by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our thoughts on renewed speculation regarding potential currency market intervention. We then turn to the energy sector, examining recent calls to rein in high diesel prices. Next, we briefly cover the deployment of additional US troops to Europe, the Fed’s efforts to pave the way for stablecoin issuers, and a sign of cooling tensions between the US and China. As always, we conclude with a review of recent domestic and international economic data.

Yen Value: The Japanese yen is facing upward pressure following comments from Prime Minister Sanae Takaichi. On Friday, Takaichi stated that she discussed the weakness of the yen with President Trump, calling its current valuation against the dollar problematic. Her comments prompted speculation about potential foreign exchange market intervention. The discussion highlights the broader push from the two countries to ensure that speculators do not have a disproportionate impact on the value of the currency.

• Prime Minister Takaichi’s discussion with President Trump took place on the sidelines of the UN General Assembly. During the meeting, the two leaders addressed concerns regarding sharp exchange rate volatility and reaffirmed their commitment to maintaining orderly foreign exchange markets. Their remarks appear to reference joint efforts by the Japanese Ministry of Finance and the US Treasury Department to support the yen in late July following its steep decline in the days leading up to the action.
• The decision to coordinate efforts stems from growing concern over the policy divergence between the two nations’ central banks. Although both institutions raised rates at their latest meetings, the Bank of Japan’s decision was split, whereas the Federal Reserve’s vote was unanimous. This split has driven a rally in the US dollar as investors expect the Fed to remain more committed to rate hikes than its Japanese counterpart.

• Following the Federal Reserve’s decision last week, the US dollar strengthened against the currencies of its major trading partners. The rally was driven largely by a distinctly more hawkish shift in the Fed’s dots plot, with an overwhelming majority of FOMC participants signaling support for at least one additional rate increase this year. Fed Chair Kevin Warsh attributed the shift to improving momentum in the US economy, which he said is making it increasingly difficult for the central bank to reach its 2% inflation target.
• Potential intervention in the yen will likely impact the US dollar’s exchange rate, but the effect is expected to be short-lived. While open-market currency purchases may deter speculative trading in the near term, they will not alter the fundamental drivers of monetary policy and growth expectations. Consequently, any coordinated intervention is unlikely to have a lasting impact on the dollar over the long term.

Diesel Problems: The White House is being pressured to put export controls in place to help keep diesel prices down. While the move has been dismissed, it has raised concern among US suppliers as well as foreign buyers of American diesel. The potential controls come as the White House looks to prevent rising fuel prices that would lead to an increase in prices in other parts of the economy.

• Initial reports indicated that the White House was considering export controls lasting up to 90 days. Despite its denial, reports suggest the administration is assessing the potential consequences of imposing the restrictions, particularly during the harvest season. There are concerns that while there may be short-term benefits, it could also have a long-term impact on refiners, as it could lead to oversupply due to a lack of storage, which would slow refining capacity and could worsen the problem for gasoline and jet fuel prices.
• Additionally, there also appears to be pushback from foreign buyers. A ban on American diesel exports could lead to a spike in global prices. The EU has been the most vocal in its opposition as it has relied heavily on US fuel since the war broke out in the Middle East. Canada is also expected to be vulnerable as it also relies heavily on American diesel for its energy needs.
• The rise in fuel costs remains a key issue heading into the autumn season. Farmers who rely on fuel for the machinery used to harvest fall crops have expressed deep concern over soaring input costs. Additionally, there are growing worries that these farms may attempt to compensate for higher expenses by raising crop prices, further fueling inflationary pressures.
• The White House is working hard to contain fuel prices, but it has few good options. So far, the proposal being floated for an export ban seems to lack momentum, which may force the administration to seek alternative measures to rein in diesel prices. If successful, lower fuel costs could help alleviate inflationary pressures driven by high input expenses.

US Troop Expansion: The United States is close to reaching a deal with Poland to establish a military base that would station 10,000 troops, an increase from the 7,000 currently deployed in the country. The move aims to bolster the US presence in Eastern Europe amid growing concerns that Russia could expand its conflict beyond Ukraine. Reports also indicate that Estonia and Lithuania are set to receive additional military deployments.

Stablecoins: The Federal Reserve is moving closer to establishing a regulatory framework for stablecoins. On Thursday, the central bank released a proposal governing the issuance of these asset-backed cryptocurrencies. Under the plan, stablecoin issuers would be required to back all circulating tokens with high-quality reserve assets, such as short-term US Treasurys and cash equivalents. The framework would also set capital requirements and outline an application process for institutions seeking to issue digital assets.

Panda Diplomacy: China has announced plans to send two pandas to Zoo Atlanta. China typically loans these animals as a gesture of goodwill to ease bilateral tensions. The move signals that China and the US are adopting a softer stance as they collaborate on trade and artificial intelligence. While this does not ensure an imminent agreement, it suggests that the pathway toward a deal is becoming clearer.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on Fed Chair Kevin Warsh as markets await his speech at Jackson Hole. We then turn to Venezuela where the US is pushing for stakes in the oil fields there. Following that, we briefly cover several other topics: Iran’s openness to reengaging with the US in talks, the backlash against EU industrial policy, and Anthropic’s court victory against the Pentagon. As usual, the report concludes with a summary of today’s domestic economic releases. 

Forward Guidance in Focus: All eyes will be on Fed Chair Kevin Warsh’s upcoming speech at the Jackson Hole symposium today. His remarks arrive against a backdrop of climbing bond yields, driven in part by mounting uncertainty over the central bank’s policy trajectory. Following two consecutive meetings that exposed deepening divisions within the FOMC regarding the appropriate path forward, markets are increasingly skeptical about the committee’s resolve to steer inflation back to its 2% target.

• Warsh’s address will be closely scrutinized as a key signal for clarifying the Fed’s reaction function and near-term policy bias. While the chair has been consistent in reaffirming the Fed’s commitment to its price-stability mandate, he has remained notably less forthcoming on the specific conditions that would prompt the committee to tighten monetary policy. During the last FOMC press conference, he refrained from stating whether or not the central bank would raise rates even after three dissents.
• Additionally, a growing number of committee members have signaled that a rate hike should at least be on the table, citing the recent stickiness in inflation. On Thursday, Cleveland Fed President Beth Hammack, one of the dissenters, publicly stated that the time for raising rates may be nearing. Earlier this month, Governor Lisa Cook similarly warned that with inflation persisting above target, the risk of entrenched price pressures remains elevated.

• A lack of clear direction from the Federal Reserve is rattling markets and eroding confidence in the Fed’s ability to contain future inflation. Kevin Warsh’s initial honeymoon period appears to be over; the 10-year breakeven rate has climbed markedly since he took office, signaling deepening inflation anxiety. This shift is particularly striking given Warsh’s historical advocacy for price stability as the central bank’s singular mandate, yet it now suggests that the market is beginning to question his credibility.
• The friction between markets and Fed Chair Warsh has likely not escaped the central bank’s attention. Reports indicate that Warsh has privately acknowledged missteps during his first months in office. While we do not anticipate a sharp reversal of his lean communication strategy, we do expect him to offer the market greater clarity regarding his approach to achieving price stability. His success — or failure — in assuaging market fears will therefore be a key focus for markets today.

Donroe Doctrine: Months after the US formally removed dictator Nicolás Maduro from power in Venezuela, the two countries have moved to rebuild ties. On Thursday, officials announced that the US is in discussions to take a stake in the country’s oil fields. The move is part of a broader US strategy to deepen engagement with South America. This is both to secure critical resources and to reinforce its sphere of influence as it seeks to prevent China from gaining a stronger foothold in the region.

• Under the proposed arrangement, US companies would gain access to develop certain Venezuelan oil fields with proven reserves, while returning a share of the resulting revenue to the Venezuelan government. Although the details remain under negotiation, US officials hope an agreement could strengthen the country’s strategic energy position as it rebuilds resources depleted by the ongoing conflict with Iran.
• The move is part of the US’s broader effort to forge closer ties with South American nations, particularly those with right-leaning governments, as it seeks to counter China’s influence in the region. Over the past several years, Washington has adopted a more interventionist posture across the continent, offering swap lines to Argentina to alleviate its dollar liquidity crunch while coordinating financing efforts in Chile for lithium and rare earth mining projects.
• A growing US presence abroad is likely to bring both advantages and drawbacks. On the positive side, closer ties with foreign governments could diversify US access to critical minerals and energy supplies, strengthening overall resource security and reducing reliance on any single supplier. However, greater dependence on overseas partnerships could also make the United States more vulnerable to political instability and policy shifts in partner countries.
• The White House push reinforces our view of a growing corporatist state approach to expanding US influence abroad. In South America specifically, we expect the Trump administration to continue advancing American interests overseas in hopes of building stronger domestic supply chains. That said, the impact of taking oil stakes in Venezuela will likely not be felt immediately in markets but should begin to bear fruit once projects come online.

Iran Talks: An Iranian diplomat has signaled a willingness to hold talks with the United States in an effort to break the impasse between the two sides. The remarks follow a series of discussions between Iran and Qatar aimed at identifying a path toward resuming negotiations with Washington. It remains unclear whether the United States is prepared to engage. Still, Iran’s outreach suggests that the conditions for renewed talks may be beginning to take shape.

EU’s Industrial Backlash: European trading partners have begun pushing back against the EU’s demands that they comply with its regulations and contribute to its programs in exchange for market access. The backlash comes as smaller countries are increasingly being forced to choose sides among major powers — the EU, China, and the US — as each pursues ambitious reindustrialization agendas.

Anthropic Battle: The AI provider has prevailed in its Pentagon lawsuit, preserving its government contract. A judge ruled Thursday that while the government has wide discretion in choosing partners, it cannot retaliate against a company for exercising First Amendment rights. The decision seems to stem from Anthropic’s public criticism of Pentagon access to its models without safeguards. Though the fight may not be over, the ruling could establish an important precedent for future government contractors.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our thoughts on the latest US proposal to Iran. We then turn our attention to signs that the Fed is growing increasingly divided. After that, we briefly address the rising trade tensions between the EU and US, China’s decision to uphold US sanctions, and the EU’s progress in developing its own weapons. As always, we include an overview of recent domestic and international economic data.

Iran Deal Nearing: The United States and Iran appear to be moving closer to a deal that could end the standoff in the Strait of Hormuz. On Wednesday, reports indicated that Iran is reviewing a one-page memorandum outlining a framework for the gradual reopening of the waterway. The proposal is intended to break the current impasse, as both sides seek to ease mounting economic pressures while continuing negotiations over a broader nuclear agreement. Ongoing progress in talks is supporting market sentiment, with signs of escalation continuing to recede.

• While Iran has not yet made a final decision, internal divisions appear to be slowing progress. Moderate factions worry that a prolonged conflict and continued blockade will intensify domestic political pressure. In contrast, hardliners argue that the White House may also be under pressure to secure a deal, potentially strengthening Iran’s negotiating position. For now, it remains unclear which side holds the upper hand.
• Washington, however, appears ready to pivot as it looks to refocus on negotiations with China. The White House had postponed talks due to the conflict but is now expected to resume discussions later this month, likely covering trade, investment, and broader foreign policy issues. The shift comes as both countries continue to position themselves to gain leverage in the negotiations.
• Progress in talks with Iran, alongside a renewed push toward negotiations with China, should help reduce overall market uncertainty. If the White House is able to reach agreements with both counterparts, it would likely support risk sentiment and could pave the way for a gradual rise in asset prices over the coming months. However, we could see a return of volatility if there are setbacks in either case.
• While the outlook is improving, there are still signs the market may be underpricing near-term risks. In particular, food and energy prices are likely to remain affected by the conflict for longer than currently anticipated, which could weigh on earnings in the current quarter. That said, we view these pressures as largely transitory and not sufficient to push the economy into recession. In this environment, increasing exposure to value-oriented assets may help provide a buffer within portfolios.

 Fed Becoming Divided: Just a week after Fed Chair Jerome Powell held his final press conference at the Federal Reserve, several Fed officials have begun voicing concerns over rising inflation. This week, St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee both signaled unease about increasing price levels. Their worries have, in turn, fueled concerns that Fed officials may not be ready to cut interest rates this summer, even as incoming Fed Chair Kevin Warsh is set to take office later this month.

• The Chicago Fed president’s primary concern centers on a potential timing mismatch. He has argued that the AI-driven investment boom, alongside stronger consumption, could elevate demand before productivity gains are sufficient to offset it. In such a scenario, he suggested the Fed may need to consider future rate hikes rather than easing policy.
• While Musalem struck a more measured tone on the rate outlook — emphasizing that policy could move in either direction — he also flagged potential inflationary risks stemming from AI. In remarks to the Mississippi Bankers Association, he noted that the AI-driven expansion, alongside factors such as fiscal policy, monetary policy, and elevated equity markets, appears to be contributing more to current inflationary pressures than traditional drivers like geopolitical developments and trade shocks.
• Comments from Musalem and Goolsbee likely reflect a widening divide within the FOMC as it prepares for a transition to presumptive Fed Chair Kevin Warsh. Warsh has previously argued that the Fed should be more willing to adjust rates to support the supply-side benefits of AI. However, that stance may prove difficult to sustain if policymakers conclude that rate cuts risk amplifying inflationary pressures, particularly if productivity gains lag behind demand-driven effects.
• Given the divergence in views on the inflation outlook and monetary policy, we continue to expect elevated volatility in longer-duration securities. The 10-year Treasury yield is currently hovering near the upper end of its roughly 4.2%–4.5% range from the past 18 months, suggesting some near-term scope for a bond rally. However, a sustained bull market in bonds will likely require greater clarity on the policy path and increased confidence that inflationary pressures are easing.

EU Not Aligned: The EU has struggled to secure consensus among member states on implementing the framework outlined in President Trump’s trade deal. The dispute stems from the bloc’s failure to follow through on proposed legislation to eliminate tariffs on US industrial goods in exchange for a US commitment to cap tariffs at 15%. In response, Washington has threatened to impose tariffs of up to 25% on EU auto imports. While tensions appear contained for now, underlying trade frictions continue to build.

China Complies: Beijing has reportedly instructed its banks to halt lending to refiners that violate US trade sanctions, reversing guidance issued just a day earlier. This abrupt shift may signal an effort by Chinese authorities to de-escalate tensions ahead of scheduled talks with the US later this month. If sustained, the move suggests Beijing could be positioning itself to take a more constructive role in easing trade frictions during upcoming negotiations.

EU Defense Missiles: The German defense group Rheinmetall has announced progress in developing deep-strike weapons. The company states that it can develop cruise missiles as well as rocket artillery and expects to begin development later this year or early next. This rise in weapons manufacturing comes as European nations accept that they must build up their own defense capabilities to fill the void left by the United States taking a less hands-on role within NATO. We continue to believe that this shift should benefit European defense companies.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the big weekend surge in global energy prices, which has pushed Brent crude well above $100 per barrel and threatens to push US gasoline prices above $4.00 per gallon in the coming weeks. We next review several other international and US developments with the potential to affect the financial markets today, including growing tensions between the US and Israel over the conduct of the war and promises by the US administration to quickly develop a system to rebate tariffs that the Supreme Court recently invalidated.

US-Israel-Iran: Citing an unnamed administration official, Axios reported over the weekend that the US and Israel are mulling sending special operations forces into Iran at a later stage in the war to seize the country’s stock of enriched uranium and/or to seize its major oil export terminal on Kharg Island. The moves would aim to end Iran’s current nuclear weapons program and allow long-term control over its oil exports and economy.

• The risk is that the small special ops forces could find themselves overwhelmed by Iran’s army and other forces. In that case, the pressure would rise for the US and Israel to commit large-scale “boots on the ground.” In turn, that could create further political headwinds for the administration, raising the possibility of the Democrats taking control of at least one chamber of Congress in the November midterm elections.
• Separately, Iranian clerical leaders over the weekend chose Mojtaba Khamenei, son of the slain previous leader, to be the country’s new supreme leader, defying President Trump’s assertion that the son was not acceptable. The naming of Mojtaba Khamenei as supreme leader is being widely interpreted as a sign that the Iranian leadership will fight to the death rather than capitulate to US and Israeli demands in the war.
• Separately, the Strait of Hormuz remains essentially closed, throttling shipments of oil, gas, fertilizers, and other commodities and driving up prices for those commodities. Earlier today, Brent crude oil jumped by more than 25% to almost $120 per barrel before pulling back to about $105 per barrel at this writing. Natural gas prices have also surged again today, while gold, silver, and copper prices are modestly lower, probably reflecting concerns about stagflation and elevated interest rates.
• While the Trump administration has insisted it will not release oil from the US’s strategic petroleum reserve to hold down prices, the International Energy Agency today is coordinating an emergency meeting of finance ministers from the Group of 7 major nations to discuss a joint release of oil from their reserves. Historically, releases from the SPR in times of crisis have helped push oil prices lower.

United States-Israel: One development that has also helped push up energy prices today and rattled financial markets is that Israel attacked 30 of Iran’s fuel storage facilities over the weekend, going far beyond what US officials expected when Tel Aviv informed them of the impending attacks. The Israeli attack could invite Iran to increase its attacks on oil and gas facilities across the region, potentially sparking long-term supply shortages even if the Strait of Hormuz is reopened quickly. The attacks have also increased US-Israeli political tensions.

US Tariff Policy: Ahead of a late Friday meeting between administration lawyers and the federal judge who struck down most of President Trump’s new tariffs, US Customs and Border Protection official Brandon Lord announced that the government will develop a system for returning $166 billion in tariff ‌payments to around 330,000 importers within 45 days. Lord also vowed that the new system would only require minimal submissions from affected companies.

• If the tariff rebate system is up and running as quickly as promised, it would suggest firms could see a significant influx of cash in the second quarter. Firms could potentially accrue the rebates in the first quarter, raising corporate earnings. In any case, the rebates are likely positive for US stocks.
• Of course, one issue will be the extent to which firms share the rebates with their customers, either by outright refunds or lower prices going forward.
• Finally, it’s important to remember that any rebates paid will have a negative impact on the federal budget deficit and debt levels.

US Housing Policy: Senators working on legislation designed to make housing more affordable have inserted a provision that would prohibit large-scale investors from buying existing single family homes and would require them to sell their newly built rental properties to individuals within seven years of completing them. The industry has begun pushing back fiercely against the idea, and it isn’t clear if it will ultimately be signed into law. Nevertheless, it represents a risk to firms aiming to buy and rent out large numbers of homes.

China-Russia: Beijing’s draft five-year plan for 2026-2030 reportedly includes funds for two pipelines transporting natural gas from Russia, suggesting President Putin’s pet project to strengthen China-Russian economic relations, the Power of Siberia 2, could be on the fast track for construction. The pipeline would likely take years to complete, so it won’t make much difference for today’s energy crisis. However, it would likely cement Russia’s role as a key gas supplier for China for years to come.

China: The February consumer price index was up 1.3% year-over-year, beating expectations and accelerating from the 0.2% rise in the year to January. According to the national statistics agency, the acceleration was driven by surging oil prices as tensions around Iran heated up and strong demand around the Lunar New Year holidays. Consumer price inflation is now at its highest in more than three years. However, producer prices continue to fall amid excess production.

Germany: In regional elections in the key industrial state of Baden-Württemberg yesterday, the left-wing Greens narrowly came in first with 30.2% of the vote, edging out Chancellor Merz’s Christian Democrats despite opinion polls showing the CDU would win. Just as important, the far-right Alternative for Germany party nearly doubled its vote share to 18.8%. The results point to a further weakening of the country’s traditional centrist parties.

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