by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, where the US has seized an Iranian-flagged container ship, and the Iranians say they have again stopped traffic through the Strait of Hormuz. We next review several other international and US developments with the potential to affect the financial markets today, including the election of a pro-Russia government in Europe and new research projecting that productivity increases associated with artificial intelligence will cause price inflation to plummet.

United States-Israel-Iran: President Trump yesterday said the US has seized an Iran-flagged vessel in the Gulf of Oman, marking the first known use of force in the US blockade of ship traffic into and out of Iranian ports. In retaliation, the Iranian government said it is closing the Strait of Hormuz to shipping again. However, in a sign that peace talks may still proceed, US negotiators reportedly traveled to Pakistan yesterday for a new round of negotiations. It is unclear whether the Iranians will participate.

• The Iranian announcement that the strait is closed again has reportedly stopped additional ship traffic through the waterway.
• According to reports, the United Arab Emirates’ central bank last week approached US officials, including Treasury Secretary Scott Bessent, to discuss a currency-swap deal that would allow the UAE to access dollars if the Iran war continues to constrict its oil exports. The talks highlighted the UAE’s concern that the war could inflict major damage on its economy and its position as a global financial hub, potentially depleting its foreign reserves and scaring away investors.

Germany: The Wall Street Journal over the weekend carried an interesting article on how the German government’s recent fiscal reforms and rearmament effort are combining to transform the economy’s focus from industrial manufacturing for export to advanced defense goods. The analysis is generally consistent with our longstanding view that the threat of Russian aggression and the US’s growing reluctance to stand by its allies will force precisely this kind of change, giving a further boost to German and other European defense stocks.

Bulgaria: In elections yesterday, the leftist Progressive Bulgaria Party came in first with 130 of the 240 seats in parliament, ensuring that Russia-leaning party chief and former President Rumen Radev will become the new prime minister. Now that Hungary’s Russia-leaning government has been replaced, the result could mean that Bulgaria takes the lead in pushing Moscow’s interests in the European Union and the North Atlantic Treaty Organization. In turn, tensions with the EU and NATO could weigh on Bulgarian economic growth.

China: Technology giant ByteDance, the parent company of TikTok and Douyin, today said its net profit plummeted by more than 70% in 2025 as it poured money into artificial intelligence. The report underscores the massive switch in financial performance for the world’s top tech firms as they shift to costlier, more capital-intensive AI. The firm also said revenue growth in China slowed to only about 20%, underscoring the domestic economy’s continued economic headwinds. On a more positive note, revenue from overseas markets surged by nearly 50%.

Emerging Markets: In a speech today, the head of the Bank for International Settlements warned that the growing use of US-dollar stablecoins by less developed countries could undermine their control of money flows and open the door to criminal activity. Specifically, the BIS chief, former Spanish central bank governor Pablo Hernández de Cos, said stablecoins will make it easier for people and companies to evade capital controls or tax obligations, raising the risk of financial crises or economic problems.

US Artificial Intelligence Industry: The asset-management arm of Northern Trust has released a new report projecting that widescale adoption of AI will be “massively disinflationary” due to expected productivity gains. Just as important, the report urges the Federal Reserve to avoid making any major policy moves until AI’s impact on prices is known. While the warning seems a bit premature, the report’s specific reference to the Fed highlights how all manner of federal policies could be disrupted as AI rolls out and its impact become clearer.

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