by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

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

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

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

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

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

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

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

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

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

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

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

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