by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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

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

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

Current Union Pacific and Norfolk Southern rail networks

(Source: US Bureau of Transportation Statistics)

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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

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

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with President Trump’s recent visit to the Federal Reserve, a key event highlighting the ongoing tensions between the president and the Fed chair, which continue to influence market sentiment. We will also analyze other significant international and domestic developments impacting financial markets, including updates on trade policy and discussions concerning US economic health.

Powell Safe for Now: President Trump and Fed Chair Jerome Powell toured the renovations happening in the Federal Reserve Building. The project has faced sharp criticism after its costs exceeded the budget proposed in 2019. Though tensions have arisen between Powell and the president, particularly over revised estimates with Powell challenging Trump’s claim that costs were escalating further, the president concluded the visit by affirming that Powell would not be fired.

• Though speculation about Fed Chair Powell’s resignation due to perceived pressure has been widespread, we contend that this is not the most probable outcome. We surmise that a significant portion of the discourse surrounding Powell serves as a means for the presidency to create an uncomfortable environment for the incumbent Fed chair, particularly if a reduction in interest rates does not materialize in the foreseeable future.
• While we do not anticipate a rate cut at the Fed’s next meeting under our baseline scenario, we believe the committee could signal potential conditions for a September rate cut. This may reflect members’ growing inclination to reduce rates based primarily on inflation trends, even if labor market data shows signs of resilience. That said, we expect that the Fed could cut rates by as much as 75 bps by year’s end.

Economic Resilience: The June flash S&P Global PMI survey revealed that business activity expanded at a faster-than-expected pace. While the manufacturing PMI fell back into contraction territory (dropping from 52.0 to 49.5), the services sector, which accounts for roughly two-thirds of the economy, climbed to its highest level this year, rising from 52.9 to 55.2. A surge in business activity drove the rebound as firms hired more workers to address backlogs. However, the report indicated that the broader economic outlook remains subdued.

ECB Holds: The European Central Bank (ECB) opted to hold interest rates steady following Thursday’s policy meeting, citing the notable resilience of the eurozone’s economy. The decision appears partly driven by optimism that the US and EU will reach an agreement to avoid economically damaging tariffs. We also suspect that the ECB may be seeking to appease President Trump, who has repeatedly criticized foreign central banks for cutting rates while US rates remain relatively high.

Palestine Recognition: French President Emmanuel Macron has announced his intention to formally recognize Palestine as a state during September’s United Nations General Assembly. This decision has drawn sharp criticism from the United States, which strongly opposes the move, arguing it could legitimize Hamas propaganda. The announcement comes amid growing international unease over Israel’s military operations in the West Bank and risks the further diplomatic isolation of Israel.

Starmer Looks for Deals: UK Prime Minister Keir Starmer is expected to push President Trump to consider accepting more UK steel and Scottish whisky imports when the US president visits Scotland on Monday. While the existing US-UK trade agreement reduced tariffs for automakers and aerospace manufacturers, it excluded steel due to concerns about British supply chain reliability. These negotiations demonstrate how trade agreements can continue evolving even after their initial frameworks are established.

US-Japan Trade Arrangement: While both parties have acknowledged reaching a trade agreement in principle, there are still disagreements over specific terms. Japan’s chief negotiator clarified three key points: (1) the deal contains no provisions regarding defense purchases, (2) the reported 90-10 split favoring the US would fluctuate based on bilateral investment ratios, and (3) no fixed quotas were established. These discrepancies reveal deliberately broad language in the agreement that may lead to future interpretive disputes.

EU Digital Crackdown: Meta will no longer permit political advertising on its Facebook and Instagram platforms in the EU, citing what it describes as unworkable regulations under the bloc’s new Transparency and Targeting of Political Advertising rules set to take effect in October. This decision marks the latest flashpoint in ongoing tensions between US tech giants and EU regulators. The Trump administration has consistently sought to protect American technology companies from foreign regulatory measures, making this a key area of transatlantic contention.

Chinese Demographics: Kindergarten enrollment has declined by 25% over the past four years, reflecting the country’s deepening demographic challenges. This sharp decrease threatens to undermine population growth — a critical driver of economic expansion. This trend may exacerbate existing deflationary pressures as the nation continues to grapple with industrial overcapacity and weak consumer demand.

VW Seeks Deal: The carmaker hopes to secure a tariff exception by committing to increased investments within the US. This proposal comes after the company reported a substantial 1.3 billion EUR ($1.5 billion) hit to its bottom line in the first half of the year, directly attributed to a 25% tariff. If successful, this could pave the way for other companies to pursue similar deals with the US, especially if their home countries can’t secure favorable trade arrangements.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today begins with a focus on US trade policy, specifically the growing concerns about the recent agreements. We will also examine other significant international and domestic developments impacting financial markets, including the increasing influence of AI and escalating geopolitical tensions.

US Trade Policy: President Trump has announced plans to impose new tariffs, with rates starting at 15% and potentially reaching as high as 50% on specific countries. The move appears to be a response to criticism that his recent trade deal with Japan could undermine efforts to bring manufacturing back to the US. His comments are likely to fuel concerns that the administration will intensify pressure on nations that have yet to establish trade agreements with the United States.

• Following the trade deal with Japan, the Trump administration is now pursuing similar agreements with other nations, including South Korea. The two sides are negotiating a deal that would lower tariffs from 25% to 15% in exchange for an investment commitment. Additionally, the agreement is expected to include provisions for South Korea to increase purchases of US goods in key sectors.
• While the trade reprieve has boosted confidence in global equities, US producers — particularly automakers — have raised concerns. The reduction of auto tariffs is expected to give Asian manufacturers a competitive edge over their American counterparts. A key issue is that while foreign automakers will still face tariffs, they may avoid the added cost burden faced by US companies, which are paying more due to tariffs imposed earlier this year.
• Additionally, optimism persists for a US-EU trade agreement. Observers expect the bloc to adopt a framework similar to Japan’s as both sides push to finalize a deal by August 1. This potential agreement could help the EU avoid the worst impacts of an escalating trade war with the US.
• While countries without trade agreements may face higher tariffs, we expect the overall market impact to be limited once major trading partners reach deals. Consequently, investor focus could gradually shift toward other themes in the coming months.

Thai-Cambodia Conflict: Thailand conducted airstrikes against Cambodia following renewed border clashes, marking an escalation in tensions between the two Southeast Asia nations. The longstanding territorial dispute, which dates back decades, intensified earlier this year after a Cambodian soldier was killed in a skirmish. This conflict could have significant regional implications, particularly for nations viewing Thailand and Cambodia as potential alternatives to China in their supply chain diversification strategies.

EU-China Relations: EU leaders have arrived in China for a summit marking 50 years of bilateral relations, with both sides seeking to bridge differences on trade and the Ukraine war. While expressing mutual interest in strengthening ties, EU officials have cautioned that the relationship may be approaching a turning point. The talks occur as China attempts to prevent further EU distancing amid its own escalating tensions with the United States.

Export Controls Failing: According to the Financial Times, over $1 trillion worth of Nvidia chips have been sold to China in the three months following the tightening of US export restrictions. This development underscores growing concerns about the significant loopholes and effectiveness of current trade restrictions as both nations vie for dominance in the critical AI technology sector, which is increasingly viewed as the next frontier in global technological competition.

Alphabet to Spend More: Google’s parent company Alphabet exceeded second-quarter sales estimates as it capitalizes on growing AI demand. The tech giant reported that surging interest in its cloud services has driven capital expenditures to $85 billion this year, with further increases anticipated in 2025. While the initial frenzy around AI has moderated from its peak two years ago, the technology remains a key driver of market sentiment.

Amazon Under Pressure: The e-commerce giant faced intense competition from Walmart during its highly anticipated Prime Day event. Despite extending the promotional period for subscribers, early indicators suggest many shoppers turned to Walmart for better deals. This heightened competition emerges as rising tariffs pressure retailers’ pricing strategies, while consumers grow increasingly price-sensitive in the current economic climate.

Iran-US Tension: A tense standoff occurred between US and Iranian forces in the Gulf of Oman after the US Navy allegedly entered waters claimed by Iran. Although no shots were fired, both sides exchanged threats, with Iran later asserting that the American vessel withdrew. This confrontation marks the first major incident since the US airstrike on Iranian targets and underscores the ongoing volatility in bilateral 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 new US trade deals with Japan, Indonesia, and the Philippines, which were announced late yesterday. We next review several other international and US developments with the potential to affect the financial markets today, including several news items related to European security issues and an industry official’s suggestion that the US should start to develop a strategic reserve of critical minerals.

US Trade Policy: President Trump last night said the US and Japan have agreed to a trade deal in which the US will set a 15% tariff on Japanese imports (including autos), the Japanese will open to trade including cars and trucks, rice and other agricultural products, and Japanese entities will invest $550 billion in the US, with the US receiving 90% of the profits from those investments. However, it isn’t clear whether Japan will be spared Trump’s “sectoral” tariffs of 50% on imported steel and aluminum products.

• Separately, Trump also said Indonesia has agreed to a framework deal in which the US will set a 19% tariff against most Indonesian imports, with a 40% rate charged on goods from Indonesia with a high level of foreign content, especially from China. Indonesia will eliminate almost all tariffs on US goods, supply the US with critical minerals, and buy billions of dollars of US airliners, farm products, and energy goods.
• Trump also said Manila has accepted a trade deal in which the US will impose a 19% tariff on Philippine imports while US goods will enter the Philippines tariff-free.
• On the heels of the news, the S&P 500 stock price index rose to a new record high, likely on investor relief that the US tariffs are coming in near the levels expected and provide some hope for an end to the recent uncertainty regarding trade policy.
• Still, looking forward, it’s not clear how successful Trump’s trade policy will be in promoting US re-industrialization and improving the lot of his working-class base. His tariffs and other policies will likely encourage added investment in some US industrial sectors, but in other sectors, domestic and foreign firms will probably continue to prefer investing abroad for structural reasons, such as the availability of low-cost workers, better supply chains, production expertise, or the opportunity to produce close to customers.

Asia-Pacific Region: The Asian Development Bank today again lowered its economic growth forecasts for member countries, citing the US’s evolving high-tariff policy. The institution said it now expects the developing countries of Asia — including China, India, and South Korea — to see their gross domestic product growth to slow from 5.1% in 2024 to just 4.7% in 2025 and 4.6% in 2026. The forecasts are consistent with expectations that the new US tariffs will be especially challenging for emerging markets.

Japan: With the US-Japan trade deal prompting investors to shift their buying to equities, and with some starting to bet that Prime Minister Ishiba will now resign, today’s auction of 40-year Japanese government bonds (JGB) generated extremely weak demand. Indeed, its bid-to-cover ratio came in at just 2.127, marking the lowest ratio for a 40-year auction since 2011. In response, yields on 10-year JGBs today have rebounded to the 17-year high of 1.597% reached last week.

Germany-France-Spain: In a key test of Europe’s re-armament effort, the leaders of Germany and France today are meeting today to settle a dispute over which country should lead the effort to build a joint German-French-Spanish fighter jet. The project, known as the Future Air Combat System (FACS), could be important to the fortunes of European defense contractors such as Airbus and Dassault, but it is in danger of being further delayed by the leadership dispute.

United Kingdom-Germany-Turkey: Berlin today reportedly approved the UK’s sale to Turkey of up to 40 Eurofighter Typhoon fighter jets, Europe’s current joint fighter that is produced by the UK, Germany, Spain, and Italy. We expect that Europe’s re-armament effort will continue to boost sales for firms in the Eurofighter program until the FACS program begins production.

Russia-Germany: In an interview this week, Berlin’s military counterintelligence chief warned that Russian spying and sabotage efforts in Germany in the first half of 2025 have doubled from 2024. Strikingly, she said Russian operatives have even been able to sabotage German navy ships by cutting cables, putting oil in water systems, and dropping metal shrapnel into a motor drive train. The incidents illustrate President Putin’s aggressive, risk-tolerant stance toward European democracies, which we think will fuel continued rearmament in the West.

Russia: According to Ukrainian intelligence, the Russian defense industry can now produce 170 large Shahed-class strike drones per day. The analysis says Russia’s increased production is allowing it to stage large-scale drone attacks on Ukraine with ever-greater frequency and will soon let it launch 2,000 or more drones in a single attack. As we have noted previously, Russia’s frequent drone-swarm attacks are a key reason why its forces have recently accelerated their territorial gains in their invasion of Ukraine.

• While Russia and other countries ramp up their output of cutting-edge drones, making the weapons perhaps the most dominant part of the modern battlefield, a video this week illustrates how behind-the-curve the US effort is.
• In the video, the US Army touts a new ability to drop hand grenades from small drones that have been modified to pull the safety pin from the weapons before dropping them. The video, which celebrated the Army’s first-ever drop of ordinance from a drone, was widely panned for how minor the accomplishment was in comparison to the advanced drones being developed by Russia, Ukraine, and other countries.

US Critical Minerals Industry: Randall Atkins, CEO of Ramaco Resources, said yesterday in an interview with the Financial Times that the US is “long overdue” in establishing a stockpile of critical minerals to blunt China’s near monopoly on them. Atkins argued for stronger public involvement in the industry, such as the recent deal in which the US government bought a stake in rare-earth producer MP Minerals. The statement may portend ever greater government support and guaranteed prices and demand for firms in the sector going forward.

US Stock Market: The meme-stock frenzy has suddenly returned to US stock markets, but with a new cast of characters. Among the fast-rising stocks over the last week or more, retailer Kohl’s yesterday saw its stock price double before ending up almost 40%. Other members of the new meme-stock craze include real-estate platform Opendoor Technologies, QuantumScape, and Rigetti Computing.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news that China is preventing yet another US citizen from leaving the country, a move that will likely raise US-China tensions. We next review several other international and US developments that could affect the financial markets today, including a UK review of its public pension system that could lead to a rise in the retirement age and news that JPMorgan is exploring the possibility of lending against its clients’ cryptocurrencies.

China-United States: The US Embassy in Beijing today said the Chinese government has imposed an exit ban on a US citizen who works for the US Patent and Trademark Office. The unidentified USPTO employee reportedly flew to China earlier this year to visit family and didn’t reveal his affiliation with the US government on his visa application. Reports say he has been detained since mid-April as Chinese authorities question him about his work and his former service with the US military.

• The exit ban on the USPTO employee comes just a week after news that a Wells Fargo bank employee visiting family in China was also told she couldn’t leave, ostensibly for purposes of a criminal investigation. The Chinese government has also recently detained or imprisoned other Western business executives.
• As we noted in our Mid-Year Geopolitical Outlook published last week, the intense media focus on US-China trade tensions this year shouldn’t distract investors from the fact that military, technological, and other aspects of the bilateral relationship are still worsening.
• Indeed, the spate of exit bans could be meant to remind US officials that China has a range of non-economic levers to resist the Trump administration’s aggressive tariff policies.
• Not only do the exit bans and detentions portend increased US-Chinese political tensions, but they also are likely to further discourage Western firms from investing in China.

China: An article in the Wall Street Journal late yesterday discusses how Beijing has sharply curbed China’s oil demand in recent years to make the country less vulnerable to a supply cutoff by the US and its allies. The article says China has achieved this mostly by rekindling its domestic oil output and rapidly building out its fleet of electric vehicles.

• China’s successful strategy shows how green energy technologies – such as wind, solar, and EVs – can boost national security by cutting the need to import energy from abroad.
• Political leaders in the US and the rest of the West are currently pushing hard to roll back green-energy subsidies and incentive programs, but the national security value of green energy could potentially limit how far those programs are cut.

Japan: Kansai Electric Power today said it will resume planning for a new nuclear generating plant in Fukui prefecture after suspending the project in 2011 in the wake of the meltdown at the Fukushima reactors. The Kansai project would mark Japan’s first new nuclear plant from scratch since the disaster at Fukushima, potentially signaling a resumption and revitalization of Japan’s nuclear industry. It’s also consistent with an expected rebound in the global nuclear industry.

United Kingdom: The government of Prime Minister Starmer yesterday said it will begin a new review of the public pension age, four years before the legal deadline to have it finished by 2029. The current state pension age is 66, but it is scheduled to rise to 67 in 2026 and 68 in the coming years. The review could well result in a further boost to those ages, especially considering the government’s big budget deficit and Starmer’s flailing effort to rein in spending.

Nigeria: The National Bureau of Statistics says an updated method for calculating the country’s gross domestic product shows GDP totaled $244 billion in 2024, or 30% more than previously estimated. The new method better captures the contribution of new industries, such as digital services. Based on data from the International Monetary Fund, the new figure would make Nigeria’s economy slightly bigger than that of Hungary and somewhat smaller than that of Greece. Importantly, it would also make Nigeria’s debt-to-GDP ratio modestly lower.

US Monetary Policy: In an interview yesterday, Treasury Secretary Bessent called for a probe into “the entire Federal Reserve institution and whether they have been successful.” The call came one day after the Wall Street Journal said Bessent had talked President Trump out of firing Fed Chair Powell last week. The apparent reversal may reflect a Trump effort to take Bessent down a peg after the Journal’s report. If so, it raises questions about how much influence Bessent really has in trying to tone down Trump’s economic policies.

US Banking Industry: An article in the Financial Times today says banking giant JPMorgan is exploring the possibility of lending against clients’ cryptocurrency holdings. If the bank decides to move forward with the idea, it could offer its first loans collateralized by cryptocurrencies, such as Bitcoin and Ethereum, by next year. The news shows how cryptocurrencies are increasingly being accepted as a normal financial asset and integrated into the financial system.

US Housing Industry: Even as apartment builders struggle with high interest rates, rising costs for materials, and labor shortages, a Trump administration proposal to slash low-income housing subsidies is reportedly starting to freeze affordable housing projects. The freeze stems from the administration’s plan to cut the Department of Housing and Urban Development budget by some 44%. Because of all these challenges, the outlook remains unclear for significant new housing supply to help bring down rent rates unless broader plans for deregulation are implemented.

US Pharmaceutical Industry: Faced with President Trump’s threat to impose tariffs of up to 200% on imported drugs, British pharmaceutical maker AstraZeneca today said it will invest some $50 billion in the US by 2030, including a new manufacturing facility focused on drugs for chronic diseases. That follows similar announcements of new drug manufacturing investments by the likes of Eli Lilly, Merck, and Roche in recent weeks. The news is consistent with our expectation for continued re-industrialization of the US economy over time.

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