by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an examination of President Trump’s recent tariff announcement. We will then turn to other key stories shaping the market, including our thoughts on a potential meeting between President Trump and Russian President Vladimir Putin, an update on the president’s search for a new chair and governor to reshape the Federal Reserve, and recent changes to 401(k) retirement plans. We will conclude by assessing other major international and domestic developments impacting financial markets.

Trump Tariffs: President Trump has announced plans to impose a 100% tariff on all imported chips and semiconductors, with an important exception. The tariffs will not apply to companies that have committed to or are actively increasing their semiconductor manufacturing presence within the United States. This policy highlights a key aspect of the Trump administration’s trade strategy: using tariffs as a powerful incentive to drive both foreign and domestic companies to expand their production capabilities in the US.

• The president’s decision to expand carve-outs will likely bolster market confidence, as these tariffs are now expected to be less disruptive than initially feared. Furthermore, this decision indicates that the administration may be shifting toward a policy model that favors companies focused on strengthening US industrial capacity.
• That said, we continue to assess the potential economic impact of these tariffs. While we remain cautiously optimistic that the economy can absorb the shocks, we are closely monitoring consumer spending and corporate earnings to gauge how businesses and households are adjusting.

Putin-Trump Meeting: The White House announced that Russian President Vladimir Putin and President Trump may hold a meeting as early as next week. This decision to hold talks follows President Trump’s recent threats to impose secondary sanctions on countries like India and China that purchase Russian goods. The administration hopes the meeting will lead to greater progress in ending the war in Ukraine.

• Trump is pushing for an end to the conflict in Ukraine, citing a desire to reduce US funding for conflicts without direct involvement. The conflict’s resolution would likely restore stability to the European continent, potentially boosting regional equities. It could also lead to Russian energy returning to the market, which may put downward pressure on commodity prices.
• We will be paying close attention to how Europe navigates the end of the conflict. If Europe seeks rapprochement with Russia, it could provide another significant boost to the region’s equities, given its proximity and ongoing need for more energy. While many in the region have pushed back against trusting Russia, it is possible that sentiment could shift, especially as Europe looks to reduce its dependency on the US.

Temporary Fed Governor: President Trump may appoint a temporary official to fill the vacant Fed governor seat. The position became open after Adriana Kugler resigned early, even though her term was set to expire in January. This temporary appointment could calm fears of a “shadow Fed chair” and simultaneously increase pressure on Chair Powell to cut rates at the upcoming meeting. That said, the two leading contenders to take over the Fed are Kevin Warsh and Kevin Hassett. 

Saving Social Security: There is a bipartisan effort underway to improve the solvency of Social Security. Senators Bill Cassidy (R-LA) and Tim Kaine (D-VA) are spearheading a proposal to create a $1.5 trillion investment fund over the next five years, which would then be given 70 years to grow. This plan marks the second major proposal in recent years that considers investing in financial markets to help fund future benefits. It follows a similar concept to the “Trump accounts” that were included in the One Big Beautiful Bill Act.

Japan Auction Success: The country’s sale of 30-year bonds was met with solid demand, with a bid-to-cover ratio consistent with its yearly average. This strong showing is likely to reaffirm confidence in the demand for its long-term debt, despite political uncertainty and concerns over increased stimulus spending. However, this robust interest is likely the result of low issuance, as the country has been shifting toward selling lower-duration debt to finance its spending.

Bank of England Cuts: The central bank lowered its policy rate by 25 basis points to 4.00% on Thursday. While the rate cut was widely anticipated, the decision was contentious and required a second vote after one member switched their stance from advocating for a deeper cut to supporting the 25 bps reduction, while other policymakers maintained their hold positions. This hesitancy suggests that while monetary policy is on a downward trajectory, the easing cycle is likely to proceed more gradually when compared to some of its peers.

China Crackdown: In an effort to curb bureaucracy, Beijing has mandated that officials reduce the frequency of meetings and limit official documents to 5,000 words. The move aims to allow the government to focus on supporting the economy, which is grappling with a weakening trade environment and a property slump. The policy follows a recent warning from Chinese President Xi Jinping to local governments about over-investing in AI and electric vehicles, which may signal a new anti-corruption investigation into those areas.

401K Gets a Boost: President Trump will sign an executive order enabling alternative assets in retirement accounts, directing the Labor Department to review ERISA guidelines on private equity, real estate, and cryptocurrency investments. The move could unlock trillions in retirement funds for non-traditional assets while raising questions about risk exposure for 401(k) participants.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an examination of why a degree of optimism about the economy remains warranted despite recent subpar economic data. We then turn to other key stories shaping the market, including our analysis of Tuesday’s Treasury auction, the president’s push to end the conflict in Ukraine, and the factors behind the recent surge in investment-grade bond issuance. Finally, we assess other major international and domestic developments impacting financial markets.

 US Services Stagnate: A survey of purchasing managers revealed that firms are still adjusting to the impact of tariffs. According to the Institute for Supply Management, services activity remained relatively unchanged from the previous month. Much of the weakness stemmed from a slowdown in employment growth as companies scaled back hiring. Additionally, the survey indicated that input prices continued to rise, while export orders showed signs of weakening.

• The recent report has dampened market sentiment, as uncertainty persists regarding the potential impact of tariffs on the economy. However, the economy continues to show resilience, suggesting that the current market rally still has significant momentum. This perspective is further supported by strong earnings from Disney, which reflect robust consumer spending in the travel and leisure sectors.
• That said, we maintain a risk-neutral stance for now, as we continue to assess the economic impact of tariffs. While we do not foresee an imminent recession, some signs of weakness may persist temporarily before fading as the fiscal stimulus takes full effect. Once there is clearer evidence of sustained economic resilience, we believe shifting to a more risk-on position would be warranted.

 US Bond Auction: The first of three Treasury auctions saw tepid demand. The $58 billion sale of 3-year notes closed at a yield of 3.669%, slightly above pre-auction levels. The results suggest that the supply of bonds is exceeding demand. This outcome may be a reflection of current market concerns, including inflation and US deficit spending, which can influence the appetite for government debt.

• This week will be crucial in gauging market appetite for US Treasurys. While auction performance can fluctuate, any sustained signs of weaker investor demand could pressure yields higher, reflecting diminished absorption of Treasury issuance.
• While a single auction does not define overall demand, sustained weak performance could establish a floor for yields, particularly if the Fed begins cutting rates. Should auctions consistently underperform, it may even prompt the Fed to halt balance sheet tightening earlier than expected.

 Italy’s Defense Bridge: Italian Prime Minister Giorgia Meloni is poised to approve construction of a bridge linking Sicily to mainland Italy, framing the 13 billion EUR ($15.1 billion) project as a boost to defense spending. However, the move has drawn criticism. While proponents argue the bridge would help NATO counter Russia’s expanding influence in the Mediterranean, detractors contend the funds would be better spent directly enhancing military readiness, such as upgrading ports, airports, and roads, to prepare for potential Russian aggression.

• Italy’s move to classify certain infrastructure projects as defense spending illustrates how European governments may redirect military budgets to fund domestic infrastructure priorities.
• We maintain confidence that the EU’s increased defense spending will provide a meaningful boost to the broader economy and, by extension, equity markets. This reinforces our constructive outlook on international stocks.

 Pharmaceutical Tariffs: The White House has unveiled plans to impose tariffs on pharmaceutical imports that could eventually reach 250%. While the duties would start at lower levels, they would gradually increase over 18 months until reaching the full rate. This move is part of the administration’s broader effort to incentivize domestic drug manufacturing and reduce reliance on foreign production.

 Russia Ready to Talk: Moscow has indicated its willingness to consider a potential air ceasefire in Ukraine as a means of meeting the White House’s demand for progress toward peace. This conciliatory gesture appears to be an attempt to persuade Washington against implementing secondary sanctions, particularly tariff hikes for countries that continue to purchase Russian energy. This potential action coincides with the imminent threat of tariff increases for India and China if a ceasefire agreement is not secured.

 Mexico and Canada Team Up: The two North American nations are exploring deeper trade integration to reduce their economic dependence on the United States. Their leaders have agreed to develop a joint strategy aimed at aligning supply chains and fostering collaboration in AI development. This initiative reflects a broader global reassessment of economic strategies, as Washington signals its retreat from the role of global importer of last resort.

 AI Boom: Siemens, the German industrial giant specializing in gas turbines and power grid equipment, reported that its order backlog has surged to a record high, driven by soaring electricity demand from data centers. This sharp increase reflects a wave of facility upgrades as companies worldwide modernize infrastructure to support expanding data center capacity. Notably, the AI boom appears to be insulating certain sectors from tariff concerns, as businesses increasingly view advanced technology investments as essential for future competitiveness.

 Investment Grade Surge: US companies have issued more debt in the first half of this year than in any comparable period since 2020, when the Federal Reserve aggressively cut rates to address the pandemic. This surge in corporate borrowing comes as growing optimism about recent trade deals has helped ease global economic uncertainty. Notably, much of this new issuance has skewed toward shorter maturities. Although demand may soften in the coming months, credit spreads are expected to stay relatively tight.

 Poland Infighting: Newly inaugurated Polish President Karol Nawrocki has indicated that he will slow down judicial reform efforts. This stance contrasts with the conditions set by the European Union regarding the rule of law that Poland must meet to unblock earmarked funds. His position is likely to create friction with the EU, and it highlights a broader trend of growing influence for right-wing political figures, particularly in Eastern Europe.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new data showing how China’s massive excess industrial capacity is undermining corporate profits and prompting big layoffs. We next review several other international and US developments that could affect the financial markets today, including a rush effort by Switzerland to forestall the 39% tariffs that President Trump announced against it last week and Trump’s statement today that he won’t nominate Treasury Secretary Bessent to lead the Federal Reserve when the term of current Chair Powell ends in May.

China: New regulatory filings by China’s top publicly-traded solar panel firms show they collectively shed 31% of their employees last year. The layoffs illustrate the effects of China’s massive overcapacity in key industries championed by the government, such as electric vehicles and solar panels. Excess production, weak domestic demand, and increasing barriers to trade continue to spark vicious price wars and falling profitability for major firms in the sectors.

United Kingdom: British bank stocks surged yesterday in response to a Supreme Court ruling that shielded them from liability for aggressive auto-loan selling tactics and insufficient lending disclosures by the nation’s car dealers. The ruling lifts a cloud that had been hanging over UK banks, especially those that have big exposure to domestic auto lending. For example, the stock price of specialty lender Close Brothers closed up 23% on the day, while Lloyds Banking Group rose 9%.

Ukraine: In a little-noticed statement at the end of last month, Ukrainian President Zelensky called for a $6-billion fund to produce cheap, expendable interceptor drones that could take down Russian attack drones without relying on expensive surface-to-air missiles. Zelensky aims for Ukraine to produce up to 1,000 interceptor drones per day. The plan is further evidence of how autonomous vehicles are becoming one of the key weapons of war and a potential opportunity for defense-industry investors.

Israel: Prime Minister Netanyahu’s cabinet yesterday voted to fire Attorney General Gali Baharav-Miara, who is prosecuting Netanyahu for corruption. On concern that Netanyahu was illegally trying to protect himself and his aides, the Supreme Court immediately issued an injunction against the move and ruled that the attorney general would maintain all her authority. The incident is being seen as a new move toward authoritarianism by Netanyahu which, along with the war in Gaza, could potentially make Israel a pariah state in investors’ eyes.

Brazil: The Supreme Court yesterday ordered the house arrest of former President Bolsonaro as it probes accusations that he plotted a military takeover of the country in 2022. The move has prompted protests by thousands of supporters of the former right-wing populist leader. Another potential impact may come in the form of greater political and economic pressure from the US, where President Trump has already announced a 50% tariff against Brazilian imports as punishment for Brasilia’s prosecution of Bolsonaro.

United States-Switzerland: Bern today said President Karin Keller-Sutter and Economy Minister Guy Parmelin are rushing to Washington with new trade offers aimed at avoiding the 39% tariff against Switzerland that President Trump announced last week. Keller-Sutter, of the centrist Liberal Party, has reportedly had strained relations with Trump, but the Swiss hope that adding Parmelin, of the right-wing Swiss People’s Party, will help appease the US and result in a tariff more in line with those imposed on other developed countries.

United States-India: President Trump yesterday said he plans to “substantially” hike US tariffs on imports from India because of its purchases of Russian oil. The new tariffs would evidently be on top of the 25% tariff imposed on imports from India last week. Not only does Trump’s threat reflect the souring US-India relationship, but it also is the latest evidence that he has abandoned his previous effort to forge warmer ties with Russia.

US Politics: In response to Texas Governor Abbott’s push for a mid-decade redistricting to elect more Republicans to the House of Representatives, which we described in yesterday’s Comment, Democrats in states such as California, New York, and Illinois are taking steps to do the same in their states and send more Democrats to the House. At stake is whether control of the House will shift back from the Republicans to the Democrats in next year’s mid-term election. In the longer term, the moves threaten to worsen political polarization and complicate policymaking.

US Monetary Policy: President Trump this morning ruled out nominating Treasury Secretary Bessent to lead the Fed when current Chair Powell’s term ends next May. According to Trump, Bessent wants to stay in his current position. The president said his short list of candidates is now down to Director of the National Economic Council Kevin Hassett, former Fed Governor Kevin Warsh, and two other persons that he declined to name.

• Regarding the Fed board seat vacated last week by Adriana Kugler, Trump said he’s leaning toward filling it soon with a short-term replacement. However, he also said he might use the vacancy to install the person who will succeed Powell in May.
• In any case, the president seems well on his way toward filling out the Fed with more dovish policymakers who will be more likely to cut interest rates aggressively in 2026.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with two news items on global energy supplies, which together appear to be weighing on oil prices so far this morning. We next review several other international and US developments with the potential to affect the financial markets today, including a continued slowdown in Turkey’s consumer price inflation and a few observations on President Trump’s firing of the chief of the Bureau of Labor Statistics on Friday.

Global Oil Market: The Organization of the Petroleum Exporting Countries and their Russia-led partners yesterday said they will boost their oil production by a collective 547,000 barrels per day starting in September. The production increases will be led by Saudi Arabia and the United Arab Emirates. Counting the group’s other recent output increases, the September boost will reverse its 2023 output cut of 2.2 million bpd and further raise the risk of excess supply on the global market. Reflecting the news, global oil prices are down about 1.7% so far today.

Brazil: British oil giant BP today announced it has found a major new oil field in the southern Atlantic Ocean about 320 miles off the coast of Rio de Janeiro. The field is believed to contain a mix of oil, gas, and condensate, but BP said it is too early to assess the size or quality of the reserves. Nevertheless, the company said the field is its biggest discovery in 25 years. As of this writing, the news has given a significant boost to BP’s share prices today.

Turkey: The July consumer price index was up just 33.5% from the same month one year earlier, easing from the 35.1% increase in the year to June and marking the third straight month of cooling. The continued slowdown in inflation will likely set the stage for the central bank to cut interest rates further in the coming months.

China: General Secretary Xi’s chief of staff, Cai Qi, today opened a forum of dozens of Chinese academics and scientists in the seaside town of Beidaihe, signaling that the leadership’s annual summer retreat at the resort has begun. Chinese leaders will be ensconced at the resort for the next 10 to 14 days, which means Chinese policy news could be quite limited until late August. With many European countries basically shut down for the summer holidays, that could make for some very slow news days (and quiet financial markets?) for the time being.

Switzerland: Swiss stock prices opened sharply lower today, falling as much as 1.9% before closing down 0.6%. The country’s stock market was closed for a national holiday on Friday, so the downdraft today appears to be a delayed reaction to President Trump’s announcement last Thursday that the US will impose a huge 39% tariff on Swiss imports. Switzerland’s big pharmaceutical firms are seen as especially at risk of Trump’s tariffs.

US Politics: Texas Governor Greg Abbott has called a special session of the state legislature to redraw its congressional election districts in a way that would likely shift five US House seats to Republican control from Democratic control. However, dozens of Democratic state legislators have left the state to deny the needed legislative quorum. Trump is supporting the unusual mid-decade redistricting to boost the Republicans’ chance of keeping control of the House in next year’s mid-term elections.

US Monetary Policy: President Trump last night said he expects to name a replacement within the next few days for Fed governor Adriana Kugler, who resigned on Friday. Outside observers believe the top candidates for the position include Kevin Hassett, director of the White House’s National Economic Council, former Fed official Kevin Warsh of Stanford’s Hoover Institution, and US Treasury Secretary Scott Bessent. Whomever Trump nominates could then be elevated to chair of the policymaking body when current Chair Powell’s term ends in May.

US Economy: In television interviews yesterday, Director of the National Economic Council Hassett denied that President Trump’s decision on Friday to fire the chief of the Bureau of Labor Statistics constituted “shooting the messenger” over the weak July employment report. Hassett cited “partisan patterns” in the data to argue that the president should have his own person heading BLS but declined to provide evidence of problems with the figures.

• Statements by Trump and other administration officials suggest the president was unhappy with the big downward revision in nonfarm payrolls in May and June, as well as the weak job growth in July.
• However, such downward revisions are not unusual. Indeed, they reflect the US’s sophisticated processes to firm up its economic data as new information becomes available. Those processes and the government’s willingness to update its figures have helped make US economic data the gold standard for accurate economic reporting.
• News of the BLS firing on Friday appeared to worsen the day’s sell-off in US stocks, suggesting investors see a risk that this action will politicize the country’s economic data. Investors are likely concerned that future US economic reports could be manipulated to make politicians look good or avoid making them look bad.
• If investors lose faith in the reliability of US economic data, they might also discount the value of US assets, worsening the early signs of capital flight that became apparent early this year. That could potentially drive down prices for US stocks, bonds, and the dollar.

US Defense Industry: Some 3,200 workers in Boeing’s defense division went on strike at midnight today in a dispute over pay and benefits. The strike raises fresh concerns about the US’s ability to produce key weapons systems, such as the F/A-18 Super Hornet and F-15 Eagle fighter jets, as well as various missiles and munitions. Separately, new reporting says China is continuing to limit rare-earth exports used by Western defense industries despite a deal with the US last month to loosen its controls.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a focus on the president’s new tariffs following the expiration of the August 1 deadline. We then assess major international and domestic developments impacting financial markets, including the ongoing legal challenges to the president’s tariff authority in federal appeals court, and the administration’s expanding campaign to put pressure on monetary policy, which has now extended from Fed Chair Powell to the broader Federal Reserve Board regarding interest rate cuts.

 Deadline Passed: New tariff rates have been announced by President Trump for countries that were unable to finalize a deal by the August 1 deadline. Although rates for most nations are still lower than the April 2 levels, Brazil and Switzerland are notable exceptions as both are seeing an increase in their rates. It is worth noting that the new tariffs will not be imposed for seven days.

• While many countries received their new tariff rates, a few notable exceptions were granted extensions. China and Mexico, for instance, received deadline extensions beyond August 1 from the Trump administration as negotiations continue. This suggests that potential trade deals could be close to finalization with these nations. While Canada was hit with 35% tariffs, goods covered under USMCA were excluded.
• On a more positive note, some countries successfully negotiated more favorable terms. Australia, for example, secured a baseline tariff of 10%, a rate comparable to that granted to the UK, another country with a trade surplus with the US. Additionally, Taiwan has stated that it expects its tariff rate to be cut after talks.
• However, the president has established a global baseline tariff rate of 10%, signaling the permanence of this policy. Our view is that these country-specific tariffs are intended to be the president’s primary tool to generate revenue from abroad, which would thereby help fund US spending.

Tariff Court Showdown: The administration’s tariff plans faced a cool reception on Thursday. At the heart of the dispute are the reciprocal tariffs, which the White House defends under the International Emergency Economic Powers Act (IEEPA). During the hearings, judges expressed broad skepticism as the act does not explicitly mention tariffs. Given the high stakes and the challenge to presidential authority, the case is almost certain to reach the Supreme Court, irrespective of the appellate court’s ruling, since the losing side is very likely to appeal.

 Fed Board Targeted: President Trump has called on the Federal Reserve Board to take over for Fed Chair Powell if interest rates aren’t lowered at the upcoming policy meeting. This latest demand reflects the president’s ongoing campaign for rate cuts, which he argues would alleviate the government’s debt burden. While the previous meeting saw two dissenting votes against the rate decision, there is no indication that the board has lost confidence in its chair. However, four opposing votes by Fed governors have previously led to a chair’s resignation.

 Asian Factory Pessimism: Asian manufacturing sentiment has plummeted due to concerns about Trump’s tariffs. According to the S&P Global Manufacturing PMI, confidence in output among surveyed businesses in the region has fallen to its lowest level since July 2020. While a surge in demand from “tariff front-running” was observed, doubts persist about the ability of these manufacturers to sell to the US market given the new levies.

 AI Wariness: Investors are growing wary after Amazon reported weaker-than-expected operating income and cloud revenue, which lagged that of key rivals. The disappointing earnings arrive at a critical juncture, as markets scrutinize whether massive AI investments by tech giants will deliver returns. AI-driven optimism has fueled the market rally for the past three years, but if sentiment sours, a shift in leadership could emerge.

 Lower Drug Prices: President Trump has demanded that pharmaceutical companies lower drug prices by September 29. His administration sent letters to 17 major firms with a warning that if they fail to act, the White House will use all available tools to prevent price abuses. This aggressive stance underscores the executive branch’s willingness to leverage its authority — potentially at the expense of corporate interests — in a bid to appeal to populist sentiment.

 Eurozone Inflation: The eurozone’s July flash CPI estimate showed prices rose 2.0% year-over-year, broadly stable from the prior month but marginally exceeding the 1.9% consensus forecast. The subdued inflation reading may fuel speculation about further ECB rate cuts, as concerns over slowing growth and elevated debt levels could push the central bank toward more accommodative monetary policy.

 Firm Merger & Acquisitions: Dealmaking activity has picked up as investors gain greater clarity on tax and trade policies, according to Ares Management’s CEO. The comments follow a wave of recent takeovers across the railroad, cybersecurity, and industrial sectors. This trend suggests that when investors have more predictable policy outlooks, they become increasingly willing to assume additional risk.

 No Term Limit: El Salvador’s legislative assembly has voted to abolish presidential term limits, clearing the path for Nayib Bukele to potentially remain in power indefinitely. This consolidation of executive authority follows a regional pattern where leaders have eroded democratic institutions in the name of combating crime. Notably, Latin America has a complex history with strongman leaders, and while they are often politically controversial, their regimes have at times maintained relative stability for financial markets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the latest trade agreements, paying close attention to the strategic use of tariffs and their broader implications. We then examine key international and domestic developments shaping financial markets, including insights on the Federal Reserve’s recent rate decision and noteworthy trends involving major US tech companies.

 Trade Updates: While some uncertainty remains, there seems to be growing momentum toward securing trade agreements ahead of the August 1 deadline. Once the current negotiations over country-specific tariffs are concluded, the president may shift focus toward using tariffs for more targeted purposes, such as advancing sector-specific goals or diplomatic objectives. This strategy could further legitimize tariffs as an economic tool to project US power on the global stage.

• President Trump announced that the United States and South Korea have reached a new trade agreement. In a post on Truth Social, the president revealed that South Korea will invest $350 billion in US-owned projects overseen by his administration, along with a commitment to purchase $100 billion worth of US energy exports. In return, South Korea will benefit from lower tariffs on its exports, including vehicles that previously faced a 25% duty, with rates now reduced to 15%.
• The president has also leveraged tariffs to pressure an end to the war in Ukraine. On Wednesday, he imposed a 25% tariff on India — plus an additional penalty — due to its purchases of Russian oil and weapons. This move followed Tuesday’s warning to Russia to make meaningful ceasefire progress within 10 days or face retaliatory tariffs. While Wednesday’s tariff rate is slightly lower than the 27% announced on Liberation Day, the added penalty could push the total higher.
• Demonstrating flexibility on sector-specific tariffs, the administration has granted targeted relief by excluding refined metals from the 50% copper tariffs. This move addressed warnings from American metal producers that insufficient domestic production capacity could lead to severe shortages if imports were restricted. The policy reversal triggered an immediate market response, with US copper prices falling sharply after the announcement.
• Meanwhile, significant momentum remains as multiple countries rush to finalize trade agreements with the US before the August 1 deadline. The most critical negotiations involve Mexico, Canada, and Taiwan — all strategically important for global supply chains. Officials remain hopeful that agreements can be concluded before the deadline passes.

 Fed Rate Decision: As anticipated, the Federal Reserve maintained its target range for the policy rate at 4.25% to 4.50%. This decision, however, revealed a growing division among FOMC members regarding inflation and the economy’s direction. Notably, for the first time since 1993, two Fed governors, Michelle Bowman and Christopher Waller, dissented in favor of a rate cut.

• While not explicitly stated, Federal Reserve officials appear increasingly concerned about the potential for short-term stagflation. During Wednesday’s press conference, Chair Jerome Powell acknowledged downside risks to the economic outlook while emphasizing that, in the Fed’s baseline assessment, the inflationary impact of tariffs would likely prove transitory.
• The central bank is sending mixed signals. While Chair Powell affirmed the labor market’s strength by pointing to low unemployment, he also underscored weak demand and stagnant hiring. This contradictory framing implies that the labor market’s resilience stems from a limited labor supply, rather than vigorous job creation. In essence, supply-side constraints are currently overshadowing demand-side frailties. This shift away from the Fed’s usual emphasis on demand-driven policy is notable given policy uncertainty.
• With a divided Federal Reserve, the upcoming meeting among officials could be particularly contentious. We anticipate the next two months of data will provide strong guidance for the next rate move. Given the central bank’s acknowledgment of a temporary inflation bump due to tariffs, the likelihood of a rate cut will likely hinge more on labor market data than inflation figures.

 Treasury Quarterly Refunding: The Treasury Department announced plans to maintain its current pace of longer-term debt issuance, consistent with volumes from the previous five quarters. This measured approach is designed to mitigate any adverse impact on long-term interest rates, given their particular sensitivity to the pace of debt issuance. As a result, our expectation is that long-term rates will largely remain stable.

 Nvidia Caught in the Middle: Chinese officials summoned the chipmaker to discuss security risks associated with its H20 chips. These concerns stem from comments by a US lawmaker advocating for tracking capabilities in advanced chips. While Nvidia aims to operate in both markets, it might be forced to choose between the US and China in their race for technological supremacy. Such a decision could significantly weigh on the sentiment of certain tech stocks, given the sector’s substantial revenue exposure to China.

 AI Demand Robust: Meta and Microsoft both surpassed market expectations for their AI-related earnings, reflecting strong demand for their services. AI continues to be a major driver of market sentiment, easing investor concerns about the significant spending on capacity building. While the AI rally might seem crowded, there are still signs that its momentum will continue over the coming months.

 Nuclear Talks: Iran has declared it will not discuss its nuclear program until the US agrees to compensate it for past attacks and provides guarantees against future aggression. These demands emerge as both sides seek to establish terms for talks following the recent 12-Day War between Iran and Israel, which concluded with US intervention. Further negotiations could pave the way for a long-term resolution to the dispute over Iran’s nuclear program.

 Industrial Espionage: Australia alleges that foreign spies have targeted its sensitive rare earth sector, Antarctic research, and its involvement in the AUKUS submarine pact to gather intelligence. The country estimates that this espionage cost its economy $8 billion in 2024, specifically citing China, Russia, and Iran as particularly active. This report underscores the escalating tensions between Western nations and their adversaries.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an assessment of the current FOMC meeting, focusing on the potential timing of interest rate cuts. Additionally, we will explore a range of other impactful international and domestic developments influencing financial markets, including the latest in trade policy and the ongoing situation with China.

Fed Meeting: Today, Federal Reserve officials are anticipated to conclude their two-day meeting by holding interest rates at the current target range of 4.25% to 4.50%. This decision is poised to move financial markets, with investors closely scrutinizing the Fed’s statements for any indication of when rate cuts might occur later this year. Although market expectations lean towards a September rate cut, Fed officials might choose to be more noncommittal in their guidance, allowing them to keep their policy options open.

• The market will closely monitor any dissents during this meeting. In the weeks leading up to it, Fed officials have expressed differing views on whether the central bank should cut rates this month. Two Fed governors — Christopher Waller and Michelle Bowman — are seen as likely to dissent if rate cuts are not implemented.
• The monetary policy debate arises amid concerns over tariffs’ economic impact. While most agree that tariffs will fuel higher inflation, officials disagree on whether the effect will be temporary or more structural.
• So far, tariffs have had a relatively modest impact on inflation. In June, overall CPI edged up from 2.4% to 2.7%, while core inflation saw a smaller increase, rising from 2.8% to 2.9%.
• We expect that any sign of dovishness from the Fed would likely boost equities, though the bond market reaction could be mixed, particularly if rates are left unchanged. Potential dovish signals might focus specifically on labor market inertia, where firms have shown reluctance both to hire or to lay off workers.

China Truce: Following two-day trade talks in Stockholm, the US and China concluded their meeting with no plans to extend the August 12 deadline for a new trade deal or reintroduce previous, more onerous tariffs. This meeting follows earlier discussions held in Geneva in May and London in June, as the world’s two largest economies strive to prevent escalating trade tensions.

• While trade talks have made progress, any final deal still requires President Trump’s approval. There is growing speculation that failure to extend the tariff truce could trigger a return to triple-digit tariffs on Chinese goods.
• Any easing of US-China trade tensions would likely boost US equities, with technology stocks positioned to benefit disproportionately given their significant revenue exposure and supply chain dependence on the world’s second-largest economy.

Yen in Trouble?: The Japanese currency is under significant pressure amid political and monetary policy uncertainty. The recently negotiated US trade deal has raised concerns that the government may increase fiscal spending and delay Bank of Japan tightening to support the economy. While this could provide a tailwind for Japanese equities, it may further strain the already-challenged bond market.

Tariff Stimulus Checks: Senator Josh Hawley (R-MO) has proposed legislation that would provide $600 rebates to American households to help offset rising costs from new tariffs. While the bill faces significant political hurdles following recent tax-cut stimulus measures, President Trump has indicated he might support the idea, particularly if tariff revenues continue to surpass expectations. Additional stimulus could provide further support to equity markets while reducing recession risks.

South Korea-US Trade Talks: Both parties are working diligently to reach an agreement before the August 1 deadline. While the Japan trade deal is largely viewed as a framework agreement, reports indicate several notable exceptions may be included, particularly provisions requiring South Korea to allow its currency to appreciate against the dollar while increasing imports of US beef and rice. While such a deal would likely boost Korean equity prices, it could potentially slow the country’s economic growth.

Eurozone Resilience: The eurozone maintained modest growth despite escalating trade tensions with the US, as GDP expanded 0.1% quarter-on-quarter in Q2, slightly exceeding expectations of flat growth. However, this aggregate performance masked divergences among member states, as economic contractions in Germany and Italy highlighted emerging vulnerabilities. While we maintain a constructive outlook for regional growth, we are closely monitoring these signs of weakness.

Climate Deregulation: The Trump administration is now pushing to roll back Obama-era regulations to limit carbon emissions. The EPA is expected to rescind its endangerment finding that classified carbon dioxide and other greenhouse gases as public health threats. This regulatory reversal would support the administration’s broader deregulation agenda, aimed at streamlining investment and accelerating development in key sectors.

Beijing Meets: China’s Communist Party will convene its next plenary session in October to deliberate on the 2026-2031 Five-Year Plan. Although the report didn’t specify an exact date, the meeting is expected to draw close scrutiny from global investors seeking clarity on China’s economic strategy amid escalating trade tensions.

Pacific Tsunami: A major earthquake off Russia’s far east coast has triggered tsunami waves, which are expected to impact Japan, Hawaii, and the West Coast of the United States. Evacuations are underway in affected regions as residents seek higher ground. While initial signs don’t point to a catastrophic outcome, the risk remains elevated.

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