by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with yet another production hike from a key group of oil producers, which will likely help keep a lid on global energy costs and help offset the impact of other types of rising prices. We next review several other international and US developments with the potential to affect the financial markets today, including the resignation of Japan’s prime minister and a surge in US corporate bond issuance now that it seems clear the Federal Reserve will cut interest rates later this month.

Global Oil Supply: A subset of the Organization of the Petroleum Exporting Nations and its Russia-led partners yesterday said they’ll boost their collective oil production by 137,000 barrels per day starting in October, marking the latest in a string of increases. With economic growth slowing, the small output hike is expected to help keep the global economy well supplied with oil and will likely hold down energy prices. The countries hiking production include Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman.

Japan: Prime Minister Ishiba yesterday said he will resign, finally succumbing to pressure from within his Liberal Democratic Party (LDP) to take responsibility for its loss in the July parliamentary elections. The decision came one day before the LDP was to hold an early leadership election, which Ishiba could well have lost. The party will now probably select a successor for Ishiba in October. In the meantime, Japanese security and economic policy will likely be on hold, but Japanese stock prices have surged to a new record high on optimism about any Ishiba successor.

• Potential successors for Ishiba include Agriculture Minister Shinjirō Koizumi, the son of former Prime Minister Junichiro Koizumi, who in 2001-2006 laid much of the groundwork for Japan’s eventual economic resurgence.
• Other possible successors include Chief Cabinet Secretary Yoshimasa Hayashi, a moderate and the protégé of former Prime Minister Kishida, and the ultraconservative former Economic Security Minister Sanae Takaichi.

China: The Chinese Communist Party announced on Friday that Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC) from 2019 to 2024, is being investigated for “severe breaches of discipline.” That makes Yi the latest Chinese stock market regulator to come under a cloud because of corruption, incompetence, or both. The streak of probes highlights the challenge General Secretary Xi faces as he tries to transform China into a “financial superpower” and make its stock market more attractive to domestic and foreign investors.

Taiwan: New reports say the Taiwanese military is making rapid progress on a Ukraine-inspired “high-low” attack drone strategy to deter a potential invasion by China. For the top end of the force, the Taiwanese have modified a low-cost, legacy training missile into a loitering strike drone with a range of 1,000 km, enough to hit cites such as Beijing and Shanghai. For the low end, they are also developing cheap, expendable, AI-enabled drones that can be used to swarm the invading Chinese.

• Many foreign military observers have decried Taiwan’s weak preparations to resist a Chinese takeover, citing problems such as big purchases of the wrong types of weapons to insufficient troop training. However, Ukraine’s success in blunting Russia’s invasion has evidently provided a potentially viable roadmap for how Taiwan could deter China.
• The development also offers further evidence of how AI-enabled drones and drone swarms continue to change the nature of warfare. This could potentially upend the current balance of power among national militaries and possibly create enticing new investment opportunities in defense industry.

France: Prime Minister Bayrou today faces a no-confidence vote in parliament over his unpopular deficit-cutting proposal, and he is widely expected to be toppled. That would force President Macron to name his fifth prime minister in the last two years. It would also further paralyze the fractured French parliament and make it even harder to push through reforms to straighten out the country’s finances. As a result, French government bond yields have now risen to their highest level since the eurozone debt crisis more than a decade ago.

United Kingdom: An interesting article in the Wall Street Journal today suggests the UK and its surging bond yields could be the “canary in the coal mine” regarding investor concerns about growing debt costs in major developed countries. The analysis points to a risk that rising debt and slow economic growth in countries such as the US and France could also undermine investor confidence and drive longer-term bond yields even higher over time.

Argentina: In an election yesterday, the opposition Peronists won approximately 47.0% of the vote in the major province of Buenos Aires, while President Milei’s libertarian La Libertad Avanza party won 33.9%. The lopsided win for the opposition was far worse than expected, setting the stage for Milei’s party to suffer major losses in the midterm elections in October 2026. That possibility could prompt Milei to water down some of his anti-statist, pro-capitalist economic policies over the coming year.

US Immigration Policy: In an interview with Axios, US Citizenship and Immigration Services Director Joseph Edlow said he plans to significantly toughen the civics test used to vet foreign nationals applying to become citizens, arguing the current citizenship process is too easy. Edlow also revealed that he has revoked some citizenship approvals granted previously and planned to “denaturalize” more people going forward. Edlow’s statements illustrate how new US policies don’t just involve cutting illegal immigration, but also involve rolling back legal entry.

• Reducing legal and illegal immigration has the potential to create labor shortages in certain industries, thereby weighing on economic growth, at least in the near term.
• On the other hand, as US labor demand weakens and firms start to lay off more workers, pushing out the immigrant workers could create opportunities for native-born employees who lose their jobs. In turn, that could limit any associated rise in the unemployment rate.

US Bond Market: With the Fed set to cut its benchmark interest rate later this month, reports indicate companies are rushing to issue corporate bonds and take advantage of investor demand for higher yielding obligations. For the month to date, firms have issued some $56.4 billion of investment-grade bonds and $9.6 billion in junk bonds, for the strongest such period since early March. Investor demand for the obligations has driven the spread between corporate yields and US Treasury yields down to their lowest level in two years.

US Health Insurance Market: New analysis by Mercer indicates health insurers are on track to hike premiums for corporate health plans by about 6.5% in 2026, marking the biggest jump in 15 years. A separate report says that people who buy their health insurance on government exchanges will see their premiums jump about 18.0%. The big hikes are likely to buoy the consumer price index and keep inflation uncomfortably high.

View PDF