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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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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

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

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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