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. We next review several other international and US developments that could affect the financial markets today, including an interest rate hike by the Australian central bank that could signal similar moves around the globe and a move by President Trump to postpone his upcoming summit with Chinese President Xi.

United States-Israel-Iran: According to the Wall Street Journal late yesterday, Iran’s security forces have launched a new crackdown on domestic dissent aimed at preventing any uprising that could threaten the regime’s power. While the crackdown isn’t yet as violent and lethal as the one in January that killed thousands, it does suggest that the government can still control society and that rising popular unrest is not likely to put an end to the war, at least for the time being.

• In another key development overnight, Israel said it had killed Iranian security chief Ali Larijani, who had been seen as a key force in Tehran’s aggressive military response to the US-Israeli attacks. Tel Aviv also said it killed the commander of Iran’s Basij paramilitary force, which the regime uses to tamp down domestic dissent.
• Separately, the US allies that President Trump has asked to help secure shipping through the Strait of Hormuz are showing varying signs that they aren’t interested. For example, German Chancellor Merz and his defense minister, Boris Pistorius, have rejected the idea outright, with Pistorius saying, “This is not our war. We did not start it.” Japan, Australia, the UK, and France have also indicated they’re unlikely to send navy ships. The news appears to be pushing oil prices some 3.3% higher this morning.

Pakistan-Afghanistan: Hundreds of people are feared dead after an air strike on a hospital in Kabul that the Afghan government blamed on Pakistan. The Pakistani government has denied the allegation of civilian casualties, but the incident nevertheless suggests that the ongoing tensions over cross-border terrorist attacks could blow up into a full-scale war. That would not only mean a second major war in Asia, but because of Pakistan’s arsenal of nuclear weapons, it could also be deeply unsettling for global financial markets.

Australia: The Reserve Bank of Australia today hiked its benchmark short-term interest rate by 25 basis points to 4.10%, marking its second increase in the last two months. In its statement, the RBA said the rate hike was needed to address “the expected inflationary implications of the conflict in the Middle East.” The move could be taken as a harbinger of rate hikes by other major central banks as the Iran war continues to push up global commodity prices.

United States-China: In a press conference yesterday, President Trump said he has asked the Chinese government to delay his summit with President Xi that was set to begin at the end of March. According to the president, he requested a delay of about one month so that he can remain in Washington and manage the Iran war. The delay will prolong uncertainty in US-China trade relations, but the bigger story may simply be that Trump expects the war to last at least through the end of the month — a timeline that could well drive global energy prices higher.

United States-Cuba: As the US continues to essentially blockade energy shipments, authorities yesterday announced a massive failure of the power grid and a nationwide blackout. That means some 11 million people are currently without power. The result is likely to be further domestic protests and more pressure on the government to reach a deal with the US regarding dismantling its communist system and reducing its ties with US adversaries such as China.

US Monetary Policy: The Fed today begins its latest policy meeting, with its decision due tomorrow at 2:00 PM ET. Based on futures trading, investors almost unanimously expect the policymakers to hold their benchmark fed funds interest rate at its current range of 3.50% to 3.75%. The real news may come from Chair Powell in his post-meeting presser. The most market-swaying items he could touch on include whether higher wartime energy prices might require new rate hikes or whether he’ll leave the Fed board at the end of his term as chair.

US Stock Market: The Wall Street Journal reported yesterday that the Securities and Exchange Commission is preparing a rule change that would give publicly listed companies the option to publish their financial reports just twice per year instead of the current quarterly requirement. The change could be proposed as early as next month, at which point it would be subject to a public comment period and then an SEC vote. If finally approved, the change would help firms save money, but at the expense of financial transparency.

US Labor Market: Unionized workers at a key JBS beef-processing plant in Colorado remain on the picket lines today after launching a strike for better pay yesterday. The affected plant reportedly accounts for about 5% of domestic beef consumption, suggesting that a prolonged work stoppage could cut supplies enough to drive up prices. On top of the higher energy prices already evident from the war against Iran, the result could be even higher consumer price inflation and more political headwinds for the Republicans in November’s elections.

US Precious Metals Market: The Wall Street Journal yesterday carried an interesting article noting that several states — including Georgia, Tennessee, Wyoming, and Utah — have now passed or considered legislation requiring them to hold some of their investment assets in gold bullion. The amounts bought so far are small, but the news provides further evidence of how growing geopolitical frictions and the threat of currency debasement are spurring greater demand for precious metals.

US Artificial Intelligence Industry: At AI chip darling Nvidia’s annual developers’ conference yesterday, CEO Jensen Huang announced an array of new products and services aimed at making AI models more efficient and ushering in the age of “inference.” Importantly, Huang also predicted that Nvidia would sell $1 trillion of its current cutting-edge chips, Blackwell and Rubin, by the end of 2027.

• Investors so far seem to be taking Huang’s announcements as signs that the firm can keep innovating and adding value as the AI industry evolves.
• In pre-market trading so far this morning, Nvidia’s stock price is up 0.2% to $183.57 per share.

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