Nineteen days after intervening to support the yen (first joint intervention since 1998), Treasury Secretary Bessent this week set his sights on the Treasury market.
August 19 – Wall Street Journal (Sam Goldfarb, Brian Schwartz and Krystal Hur): “Treasury Secretary Scott Bessent has shown he’ll do unconventional things to get markets moving his way. His latest maneuver is his most radical yet. Facing an uncomfortable rise in longer-term interest rates, Bessent took action early Wednesday when the agency he leads announced that it would significantly step up purchases of government bonds as part of its existing buyback program. Markets quickly responded in a way they haven’t to Bessent’s previous moves, with stocks rising and Treasury yields falling sharply… A former hedge-fund manager who once specialized in analyzing geopolitical situations and economic data to make big-picture market bets, Bessent has cultivated the image of an unusually market-savvy Treasury secretary—not afraid to intervene in currency markets or cite market conditions when discussing how the government should conduct its borrowing.”
Last week’s CBB highlighted “an illuminating six trading sessions.” Basically, weaker consumer and producer inflation readings – and throw in a much-weaker-than-expected Retail Sales report – failed to spur a typical bond market rally/drop in yields. We can add five additional illuminating sessions.
After ending the previous week at 4.69%, 10-year Treasury yields closed Monday’s session at 4.72% - and traded as high as 4.75% intraday Tuesday (closed 4.71%). Thirty-year yields jumped to an intraday Tuesday high of 5.34% (19-yr high). Ten-year yields sank to 4.63% on Bessent’s Wednesday intervention announcement, with 30-year yields dropping as low as 5.18%. Yields gyrated a bit during the Treasury Secretary’s Thursday morning CNBC appearance (doubling the buyback size to $4bn per issue, “very good chance” the budget deficit has peaked, fiscal consolidation initiative soon…) – before ending the session at 4.71%. Ten-year yields then closed Friday at 4.73% (30-yr 5.27%) - up four bps for the week to the highest close since January 13th, 2025.
Bond market reaction was an ominous development, one we’ll return to. But I continue to soak up “Expect the Unbelievable,” a dynamic again this week underpinned by an interventionist administration. Bitcoin surged $15,400, or 24.6%, to surpass $78,000 – the largest percentage gain since March 2023. But for a truly spectacular short squeeze, look to an old Wall Street pandemic darling. Moderna, with its almost 50 million share short position, surged 177% Wednesday after reporting positive clinical trial results for a “breakthrough” melanoma cancer vaccine. The Goldman Sachs short index rose 2.2% Wednesday, versus the S&P500’s 0.2% increase.
Bessent’s “increasing, by at least double, the size of liquidity support buyback operations” energized the precious metals. Gold surged $181, or 4.2%, Wednesday, the biggest gain since February 6th ($185 – rally after 10% decline). Silver jumped 5.7% in Wednesday trading (largest gain since the 6.2% on June 11th). For the week, Gold jumped 5.2% and Silver surged 6.7%, with the Bloomberg Commodities Index gaining 3.8% to a three-month high.
CNBC’s Sara Eisen: “Finally, the big headline is going to be, of course, on the big bond announcement. So, you indicated at the top of the interview that you are willing to go bigger and do more if the market doesn’t cooperate. How far are you willing to go?”
Treasury Secretary Scott Bessent: “Well, again, it’s not if the market cooperates. It’s we will see what the conditions are, and we will analyze them then. But I am confident that once the market sees through and looks at the fundamentals – all we’re trying to do is get people to focus on the fundamentals and not trade the headlines during a quiet period in a thin market. So, we are trying to keep the market in equilibrium.”
As a career hedge fund operator, Bessent should know better than for the Treasury to attempt to dictate so-called “market equilibrium.”
August 20 – Financial Times (Amelia Pollard, Jill R Shah and Joshua Franklin): “Quant hedge funds had their worst day in more than two years, in a session that coincided with the US Treasury’s efforts to shore up the government bond market and sharp share price moves. Wall Street banks told clients this week that quant funds, which use computer-driven strategies to systematically trade across asset classes, were down significantly as markets remained volatile. Funds that had big exposures to the ‘momentum’ factor, or buying stocks that are already going up and selling those that are going down, were hit particularly hard. Goldman Sachs wrote… that its ‘global momentum’ index was well outside historical norms, with systematic long-short hedge funds down 1.4% as of 1pm Eastern time, their worst day in more than two years…”
Interestingly, the 30-year dollar swap spread jumped a notable 3.0 points on Bessent Wednesday (to a six-month high negative 70.5), the largest gain since March 16th (as the Iran war raged and crude traded to $102).
Back-to-back major market interventions raise a host of market issues:
More from Bessent's Thursday’s CNBC interview: “…There’s nothing magic about the $40 trillion number. And we can grow our way out of that. So, but what we do want to signal is, I think that there’s been a lot of misinformation in terms of what’s going on with the deficit, what’s going on with the deficit to GDP.”
“Well, again, again, people have bad information. I have asymmetric information, so I think that the market should think, well, why would we have joined the Japanese in the intervention at this time? Do we know something the market doesn’t know that, in terms of being willing to do, you know what I would call a Treasury twist here in terms of the bond market? What do I know that the market doesn’t know?”
August 19 – Bloomberg (Greg Ritchie): “A surprise US Treasury announcement… is the most concrete evidence yet that the recent selloff in long-dated debt is concerning to Secretary Scott Bessent. The decision to at least double the size of the department’s bond buybacks was billed as a way to provide ‘greater liquidity support.’ Yet for Wall Street, the rationale was simpler: The Treasury was flexing the ‘big toolkit’ Bessent has long said was at his disposal to keep yields in check, a stated goal of the Trump administration. The announcement follows a string of Treasury decisions in recent weeks that suggested discomfort at its borrowing costs — which by one metric hit the highest since 2001 — and serves as a warning for investors betting on a further surge in yields.”
Importantly, the Trump administration has moved to manipulate market yields, with 10-year Treasury yields at only 4.70%, stock prices at record highs, and financial conditions quite loose. It’s worth noting that yields surged 250 bps to surpass 8.00% during the 1994 bond market deleveraging episode.
This was a mistake. Okay, Bessent has “asymmetric information.” But his and the administration’s already thin credibility is on the line. He should scrap the “grow our way out” of deficit problems and “misinformation” drivel. I get it’s now less than 11 weeks until the midterms, with hopes faded for Iran war resolution. It might simply be a case of Bessent choosing to be proactive to ensure that crisis dynamics are held at bay.
“‘Dollar Debasement’ Talk Returns.” “Bessent’s Bond Maneuvers Giving Global Debasement Trade New Life.” “Why is the Trump Administration Causing Turmoil in the Bond Markets?” “Bessent Plays Down Deficit Concerns.” “Trump Treasury Secretary Flails as National Debt Passes $40 Trillion.” “Bessent’s ‘Big Toolkit’ Leaves Investors Guessing About Next Treasury Surprise.” “Bessent Battles Markets.” “Scott Bessent Takes on Bond Vigilantes in $32tn Treasury Market.” “Treasurys’ Haven Status Fades.” “Is Bessent Facing a Bond Market Credibility Issue?” “Scott Bessent’s Credibility Dilemma.” “JPMorgan Team Sees Credibility Risk in Treasury’s Buybacks.”
Bessent certainly sparked important discussion and analysis, none encouraging. “Bessent’s Interventions Have Fizzled. The Real Problem Is the Deficit.” Analysis from Barron’s Randall W. Forsyth resonates.
There’s no doubt that the “Trump put” will now be used proactively and routinely. This provides great comfort to an increasingly vulnerable stock market speculative Bubble. The VIX Index closed the week at a carefree 15.13. With Trump administration intervention locked and loaded, market risk premiums hover not far from multiyear lows.
But assurance that the administration is keen to sustain Bubble excess is a far cry from confidence in sound policy with a prudent long-term focus. In his excellent Friday piece, “Bessent Must Envy When the Grownups Were in Charge,” Bloomberg’s John Authers drew from President Trump’s Wednesday Oval Office comments:
“We could have GDP of 10, 12, 15 times if they just leave us alone. Let interest rates go down. It’s a very unfair system. They should drop interest rates because it means we have a strong country and it’s all based on credit, meaning good credit, and we have the best credit and we’d pay off the debt very easily, very quickly.”
“We have a strong country, and it’s all based on credit,” spoken by any other government official would be deemed quite the Freudian slip.
It appears the bond market has commenced the process of imposing its will. The gullibility demonstrated during last year’s DOGE nonsense was a one-off. And as much as it will infuriate our cranky President, deficits will now start to matter. Bessent can refer to peak deficits and fiscal consolidation, but talk these days from this administration is especially cheap. Our Treasury Secretary is not confidence inspiring, while the credibility he still enjoys shrivels for plans that arise from his Oval Office sessions. Dismiss troubling debt “fundamentals” at all our peril.
When it comes to fundamentals, massive U.S. deficits are only part of the story. The same week when 30-year Treasury yields reached the high since 2007, French 10-year yields jumped another nine bps to a 17-year high of 4.13%. German yields gained five bps to 3.26%, the high since 2011. Italian yields rose 10 bps to 4.08%, within two bps of the high back to November 2023. UK yields added two bps to 5.04%, about 10 bps from highs back to 2008. Canadian yields gained eight bps to 3.76%, the high since November 2023. At 5.06%, Australian yields are back to within five bps of highs back to 2011. Japanese 10-year yields traded Tuesday at highs (2.95%) since 1996.
August 20 – Financial Times (Robin Wigglesworth): “Why have Treasury bonds sold off lately? The obvious answer is that Kevin Warsh isn’t exactly convincing investors that he is willing to do what it takes to bring inflation down to the Federal Reserve’s target. But there is another, subtler explanation: the Treasury buyer base has changed over the past decade, with the influence of more price-agnostic central banks ebbing and the importance of price-sensitive private investors increasing sharply. Alphaville touched upon this in a big post last week, which focused on the swelling hedge fund involvement in the US government bond market.”
Global phenomena are at play. Importantly, debt market supply and demand dynamics have begun to shift. With problematic deficit spending combining with unprecedented AI-related borrowing, markets face years of massive issuance. Meanwhile, there are nascent signs of waning demand – especially from the leveraged speculating community. Myriad risks, including war escalation and geopolitical, inflation, liquidity, and climate, now weigh on heavily levered global markets. At this point, rising global yields don’t even require deleveraging. A slowdown in new leverage is enough to rock supply/demand dynamics.
Which raises a critical question: Is Scott Bessent currently focused on averting mounting de-risking/deleveraging risks? Such a preoccupation would explain two major market interventions in 19 days – the yen and the Treasury market, both integral to historic global speculative leverage.
Bessent and the administration invite trouble. They have been compelled to go early to preempt market instability. There’s an air of desperation that will have markets on edge. It raises serious concerns about a fledgling debt crisis and a broader crisis of confidence. Things are coming home to roost. The reckless obsession with growth at any cost. Stock prices matter, while deficits don’t. Upcoming elections trump future consequences.
It’s all pro-Bubble, which at this extraordinary juncture equates to pro-“Terminal Phase Excess”. Bessent has significantly raised the stakes. This seemingly ensures the Fed’s balance sheet will be called into action, as the market challenges the Treasury’s control over market yields and currency stability. And this dynamic helps explain the week’s surge in precious metals and commodities prices.
Bessent has only worsened the Fed’s predicament. Kevin Warsh is off to a shaky start managing a deeply divided committee. With the Chair and Federal Reserve credibility at the greatest risk in decades, perceptions that Warsh might be aligned with Bessent and the administration could prove quite detrimental.
Bubble markets continue to demonstrate the inability to self-adjust and correct. Trump and Fed “puts” have been fundamental to distorted markets conditioned to disregard risk. This ensures a highly destabilizing adjustment dynamic, one I assume will unfold rapidly at some point. The stock market assumes “the fix is in” at least until the midterms. Bessent Gambit Part II, however, lowers the odds that Treasury and global bond markets go 11 weeks without a bout of de-risking/deleveraging. The Treasury Secretary’s “bring equilibrium” remark won’t age well.
“‘Bessent’s interventions do nothing to deal with fundamental vulnerabilities,’ said Matt King, macro strategist and founder of Satori Insights. ‘No wonder the market is turning back to debasement trades.’ Financial Times, August 21 (Nikou Asgari, Ramsay Hodgson and Madeleine Wright in London, and George Steer)
Meanwhile, more signs of overheating…
August 21 – Bloomberg (Jeffrey Sparshott): “US business activity grew at its fastest pace in more than four years as stronger demand and a rosier outlook fueled a wave of hiring. The S&P Global flash US composite purchasing managers index climbed to 56 in August…, the highest reading since April 2022… ‘US business is booming, with firms reporting the fastest output growth for over four years,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said… ‘Jobs growth has also shown a welcome revival in August, with employers gaining in confidence as concerns fade over the negative economic impacts of tariffs and the conflict in the Middle East,’ he said. Activity at service providers rose to 56.8, matching the highest level since March 2022.”
For the Week:
The S&P500 declined 1.4% (up 12.1% y-t-d), and the Dow dipped 0.8% (up 10.8%). The Utilities dropped 3.3% (up 1.3%). The Banks sank 4.1% (up 13.3%), while the Broker/Dealers rose 2.5% (up 20.7%). The Transports declined 1.0% (up 24.3%). The S&P 400 Midcaps dropped 2.5% (up 15.9%), and the small cap Russell 2000 fell 1.6% (up 21.6%). The Nasdaq100 lost 2.5% (up 16.1%). The Semiconductors sank 5.4% (up 65.8%). The Biotechs surged 6.1% (up 31.9%). With bullion surging $227, the HUI gold index jumped 12.6% (up 23.1%).
Three-month Treasury bill rates ended the week at 3.7144%. Two-year government yields rose seven bps to 4.24% (up 76bps y-t-d). Five-year T-note yields gained six bps to 4.42% (up 70bps). Ten-year Treasury yields increased four bps to 4.73% (up 57bps). Long bond yields added a basis point to 5.27% (up 43bps). Benchmark Fannie Mae MBS yields jumped nine bps to 5.72% (up 68bps).
Italian 10-year yields jumped 10 bps to 4.08% (up 52bps y-t-d). Greek 10-year yields rose eight bps to 3.96% (up 52bps). Spain's 10-year yields gained seven bps to 3.71% (up 42bps). German bund yields gained five bps to 3.26% (up 40bps). French yields jumped nine bps to 4.13% (up 53bps). The French to German 10-year bond spread widened about four to 87.5 bps. U.K. 10-year gilt yields added two bps to 5.06% (up 58bps). U.K.’s FTSE equities index increased 0.6% (up 8.8% y-t-d).
Japan’s Nikkei 225 Equities Index dropped 3.9% (up 31.1% y-t-d). Japan’s 10-year “JGB” yields increased two bps to 2.89% (up 82bps y-t-d). France’s CAC40 fell 1.8% (up 4.1%). The German DAX equities index declined 1.1% (up 6.7%). Spain’s IBEX 35 equities index lost 1.0% (up 15.3%). Italy’s FTSE MIB index dropped 1.7% (up 17.2%). EM equities were mixed. Brazil’s Bovespa index rallied 2.5% (up 6.1%), and Mexico’s Bolsa index recovered 2.1% (up 2.1%). South Korea’s Kospi declined 0.9% (up 64.0%). India’s Sensex equities index slipped 0.6% (down 9.0%). China’s Shanghai Exchange Index declined 0.6% (down 1.6%). Turkey’s Borsa Istanbul National 100 index rose 2.4% (up 28.9%).
Federal Reserve Credit dipped $1.3 billion last week to $6.706 TN, with a 36-week expansion of $215 billion. Fed Credit was down $2.184 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.979 TN, or 80%. Fed Credit inflated $3.895 TN, or 139%, since November 7, 2012 (719 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt dropped $16.8 billion last week to $2.871 TN - the low back to August 2010. “Custody holdings” were down $296 billion y-o-y, or 9.3%.
Total money market fund assets (MMFA) were little changed last week at $7.928 TN. MMFA were up $739 billion, or 10.3%, y-o-y - having ballooned a historic $3.344 TN, or 73%, since October 26, 2022.
Total Commercial Paper jumped $12.5 billion to a 13-month high of $1.441 TN. CP increased $37 billion, or 2.6%, y-o-y.
Freddie Mac 30-year fixed mortgage rates dipped two bps to 6.65% (up 7bps y-o-y). Fifteen-year rates slipped a basis point to 5.95% (up 26bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate down two bps to 6.76% (up 7bps).
Currency Watch:
For the week, the U.S. Dollar Index declined 0.8% to 98.839 (up 0.5% y-t-d). On the upside, the South Korean won increased 2.2%, the Brazilian real 1.6%, the Norwegian krone 1.6%, the Swiss franc 1.5%, the New Zealand dollar 1.4%, the Australian dollar 1.2%, the South African rand 1.2%, the euro 0.9%, the Canadian dollar 0.8%, the British pound 0.8%, the Singapore dollar 0.7%, the Mexican peso 0.6%, the Swedish krona 0.6%, and the Japanese yen 0.2%. China's (onshore) renminbi gained 0.32% versus the dollar (up 3.97% y-t-d).
Commodities Watch:
August 19 – Financial Times (Susannah Savage): “Wheat prices have surged as escalating attacks by Russia and Ukraine on each other’s Black Sea ports and commercial vessels threaten to choke off seaborne grain exports from two of the world’s biggest suppliers. Benchmark wheat futures have risen to near three-year highs as traders react to mounting disruption to export operations, including attacks on Ukraine’s biggest port on the Danube and on Russia’s Black Sea terminals at Novorossiysk in the past fortnight. ‘It’s worse for the wheat market than Hormuz was for crude,’ said Andrey Sizov, managing director of SovEcon…”
The Bloomberg Commodities Index jumped 3.8% (up 28.1% y-t-d). Spot Gold rallied 6.7% to $4,603 (up 6.6%). Silver jumped 6.7% to $68.9948 (down 3.7%). WTI Crude surged $4.66, or 5.7%, to $87.06 (up 52%). Gasoline jumped 5.1% (up 95%), and Natural Gas increased 1.5% to $2.77 (down 25%). Copper slipped 0.4% (up 18%). Wheat gained 1.0% (up 34%), and Corn surged 9.9% (up 18%). Bitcoin rallied $15,450, or 24.6%, to $78,300 (down 10.7%).
Market Instability Watch:
August 18 – Financial Times (Robin Wigglesworth): “In case you were wondering, the Strait of Hormuz is still closed. The US economy is propped up by an AI buzz that is increasingly fuelled by vast off-balance-sheet exposures. The Fed is possibly going to raise interest rates. China’s economy is still slowing. Yields everywhere are climbing, and Japan is suffering a bond crisis. Private credit is stressed. Virtually every measure of leverage is engorged. Asian geopolitics is messy and getting messier. Europe is Europe, and the UK is being particularly British. So what do the world’s leading capital allocators — the ‘bad boys and risk-takers’ who ‘put it all on the line every day’ — make of all this?... Fund managers are currently carrying one of the lowest levels of cash in nearly three decades… Equity allocations are the highest they’ve been since the 2021 euphoria… Optimism on corporate earnings is also the highest it’s been since 2021…”
August 18 – Bloomberg (Levin Stamm): “Bullish global investors have ramped up their stock holdings to the highest in almost five years, leaving no room for pessimists, according to Bank of America Corp.’s Michael Hartnett. A net 56% of fund managers polled in the bank’s latest industry survey are overweight equities, the highest level since November 2021, a team of BofA strategists led by Hartnett said. Cash allocations are down to an ‘uber-low’ 3.5%. ‘Consensus conviction is no macro landing, no Fed hike, no AI capex cut, no DEM sweep, no bears,’ Hartnett and his colleagues wrote. ‘Positioning continues to recommend investors retreat or rotate within risk assets rather than reload,’ they said…”
August 20 – Financial Times (George Steer and Harriet Clarfelt): “Treasury secretary Scott Bessent’s bid to prop up the US bond market has been dismissed by investors as a ‘band-aid on a bullet hole’, as concerns mount over Washington’s $40tn debt burden and smouldering inflation. The US Treasury department on Wednesday stunned Wall Street by revealing plans to ‘at least double’ its purchases of long-term government bonds beginning next month. Long-dated Treasuries soared after the announcement, pulling 30-year borrowing costs away from the 19-year high they reached days earlier. But the rally quickly fizzled, with yields once again rising higher even after Bessent on Thursday took to CNBC television to tout the ‘big toolkit’ at his disposal to tame the world’s most important market. ‘[Bessent] understands the problem. But understanding the problem and being able to do something material about it are two different things,’ said Jim Caron, chief investment officer at Morgan Stanley... ‘The Treasury simply can’t control long-term yields.’”
August 17 – Bloomberg (Davide Barbuscia, Ye Xie and Michael MacKenzie): “An age-old economics tenet posits that excessive government borrowing can leave little room for companies to tap financial markets and drive up their interest rates to punishing levels. It’s called the ‘crowding out’ theory. Now, as the so-called hyperscalers embark on a borrowing binge for artificial intelligence that’s hitting the market with a record flood of bonds, hoovering up hundreds of billions of dollars, some are wondering if the opposite is starting to happen.”
August 17 – Bloomberg (Anya Andrianova): “Foreign holdings of US Treasuries fell in June from the previous month, led by declines in the stockpiles owned by Japan and China. Overseas holdings dropped by $72.1 billion from May… The total now stands at $9.3 trillion after declines in three of the past four months, from a record high in February.”
August 17 – Financial Times (Robin Wigglesworth): “Here’s a fun NBER paper where some economists surveyed bond investors, ordinary voters and people with economics or finance degrees about the US government debt load. Ricardo Delao and Wenhao Li of the University of Southern California’s Marshall School of Business asked a lot of different questions… “The third finding is that perceived crisis risk is high and broadly consistent across three separately elicited measures. Across all three samples, the average stated probability of a U.S. debt crisis within ten years is near 50%....”
August 18 – Bloomberg (Youkyung Lee): “South Korea led a selloff in Asian chip stocks, as rising bond yields exacerbated worry over the large sums of cash being shelled out by Big Tech. The Korean benchmark Kospi tumbled as much as 6.8% Wednesday before paring the decline, with Samsung Electronics Co. and SK Hynix Inc. each slumping more than 8%... Kioxia Holdings Corp. dropped as much as 11%, while Taiwan Semiconductor Manufacturing Co. dipped nearly 2%.”
U.S. Credit Trouble Watch:
August 16 – Financial Times (Eric Platt and Alexandra Heal): “Strain is spreading across private credit portfolios, with some of the largest funds taking writedowns and warning about problem loans as the industry faces its biggest challenge in almost a decade. The value of troubled loans held by some of the biggest private debt investors has reached levels last seen in 2017, when the industry was dealing with a hangover from an oil price crash… Loans placed on non-accrual status by the 20 largest publicly traded business development companies (BDCs) — listed funds that invest in private credit loans — climbed to a median 2.8% of their cost in the second quarter, up from 2% at the end of March.”
August 18 – Bloomberg (Charlie Wells): “Klarna Group Plc cut expectations for how much revenue it will generate this year on the heels of foreign exchange pressures and weakening consumer spending in Germany, and announced plans for a new chief financial officer.”
August 17 – New York Times (Stacy Cowley): “‘Buy now, pay later’ loans took off during the pandemic as a way for online shoppers to go on retail splurges without using a credit card. Now, lenders are offering the loans as a means for people to finance basic households needs. The lending apps Flex and Zip allow customers to take out loans to pay for their broadband, electricity, health insurance, mobile phone service, mortgage and water bills. Affirm, one of the most popular pay-later apps, has started providing some tenants loans to extend their monthly rent payment for a few weeks.”
Global Credit Bubble and Boom Watch:
August 19 – Financial Times (Myles McCormick and Kate Duguid): “The US’s national debt has hit a record $40tn as borrowing rises at a historic pace, fuelling investor concerns about the state of America’s public finances despite Donald Trump’s vow to bring spending under control… It has grown by $3tn over the past year, its fastest ever pace outside the pandemic era, FT calculations show. ‘It’s that gigantic flashing ‘check engine’ light,’ said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget think-tank… America’s national debt has surged over the past two decades, rising from less than $6tn (about $12tn in 2026 dollar terms) at the turn of the century as vast public spending during the financial crisis and Covid pandemic exacerbated yawning budget deficits.”
August 19 – Bloomberg (Alexandra Harris): “The US Treasury Department’s decision to boost buybacks of long-dated bonds is complicating the outlook for issuance of short-term securities, including Treasury bills, which are expected to be used to finance the plan. Treasury’s plan to increase ‘by at least double, the size of liquidity support buyback operations’ came just two weeks after the department said in its quarterly refunding announcement that buybacks would continue at the same size. It also projected a seasonal drop in Treasury bill supply due to corporate tax inflows in September.”
August 17 – Bloomberg (Kevin Kingsbury): “US investment-grade bond sales have set a third straight monthly record, continuing the market’s fastest pace of issuance as spending on the artificial-intelligence buildout fuels corporate borrowing. August’s high-grade debt supply reached $145.2 billion on Monday, topping 2020’s total of $136 billion for the month… January, June and July had their best-ever months earlier this year, and three others were the second-busiest… JPMorgan… recently hiked its forecast for 2026 dollar-bond issuance by tech, media and telecom firms by about 20% to $540 billion… This year’s supply of $1.46 trillion is 8.5% higher than this point in 2020, when pandemic-fueled issuance set a full-year record. Activity in 2026 has surged globally, with cumulative sales of publicly syndicated debt reaching $5 trillion quicker than ever.”
August 21 – Reuters (Gertrude Chavez-Dreyfuss): “The wave of debt issuance funding the artificial-intelligence buildout is testing the limits of investor demand, with some large bond buyers warning that the market is showing signs of indigestion. While fund managers remain comfortable with the credit quality of companies such as Amazon and Alphabet, Google's parent company, they are increasingly demanding higher yields to accommodate the flood of issuance. This has raised concerns that a tipping point could emerge if AI spending continues to escalate.”
August 16 – Reuters (Yoruk Bahceli, Stella Qiu and Jiaxing Li): “Foreign borrowers are ploughing into once-niche Asia-Pacific bond markets, demonstrating that it’s not just Big Tech grabbing funding wherever it can in a world of rising uncertainty and record borrowing… In fact, ‘kangaroo’ bond sales from foreign issuers in Australian dollars are at a record high of around A$60 billion ($42bn) so far this year, up roughly 40% from 2025, LSEG data… shows. Hong Kong dollar issuance is also at a record high. Chinese onshore ‘panda’ and offshore ‘dim sum’ yuan bond sales reached record highs of around 160 billion yuan ($24bn) and 350 billion yuan respectively in the first half, rising more than 60% compared to this time last year…, with half of it coming from international borrowers.”
August 19 – Bloomberg (Abraham Gonzalez and Ronan Martin): “Bond sales in Europe are roaring back from the summer lull at the fastest pace on record, resuming the breakneck pace of borrowing seen globally throughout the year. Finland’s government, specialty chemicals company Sika AG and Mizuho Financial Group Inc are among the borrowers on Wednesday pushing volumes to at least €38.3 billion ($44.5bn) this week. That’s the busiest restart from the summer on record…”
August 17 – Bloomberg (Gowri Gurumurthy, Davide Barbuscia, and Gerson Freitas Jr.): “A corporate-bond sale dubbed ‘Project Odyssey’ may be increased to $3.9 billion as junk-like yields on the Microsoft Corp.-linked data-center financing drew more than twice that amount in demand… After several days of marketing, demand topped $8 billion, paving the way to boost the deal size by about $1 billion… The five-year debt is being pitched with a coupon of around high-6% and a discounted price that would boost the yield to low-to-mid 7%, the people said.”
Leveraged Speculation Watch:
August 18 – Bloomberg (David Finnerty and Ruth Carson): “Carry traders are increasingly turning to the Swiss franc in the near term for their source of funding as the threat of intervention and higher interest rates saps the appeal of borrowing in the yen. Hedge funds boosted their net short position in the franc to near a two-month high in the week through Aug. 11… At the same time, they reduced their yen shorts for a second week. ‘The market has recently added short Swiss franc exposure to fund foreign-exchange carry trades,’ said Tobias Jungmann, head of Americas foreign-exchange options at Bank of America... The ratio of volatility versus carry for franc-funded emerging-market trades also make options an attractive way to gain exposure while limiting risk, he said.”
August 20 – Financial Times (Lee Ying Shan): “Japan’s historic effort to prop up the yen may have had an unintended consequence: giving some investors a better opportunity to double down on carry trade… ‘Intervention has ‘turbo charged’ the carry trade for fundamental & long term investors,’ according Jesper Koll, expert director at Monex Group. ‘As long as the cost of money in Japan is lower than the return overseas, carry trades will re-assert,’ Koll said.”
August 17 – Bloomberg (Katherine Doherty, Sridhar Natarajan and Hannah Levitt): “The question pinged around Wall Street trading desks as they watched their rivals at Jane Street shatter record after record: Had they cracked the game, or were they playing a different one? The trading firm’s massive July loss provided the answer. Jane Street has long described itself primarily as a market-maker and liquidity provider. But the $15 billion hit last month rivaled the most infamous drops in hedge fund lore, and is all but unfathomable on the trading desk of a modern bank. The July blunder — its first monthly downturn in a decade — didn't sink Jane Street or even knock it off its pace to set a new annual record this year. But the slump did expose a level of directional risk that goes well beyond the traditional Wall Street middleman and showed how the lines between market-maker, proprietary trader and hedge fund have been blurring among the new power players in finance.”
Iran War Watch:
August 19 – CNBC (Anniek Bao and Chloe Taylor): “President Donald Trump said the U.S. will launch what he called the ‘most crushing economic operation ever taken against any country’ against Iran, threatening severe financial penalties on any nation that helps Tehran evade sanctions… Trump said that ‘this will be Economic Warfare and Isolation on an unprecedented scale.’ ‘No one has given the Islamic Republic of Iran a greater opportunity to make a Deal than me,’ and that ‘TRAGICALLY, for them, they have failed to take it’… President Donald Trump said the U.S. will launch what he called the ‘most crushing economic operation ever taken against any country’ against Iran, threatening severe financial penalties on any nation that helps Tehran evade sanctions… ‘It all needs to stop NOW. You know who you are’…”
August 21 – Reuters (Jana Choukeir, Eman Abouhassira and Susan Heavey): “Iran said on Friday that its response to any new U.S. threats would be ‘devastating’ after Washington pledged to impose the toughest financial penalties in history with the aim of toppling the Iranian leadership… The chief of staff of Iran’s Armed Forces, Major General Ali Abdollahi, said the Islamic Republic’s reaction would be broad and decisive. ‘With preparedness across land, sea, air, air defence and cyberspace, Iran’s armed forces will respond to the enemy’s new threats with crushing, punishing and devastating responses,’ Abdollahi was quoted as saying… Iran’s parliament speaker, Mohammad Baqer Qalibaf, the country’s main negotiator in mediated talks with the United States, said Washington appeared to have concluded it could not prevail in its direct military confrontation. ‘We must make plans to deal with the unjust sanctions so that we can overcome them,’ he said…”
August 15 – NBC (Amin Khodadadi and Henry Austin): “A defiant Iran called on the U.S. to ‘accept the reality of defeat and stop indulging in delusions’ after President Donald Trump suggested that he would soon declare the Strait of Hormuz a ‘territory of the United States.’ The crucial waterway… ‘cannot be seized with a tweet, nor with an aircraft carrier, nor by issuing an order, nor through an election speech,’ Iran’s Deputy Foreign Minister Kazem Gharibabadi said… ‘This strait will only be opened and closed under Iran’s command, and as long as you do not accept the reality of defeat and stop indulging in delusions, Iran will continue to enforce the blockade,’ he added.”
August 17 – Wall Street Journal (Jared Malsin and Saleh al-Batati): “Yemen’s Iranian-allied Houthi rebels are escalating attacks along the country’s Red Sea coast, shutting down operations at a strategic seaport and pushing closer to the Bab al-Mandeb Strait, an important global shipping chokepoint. The militant group’s recent missile and drone attacks forced the closure of the port of Mokha, a key logistics hub for civilian shipping and for anti-Houthi forces operating along the coast, Yemeni authorities said.”
August 18 – Bloomberg (Sherif Tarek): “The United Arab Emirates said that two ballistic missiles were fired toward the country from Iran, the Islamic Republic's first known attack on the Gulf nation since May as the wider Middle East war continues unabated.”
August 16 – Wall Street Journal (Benoit Faucon and Summer Said): “After President Trump signed a memorandum of understanding with Iran in mid-June, administration officials fanned out to build support for an agreement they hoped would reopen the Strait of Hormuz and start winding down the war. Iran’s hard-line leaders huddled in Tehran and came up with a different plan, according to Iranian and Arab officials. In their view the pact was likely just an attempt by the U.S. and Israel to take pressure off the global economy and buy time for a bigger attack down the road. Instead of putting faith in talks, they took the past two months to prepare for a bigger fight. Their efforts include giving the powerful Islamic Revolutionary Guard Corps more control of the country’s regular army, appointing hardened veterans of the war with Iraq and past internal crackdowns to key posts, expanding domestic counterintelligence operations and ramping up production of missiles and drones.”
August 17 – Reuters (Parisa Hafezi and Katharine Jackson): “Iran will shift to a ‘fully offensive’ military posture because efforts to negotiate a permanent end to the war with the U.S. have stalled, a senior Iranian official told Reuters…, as Washington ruled out extending a temporary ceasefire agreement. Outward progress towards peace talks and a resumption of oil tanker traffic through the strategic Strait of Hormuz has ground to a halt, threatening to extend the conflict that the U.S. and Israel launched with attacks on Iran on February 28.”
August 17 – New York Times (Erika Solomon): “After almost six months in hiding, Iran’s supreme leader, Ayatollah Mojtaba Khamenei, has offered the clearest window yet into his vision for ruling the country, appointing a string of hard-line, veteran military commanders to top security roles. The overhaul, which took place this month, signals that he plans to keep the nation on a war footing, analysts say — ready for open-ended confrontation with the United States and for keeping a lid on dissent at home among Iranians suffering the economic brunt of the conflict. The appointments also reflect a leadership that is still struggling to devise a sustainable strategy for deterring Washington, analysts noted, as Tehran seeks a way to end the war without giving up the strategic leverage it has gained, most notably through control over the Strait of Hormuz.”
Iran War Ramifications Watch:
August 18 – Reuters (Elwely Elwelly): “The Strait of Hormuz will remain shut until the U.S. meets the conditions of an interim deal signed with Iran in June, the top Iranian negotiator Mohammad Baqer Qalibaf said… These conditions include the U.S. lifting its blockade of Iranian ports, lifting oil sanctions, releasing Tehran’s frozen assets, and ending threats and military operations on all fronts, Qalibaf told parliament.”
August 18 – Reuters (Siyi Liu): “Shipping through the Strait of Hormuz slowed…, as most shipowners avoided the key waterway because of a lack of clear signalling on its reopening from a blockade during the Iran war. Six commodity vessels crossed the strait on Tuesday, Kpler data showed by 0258 GMT, down from nine a day earlier and below the 10-day daily average of 11.”
August 15 – Associated Press (Ben Finley and Didi Tang): “President Donald Trump’s war against Iran is stretching the limits of U.S. aircraft carriers and leaving the western Pacific without one of the key American warships as China shows more signs of aggression. The USS George Washington is departing the Pacific and expected to replace the USS Abraham Lincoln in the Middle East amid growing concerns about mental health and supply issues… The Lincoln has had its time at sea extended from its original May return date to support operations against Iran.”
August 19 – Financial Times (Katherine Thompson): “The heavy expenditure of critical munitions in the Iran war has set off a deluge of headlines warning that US stockpiles are close to running dry. While certainly alarming, these tend to miss that this new conflict has simply exposed and accelerated a pre-existing problem. The warning signs of a serious munitions shortage — and its impact on the US military — were apparent long before. Since 2018, US strategic doctrine has acknowledged limitations on the scope of America’s engagement in international conflict, particularly given the resource demands of deterring conflict with China in the Indo-Pacific, a US priority. However, leaders in Washington from both political parties have consistently refused to grapple with the hard choices that come with prioritisation.”
August 19 – Bloomberg (Will Kubzansky): “US fuelmakers are running refineries harder than at any point since the outbreak of the US-Iran conflict, part of an all-out effort to keep global markets supplied with diesel, jet fuel and gasoline. Refineries processed 17.4 million barrels of crude oil on a daily basis last week… That topped the previous wartime high-water mark set in late July, and surpassed any point since September 2019.”
August 20 – Financial Times (Alice Hancock and Verity Ratcliffe): “Soaring demand for oil tankers to shuttle oil out of the Gulf has pushed vessel prices to record highs as Middle Eastern countries search for ways to export cargoes despite the continuing strikes on ships. The cost of both new-build and modern second-hand ships in the largest class of oil tanker has reached more than $130mn in the past quarter — the highest since 2008 — while rates to charter a supertanker for one year have also hit historic highs, according to shipbroker Braemar.”
August 16 – Financial Times (Alice Hancock): “The cost of shipping goods through many of the world’s maritime chokepoints has soared in the past month due to war and climate change, fuelling fears of higher consumer costs and underlining concerns about the fragility of global supply chains. The dual impact of conflict and low water levels caused by long periods of drought in Europe and Latin America has pushed up rates along key shipping routes including the Panama Canal, the Rhine, the Red Sea and Black Sea to record highs… The continuing conflict in the Middle East… is also having ripple effects worldwide as vessels reroute to find alternative energy supplies.”
Trump Administration Watch:
August 19 – Axios (Colin Demarest): “The Iran war — defined by fits and starts and strain on America's military — will hit the half-year mark next week with both Washington and Tehran betting they can outlast one another. President Trump has repeatedly promised the fight would be quick, decisive and over ‘very soon.’ The war’s length is pushing once-niche national-security issues — munitions levels, defense contracting, at-sea replenishment — into everyday conversation. The Navy is the topic du jour, as prolonged deployments stress-test ships, sailors, Marines and their families. Trump said this week he wanted to claim the Strait of Hormuz and posted a map on Truth Social labeling it a ‘U.S. territory.’ He also threatened to ‘bomb the shit’ out of Oman, a country that has committed billions of dollars to buying U.S. weapons.”
August 17 – New York Times (Luke Broadwater): “As a crumbling truce with Iran officially collapsed on Monday, President Trump signaled his frustration at his inability to resolve a war that he started but cannot seem to end… The president lashed out at an American ally, Oman, that has been trying to mediate negotiations with Iran. ‘If Oman gets in the way, we’ll bomb the shit out of them,’ Mr. Trump said…, according to Fox News’s Trey Yingst. The latest threat toward Oman, which has facilitated talks between the United States and Iran for years and maintains that it is still a neutral mediator, came as Mr. Trump found himself without much leverage to reach the goals he set out at the start of the war.”
August 18 – New York Times (Peter Baker): “Once again, President Trump is threatening his country’s own partners with everything from tariffs to bombs. Once again, he is fawning over a nuclear-armed tyrant deemed to be one of the biggest dangers to U.S. security. And once again, the world is left trying to make sense of a United States that has upended the world order that it established eight decades ago. Nearly 10 years after Mr. Trump first came to the White House on the slogan of America First, his attack-thy-friends, befriend-thy-enemies approach to international relations has become the feature, not the bug, of U.S. foreign policy. Traditional alliances from Europe to Asia to the Middle East have frayed while the president courts those once seen as its adversaries. Even so, the past few days have thrown the Trumpian worldview into stark relief.”
August 20 – New York Times (Alan Rappeport and Colby Smith): “The Trump administration’s Treasury Department has become increasingly interventionist in its efforts to bend the forces of global markets to lower the cost of living in the United States, but it is finding that success does not come easily. The assertiveness comes as the U.S. gross national debt topped $40 trillion on Wednesday, a milestone driven largely by growing interest payments to investors who hold government debt. High interest rates and elevated prices have combined to sour the views of voters on President Trump’s handling of the economy.”
August 20 – Bloomberg (Jorgelina do Rosario): “US Treasury Secretary Scott Bessent said increased buybacks of Treasury securities announced this week could be more than $4 billion per issue. ‘We have a big toolkit, so we'll see,’ Bessent said… ‘And part of it is signaling here, and to show that we believe that the yields don't reflect the underlying fundamentals.’”
August 19 – Bloomberg (Ye Xie): “The Trump administration’s surprise move to ramp up buybacks of long-dated Treasuries is drawing parallels with the Federal Reserve’s ‘Operation Twist,’ a strategy that was last deployed in 2011 to pull down bond yields. Back then, even after the Fed had slashed short-term interest rates to help resuscitate the economy from the Great Recession, longer-term Treasury rates remained stubbornly elevated — offsetting the central bank’s efforts by holding up the cost of all types of loans. Now, the economy is in far better shape.”
August 20 – New York Times (Jonathan Levin): “Treasury Secretary Scott Bessent tried to reassure investors worried about the pressure campaign on Iran on Thursday, declaring that a resumption of ‘large-scale’ fighting was unlikely. The problem for the Trump administration is that Iran was also listening. President Trump this week promised an ‘economic D-Day’ against Iran, a ‘crushing’ operation to ‘cripple’ Iran. The U.S. clampdown is formidable, a combination of wartime destruction, a naval blockade and sanctions that have already put the Iranian economy under more pressure than its regime has experienced in decades. But between the lines of the administration’s threats was a signal that Mr. Bessent made as clear as ever on Thursday: Mr. Trump does not want to go back to war right now.”
August 19 – Wall Street Journal (Dasl Yoon): “North Korea gave an icy response to President Trump’s decision to end joint Washington-Seoul military exercises early, calling it an ineffectual goodwill gesture toward the Kim Jong Un regime. In Pyongyang’s first public comments on the drill reductions, North Korea said the annual Ulchi Freedom Shield exercises remained provocative and hostile despite their scaled-down scope. The Kim regime considers the drills to be dress rehearsals for war. The drill reductions don’t merit interest or comment because nothing has fundamentally changed, said Kim Yo Jong, the dictator’s younger sister…”
Trade War Watch:
August 21 – Bloomberg (Josh Wingrove, Alicia Diaz and Thomas Seal): “US-Canada trade talks fell apart at the last minute, with fresh 50% tariffs on billions of dollars of Canadian goods taking effect and Prime Minister Mark Carney promising to retaliate. The US tariffs kicked in Saturday on hundreds of items the US buys from Canada, such as plywood, liquor, electrical equipment and hockey gear, totaling around $20 billion. Carney said he suspended talks and that his government would match those duties ‘dollar for dollar to protect our workers and businesses.’ US officials are pledging to present President Donald Trump with options to escalate if he does.”
U.S./Russia/China/Europe/Iran Watch:
August 19 – Bloomberg: “China said President Donald Trump’s threat to launch ‘economic warfare’ on Iran and its trading partners wouldn’t work, urging cool heads to prevail. ‘Sanctions and pressure will not help resolve the issue,’ Chinese Foreign Ministry spokesman Lin Jian told reporters… ‘China calls on relevant parties to take responsible measures and seek to solve the issue through diplomatic and political means.’”
August 17 – Bloomberg (Aaron Eglitis): “Russia’s hybrid war in Europe has already begun, Latvian President Edgars Rinkevics said… ‘It’s not something that will start sometime in the future,’ Rinkevics told reporters... ‘It’s happening now.’ There are indications that Russian intelligence and security services are looking at hybrid warfare operations, which could include infrastructure sabotage or false-flag attacks against the Baltic states and Poland, a European intelligence official told Bloomberg…”
August 20 – Politico (Daria Zakharova): “A Romanian F-16 fighter jet blew up a sea drone near the Neptun Deep gas platform in the Black Sea this morning, with the country’s president blaming the incident on Russia… President Nicușor Dan condemned Russia… accusing Moscow of endangering ‘critical infrastructure’ and people ‘working at the platform.’ ‘I strongly condemn the intensification of these types of irresponsible incidents on the part of the Russian Federation,’ he wrote…”
New World Order Watch:
August 20 – Wall Street Journal (Yaroslav Trofimov): “Ever since President Trump’s return to office, America’s allies have been fretting about Washington’s intentions. Now, after the inconclusive war against Iran has eroded U.S. weapons stockpiles and laid bare the limits of American hard power, they also worry about American capabilities. Can America still defend its friends, if it wants to? The question that officials in allied—and adversary—capitals are asking themselves is whether industrial decline, strategic incoherence and political dysfunction have weakened the U.S. to the point where it would no longer wield decisive force in a multi-front conflict that may encompass Europe, the Middle East and Asia. It is a concern shared by many in Washington, too.”
Ukraine War Watch:
August 17 – Associated Press: “The attacks began on a July weekend and have continued for a month, stretching from Moscow and St. Petersburg, to cities in the south, and eastward to the Ural Mountains. The targets weren’t oil refineries, maritime hubs or arms plants hit by other Ukrainian strikes, but warehouses that bring the convenience of online shopping across the breadth of Russia… The attacks on about 20 Wildberries facilities have underlined Kyiv’s ability to strike far and wide inside Russia and posed a new challenge to President Vladimir Putin nearly 4½ years into his full-scale invasion of Ukraine.”
August 18 – Financial Times (Alexander Gabuev): “Russia’s war in Ukraine has entered a new escalation phase, with dangerous spillover effects far beyond Europe. One of the most pressing risks is a global grain supply crisis resulting from a fresh spate of Russian and Ukrainian attacks on each other’s agricultural exports… Given the importance of both Russia and Ukraine for global food markets, this is deeply concerning. Take, for example, wheat. Moscow and Kyiv together control 27% of global exports, with the bulk of it transported via the Black Sea… This season has already been extremely difficult for wheat producers: prices for fuel and fertilisers are up due to the war in the Gulf, while recurrent heatwaves have affected European and American production. Wheat prices are over 25% higher than in 2025, and still growing.”
AI Bubble/Arms Race Watch:
August 20 – Bloomberg (Bailey Lipschultz and Shirin Ghaffary): “Anthropic PBC expects to match or beat the size of SpaceX’s record-setting initial public offering, according to people familiar…, in the latest sign of overwhelming demand from investors looking to profit from the artificial intelligence boom. The Claude developer is running the numbers as it prepares to file publicly for its potential mega-IPO as soon as the end of this month… Elon Musk’s rocket and satellite firm raised $75 billion at the outset, making it the biggest first-time share sale ever… The final figure increased to $86.2 billion with the so-called overallotment option…”
August 17 – Bloomberg (Natasha Mascarenhas, Rebecca Torrence and Shirin Ghaffary): “Anthropic PBC is on track to generate annualized revenue of more than $65 billion based on its current performance, according to people familiar with the matter, up more than sevenfold from its pace at the end of last year.”
August 16 – Wall Street Journal (Peter Rudegeair and Peter Santilli): “Each quarter, big tech companies disclose their massive capital expenditures on artificial-intelligence infrastructure, from data centers to chips. But those figures don’t come close to expressing the full extent of future spending to which Google parent Alphabet, Meta Platforms, Oracle and many others have committed. That is because a huge swath of their coming financial obligations aren’t reflected on their balance sheets. Nine top tech companies had some $3 trillion of off-balance-sheet commitments mostly related to AI, according to a Wall Street Journal analysis of footnotes in their most recent securities filings. Those obligations are growing faster than traditional ‘capex,’ which totaled about $600 billion over the past year they reported, and were about triple what the companies owe under their outstanding leases and long-term borrowings.”
August 14 – Wall Street Journal (Anissa Gardizy): “Nvidia and OpenAI are nearing a deal to finance a large-scale data-center campus in Ohio, but have reworked the deal structure so that Nvidia would initially guarantee only half of the planned multi-hundred-billion-dollar build-out rather than all of it, according to people familiar... The revised plan would lower the size of Nvidia’s financial guarantee from $250 billion to less than $120 billion, a change made to address investors’ concerns about the chipmaker’s risk exposure as it wields its balance sheet to bolster demand for its artificial-intelligence chips…”
August 17 – Bloomberg (Ian King and Will Wade): “Nvidia Corp. has agreed to spend as much as $105 billion to support a massive new data center campus in Ohio set to be leased by OpenAI, marking the latest tie-up between two dominant forces driving the AI boom.”
August 15 – Bloomberg (Paula Seligson and Davide Barbuscia): “Even before Nvidia Corp.’s splashy $500 billion financing partnership this week, investors were starting to fret over the roughly $70 billion in phantom liabilities that don’t appear on major AI companies’ balance sheets, but could materialize at the worst possible time. With its latest move, Nvidia is poised to provide potentially tens of billions of dollars of what’s called ‘residual value’ support for debt deals tied to the artificial intelligence build out — effectively letting firms rely on its strong credit rating in a bid to contain customer costs.”
August 14 – Axios (Sam Sabin): “Chinese open-weight models are closing in on U.S. frontier models’ ability to find and exploit security flaws — and they could land in the public’s hands more quickly. Cyber-capable AI models can bring huge gains to both defenders and hackers eager to scale up their operations. China-based AI lab Z.ai warned Friday that its latest model, GLM-5.3, is so capable at finding and exploiting security flaws that the company will delay the public release of the model weights for two weeks as it tests and strengthens safety and security controls.”
August 20 – Wall Street Journal (Paul Kiernan): “California is in the midst of a record-shattering investment wave, fueled by the artificial-intelligence boom in Silicon Valley. Companies based in the Golden State have drawn around $366 billion of venture capital since the beginning of the year, according to… PitchBook. That’s more than three times the amount of venture funding that has gone into the other 49 states combined, and nearly double California’s previous record, set in 2025. New York state ranks a distant second… with $27 billion in deals announced so far this year.”
August 19 – Axios (Jim VandeHei and Mike Allen): “Forget energy. Forget chips. Forget China. The most clear and present danger to AI and any AI-related economic boom is rapidly rising public opposition to U.S. data centers. Republicans and AI CEOs are in full panic mode watching politicians and the public turn on the physical engines of AI growth. In private, they tell us they can’t find a compelling message to shift opinion fast enough. Their nightmare — a political and economic daisy chain that cripples the AI revolution — is already taking shape.”
August 18 – Wall Street Journal (Isabella Simonetti and Meghan Bobrowsky): “In July, about 1,000 Georgia residents gathered at the Effingham County College & Career Academy to hear about what OpenAI could do for them. A day earlier, the artificial-intelligence company had announced plans to build a new data center in the area near Savannah. The event was billed as an open house where concerned locals could get their questions answered. On their way in, attendees filed past protesters holding signs that read ‘I didn’t vote for AI’ and ‘You can’t drink data!!!’ Inside, OpenAI employees staffed booths offering information about the planned data center. There were QR codes linking to a job board, along with posters showing what the facility might look like. There was a taco bar. There was also richer fare on offer: In announcing the project, the company pledged to invest $80 million in the community and provide as much as $71 million in coding credits to local students.”
Bubble Watch:
August 16 – Financial Times (Stephanie Stacey, Peter Campbell and Kana Inagaki): “The rapid growth of AI-focused companies such as OpenAI and Anthropic has created a wave of millionaires and billionaires, and they are starting to spend — with trophy assets near the top of their lists. The number of billionaires globally rose 13% year on year to 3,302 in the 12 months that ended in April, more than a thousand of whom are based in the US, according to UBS. The first trophy is always a house. There has been a surge in property prices in San Francisco, where the median price for a single-family home jumped to $2.1mn in June, up almost 25% from the same month in 2025…”
August 18 – Associated Press (Barbara Ortutay and Kaitlyn Huamani): “Meta is once again on trial over dangers its platforms may pose to children. It is once again arguing that it works tirelessly to keep them safe. A pivotal trial for the parent company of Instagram and Facebook kicked off in a California federal court Tuesday, with four states seeking billions of dollars in damages as well as fundamental changes to how Meta runs its platforms.”
August 20 – Reuters (Dawn Kopecki): “A handful of billionaires and companies are driving corporate spending in U.S. midterm elections this year, and they aren’t the usual power brokers who have sat atop the political food chain in Washington in previous decades. Crypto companies, artificial intelligence firms and online betting have emerged as the biggest industries shaping the 2026 midterm races, driving a record amount of business spending on congressional contests, according to campaign finance watchdogs and interviews with more than a dozen political strategists from both parties.”
August 17 – Financial Times (Silvia Sciorilli Borrelli): “Ferrari’s first fully electric car was sold for a record $40mn, making it the most expensive new car auctioned despite a backlash over its design. First unveiled in May, Sotheby’s sold the Luce to an unnamed buyer at Monterey Car Week, an annual event in California where rare classic cars and luxury vehicles are showcased…”
Inflation Watch:
August 18 – Axios (Emily Peck): “The price of one of the most seemingly boring products in the world, bare printed circuit boards, is skyrocketing to levels never seen before. AI-driven demand for chips and the war with Iran are two big factors behind the surge. And if you want to understand what’s happening with inflation now and what could happen soon, bare printed circuit boards are key. These circuit boards are the ‘foundational infrastructure of modern electronics,’ as the director of the printed circuit board lobby group put it last year. They’re in everything from smartphones and cars to medical and military equipment and dishwashers… You already know that prices for computer chips are up a lot because data centers.... And that demand is driving up prices not only for chips — chipflation! — but also for the boards that they get placed upon, as well… The producer price index for the boards rose 45% in July from the same time last year.”
August 18 – Financial Times (Myles McCormick and Jamie Smyth): “A surge in diesel prices is dealing a powerful blow to industrial America, pushing up costs for businesses and consumers across the US ahead of midterm elections. The pump price of diesel… hit $5.47 a gallon on Tuesday, approaching its all-time high of $5.82… Prices have jumped 8% in the past month while the gap between the cost of diesel and crude oil, known as the ‘crack spread’, has hit a record high in recent days in a sign of the deepening supply shock.”
August 20 – Wall Street Journal (Anna Wilde Mathews and Peter Loftus): “Surging healthcare costs are walloping U.S. workers, and they will only worsen next year. For 2027, employers may be facing the biggest health-insurance increase in at least two decades. Americans with workplace coverage are expected to spend an average $5,297 this year on healthcare, $388 more than 2025, according to… benefits-consulting firm Aon. The spending represents a combination of payroll deductions for premiums and out-of-pocket charges like deductibles and copays. The burden is likely to grow significantly next year, when U.S. employers expect their healthcare costs to go up by 11.1%, according to a new survey from WTW… the steepest rise in more than 20 years.”
August 20 – Bloomberg (Ben Westcott and Nil Codina Martinez): “Corn futures topped the $5-a-bushel mark for the first time in 18 months as weaker-than-expected US crop tour results added to global supply concerns for the staple grain. Most-active corn futures in Chicago rose as much as 1.6% on Thursday to $5.06 a bushel, the highest since February 2025.”
August 17 – Reuters (Promit Mukherjee): “Canada’s annual inflation rate accelerated to 3% in July, slightly more than expected, as renewed United States-Iran tensions drove gasoline prices, while the cost of travel tours also rose… On a monthly basis, the consumer price index rose by 0.5%..., once again driven by an increase in gasoline costs.”
Federal Reserve Watch:
August 19 – Associated Press (Christopher Rugaber): “Many Federal Reserve officials think the central bank will have to lift its key short-term interest rate in the coming months if inflation doesn’t subside, minutes of the Fed’s meeting last month showed. The minutes of the July 28-29 meeting… don’t provide specifics on how many of the 19 officials supported higher rates… ‘Participants judged that their inflation outlooks were highly uncertain and that inflation risks were skewed to the upside,’ the minutes said. ‘Many participants assessed that (higher rates) would likely be necessary if inflation did not decline.’ Some Fed officials pointed out that ‘even after excluding prices of items most directly affected by tariffs and energy prices, underlying inflation appeared to be elevated,’ the minutes said.”
August 15 – Wall Street Journal (James Mackintosh): “Central banks may be accidentally subsidizing government borrowing through their efforts to prevent a repeat of past market blowups, and policymakers are starting to worry that anticrisis lending facilities could even be interfering with their own monetary policy. The source of the problem is the switch from central banks being the lender of last resort to, in 2008 and 2020, also being market makers of last resort, ensuring corporate—and government—debt markets keep functioning. During a crisis, support is often essential to prevent a downward spiral that destroys the financial system. But backstopping markets removes a key risk and encourages more borrowing—especially for the hedge funds that now own trillions of dollars of U.S. Treasurys. ‘Ironically, vulnerability is created by mechanisms that were introduced to reduce vulnerability,’ said Huw Pill, the Bank of England’s chief economist... ‘So, it’s a bit like a whack-a-mole kind of story.’”
August 17 – Bloomberg (Ye Xie): “The Federal Reserve’s reluctance to tighten monetary policy after a prolonged period of above-target inflation is keeping long-term bond yields at multiyear highs, posing a broader risk to markets, according to Citadel Securities. Long-dated Treasury yields remain at their highest levels in nearly two decades, even as policy rates are 175 bps below their peak, Nohshad Shah, Citadel’s head of EMEA fixed-income sales, wrote... ‘In my mind, this reflects a market view that policymakers, both the Fed and fiscal authorities, tend to take the easier route when faced with difficult choices,’ Shah wrote. ‘So long as this persists, it will remain a risk for markets more broadly.’”
U.S. Economic Bubble Watch:
August 15 – Wall Street Journal (Bob Tita): “U.S. manufacturing is booming thanks to AI data centers, and industrial companies such as Caterpillar, Eaton and Ford Motor are pivoting their business to seize the moment. Manufacturing last month rose to its highest level since 2022, when the recovery from the Covid-19 pandemic fueled a factory-production frenzy. Today, data centers and a handful of AI-related industries are driving the manufacturing sector, and companies in that sector are investing hundreds of millions of dollars to expand their lineups to capitalize on the opportunity.”
August 17 – Bloomberg (Mark Niquette): “New York state factory activity expanded this month by the most since the end of 2021 as orders growth and backlogs remained firm. The Federal Reserve Bank of New York’s August general business conditions index climbed 5 points to 20.6… The median estimate… was a reading of 10 points. The overall outlook for business conditions over the next six months also advanced as expectations for orders reached the highest level since 2022.”
August 18 – Reuters (Timothy Aeppel): “Generac is best known for making backyard generators that rumble to life after power failures. But artificial intelligence is its new frontier. The… company is spending $250 million by the end of next year to equip multiple factories to make beefed-up versions of its generators for data centers. The order backlog for those machines already stands at $1.6 billion, and the company expects to add about 1,000 workers, a 10% increase in its headcount. ‘The question on everybody’s mind is how long this build-out will go,’ Generac CEO Aaron Jagdfeld told Reuters... Other winners in the race to build new data centers include manufacturers of cooling systems, electrical transformers, and construction machinery. And demand quickly filters out to all those companies' suppliers. Makers of everything from wire cables and pipes to cement and the massive prefab metal walls used on the buildings are feeling a tailwind from AI.”
August 19 – Associated Press (Paul Wiseman): “Fewer people applied for U.S. unemployment benefits last week, another sign that layoffs remain low and that most Americans enjoy job security… Jobless claims dropped to 206,000 last week from a revised 212,000 the week before… The number of people collecting unemployment benefits the week that ended Aug. 8 rose to 1.8 million from 1.78 million the week before.”
August 18 – Reuters (Dan Burns): “U.S. single-family homebuilding fell sharply in July to the lowest in more than three-and-a-half-years and contract signings for purchases of existing homes also slid in the latest signal that the housing market remains under pressure… Single-family housing starts… dropped 9.9% last month to a seasonally adjusted annual rate of 808,000 units… That was the lowest since November 2022. Single-family homebuilding slid 15.7% year-on-year in July. Permits for future construction of single-family homes - an indicator of future new construction activity - rose 2.5% last month to a rate of 894,000 units. They were up 1.1% year-on-year…”
August 18 – CNBC (Diana Olick): “Mortgage rates didn’t budge last week, leaving little incentive for either homebuyers or current homeowners to call their lenders. Applications to refinance a home loan rose 2% for the week and were 18% lower than the same week one year ago… Applications for a mortgage to purchase a home fell 2% for the week and were 3% lower than the same week one year ago.”
August 17 – Reuters (Dan Burns): “U.S. home builder sentiment unexpectedly ticked higher in August, but residential construction firms’ confidence remains weak overall… The National Association of Home Builders/Wells Fargo Housing Market index rose one point to a reading of 35 this month from July's unrevised level of 34… A NAHB subindex measuring current sales of single-family homes ticked up to 39, the highest since May, from 37 in July…”
China Watch:
August 21 – Bloomberg: “China is doubling down on a targeted program that’s tapping fiscal resources to drive borrowing by businesses and consumers, with new measures set for launch in the rest of the year as economic growth veers below the government’s annual target. ‘We’ve been studying and drafting new coordinated fiscal and financial policies that will be introduced in the second half of this year,’ Vice Finance Minister Liao Min said at a briefing… on Friday.”
August 17 – Bloomberg: “China’s economy got off to a sluggish start in the second half, reviving pressure on policymakers to support growth as industrial output, consumption and investment all fared worse than forecast… Industrial production expanded 4.5% in July from a year earlier, slowing for the first time in three months and missing estimates… Fixed-asset investment fell more than forecast at a pace of 6.7% year-on-year in the first seven months, after shrinking 5.7% in the first half. The surveyed urban jobless rate climbed to 5.2% from 5% in June. The July figures suggest growth in gross domestic product likely decelerated to around 4.1%...”
August 17 – Reuters (Liangping Gao, Yukun Zhang and Ryan Woo): “China’s new home prices were stagnant in July, underscoring the challenges for a broad recovery of the housing sector as demand remained subdued. New home prices fell 0.1% in July from the previous month, matching June's decline… On an annual basis, prices fell 3.2%, slightly narrowing from a 3.3% decrease in June.”
Central Banker Watch:
August 19 – Bloomberg (Jonathan Levin): “We all care about the interest rates that central banks set, but what about the $19 trillion of bonds and other assets held by the biggest among them? Those constitute a more esoteric, but equally consequential, element of monetary policy that’s lately transcended the wonky to become politically fractious. Supporters credit bond purchase programs with stimulating the economy in times of need by lowering longer-term borrowing costs and tamping down market disruptions. Opponents blame them for widening inequality, among other things. What becomes of these bonds is an issue of critical importance to governments, businesses and households because they influence the cost of money. And because detractors say they are a big reason why trust in central banks has tumbled.”
August 17 – Financial Times (Olaf Storbeck): “A correction in US technology stocks is likely and could threaten Eurozone financial stability, even if AI eventually lives up to investors’ hopes, a team of European Central Bank economists has warned… The researchers wrote that a pullback in the tech sector did not necessarily need to be driven by irrational exuberance and ‘should be expected even if current valuations are rational’… Euro area households have about €440bn of exposure to US tech equities, according to the economists, largely through investment funds, while insurers and pension funds also have significant exposure to the so-called Magnificent Seven megacap tech stocks.”
Europe/UK Watch:
August 16 – Financial Times (Attracta Mooney, Susannah Savage, Sam Fleming and Steven Bernard): “With water levels at a historic low on the Rhine this sweltering summer, companies at Europe’s biggest and busiest port are paying part of the bill for the continent’s drought. Cargo vessels carrying chemicals, oil and other goods to and from Rotterdam on the much-reduced river are being filled to only about 30% capacity to lighten the load and prevent grounding. That means operators have to pay for about 100 extra barges a week and still cannot carry everything they transported before. It is, says Lex Bezemer at the Port of Rotterdam Authority, ‘one of the most significant episodes we have experienced in recent decades’.”
August 21 – Reuters (Indradip Ghosh): “Euro zone business activity is growing at its fastest pace this year thanks to stronger new orders, particularly in manufacturing, and renewed export growth, according to business surveys which also showed easing price pressures. Overall, the S&P Global flash PMI surveys for August… suggested the 21-country economic bloc has remained resilient this quarter…”
Japan Watch:
August 21 – Reuters (Leika Kihara): “Japan’s core consumer inflation accelerated in July from a year earlier as firms passed on rising import costs from a weak yen and the U.S.-Israeli war with Iran…, bolstering the case for an interest rate hike from the central bank. The data will be among factors the Bank of Japan will scrutinise at its next policy meeting on September 17 and 18, when it is widely expected to raise its key rate to 1.25% from 1%... The core consumer price index… rose 1.8% in July from the same month a year earlier…”
August 16 – Bloomberg (Erica Yokoyama): “The Bank of Japan should raise its benchmark interest rate at every meeting, with the goal of taking the rate above 2% in order to narrow the rate differential with the US and ease pressure on the yen, a former Finance Ministry official said. ‘Real interest rates are still negative even after Japan has raised its policy rate to 1%, while they are positive in every other country,’ Takehiko Nakao, who was vice finance minister for international affairs until March 2013, said… Nakao added that it wouldn’t be unusual for Japan’s policy rate to reach 2.25% or 2.5%, given inflation of around 2%.”
August 17 – Reuters (Makiko Yamazaki and Leika Kihara): “Japan’s economy slowed in the second quarter and missed market forecasts on softer household and business spending, highlighting the fragile nature of its recovery as the Middle East war clouds the outlook… Gross domestic product rose 1.1% in annualised terms…, missing a median market estimate of 2.0%... and below a revised 1.9% expansion in the previous quarter.”
EM Watch:
August 17 – Bloomberg (Beatriz Reis): “Brazil’s economic activity fell more than expected in June, adding to signs that months of ultra-tight monetary policy is cooling demand and also boosting the case for another interest-rate cut in September. The central bank’s economic activity index, a proxy for gross domestic product, declined 0.64% from the prior month, more than the -0.5% median forecast... It was the biggest drop since May 2025.”
Social, Political, Environmental, Cybersecurity Instability Watch:
August 17 – New York Times (Scott Dance and Mira Rojanasakul): “Lakes Powell and Mead, the nation’s largest reservoirs, are drying up, sending a Colorado River system that provides water and electricity for millions of people into a state of crisis with no end in sight. Water levels in Lake Powell, along the Utah-Arizona border, fell to a record low on Saturday. Lake Mead, the larger of the two and farthest downstream on the Colorado River, dropped to its lowest recorded point a week earlier. The combined reservoir system, an essential water source for cities and farms across Arizona, Nevada and Southern California, has not held so little water since 1957, before Lake Powell was filled. That was long before climate change brought three decades of drought, the worst dry spell for the Southwest in at least 1,200 years, scientists said.”
August 18 – Bloomberg (Laura Millan): “Rising temperatures in the ocean now have the potential to cause intense storms in Europe later this year, according to new research. The Mediterranean sea is heating up twice as fast as the average for oceans in the rest of the world, according to World Weather Attribution... Its analysis shows that parts of the Mediterranean sea and the European Atlantic coast recorded surface temperatures that were more than 6C hotter than would be considered normal in June. ‘When we have very warm sea surface temperatures, it provides added energy to storms so it can keep going for a lot longer,’ said Catherine Gregory, a researcher at the University of Bern in Switzerland and a co-author of the report.”
