacks largely “obliterated” key sites related to Iran’s nuclear program. The report adds to the evidence that the attacks did not destroy Iran’s program but merely disrupted and delayed it.

US Fiscal Policy: As of this writing, the Senate is still trudging through the voting on its version of President Trump’s “big, beautiful” tax-and-spending bill. Most of the floor amendments voted on so far have failed, but the senators have voted to strip the bill of its moratorium on the states regulating artificial intelligence. As we’ve noted before, the Republican majority is struggling to limit defections, and passage of the bill is not yet ensured.

• Of course, if the bill does pass the Senate, it will then need to go back to the House. The two chambers would then have to quickly negotiate a reconciled bill and have it pass both chambers if the Republican leadership is to meet its goal of sending the bill to Trump by July 4.
• Although more amendments could still alter the bill, the results so far suggest any legislation that is finally signed into law will significantly expand the federal budget deficit over the next decade. That will likely provide some stimulus to the economy in the near term, but bond investors could well look askance at the rising deficits, become even less avid in their purchases of Treasury debt, and drive interest rates higher over time.

US Housing Policy: The California legislature last night approved two bills reining in the state’s stringent environmental regulations, and Governor Gavin Newsom promptly signed them into law. Newsom, who is considered a likely Democratic candidate for president in 2028, had demanded the bills be passed to help spur real estate development and address the state’s critical shortage of housing. If the legislation achieves that, California’s large size means that homebuilders and related firms could see a noticeable increase in future business.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning. Markets remain squarely focused on the “One Big, Beautiful Bill.” Today’s Comment will begin with an analysis of the latest progress on President Trump’s tax bill, followed by an overview of recent trade developments. We’ll also examine other stories moving markets today. As usual, we’ll conclude with a summary of today’s key domestic and international economic data releases.

The Tax Bill Progresses: Senate Republicans advanced legislation on the president’s tax agenda over the weekend, aiming to meet an ambitious July 4 deadline for passage.

• The Senate voted 51-49 to advance debate on the bill after two Republicans sided with Democrats. Lawmakers are now finalizing the legislation ahead of a decisive vote, with negotiations centering on three key issues: the budget deficit impact, regulatory changes, and proposed cuts to investment and social spending programs.
• The latest Congressional Budget Office estimates project that the bill would increase the national deficit by $3.3 trillion over the next decade. This figure excludes additional borrowing costs, which could substantially worsen the shortfall. The legislation combines $4.5 trillion in reduced revenues with $1.2 trillion in spending cuts.
• The legislation modifies a controversial AI moratorium provision from the House bill, reducing restrictions on state-level AI regulations from 10 years to five years as a condition for accessing $500 billion in infrastructure funding. It also includes exemptions for AI rules concerning child protections and incorporates a Tennessee law banning the unauthorized use of musicians’ likenesses by AI systems.

• The legislation also introduces significant changes to the social safety net, including new work requirements of 80 hours per month to qualify for benefits, along with restrictions on Medicaid provider taxes. While the new work requirements also apply to parents, exemptions are provided for those with children under 14. Additionally, the bill modifies food assistance programs by requiring states to contribute funding.
• The final bill contained several significant omissions. Most notably, the Senate removed the controversial “revenge tax” provision. Additionally, the Senate parliamentarian ruled that key provisions violated the Byrd Rule, forcing the removal of major healthcare, immigration, and financial reform as well as other measures
• While clear signs indicate that the bill remains unfinished, it appears to have strong momentum. We anticipate the legislation will likely pass within the coming days, with final approval expected by week’s end. Although the bill should provide a near-term boost to equities, investors will probably quickly shift their focus to earnings reports once it’s enacted.

Trump Trade Policy: President Trump is expected to send out his trade letters this week, which may lead to market volatility

• With just over a week remaining until the president’s July 9 deadline, significant uncertainty persists regarding the tariff rates that will be imposed on key countries. The president has already begun drafting letters to affected nations outlining the specific tariff rates for their exports, while dismissing speculation that he might extend the deadline.
• On Friday, the Trump administration announced a new trade agreement with China that guarantees continued access to critical resources for US manufacturers. While existing tariffs will mostly remain in place, the deal alleviates concerns about potential shortages of key industrial inputs like rare earth minerals. The administration also revealed that it has successfully negotiated 10 additional trade agreements that it plans to roll out this week.

• In a weekend breakthrough, the president secured Canada’s agreement to scrap its digital services tax just before it was set to take effect Monday. This came after Friday’s hardline stance, when the administration suspended trade talks until the tax was withdrawn. The White House has consistently opposed these digital levies across multiple nations, with senior officials deriding them as attempts to use American tech firms as “piggy banks.”
• Markets will scrutinize the details of the Trump administration’s trade agreements, with particular focus on tariff provisions. Signs that rates will remain stable or decrease would likely reassure investors, while any unexpected increases in import taxes could prompt a reduction in risk exposure across financial markets.

Chile Nominated Communist: One of South America’s wealthiest economies was rocked by a surprise victory, as a Communist candidate triumphed in the country’s primary elections.

• Jeannette Jara secured a landslide victory, emerging as the left-wing presidential candidate. The former labor minister’s win is likely to unsettle markets, which had hoped for a more moderate nominee. She will now face a consolidated field of right-wing candidates who bypassed their primary process amid strong polling numbers for far-right conservatives.
• Chile faces mounting economic headwinds as sluggish GDP growth and rising unemployment strain the economy. Public discontent is growing over surging immigration and crime rates, adding pressure on policymakers. Despite these challenges, markets had remained resilient — until now — and were buoyed by expectations that the incoming administration would pursue business-friendly reforms.

• South American economies have demonstrated notable resilience to the trade tensions currently roiling Asia and Europe. However, the region’s political landscape presents risks, with a growing trend of anti-establishment candidates gaining traction. While markets typically view far-right politicians as more favorable than their far-left counterparts, this polarization introduces new uncertainties for investors.

US Energy Spending: More companies are investing in power plants and transmission lines to meet the electricity demands of AI.

• Utilities companies are projected to boost capital expenditures to $212.1 billion in 2025 and will reach a record high of $228.1 billion by 2027. This sharp increase is driven largely by surging investments in energy-intensive data centers, fueled by the AI boom. However, the rapid growth in power demand has raised concerns that AI-driven energy consumption could lead to higher electricity prices, potentially exacerbating inflationary pressures.
• US electricity demand has rebounded strongly since the pandemic and is now growing faster than overall inflation. This surge is primarily demand driven, with projections showing consumption increasing 25% by 2030 and 78% by 2050. To mitigate household cost impacts, regulators have implemented solutions requiring major hyperscale developers, including Amazon, Microsoft, and Meta, to contribute through either direct capacity investments or special tariff arrangements.

• We are closely tracking technology-investment trends due to their pivotal role in the broader economy. Last quarter, tech spending accounted for the largest share of capital expenditure, solidifying its position as a key engine of economic growth. That said, we note that a slowdown in the AI boom could trigger widespread spillover effects, with potential repercussions across financial markets and the broader economy.

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