by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

On a very slow news day, our Comment today opens with the latest on the war in Iran, where President Trump has rejected a new ceasefire proposal from Iran. We next review several other international and US developments that could affect the financial markets today, including news of a US-China deal to cut tariff rates on a small share of their bilateral trade and an announcement from Nvidia that the firm will further expand its enormous stock buyback program.

United States-Israel-Iran: President Trump on Saturday rejected the latest Iranian ceasefire proposal, which called for reopening the Strait of Hormuz and restarting talks on the country’s nuclear program in exchange for the US lifting its blockade of Iranian ports. The president wouldn’t say whether he will instead restart US military attacks on Iran, but the statement will nevertheless be a disappointment to investors looking for an offramp to the conflict and a reversal of the associated disruptions to global energy supplies.

• In response to the president’s statement, oil prices are up 3.1% to start the week. Near futures prices for Brent crude are up to $100.47 per barrel as of this writing.
• Separately, British authorities are investigating whether Iran or an Islamist group was behind a foiled attack on an air base in England that houses US forces and has been used to launch attacks in the war. If so, it would suggest that US allies providing support for the war could be increasingly at risk of Iran-linked terrorism, potentially affecting their financial markets.

US Bond Market: Yields on longer-term US Treasury obligations continue to march higher today, with the yield on the benchmark 10-year Treasury note hitting 5.219% as of this writing. The rise in oil prices today is likely one culprit as it raises the risk of higher and more prolonged consumer price inflation. Just as important, however, is that we are seeing increasing discussion about stronger-than-expected economic growth also playing a big role in the run-up in yields.

US Artificial Intelligence Industry: New reports say OpenAI and Anthropic have had tens of thousands of incidents in which frontier AI models took steps that outside evaluators would consider problematic. The instances took place in both internal testing and the real world. The volume of problematic behaviors suggests the problem with rogue AI agents could be orders of magnitude worse than the public knew previously. That makes it even more possible that the danger of uncontrollable rogue agents could undermine the ongoing AI investment frenzy.

• Responding to the rising concern about safety and the ability to control the technology, AI chip giant Nvidia today said it is launching a software platform designed to help keep AI agents in a secure environment while they’re being developed and tested. The software would also reportedly let developers continuously monitor and govern AI behavior, ensuring agents follow the rules.
• While the new safety software may help enhance Nvidia’s business, the bigger impact on its stock price today will likely be its announcement that it will increase its stock buyback program by $150 billion, bringing total share repurchases to $235 billion. The expanded buybacks reflect the company’s surging sales and profits amid the AI investment boom.

US Auto Industry: The administration today will reportedly scale back fuel-efficiency rules for new cars and light trucks, reversing one of the Biden administration’s most significant efforts to cut gasoline consumption and speed the US shift to electric vehicles. The move would weaken federal mile-per-gallon standards, which have prodded automakers to increase the fuel efficiency of gasoline-powered cars and to sell more electric models. The change would likely cut costs for US auto manufacturers, while shifting the market toward vehicles with higher fuel costs.

United States-China: The US and China yesterday said they’ve agreed on a special low-tariff regime under which each side will get to import $30 billion of specific non-critical goods from the other side at low duty rates. The covered products include items such as electric shavers, child car seats, fish hooks, rabbit hair, and camels (don’t ask me!). The small deal won’t have much impact on overall US-China trade, but it could modestly help ease current bilateral tensions and potentially set the stage for bigger deals later.

United Kingdom: Prime Minister Burnham on Saturday announced a new program of financial support for first-time home buyers. Under the “Your First Home” plan, first-time buyers who put down a 2.5% deposit on a new-build property will be eligible for a 20% equity loan from the government, with the loan including an initial interest-free period. Stock prices for UK homebuilders have surged today on hopes that the plan will spur big increases in new housing development.

Russia: As the Ukrainian military continues its massive strikes against Russian oil refineries, commercial warehouses, and other targets, President Putin has reportedly signed a decree that allows the government to nationalize any damaged business that didn’t install anti-drone defenses to protect itself. The decree is being seen as an effort by the Kremlin to shift the costs of anti-drone defense onto private firms.

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