by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently digesting the latest tech earnings. On the ice, the Jets secured a third playoff victory against the Blues. Today’s Comment dives into why we’re not overly concerned about the economic contraction in Q1, the market’s focus on Treasury developments, and other key market news. As always, we’ll also provide a summary of relevant international and domestic data releases.

GDP Contracts: While the economy’s contraction in Q1 has intensified recession concerns, a closer examination of the underlying data paints a more nuanced picture.

• The US economy shrank at an annualized rate of 0.3% in Q1 2025, marking the first quarterly decline since 2022. This downturn was primarily driven by a surge in imports as businesses and consumers accelerated foreign purchases ahead of anticipated tariff implementations. The flood of foreign goods more than offset gains in domestic consumption and fixed investment. Further exacerbating the weakness, a drop in government spending created additional headwinds for economic growth.
• While the import surge is expected to reverse — easing GDP concerns — the sustainability of recent consumption and investment growth remains doubtful. Much of the apparent strength stems from temporary factors such as businesses stockpiling inventory ahead of tariffs and using existing stock to suppress price hikes, therefore artificially boosting demand. These short-term dynamics suggest that underlying economic weakness may persist once these one-off boosts fade.
• The report also revealed emerging signs of inflationary pressures as the GDP price deflator — the inflation measure used to adjust nominal output for price changes — accelerated to its fastest pace since Q4 2022. This sharp increase, driven primarily by stronger adjustments to prices related to personal consumption and government spending, may fuel concerns about potential stagflation risks in the economy.

• We advise investors against overreacting to this single economic report as conditions are expected to shift throughout the year. As we’ve highlighted previously, the administration likely anticipated an early-year slowdown, positioning itself to deploy stimulative policies like tax cuts later this year to reinvigorate growth. Such measures could materialize in the coming months, potentially boosting the economy ahead of next year’s midterm elections.

Under the Radar: The Treasury signaled no changes to its borrowing program, sticking with existing issuance levels even as investors worry about bond market saturation.

• The US Treasury’s latest quarterly refunding announcement maintained steady issuance sizes for long-term bonds, with officials indicating this approach would continue for “several quarters.” While market participants had speculated about potential bond buyback changes to address supply concerns, Treasury Secretary Bessent only confirmed that the department is studying such measures but stopped short of committing to implementation or providing a timeline.
• Growing speculation about an expanded buyback program follows weeks of exceptional volatility in long-dated bonds. The 10-year Treasury’s trading range in April marked its widest swing since the March 2023 banking crisis triggered by Silicon Valley Bank’s collapse. While these adjustments would extend a program initiated by the prior administration, market participants view the potential expansion as further evidence of the Treasury’s increasingly active role in the bond market.
• The statutory debt limit has further complicated the Treasury’s position, preventing increases in net Treasury supply and forcing reliance on cash reserves and extraordinary measures to maintain government funding. The department is expected to announce in early May when these temporary measures will be exhausted, potentially adding another layer of uncertainty for the Treasury market.

• Though boring, Treasury auctions are emerging as a critical market force. Successive administrations have deliberately managed issuance patterns to prevent liquidity shortfalls and improve market functioning. We expect coordinated Treasury and Federal Reserve action to actively contain long-term yield volatility in the future, creating potential tailwinds for both fixed income and equity markets as policymakers intervene to maintain orderly conditions.

BOJ Holds Off Hikes: The Bank of Japan is postponing its policy normalization plans as it continues to assess the potential economic impact of US tariffs.

• The Bank of Japan held its policy rate steady at 0.5%, while slashing its 2025 GDP growth forecast by more than half — from 1.1% to 0.5% — citing heightened risks from US tariffs imposed on Japan’s export-driven economy. Despite inflation being above its 2% inflation target, policymakers opted to delay rate hikes, signaling concern over near-term headwinds while preserving flexibility for possible monetary tightening should economic conditions stabilize.
• Japan’s economy has taken center stage in global markets as investors gauge how potential shifts in trade policy could reverberate across the world economy. The Trump administration has placed Japan at the forefront of its trade agenda, heightening the significance of ongoing bilateral negotiations. However, progress of the talks remains uncertain, with Japanese Prime Minister Shigeru Ishiba recently asserting that Japan will not compromise its national interests to accommodate US demands.
• The two nations are preparing for a third round of trade talks in which Japan is anticipated to offer an increase in imports of US rice and soybeans, while easing certain auto safety regulations. However, more substantial concessions appear unlikely as Ishiba faces domestic political constraints ahead of July’s critical elections, limiting flexibility for potentially unpopular trade compromises.
• Given the risk of slowing growth ahead of elections, the BOJ will likely delay monetary tightening to avoid additional economic strain. This dovish stance should support global bond markets as higher Japanese rates could have prompted the nation’s institutional investors, a crucial source of global fixed income demand, to repatriate significant capital.

US Tech Shows Life: Despite growing concerns about the economic fallout from the tariffs, robust tech earnings — particularly in AI-focused companies — demonstrate the sector’s remarkable resilience.

• Several mega-cap tech leaders revealed robust earnings growth in their cloud computing divisions, with Microsoft and Meta both surpassing market expectations, fueling positive momentum across the AI sector. Investor attention now turns to upcoming reports from Apple and Amazon, particularly focusing on how these companies navigated supply chain challenges amid escalating trade tensions last quarter.
• AI-related sectors are likely to be among the first to rebound as global economic expectations reset, with investors favoring established players that have demonstrated consistent growth. However, the sector may experience heightened volatility if ongoing macroeconomic uncertainty persists in the coming months.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are digesting the latest GDP figures. In sports news, the Indiana Pacers secured a victory over the Milwaukee Bucks in last night’s NBA playoff action. Today’s Comment will focus on growing concerns about a potential US recession, the EU’s weighing of China trade talks, and other important market developments. As always, we’ve included our regular summary of both domestic and international economic data releases to keep you informed.

Recession Worries Rise: Despite rising fears of an economic slowdown, equities and bonds have not dropped as investors remain optimistic about possible intervention by the Fed.

• April’s Consumer Confidence Index plummeted to 86.0 — a five-year low — which is down sharply from March’s 93.9 reading. The decline reflects growing public anxiety that tariffs are dampening economic prospects. While the Present Situation Index remained relatively stable at 133.5 (down just 0.9 points), the Expectations Index cratered to 54.4, its weakest level since October 2011 and far below the 80-point threshold typically associated with recession.
• Pessimism is increasingly evident in real-time economic data as well. The latest JOLTS report revealed a decline in job openings, dropping from 7.48 million to 7.19 million in March. The ratio of job openings to unemployed workers also fell to its lowest level in four years. Meanwhile, the housing market continues to lose momentum, with national home prices rising just 0.1% month-over-month in February, well below the 0.3% consensus estimate.

• Despite the disappointing data, market optimism persists that Federal Reserve action could provide a boost. The recent weak economic indicators have prompted investors to price in additional rate cuts, with the CME FedWatch Tool now indicating a high probability of the central bank implementing its first rate cut for the year by June. Additionally, the Fed is now expected to cut rates by 100 bps by the end of the year.
• Markets are pricing in a June rate cut, but pressure is mounting on the Fed to act sooner. President Trump has intensified his calls for immediate easing at the May 7 meeting to stave off a potential downturn. He has repeatedly criticized Chair Powell’s cautious approach to shifting economic conditions and is now reportedly considering appointing a shadow Fed chair, a move that could undermine Powell’s authority and sway over markets.
• Next Wednesday, the Fed will likely have to weather a storm of concerns about the strength of the economy as well as the potential inflationary impact on tariffs. Most Fed officials have signaled that they will likely keep rates unchanged until they have a better understanding of where the economy is heading. As a result, we suspect the upcoming labor report on Friday will play a strong role as to whether the Fed will cut rates next week.

EU Playing Both Sides? The bloc of European countries is currently weighing trade talks with China while simultaneously pushing for a deal with the US.

• The Chinese government has lifted sanctions on five European parliament members who had criticized China’s human rights record, marking a goodwill gesture ahead of bilateral trade talks. While European officials welcomed this move, negotiations are expected to include discussions about China’s industrial policies as well as accusations of dumping. The thaw in relations may accelerate following the Ukraine war’s conclusion, as both sides had supported opposing factions in the conflict.
• The diplomatic thaw unfolds as Europe wrestles with its fraught relationship with Washington amid escalating US tariffs on EU exports. Despite lingering hesitancy, there are growing signs that Europe may be open to dialogue with Beijing. Spanish PM Pedro Sánchez has pushed for stronger EU-China engagement, while Italy’s Giorgia Meloni maintains pragmatic bilateral ties despite withdrawing from China’s Belt and Road Initiative.

• Meanwhile, US-EU trade negotiations remain deadlocked, with the bloc’s Digital Services Tax continuing to serve as a major obstacle. The impasse was most recently highlighted by Treasury Secretary Bessent, who identified the controversial tax as a key sticking point before the two sides can come to an agreement.
• While the EU’s engagement with China is unlikely to fundamentally shift its strategic alignment with the US, it underscores a shifting geopolitical terrain where nations adapt to a less accommodating America retreating from its role as the primary absorber of global demand. We foresee the EU navigating a delicate balance between Washington and Beijing to further its global economic objectives.
• In the near to medium term, the euro could find tailwinds from two primary sources: (1) the US administration’s apparent inclination towards dollar depreciation to stimulate exports, and (2) the potential for increased Chinese capital inflows into European markets.

India-Pakistan Feud Escalates: The two neighboring countries appear to be heading toward direct conflict, as both sides continue escalating tensions with provocative actions that risk triggering war.

• Tensions between the two nations continue to build following a deadly Islamist militant attack in India-administered Kashmir last week that killed 26 people. In response, Indian Prime Minister Narendra Modi has vowed retaliation, accusing Pakistan of involvement in the assault. Since the attack, both sides have shot down each other’s surveillance drones near their shared border. On Tuesday, Pakistan’s defense minister warned that war could erupt within 2-3 days if tensions continue to rise.
• The US faces a significant challenge as it attempts to maintain both countries within its sphere of influence. While India maintains ties with China, it also stands to benefit substantially as the US seeks to reduce its reliance on the world’s second-largest economy. Pakistan, on the other hand, remains a strategic partner — a status underscored by the Trump administration’s decision to exempt the country from the budget cuts it made in foreign aid.
• In this tense situation, US Secretary of State Rubio is getting ready for important talks with both countries. He needs to do two things: 1) stop the fighting from getting worse, and 2) protect America’s interests in the region. If these talks fail, it could be very dangerous. India and Pakistan both have nuclear weapons, and if they go to war, it could scare investors and hurt economies around the world.

Ukraine Deal Close? Ukrainian officials may sign a minerals deal today, as Trump holds out hope that Putin will end his invasion of the country.

• Ukrainian Economy Minister Yulia Svyrydenko will visit Washington this week to conclude a landmark bilateral agreement following extended negotiations. The pact establishes a framework for repaying future US military assistance while locking in foreign investment for Ukraine’s postwar rebuilding. The timing is significant, as it comes amid President Trump’s vocal criticisms of the negotiation delays.
• Although the US-Ukraine deal is nearing completion, concerns persist that Russia may reject the proposed peace terms. President Vladimir Putin continues to insist on annexing four partially occupied regions as a precondition for any settlement. Despite these demands, President Trump remains optimistic about persuading Putin to scale back his territorial claims to end the conflict.
• Although the timeline for the ending of hostilities remains uncertain, we anticipate the conflict’s conclusion within the coming months. The resolution of the war should provide support for global risk assets and could exert downward pressure on international energy prices.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are on hold awaiting key tech earnings reports. In sports, the Cleveland Cavaliers are poised to sweep the Miami Heat in their NBA playoff series. Today’s Comment will cover the economic impact of Trump’s first 100 days in office, implications of the upcoming Canadian elections, and other market-moving developments. As always, we’ll also include our regular summary of international and domestic economic data releases.

Trump’s 100 Days: President Trump is preparing to celebrate an incredible milestone as he looks to highlight his accomplishments.

• The president demonstrated his commitment to the auto industry by offering tariff concessions as carmakers adapt to evolving market conditions. Ahead of his visit to Michigan, he announced the lifting of levies on certain foreign-made parts used in US-assembled cars and trucks. The administration is also preparing to exempt imported vehicles from existing steel and aluminum tariffs, providing additional relief to the sector.
• Additionally, the president plans to highlight recent economic wins by showcasing major new domestic investments. Representatives from companies like Nvidia, Eli Lilly, and SoftBank are set to attend a White House event announcing expanded investment plans totaling $1.6 trillion — a spending surge projected to create over 426,000 jobs. The gathering will spotlight how corporate commitments align with the administration’s economic priorities in Trump’s “Invest in America” initiative.

• The president is urging his party to expedite passage of new legislation on tax cuts. While Republicans approved a procedural measure earlier this year allowing tax cuts to pass with a simple majority, internal divisions persist over how to offset the budgetary impact and avoid adding to the deficit. The White House is now pushing to finalize the bill by July 4, though the process will likely take weeks to complete given ongoing negotiations.
• While the president has touted his economic achievements, recent polling suggests his support among voters is slipping, particularly over lingering concerns about tariffs. As his administration shifts focus toward sustaining economic stability, markets are likely to remain in a holding pattern until clearer evidence emerges on whether his policies are helping or hurting growth.

Carney Wins: The Liberal Party eked out a narrow victory, securing a fourth term — one likely to be defined by how it handles a trade war with the US.

• The election initially gave the loonie a boost as a clear victor emerged, but the currency retreated once it became apparent the result would yield another minority government. The Liberals fell just short of an absolute majority, winning 168 seats, four shy of the 172 needed to govern outright. The Conservatives followed with 144 seats, while the Bloc Québécois took 23, the New Democrats secured 7, and the Green Party won 1.
• While the Conservatives outperformed poll projections, their leader Pierre Poilievre is projected to lose his seat. The party’s failure to translate a 20-point lead at the start of the year into a win may create a leadership crisis. Poilievre’s mishandling of the “Trump factor” due to his inability to counter the US president’s “51^st state” characterization and tariff threats will be a defining issue, as the party will look to rebrand itself following the loss.
• In his victory speech, Prime Minister Mark Carney struck a defiant yet pragmatic tone, expressing confidence in Canada’s ability to prevail in its trade dispute with the US, while acknowledging the profound challenges of redefining the bilateral relationship. He particularly emphasized the need for Canada to reduce its economic dependence on American trade and reassess its security arrangements, signaling a historic shift in North American relations.

• The global electoral impact of Trump’s trade policies has become undeniable, as evidenced by this outcome. While establishment candidates have benefited from rising anti-American sentiment, sustained political stability will require concrete policy responses. The critical question now facing nations worldwide is how they will reform regulations and implement stimulus measures to achieve growth independent of US markets.

Cloudy Business Outlook: A growing number of firms are reluctant to provide earnings guidance amid heightened uncertainty from the ongoing trade war.

• Automaker General Motors and logistics giant UPS have suspended their financial guidance this quarter as they reassess the evolving business environment. The decisions come as both companies implement strategic changes to strengthen their long-term financial performance. GM has postponed scheduled stock buybacks, while UPS plans to reduce its workforce by 20,000 positions.
• Corporate hesitation in issuing annual guidance underscores the profound uncertainty plaguing trade policy. Although businesses have modeled potential profit impacts since the administration rolled out targeted tariffs, the policy landscape remains too fluid for reliable forecasting. Compounding the challenge, firms must now also predict how shifting price points will reshape consumer demand, a critical variable that could dramatically alter financial projections.
• While corporate earnings continue to show strength this season, with most companies surpassing expectations, the rapidly shifting business environment poses growing challenges for strategic planning. Amid this persistent uncertainty, we believe the ultimate impact on US corporations remains to be seen. In the interim, we advocate a selective, stock-by-stock approach to portfolio management until clearer investment themes emerge.

Lights Back On: Full power was restored across the Iberian Peninsula on Monday, but the unexplained outage has triggered serious questions about the resilience of the region’s energy infrastructure.

• Power has been restored across Spain and Portugal after their worst outage since Europe’s 2021 blackouts. While authorities have ruled out cyberattacks and severe weather, the disruption appears linked to solar power supply failures. The system initially compensated for lost generation in southwestern Spain, but a subsequent failure collapsed the entire grid, including imported power supplies to Portugal at the time.
• The grid failure highlights the challenges of Spain’s ambitious green transition. While renewables now provide a substantial share of energy, they remain less reliable than traditional sources. This vulnerability emerges as Spain has accelerated its phase-out of coal-fired thermoelectric plants and has already decommissioned nuclear facilities that once contributed 20% of the nation’s power mix.
• The power grid concerns could cast a shadow over the economy’s otherwise strong performance. While Spain has been among Europe’s best performers since the Ukraine war began, posting 0.6% growth in the first quarter, this blackout is likely to hinder growth in the current period.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with reports suggesting President Trump’s import tariffs may finally show up in the trade and economic data starting this week. Firm evidence of falling imports and potential shortages would have the potential to further undermine market confidence. We next review several other international and US developments with the potential to affect the financial markets today, including an increasing risk of military conflict between India and Pakistan and Trump’s suggestion that he may pursue new tax cuts to offset the impact of his tariffs.

United States-China: New data published late last week showed that US-China trade is finally starting to fall sharply in response to the Trump administration’s stiff tariffs against Beijing. Figures from the Department of Agriculture show that US net exports of soybeans in the week of April 11 to 17 were down about 50% from the previous week and 25% below their four-week moving average. Net exports of pork were also down sharply. Meanwhile, Port of Los Angeles Executive Director Pete Seroka said he expects a 35% drop in Chinese import volumes within two weeks.

• According to Seroka, “essentially all shipments out of China for major retailers and manufacturers [have] ceased.”
• Until now, there have been few signs of outright declines in trade operations or economic activity, even though there is plenty of survey data showing that consumers and firms are becoming much more pessimistic. The relatively stable activity data probably reflects factors such as front-running shipments to get ahead of the tariffs, the difficulty of canceling shipping schedules quickly, and the overall momentum of the US economy.
• Looking forward, observers are increasingly expecting to see disruptions in trade and output by early summer. It would be no surprise if negative data starts to roll in starting as early as this week. If so, it would likely increase over the coming months. We still don’t think a recession is a certainty, but the weakening activity will probably raise the risk of a broader economic contraction.
• In any case, any incoming data that appears to confirm a sharp contraction in trade or general economic activity could potentially spark a new sell-off in risk assets, especially US stocks.

China-Philippines: The Chinese coast guard on Saturday released photos showing it had seized a tiny reef in the South China Sea that is claimed not only by China but also by the Philippines, Vietnam, and Taiwan. Most concerning, the reef is located just kilometers from a Philippine naval outpost in the Spratly Islands. The move is only the latest example of Chinese territorial aggressiveness in the area. If that aggressiveness heats up further, the result will likely be more global tensions, a risk of conflict, and further risks to the global financial markets.

China: Despite being sanctioned by the US, technology giant Huawei is reportedly preparing to test a new computer chip designed to be a substitute for Nvidia’s powerful H100, which is popular for training artificial intelligence models. The new chip, the Ascend 910D, is apparently competitive with the H100 in computing power, but it less power-efficient. Still, Huawei’s success with the chip so far is a reminder that China may be catching up to the US in advanced information technology, potentially threatening big US tech firms and their stocks.

India-Pakistan: After last week’s terrorist attack that killed 26 in the Kashmir region, Indian Prime Minister Modi has reportedly called dozens of global leaders in an apparent effort to prepare them for a retaliatory attack on Pakistan. Indian police have also launched large-scale arrests in Kashmir, while Hindu nationalists have unleashed mass anti-Muslim protests across India. Any military conflict between the two nuclear powers could prompt a global security concern and add to the current downward pressure on risk assets.

South Korea: The center-left opposition party, the Democratic People’s Party, yesterday picked Lee Jae-myung as its candidate for the snap presidential election on June 3. In the latest polls tracking public support for the candidates, Lee and the DPP currently have a double-digit lead over the conservative People’s Power Party, which has been rocked by scandal. If Lee ultimately wins the election, South Korean policy could shift toward closer relations with China and cooler relations with the US, while economic policy could shift into a more statist direction.

Germany: Incoming Chancellor Friedrich Merz has reportedly chosen Katherina Reiche, a high-level executive with German energy group Eon, to lead the economy ministry. The move is a sign that Merz may prioritize energy supply as a key part of his program to revitalize German industry and spur economic growth. The nomination of Reiche comes as Merz’s center-right CDU party has signed a coalition deal with the center-left Social Democratic Party to form a government.

Spain: The country today was hit by an enormous electricity blackout affecting approximately 10 gigawatts of demand. The blackout has also extended to parts of Portugal and France. The loss of electricity has disrupted a wide range of economic activity in the affected areas, including airline and train operations, factory production, communications, and office work. However, it is not yet clear whether the blackout will have lasting negative impacts on economic output or the Spanish financial markets.

Canada: Parliamentary elections are being held today, with the main contenders being the ruling center-left Liberal Party under Prime Minister Mark Carney and the opposition center-right Conservative Party under Pierre Poilievre. The latest opinion polls suggest the Liberals will win a modest majority, keeping them in power, after Poilievre lost a massive advantage after being tagged for being in line with US President Trump.

US Fiscal Policy: In a social media post yesterday, President Trump suggested he will push for a new income-tax cut for individuals making less than $200,000 per year to offset the impact of his import tariffs. His post suggested any revenue loss from the new tax cuts would be made up by tariff revenues. However, the likely drop in trade because of the tariffs and any tariff reductions negotiated with foreign countries would probably keep overall tariff revenues relatively modest.

• The suggestion of further tax cuts therefore could add to concerns about the federal budget deficit and debt levels. If so, the recent US capital flight and backup in Treasury yields could worsen.
• So far today, bond prices have weakened, driving up yields. The yield on the benchmark 10-year Treasury note has risen to 4.292% as of this writing.

US Corporate Sector: A review of recent earnings reports and other corporate statements by the Wall Street Journal shows that US companies in multiple industries are slashing costs to help pay for President Trump’s big tariff increases, which are essentially a tax on importers. The article notes that firms are still generally reluctant to lay off their own workers, but they are tightening their spending on consultants and contractors — a move that has often preceded layoffs and weaker economic growth in the past.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is still analyzing the latest earnings reports while adjusting to other developments. In sports news, the Tennessee Titans made Cam Ward their number one draft pick. Today’s Comment will focus on growing speculation about a potential June Fed rate cut, discuss the easing of trade tensions between the US and China, and review other notable market-moving stories. As always, we’ll conclude with a comprehensive summary of domestic and international economic data releases.

Rate Cut Hopes Alive? While Fed officials have been adamant about being patient about the pace of rate cuts, they have not ruled it out completely.

• While the Fed is expected to hold rates steady in May, momentum appears to be building for a potential rate cut in June. Cleveland Fed President Elizabeth Hammack suggested that officials could act in June if there is “clear and convincing” evidence about the economy’s trajectory. Her remarks hint at the Fed’s willingness to respond to signs of an impending recession. On the same day, Fed Governor Christopher Waller noted that evidence of job losses due to tariffs could also influence policy decisions.
• The decision to delay action by a month stems from the central bank’s desire to assess the economic impact of recent tariffs. Survey data indicates growing pessimism among consumers and businesses, which is likely to dampen spending and investment. However, real-time indicators, including weekly jobless claims, have yet to signal an imminent economic crisis.
• A shift toward rate cuts would likely appease the president, who has repeatedly argued that the Fed should take stronger action to support economic stability. Despite limited concrete evidence, recession risks remain elevated. Just one week ahead of the official report, the Atlanta Fed’s GDPNow model has signaled that there may have been an economic contraction in the first quarter of the year.

• The Fed is likely to remain patient for the foreseeable future, ensuring that inflation and unemployment trends align with its mandate. Its cautious approach reinforces market confidence in its data-dependent stance, avoiding perceptions of discretionary or politically influenced decisions. By maintaining this credibility, the Fed enhances the effectiveness of its policy tools, ensuring that future rate cuts transmit more efficiently to intermediate and long-term rates.

US-China: The world’s two largest economies are carefully decoupling and reducing mutual dependence while striving to avoid severe market disruptions.

• On Friday, Chinese officials unveiled emergency contingency plans designed to buffer the economy against potential external shocks from escalating trade tensions. While emphasizing that these measures remain precautionary for now, policymakers have rolled out a comprehensive stimulus package featuring monetary easing tools and targeted financing mechanisms. This move follows Beijing’s recent commitment to a record-high budget deficit.
• Additionally, China appears to be taking steps to address US concerns about its historical overreliance on export-driven growth, as highlighted by Treasury Secretary Scott Bessent earlier this week. In response to these remarks, China’s Commerce Ministry has prioritized moves to better integrate domestic and foreign trade development. Supporting this initiative, Walmart has launched a program to help Chinese suppliers shift their sales focus from the US market to domestic channels.
• US companies are increasingly demonstrating their willingness to diversify supply chains beyond China. Apple has announced plans to shift the majority of its iPhone production to India as early as next year. This strategic move aligns with deepening US-India trade relations and helps Apple circumvent the punishing 145% US tariffs on Chinese imports.

• As tensions ease and both sides adapt to the new economic landscape, this progress may encourage discussions about targeted tariff exemptions to alleviate bilateral economic pressures. The constructive shift could establish a foundation for productive negotiations toward a mutually beneficial agreement. While these developments appear favorable for risk assets, the true economic impact will only become clear once existing tariffs fully work their way through the system.

EU Defense Spending: An increasing number of EU member states are boosting defense expenditures to counter external security threats, aligning with the bloc’s plans to establish a dedicated European defense fund.

• Several EU member states have already begun increasing their military expenditures in response to growing security concerns. Poland and Portugal are both expected to formally request exemptions from EU deficit rules to accommodate higher defense spending, while Spanish Prime Minister Pedro Sánchez confirmed that his country expects to reach NATO’s 2% GDP defense target this year.
• European leaders are accelerating defense spending initiatives as the EU prepares to introduce jointly backed bonds to fund military modernization. This financing mechanism would support both EU member states and allied nations, with Brussels recently announcing that non-EU countries may access these funds through new Security Action for Europe (SAFE) agreements, which are subject to participation fees and bilateral security commitments.

• Defense spending has emerged as a key catalyst for European equities, with the EU’s decision to permit deficit-funded military investments expected to provide fiscal stimulus to the region. This development comes amid ongoing trade tensions with the United States, creating a potential counterbalance that should continue to support European markets. The structural shift toward increased defense expenditures is likely to deliver sustained tailwinds for equities across the continent.

 Canada Elections: Canadian Prime Minister Mark Carney is entering the final stretch of the campaign as the apparent frontrunner, though late shifts in voter sentiment could still change the outcome.

• Recent polls show that Liberal leader Mark Carney is holding a narrow four-point lead over Conservative rival Pierre Poilievre. Carney’s edge was bolstered by backlash to President Trump’s controversial trade actions against Canada and his inflammatory comment likening the country to a “51^st state.” However, the gap appears to be tightening as Conservatives gain ground, fueled by rising voter anxiety over the cost of living — an issue that traditionally plays to Conservative strengths.
• The election’s outcome may prove decisive in shaping the future of US-Canada trade relations. This development follows President Trump’s recent remarks challenging Canada’s role in the US automotive industry, including threats of escalated tariffs on Canadian vehicle exports. In response, Carney has proposed economic stimulus measures to reduce Canada’s dependence on US trade, while Poilievre has focused on deregulation as his preferred solution to boost competitiveness.
• Next Tuesday’s election will likely determine Canada’s approach in upcoming trade negotiations with the United States, talks that could significantly impact Canada’s automotive sector. Whichever candidate prevails will face the immediate challenge of convincing automakers to maintain their Canadian operations despite growing pressure from US tariffs, particularly for access to one of the world’s largest consumer markets.

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