Kevin Warsh was masterful. We’re left to ponder how much difference it might have made had he stayed at the Fed (or even led it earlier). If only he could have somehow stifled the fateful doubling of the Fed’s balance sheet between 2011 and 2014. Reform at the finale of a historic Bubble is problematic on many levels.
Changes are afoot. It was apparently the shortest in the modern era (post 2011) of post-meeting press conferences. Journalists adjusted to a new alphabetically derived seating arrangement. The Fed Chair’s relatively terse response to questions was notable. Follow up questions have been revoked.
Warsh: “Market participants and reporters, I think generally over the course of the last decade or so, have grown accustomed to waiting somewhat breathlessly on a data point. That isn’t my view. I was not waiting breathlessly on what any particular data was… I’ll just reiterate, trends matter. Data points are noisy. Data point dependence is a dangerous preoccupation. It’s not something that concerns me. Markets over time will come to understand how this Fed makes its decisions, what’s relevant and not, and I wouldn’t want to editorialize that for them beyond it.”
The Chair’s statement and comments were astute and credible. “Economic activity is expanding at a solid pace.” “Domestic spending has been resilient. Productivity growth is strong, and capital investment is robust.” “The American economy appears to be strengthening.” “New hiring, private-sector earnings, business capital investment—each of these markers has improved in recent months.” “Both job openings and weekly hours have been increasing.”
“Last month in Wyoming, I expressed my commitment to a monetary policy discipline, not to a decision. I defined the standard for action: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.”
The Chair’s “monetary policy discipline” is coming into clearer view. “Too many categories are still posting increases above 3%, on both a 6- and 12-month basis.” “Overall commodity prices also bear watching.” “I’m not a data point dependent guy.” “Trends matter.” “We tend to look at aggregates around here.” “There’s no hiding from hot spots around the world.”
The Chair is also not a “neutral rate” guy.
“I’ve always been interested in a neutral rate as an academic matter. Back when I learned economics, we used to think of it as the Wicksellian rate, the real equilibrium rate. It’s useful academically, it’s a discussion to help us think about policy. Do I think it has any operational effect on decisions that we make today? No, I don’t.”
Good riddance theoretical “R-star”, unseated (hopefully) by superior analytical focus of “money,” Credit and financial conditions.
Disregarded by Wall Street, the August 28th CBB (“Number Six”) underscored Warsh’s sixth of seven core principles: “Money matters. It’s not fashionable these days, but my view is that money has something important to do with monetary policy. We should pay attention to money created by the central bank and money that comes from the banking and financial systems…”
Warsh Wednesday: “Credit flows have been robust, particularly for businesses. And as I said at the policy symposium in Jackson Hole, I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee. So, we removed a dose of accommodation.”
It’s worth noting that “Credit flows” – and “Credit” more generally – were last referenced at a post-meeting press conference back on September 26, 2020:
Powell: “…over coming months we will continue to increase our holdings of Treasury securities and agency mortgage-backed securities at least at the current pace. These asset purchases are intended to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
“Credit” was mentioned 11 times in Powell’s press conference during the peak of the pandemic crisis - along with multiple “financial conditions”. Trillions of QE ensured rapid Credit flow recovery. Typical of the Fed’s deeply entrenched asymmetrical approach, discussion of “Credit” was MIA over the past five years of booming Credit. And as financial conditions loosened to historic extremes, this important topic was similarly sidelined by Powell and Fed officials alike.
Warsh is resurrecting sound central bank principles – assembling the building blocks of a robust analytical framework.
“We aim to ensure that credit and financial conditions are consistent over time with our mandate, that relative price changes in some sectors of the economy do not broaden, that inflation compensation in market prices stays low, and that inflation expectations remain well-anchored.”
One (not) small sentence by the Chair, one giant leap for central bank monetary management. Credit and financial conditions are now directly and explicitly associated with price and economic stability
“We removed a dose of accommodation, so that financial and credit conditions would be more consistent with our ultimate objectives.”
Another small sentence and big Regime Change leap. Policy was accommodative. Financial and Credit conditions were too loose. A higher Fed policy rate is expected to tighten financial conditions, a necessary aftereffect to ensure inflation returns to target.
“So I’ll say three things, first is economic strength. Part of the reason why we’ve seen over the course of 2026, long-term yields go up is the economy is strengthened. Second reason, competition for capital. The surge in capital expenditures… is real, and the so-called hyperscalers are out in the market raising funding, and so the competition for capital is real and I think it partly explains the increase in yields. The third, is geopolitics. The situation hot spots around the world are driving long-term yields. It’s not simply spot prices of energy…”
Market savvy straight talk will take some getting used to. Mention of the potential impact speculative deleveraging could have on U.S. and global yields would be asking too much. Warsh’s hawkish tone was already sufficient to rattle markets.
Trading down to 4.60% before the Fed statement and Warsh press conference, two-year yields had spiked to 4.74% by Wednesday’s close. Market expectations for the December policy rate rose eight bps to 4.21%, with the September 2027 implied rate surging 20 bps to 4.69%.
The VIX (equities volatility) Index jumped to a seven-week high of 19 during Warsh’s press conference (closed at 17.72). After rising slightly on the release of the FOMC statement, the Nasdaq100 retreated 1.5% on Warsh’s comments. High yield CDS rose from 308 to 317 bps (314 close). The dollar index jumped three-quarters of a percent to a six-week high (100.25).
Markets had reason to fret Warsh – the hawk, regime changer and Trump defier. Fretting was fleeting. The Nasdaq100 advanced 1.7% in Thursday trading, with the Semiconductors surging 3.1%. Intel jumped 7.7%, Micron 5.5%, and AMD 6.4%. The VIX was back down to 15.42 by Thursday’s close. High yield CDS ended Thursday trading at 306 bps, not far off eight-month lows.
What gives? Warsh is more the determined hawk by the week. He’s openly talking a new policy regime and has begun to raise rates specifically to tighten financial conditions, with today’s highly speculative and levered markets acutely vulnerable to tighter conditions.
“Today’s action starts to show we’re serious about this.” The Fed is serious about returning inflation to target – and its Chair is channeling Paul Volcker. Risk markets listen with keen interest – and yawn.
The rates market is pricing a 4.74% policy rate for year-end 2027 – essentially adding one additional rate increase (22bps) this week. The policy rate was as high as 5.25% to 5.5% during the cycle peak between July 2023 and September 2024. The yawns are explained by zero fear of Warsh “slamming on the brakes.” Acute Bubble fragilities ensure the Fed will back down at the first sign of tightened conditions and market instability. Warsh is earnestly pursuing major reforms and a new paradigm of Federal Reserve analysis and policymaking. Instead of fearing inflation-fighting resolve and major uncertainties, risk markets confidently conclude it is business as usual in terms of liquidity support, bailouts, and Fed market “puts” more generally.
It’s not zero, but fear is muted that cautious rate increases will impact the flow of Credit. Indeed, prevailing sources of current Credit growth are by their nature extraordinarily resilient. The Treasury, the system Credit elephant, certainly won’t adjust its borrowing addiction based on Fed policy. And 25 – or even 50 or 75 bps – will not temper the historic supply of AI-related borrowings. Markets absorb incredible amounts of debt securities, while the banking system is now more eager to extend risky loans than even in 2007.
September 16 – Bloomberg (Paula Seligson, Preeti Singh and Michelle Cheng): “A group of 10 banks is providing a $22 billion chip loan to support Blackstone Inc. and Alphabet Inc.’s new cloud venture Crux AI, the latest mega-debt deal in the race to finance the expensive processors crucial to artificial intelligence. The debt will be used to purchase tensor processing units, or TPUs, a type of chip made by Google, and will be backed by the value of those chips and Crux AI’s customer contracts…”
Yahoo Finance’s Jennifer Schonberger: “…Do you need to push growth below potential, unintentionally pushing weakness on the job market to bring inflation down, and how do those dynamics play out, given the forcefulness with which AI is driving the economy right now?”
Warsh: “I don’t believe that we need to do harm to the labor markets to achieve our objective. I don’t believe that the two parts of our mandate, price stability and full employment, are working at cross purposes over the medium term.”
Warsh, the principled central banker – the determined inflation-fighter; the smoothest of tough-talkers; the second coming of Volcker. It’s all entertaining to an ebullient Wall Street that hears “do no harm” as if it’s blaring from a loudspeaker.
The MAG7 index traded intraday Friday above the May 28th all-time high (up 1.1% for the week). The Nasdaq100’s almost 1% rise boosted y-t-d gains to 17.4%. Advances pushed year-to-date gains for the Semiconductors (SOX) and Biotechs (BTK) to 68% and 31%.
The problem, as I see it, is a global bond market under increasing duress. De-risking/deleveraging is gaining momentum. Bonds need tighter financial conditions, waning inflationary pressures, and less supply of AI-related debt. They’re past fed up with all the risk market fun and games.
Ten-year Treasury yields traded to 5.04% in Tuesday trading – the high since “still dancing” summer of ‘07 - closing the week at 5.00%. Importantly, it was another Problem Children Week – “vigilante” stuff.
September 18 – Bloomberg (Alice Gledhill and William Horobin): “A measure of French bond risk rose to one percentage point for the first time in 14 years, a sign of growing caution among investors given the country’s large budget deficit and ongoing political uncertainty. The additional yield on French 10-year bonds over their German counterparts, which was already at its highest since 2012, rose to 103 bps Friday. While the move came amid a broad selloff in European debt, the underperformance reflects long-standing investor concern over France.”
French yields jumped another 11 bps this week to 4.57% - up almost 100 bps in three months to the high back to September 2008. Greek yields rose nine bps to 4.31%, and Italian yields gained eight bps to 4.34% - both to multi-year highs. On news of a halt to BOE QT (bond liquidations), UK gilt yields sank from Tuesday’s 5.43% intraday high to 5.21% on Thursday – though yields were back on the march Friday to close the week at 5.30%.
It’s worth noting that Oracle (’36) bond yields (proxy for AI debt concerns) jumped nine bps this week to 6.97%, up 94 bps since the end of June. CoreWeave (’32) yields surged 44 bps to 11.60%, up over 300 bps from June levels.
It was certainly not all clear sailing for this week’s notably bifurcated U.S. stock market. The Banks were hammered 4.9%, with the Broker/Dealers slumping 3.3%. The Utilities dropped 3.0%, and the Transports fell 2.7%.
I’ll also mention the past week’s $52 billion drop in money market fund assets. Assets are essentially unchanged over the past five weeks, potentially marking an inflection point for a period of historic monetary inflation. For now, it corroborates the thesis of an impactful deceleration in speculative leveraging (and liquidity creation).
With one eye on global “carry trade” leverage, currency markets are turning increasingly unstable. The dollar/yen, trading at 153.40 in Monday trading, was above 158 early Friday. Ominously, the yen lost 0.6% despite Friday’s BOJ rate increase, boosting losses for the week (vs. $) to 2.1%.
The MSCI EM Currency Index declined 0.86% this week, the “worst week since May.” The South Korean won dropped 3.2%, the Colombian peso 3.0%, the Chilean peso 1.9%, the Polish zloty 1.9%, the Mexican peso 1.5%, and the Czech koruna 1.3%.
My base case has de-risking/deleveraging building momentum throughout global bond markets and the “carry trade” universe. Seven weeks until midterms. I’ll assume the administration would relish some type of Iran deal “October surprise.” Probably positive surprises in the offing for the Trump/Xi talks. Bessent’s batting average with the yen and Treasury yields is minor league material. Desperately in need of a major bond market rally, the administration had better up its game. The President at least demonstrated some restraint post-Warsh press conference.
September 18 – Bloomberg (Bernard Goyder): “Around $7 trillion of US options notional value rolls off the books Friday, accounting for around a quarter of the market, according to… Citadel Securities. The so-called ‘triple witching,’ where monthly S&P 500 Index options and single stock options all expire at the same time, is set to be the second-largest on record… The expiry… creates a ‘potential reset in the market’s technical backdrop,’ wrote Citadel Securities’ market intelligence team, led by Scott Rubner. ‘As these positions expire or roll forward, the positioning that has helped dampen realized moves can change materially, potentially leaving the market more sensitive to underlying flows afterward.’”
For the Week:
The S&P500 was little changed (up 11.8% y-t-d), while the Dow fell 1.7% (up 7.5%). The Utilities slumped 3.0% (down 2.6%). The Banks sank 4.9% (up 8.9%), and the Broker/Dealers fell 3.3% (up 18.6%). The Transports dropped 2.7% (up 15.7%). The S&P 400 Midcaps fell 1.7% (up 10.5%), and the small cap Russell 2000 lost 1.5% (up 15.2%). The Nasdaq100 added 0.9% (up 17.4%). The Semiconductors increased 0.8% (up 68.3%). The Biotechs advanced 2.4% (up 30.5%). While bullion recovered $30, the HUI gold index declined 1.0% (up 14.8%).
Three-month Treasury bill rates ended the week at 3.9763%. Two-year government yields jumped 12 bps to 4.75% (up 127bps y-t-d). Five-year T-note yields rose eight bps to 4.86% (up 113bps). Ten-year Treasury yields added three bps to 5.00% (up 83bps). Long bond yields declined three bps to 5.33% (up 48bps). Benchmark Fannie Mae MBS yields rose six bps to 6.09% (up 105bps).
Italian 10-year yields gained eight bps to 4.43% (up 88bps y-t-d). Greek 10-year yields rose nine bps to 4.31% (up 87bps). Spain's 10-year yields increased four bps to 4.00% (up 71bps). German bund yields added two bps to 3.52% (up 66bps). French yields surged 11 bps to 4.57% (up 88bps). The French to German 10-year bond spread widened about nine bps to 105 bps. U.K. 10-year gilt yields declined five bps to 5.30% (up 82bps). U.K.’s FTSE equities index was about unchanged (up 7.2% y-t-d).
Japan’s Nikkei 225 Equities Index recovered 1.6% (up 29.2% y-t-d). Japan’s 10-year “JGB” yields were unchanged at 2.99% (up 92bps y-t-d). France’s CAC40 declined 1.4% (down 1.0%). The German DAX equities index fell 1.0% (up 3.3%). Spain’s IBEX 35 equities index lost 1.6% (up 12.7%). Italy’s FTSE MIB index dropped 1.8% (up 14.7%). EM equities were mostly lower. Brazil’s Bovespa index declined 1.1% (up 15.0%), and Mexico’s Bolsa index dipped 0.8% (down 1.5%). South Korea’s Kospi slipped 0.2% (up 63.2%). India’s Sensex equities index declined 0.7% (down 12.8%). China’s Shanghai Exchange Index increased 0.6% (down 1.4%). Turkey’s Borsa Istanbul National 100 index sank 8.2% (up 18.0%).
Federal Reserve Credit increased $5.8 billion last week to $6.698 TN, with a 40-week expansion of $207 billion. Fed Credit was down $2.192 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.971 TN, or 80%. Fed Credit inflated $3.887 TN, or 138%, since November 7, 2012 (723 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt slipped $450 million last week to $2.874 TN - just off the low back to August 2010. “Custody holdings” were down $246 billion y-o-y, or 7.9%.
Total money market fund assets (MMFA) dropped $52 billion to $7.921 TN. MMFA were up $638 billion, or 8.8%, y-o-y - having ballooned a historic $3.337 TN, or 73%, since October 26, 2022.
Total Commercial Paper gained $5.2 billion to $1.442 TN. CP increased $60 billion, or 4.3%, y-o-y.
Freddie Mac 30-year fixed mortgage rates surged 19 bps to 6.95% (up 69bps y-o-y) - the high back to January 2025. Fifteen-year rates jumped 17 bps to 6.26% (up 85bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 13 bps to 6.97% (up 44bps).
Currency Watch:
For the week, the U.S. Dollar Index rose 1.1% to 100.214 (up 1.9% y-t-d). On the downside, the South Korean won declined 3.2%, the Japanese yen 2.1%, the New Zealand dollar 1.6%, the Mexico peso 1.5%, the Swedish krona 1.3%, the Norwegian krone 1.3%, the euro 1.0%, the British pound 1.0%, the Canadian dollar 0.8%, the Singapore dollar 0.7%, the South African rand 0.7%, the Swiss franc 0.7%, the Australian dollar 0.6%, and the Brazilian real 0.4%. China's (onshore) renminbi increased 0.14% versus the dollar (up 4.33% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index added 0.2% (up 32.6% y-t-d). Spot Gold recovered 0.7% to $4,379 (up 1.4%). Silver rallied 2.7% to $66.2593 (down 7.5%). WTI Crude slipped 53 cents, or 0.5%, to $99.52 (up 73%). Gasoline jumped 6.3% (up 105%), and Natural Gas gained 2.5% to $2.901 (down 21%). Copper surged 2.5% (up 18%). Wheat added 0.9% (up 41%), and Corn gained 3.3% (up 20%). Bitcoin surged $3,850, or 5.0%, to $81.140 (down 7.4%).
Market Instability Watch:
September 18 – Bloomberg (Bernard Goyder): “Around $7 trillion of US options notional value rolls off the books Friday, accounting for around a quarter of the market, according to… Citadel Securities. The so-called ‘triple witching,’ where monthly S&P 500 Index options and single stock options all expire at the same time, is set to be the second-largest on record… The expiry, 60% of which takes place at the open, creates a ‘potential reset in the market’s technical backdrop,’ wrote Citadel Securities’ market intelligence team, led by Scott Rubner.”
September 16 – New York Times (Alan Rappeport): “Global investors are balking at U.S. bonds. Talk of the dollar’s dwindling power is getting louder. Foreign governments are hauling their gold out of American vaults. Almost two years into President Trump’s second term, the world economy is increasingly looking for ways to distance itself from America. Concerns about a $40 trillion debt burden, the excessive use of sanctions to solve foreign policy problems and Mr. Trump’s penchant for pushing the limits of the rule of law are raising questions about the appeal of the United States as a haven for global investment. Despite pledges by foreign companies and nations to invest in the United States — in many cases to curry favor with the White House — capital is starting to seek alternative destinations. ‘Geopolitical factors and U.S. weaponization of the dollar through financial sanctions are causing central banks and other official investors to attempt to diversify away from dollar assets,’ said Eswar Prasad, the former head of the International Monetary Fund’s China division.”
September 17 – Bloomberg (Philip Aldrick, Georgia Hall, and Julian Harris): “The Bank of England gave Britain’s bond market some much needed relief with an overhaul of its plan for selling off excess gilts that piled up on its balance sheet in the previous decade… Under the new schedule, the BOE will pause all bond sales from its £488 billion ($650bn) portfolio until April and stop selling long-dated bonds altogether.”
September 16 – Bloomberg (Anya Andrianova and Chris Anstey): “Foreign holdings of US Treasuries fell in July to the lowest level since October, led by declines in the stockpiles of France and Canada. Overseas holdings dropped by $50.4 billion from June… The total now stands at $9.25 trillion… Mainland China, the third-largest holder of Treasuries, saw a $15.4 billion fall in July…”
U.S. Credit Trouble Watch:
September 14 – Wall Street Journal (Heather Gillers): “Rick Phillips has been buying annuities for about a decade, paying upfront sums for the peace of mind of fixed returns. Now… he is swearing off the policies… Phillips is one of hundreds of thousands of Americans whose savings have fueled Walter’s vast business empire… Walter’s biggest insurer, Delaware Life, collected $10 billion in individual annuity premiums last year. Group 1001, the parent company of Walter’s insurers, ranks among the 10 biggest sellers of fixed and fixed-indexed annuities, according to… AM Best. Wall Street investment titans such as Apollo and KKR that sell private equity and private credit have increasingly tapped into insurance money to supercharge their lending, in many cases acquiring life insurers outright. Regulators require insurers to disclose when they make investments with their parent companies, known as ‘affiliated’ deals. In Walter’s case, the probe focuses on $20 billion of investments by Delaware Life and Clear Spring that weren’t properly marked as affiliated.”
September 17 – Bloomberg (Ava Benny-Morrison, Loukia Gyftopoulou and Zachary R. Mider): “US regulators are seeking interviews with employees of Guggenheim Partners LLC as they hunt for evidence of potential wrongdoing at Chief Executive Officer Mark Walter’s business empire. The Securities and Exchange Commission sent requests in recent weeks to current and former employees from the firm’s $367 billion asset manager, Guggenheim Investments… People who have managed portfolios of assets for insurance companies are among those the agency is seeking to interview.”
September 17 – Financial Times (Chak Raghunathan): “In the last decade, there has been a sharp turn in the market share of the US annuity business as a result of some big structural shifts. The fastest-growing issuers of annuities now are a bunch of asset managers who have built their own insurance companies or acquired one to add to their stable of financial services. The pace of that takeover should worry anyone who owns one of these products. A Federal Reserve Bank of Chicago working paper from 2025 found that private-equity-owned life insurers increased their market share of annuities sold in the US from 8.5% to 18% between 2017 and 2024. Some 61% of this growth can be attributed to private credit investments.”
September 16 – CNBC (Tobias Burns): “Corporate debt issued by the giant cloud computing players powering the artificial intelligence boom is getting riskier, private equity firm Apollo Global Management warned… Risk insurance contracts, known as credit default swaps, or CDS, for bonds issued by hyperscalers are getting pricier, and it’s not because banks are hedging more of their bets as bond issuance climbs, Apollo chief economist Torsten Slok wrote… ‘What the market is repricing is hyperscaler credit fundamentals, namely a debt-financed AI capex cycle with rising leverage, negative free cash flow and uncertain payback on depreciating assets,’ Slok wrote.”
September 14 – Bloomberg (Rene Ismail): “The default rate for a group of US private debt borrowers rose to a record in August, according to Fitch Ratings. The trailing 12-month private credit default rate across 1,300 borrowers rose to 6.3% at the end of last month, surpassing the previous high of 6.1% in the prior month… Fitch also recorded the highest monthly total of private credit default events in the past year. ‘Private credit defaults continued to rise in August, driven by maturity extension transactions that Fitch deems defaults, as uncertainty around rates and inflation has stifled deal flow making it difficult for sponsors to sell struggling portfolio companies ahead of loan maturities,’ said Lyle Margolis, Fitch’s head of private credit for North America.”
September 17 – Bloomberg (Upmanyu Trivedi and Jack Farchy): “Radiant World, the iron ore trading group that’s under fire amid allegations of fraud, has revealed to lawyers for a Jefferies Financial Group Inc. fund that it has hardly any cash left. The Jefferies fund is seeking to continue a worldwide freezing order of $499 million… In court filings…, lawyers for the Jefferies fund said that Radiant World had disclosed to them ‘enormously lower’ cash and inventories than was shown in their most recent annual accounts.”
Global Credit Bubble and Boom Watch:
September 15 - Bloomberg (Allison McNeely): “Lenders’ approach to data centers has a troubling similarity to the model applied to mortgages before the financial crisis, said Jason Thomas, head of global research and investment strategy for Carlyle Group Inc. Specifically, project financing for artificial intelligence development is often supported by the investment-grade credit quality of the financial sponsor… Lenders aren’t necessarily taking a view on the underlying project, he added. ‘I do worry though, because this is reminiscent in some ways of 2005 to 2007,’ Thomas said. At the time, lenders said they weren’t taking a view on the mortgage loan collateral but instead on the ability of the bank to take it onto its balance sheet if need be. Eventually, that no longer became feasible as liabilities grew, he said.”
September 17 – Bloomberg (Alastair Marsh): “The world’s banks allocated 15% more capital to the energy sector last year than in 2024, arranging and underwriting deals worth $2.3 trillion, according to… BloombergNEF. Against a backdrop of rising demand spurred by AI data centers, cooling technologies and the proliferation of electric vehicles, banks stepped up low-carbon financing by 16%, with such deals reaching a five-year high, BNEF wrote... Deals backing oil, gas and coal, meanwhile, rose 13% last year, it said.”
September 15 – Bloomberg (Allison McNeely): “KKR & Co. doubled the amount of private investment-grade financing it structured this year, reflecting growing demand from companies seeking flexible borrowing options. The firm structured or syndicated more than $80 billion of deals in the first half of the year, according to a presentation seen by Bloomberg. As of Sept. 1, KKR doubled the amount it originated in all of 2025.”
September 17 – Financial Times (Arjun Neil Alim and Haohsiang Ko): “China’s holdings of US Treasuries have fallen to the lowest since August 2008, underlining a shift in Beijing’s management of its reserves and a deepening rift between the world’s two largest economies. The value of US government debt held by Chinese investors… fell to $618bn in July, according to… the US Treasury. At its peak in November 2013, China held more than $1.3tn in US sovereign debt.”
September 17 – Bloomberg (Greg Ritchie and Michael MacKenzie): “DoubleLine Capital chief executive Jeffrey Gundlach warned that the next US downturn could trigger a debt crisis that sends long-term Treasury yields sharply higher — defying decades of conventional wisdom that bonds will always serve as safe haven during times of economic strife. Such a scenario could push the Federal Reserve and the Treasury into unconventional policies… ‘If there’s a recession, there’s going to be incredible attention paid to the fiscal situation,’ he said… ‘You would have the budget deficit go easily to 12% of GDP. That would create $3 trillion of interest expense probably per year, and you just can’t do it.’”
Leveraged Speculation Watch:
September 14 – Wall Street Journal (Timothy W. Martin, Gregory Zuckerman and Jason Douglas): “Anxiety about the Iran war, inflation and mushrooming public debt have driven the recent selloff in Treasury bonds. There is another factor that could add volatility into the mix: hedge funds, a growing force in this market. For decades, governments could rely on predictable buy-and-hold investors to snap up their sovereign debt. Now, pensions and other long-run investors are pulling back in search of higher returns elsewhere, leaving a void filled by hedge funds and other faster-twitch traders. Hedge funds held about $2 trillion of Treasurys at the start of this year, more than double their holdings five years earlier, according to the Treasury Department’s Office of Financial Research… At least some of those holdings are the result of funds pursuing the so-called basis trade…”
September 14 – Bloomberg (Craig Stirling): “Situational Awareness’s near collapse is a cautionary tale on the increasing role leveraged hedge funds play in global markets, the Bank for International Settlements warned. Officials at the… institution… highlighted the episode in July as they repeated warnings of underlying fragilities that central banks and investors must navigate. ‘Increased use of leverage across various markets is a concern, as it has the potential to amplify ordinary market movements into significant disruptions,’ Frank Smets, the BIS’s head of economic analysis and statistics, told reporters. ‘The failure of a highly leveraged AI-focused hedge fund serves as another reminder of these risks.’”
September 16 – Bloomberg (Naomi Tajitsu): “Currencies such as the Swedish krona and Swiss franc are emerging as prime candidates to finance carry trades as the yen’s recent surge makes it a less reliable bet than in the past. Russell Investments Ltd., and Allianz Global Investors favor the franc…, while JPMorgan… strategists recommend the Swedish krona and the Canadian dollar as attractive options. All those are vying to replace the yen in carry trades, where investors borrow in low-yielding currencies to buy higher-yield assets. For decades, the yen was traders’ currency of choice to sell but now its appeal is fading as Japan’s bond yields rise and joint US-Japanese intervention to support it underscored a preference for higher Japanese interest rates and a stronger yen.”
September 11 – Financial Times (Joshua Franklin, James Fontanella-Khan, Antoine Gara, Kate Duguid, George Steer, Amelia Pollard and Costas Mourselas): “JPMorgan… cut off its lending activity for Leopold Aschenbrenner’s hedge fund Situational Awareness after the wunderkind investor suffered the largest loss in the history of the hedge fund industry. Aschenbrenner, who is in his mid-twenties, was the star investor of the AI boom before tens of billions of dollars in losses forced him to sell a large chunk of his portfolio and cut back on leverage. JPMorgan was one of the primary lenders to Situational Awareness through the bank’s prime brokerage business. After the losses, the bank notified Aschenbrenner’s fund that it would end their lending relationship…”
Iran War Watch:
September 16 – Reuters (Samia Nakhoul and Timour Azhari): “The Houthi capture of ground overlooking the Bab el-Mandeb Strait has dealt Saudi Arabia its gravest setback in Yemen in years, exposing intelligence failures, the collapse of Yemeni allies and the limits of U.S. protection. A Houthi advance this week along the Red Sea coast and the capture of islands at the mouth of the strait… has also left the kingdom scrambling for backing as Iran and its allies expand their reach. Senior Western, regional and Yemeni officials and sources said the Houthi breakthrough reflected various factors: deep divisions among anti-Houthi Yemeni factions, an untested Saudi-led command structure that replaced Emirati oversight, limited Saudi air support and an underestimation of Houthi preparations. The diplomat said the Houthis had quietly assembled about 100,000 fighters, vastly outnumbering forces on the opposing side, adding: ‘Everyone, including the Saudis, missed this build-up and miscalculated the Houthis' intentions.’”
September 14 – New York Times (Vivian Nereim): “Saudi Arabia has increasingly found itself caught in the middle of the war between the United States and Iran. Now, the kingdom’s leadership is assessing dwindling options on how to respond. In recent weeks, the Iran-allied Houthi militia in Yemen has repeatedly attacked the kingdom, threatening to throttle its ability to export oil and piling pressure on the global economy. But Saudi Arabia has been left frustrated and disappointed by President Trump’s reluctance to confront the Houthis, former diplomats and analysts say. The kingdom’s diplomatic efforts to engage with Iran have also had limited results. A meeting planned on Monday between officials from Iran, Saudi Arabia and other Gulf countries was abruptly postponed… ‘Right now the Saudis are really frustrated,’ said Michael Ratney, a former U.S. ambassador to Saudi Arabia. ‘In some sense it’s their worst-case scenario.’”
September 14 – Associated Press: “Yemen’s Houthi rebels have seized the strategic islands of Greater and Lesser Hanish in the southern Red Sea, bolstering the Iran-backed rebels’ ability to control a key maritime shipping route. Recent fighting between the Iran-backed rebels and government forces in Yemen has killed hundreds of people and displaced tens of thousands. Meanwhile, repairs to a crucial Saudi Arabian oil pipeline that was struck in an attack last week could last three to five weeks, putting it mostly out of service…”
September 13 – Associated Press: “Oman said it had to postpone a meeting with Iran and other regional countries to discuss the Strait of Hormuz, while an Iranian commercial ship was struck early Sunday near the waterway... Iran had said foreign ministers from regional countries would meet in Oman to discuss efforts by Iran and Oman… But the foreign minister of Oman, Badr Albusaidi, said… the meeting had been postponed ‘in the interests of consensus.’”
September 14 – CNBC (Lim Hui Jie): “Iranian strikes have damaged and destroyed ‘hundreds of buildings and structures’ at U.S. bases in the Middle East as well as ‘dozens’ of U.S. aircraft as of the end of June, according to a government report. The Iran war cost an estimated $33.4 billion as of June 29, according to the U.S. Department of Defense… That includes $184 million in physical damage to U.S. diplomatic facilities in four countries — Iraq, Kuwait, Saudi Arabia and the United Arab Emirates — from Iranian strikes, it said. The expenditure of U.S. munitions during the conflict had ‘resulted in strategic inventory shortfalls and revealed industrial base bottlenecks for munitions resupply.’”
Iran War Ramifications Watch:
September 16 – New York Times (Lisa Friedman): “As Iran and its allies tightened their grip on shipping lanes in the Persian Gulf, Saudi Arabia scrambled this week to reroute millions of barrels of oil after being forced to close a critical pipeline damaged in an attack. The shutdown of the East-West pipeline risks keeping 4% of the world’s oil supply from reaching international markets and driving energy prices even higher… Now, Saudi Arabia, running out of options and under pressure to rapidly restore supply lines, is facing the prospect of a severe energy crisis with global implications, analysts said. ‘It is unprecedented,’ said Amena Bakr, head of Middle East & OPEC+ Insights at Kpler… ‘We have two major waterways obstructed, active attacks, Iran escalating attacks, proxies being active and no signs of diplomatic talks,’ Ms. Bakr said. ‘It’s a disastrous situation when you’re looking at it from an energy security angle.’”
September 16 – Bloomberg (Paul Burkhardt and Anthony Di Paola): “The price of Middle Eastern crude loading outside the Persian Gulf rose to the highest since March on growing concerns that supply shortages may be returning to the critical levels seen in the early days of the conflict. As traders scrambled for replacement barrels following attacks last week that halted a key Saudi pipeline, Oman crude futures advanced to $132.09 a barrel. Their premium to international benchmark Brent jumped to almost $24, also the highest since March. Demand is high for crude from Oman because the country lies beyond the Strait of Hormuz.”
September 15 - Financial Times (Steff Chávez): “The US military has a ‘strategic inventory shortfall’ of munitions after expending more than $22bn worth of them in the first four months of Donald Trump’s war on Iran, according to the Pentagon’s watchdog. In the fullest public accounting to date of the war’s costs to the US, the Defence Department’s Inspector General report stood in contrast to the insistence of Trump and Defence secretary Pete Hegseth that there is no shortage… The ‘munitions expenditure’ during the war ‘has resulted in strategic inventory shortfalls and revealed industrial base bottlenecks for munitions resupply’, said the office of Michael Duffy, the under-secretary of defence for acquisition and sustainment…”
September 15 – Wall Street Journal (Jared Malsin, Summer Said and Shelby Holliday): “The U.S. military fired up to 70 or more of its high-end air defense interceptors last week when Iran launched a missile attack on Jordan, U.S. and regional officials familiar… said, a heavy expenditure that underscores Iran’s improved ability to target U.S. forces and challenge American air defenses. U.S. forces fired 60 to 70 Patriot interceptors to counter the attack, which consisted of about 20 ballistic missiles… The U.S. also fired more than a dozen Thaad interceptors… The expenditure is about what the U.S. has used in a full week at other times in the war, another of the officials said. The exchanges showed how air-defense math can favor the attacker and how Iran has adapted its attacks to force the U.S. to burn precious munitions.”
September 15 – Bloomberg: “China’s gasoline and diesel inventories are plunging as refiners grapple with a tightening domestic market, raising the chance the government may move to limit fuel exports again. Gasoline stockpiles at Chinese state-owned fuel suppliers dropped 2.9% last week to the lowest since 2022… Diesel holdings declined 2.4% to a 15-month low… ‘With the domestic market tightening, we see an increasing risk that Beijing could restrict monthly clean product exports to around 1.2 million tons in the fourth quarter,’ said Jianan Sun, an analyst at Energy Aspects Ltd. in London.”
September 14 – Bloomberg (Alex Longley): “The cost of hiring an oil tanker on the industry’s benchmark trade route topped $1 million a day for the first time, as the Iran war leaves too few ships willing to cross the Strait of Hormuz to collect cargoes. Vessels hauling oil from inside the Persian Gulf to China were being hired at $1.035 million a day…”
September 14 – Wall Street Journal (Omar Abdel-Baqui and Eliot Brown): “The day after the U.S. and Israel launched their opening strikes on Iran, the Islamic Republic shot back with swarms of drones aimed at the Gulf’s newest high-value targets: American data centers. More than six months after the barrage, a damaged Amazon Web Services facility in Abu Dhabi and another one in Bahrain are still mostly offline. The company has told clients to move their data to other regions while it repairs the sites and hasn’t given a date for completing the work. The attacks and lasting damage are complicating the pitch by Gulf states like the United Arab Emirates to become world-leading data processors for industries such as artificial intelligence. They add a huge new risk for U.S. companies weighing investments that can cost tens of billions of dollars.”
September 15 – New York Times (Vivian Nereim): “Gulf Arab countries have long relied for their security on the U.S. military bases that they host. But after six months of war, the repeated pummeling of those countries by Iranian missiles and drones has made the limitations of American security guarantees abundantly clear. Iran and its allies have nearly destroyed some of the U.S. bases, set luxury hotels ablaze and, most recently, knocked offline one of the most critical pieces of energy infrastructure in the world, an oil pipeline that stretches across Saudi Arabia. Their backs against a wall, Gulf Arab officials are now trying to cobble together different ways to avoid attacks by Iran and its allies, including direct diplomacy with the Islamic Republic.”
September 15 - New York Times (David Yaffe-Bellany and Michael Forsythe): “Two Chinese companies used accounts on the cryptocurrency exchange Binance to launder illegal proceeds from the sale of Iranian oil, the Justice Department said... Binance was not charged with any wrongdoing. A group of crypto wallets linked to Iran received more than $1.5 billion of the illegal proceeds, the complaint said…”
Trump Administration Watch:
September 17 – Axios (Barak Ravid): “President Trump is expected to hold a meeting with Gulf leaders on the sidelines of the UN General Assembly in New York next Tuesday to discuss the next steps in the war with Iran, three sources… tell Axios. The meeting is expected to focus on U.S. ideas for a postwar strategy as Trump and his senior team work on a day-after plan expected to be finalized after the midterms.”
September 14 – Financial Times (Andrew England): “As Iran-backed Houthi rebels swept down Yemen’s Red Sea coast last week, Saudi Crown Prince Mohammed bin Salman called Donald Trump to seek US support stemming the militants’ advance. The Houthis were closing in on the Bab al-Mandeb, the narrow strait that has become crucial for Saudi crude exports… They were also firing waves of missiles and drones at energy facilities in Saudi Arabia’s southern provinces. And an attack from the north, by Shia militants in Iraq, forced the closure of a vital oil pipeline. But when Trump spoke publicly about the Houthi threat, he appeared unperturbed. The Houthis… had called Washington to say ‘they don’t want to fight with us’, he claimed. ‘They don’t want us to go after them,’ Trump said… ‘They’re letting most ships go through. There’s just one country that they’re not too happy with, and we’ll get that straightened out.’”
September 14 – Associated Press (Josh Boak): “President Donald Trump… lashed out against concerns about rogue artificial intelligence, claiming that any efforts to limit the technology are part of a ‘SICK conspiracy.’ ‘AI taking over the World, destroying Humanity, and all other things bad, is a HOAX,’ Trump posted…, later suggesting that those calling for guardrails on the technology had also warned about climate change, which he also called a hoax. The president was pushing back against calls by tech leaders such as Anthropic’s Dario Amodei, OpenAI’s Sam Altman and SpaceXAI’s Elon Musk to have greater government oversight of AI… ‘The only control or ‘guardrails’ that AI needs is a STRONG AND SMART (High IQ!) PRESIDENT, and the U.S.A. has that, in spades!’ Trump posted.”
September 14 – CNBC (Kevin Breuninger CJ Haddad): “President Donald Trump… raged against growing calls for greater regulation of artificial intelligence, lashing out at concerns about the controversial data center buildout as well as Anthropic CEO Dario Amodei’s plea for an AI slowdown. ‘The people that say AI is going to destroy the World, and that Data Centers are bad for your neighborhood, are the same people that said, just a short time ago, that the World would be extinguished by ‘Climate Change,’’ Trump wrote… In his fifth post about AI on Monday, Trump called himself the ‘Hoax Buster.’ ‘I’m right now breaking another Hoax — That AI is going to take over, consume, and destroy the World, and that Robots will be marching into our Cities, and getting rid of us all!’ he wrote.”
September 14 – Reuters (Bo Erickson, Chuck Mikolajczak and Padraic Halpin): “President Donald Trump said… the United States can afford his promise to send $5,000 to every U.S. adult should his Republican Party keep control of Congress in this year’s elections. ‘I don’t know but it’s easy if the Republicans win. $5,000 to all adults in the country and we can easily handle that because we’re taking in so much money,’ Trump told reporters when asked if Congress would need to approve the payments, adding that trillions of dollars were coming into the country.”
September 15 - Bloomberg (Yash Roy): “Treasury Secretary Scott Bessent said he’s supportive of a plan floated by President Donald Trump to send $5,000 checks to American adults if Republicans retain their majorities in Congress, downplaying concerns about the potential cost. ‘I believe there are ways to do it that would not affect the deficit,’ Bessent told lawmakers… Bessent didn’t provide details about how the cost would be offset, though he said the Treasury had been working on the plan for ‘quite awhile.’”
September 15 - Reuters (David Lawder): “U.S. Treasury Secretary Scott Bessent… blamed rising bond yields on ‘global issues’… U.S. bond yields have risen despite recent Treasury buybacks of longer-term debt that Bessent has described as a way to inject liquidity and to counter the rise in yields, or at least slow it down. Bessent told lawmakers the buybacks were a success and underscored U.S. credibility. ‘There is a counterfactual of what would it have done -- and we then proceeded to have the two most successful Treasury auctions that we've had in 20 years… Since President Trump has come in, (the U.S. bond market) has been the best-performing bond market in the developed world.’”
September 13 – Reuters (Bo Erickson, Padraic Halpin and Conor Humphries): “No country should have lower interest rates than the U.S., President Donald Trump said… days before the Federal Reserve’s next policy meeting… Trump said he did not know whether Fed policymakers will raise interest rates at their meeting this week. But he said the U.S. ‘should be paying the lowest interest rate in the world’ no matter what the Federal Reserve’s data indicates about inflation and the economy… ‘I know more about formulas than anybody, and with the best credit in the world, we make other countries rich,’ Trump said…”
September 15 – Bloomberg (Gregory Korte and Adrienne Tong): “President Donald Trump has traded more securities than every member of Congress combined since he returned to office — even as he seeks to pass a stock-purchasing ban for lawmakers that would exclude him from any restrictions. Trump or his money managers made nearly 28,700 trades in the 17 months between his second inauguration and the end of June… During that same period, Capitol Hill lawmakers collectively reported about 22,200 similar transactions.”
September 14 – New York Times (Alan Rappeport): “Sometimes the house doesn’t win. At a fireside chat at Southern Methodist University last week, Treasury Secretary Scott Bessent scoffed at those who doubted the wisdom of his interventions in currency and bond markets and dared investors to bet against him. ‘It’s my dream,’ Mr. Bessent said. ‘I have asymmetric information. I am the house now.’ He added: ‘You can bet against me if you want.’ On Monday, the bond market rebuked Mr. Bessent. The yield on 10-year Treasury bonds surpassed 5% for the first time since 2023 and only the second time since the 2008 financial crisis.”
September 15 – Financial Times (Edward Luce): “‘Credibility’ is a Washington measure devalued by overuse. The credibility of what the US Treasury secretary says, however, can be gauged minute by minute. For reasons even his defenders find hard to explain, Scott Bessent has been on a credibility-spending spree. Bessent told the currency markets last week that he was ‘the house’ and warned that nobody should bet against him. But the bond markets did and he lost. What weight will traders attach to his next pronouncement? For a figure who it was initially hoped would be the rare adult in Donald Trump’s second administration, Bessent’s behaviour has turned noticeably adolescent. He recently described Canada as a ‘little yippy dog’ biting at the heels of America’s German shepherd. At the Republican convention in Dallas last week, he warned that a Democratic midterm victory would result in a ‘socialist hellscape’. Then to the markets he said: ‘Look, if some of the Bloomberg Terminal bros are unhappy with what I’m doing, well, that’s too bad.’”
Trade War Watch:
September 16 – CNBC (Anniek Bao): “President Donald Trump… threatened to impose tariffs on the European Union or halt trade with the bloc entirely if it proceeds with its plan to make Canada its first-ever ‘associate member.’ ‘I think it’s laughable... Canada has been a terrible trade partner,’ Trump told reporters… He conditioned his threat on the intention of European leaders, saying that ‘if I think it’s at all a hostile act, I will put very serious tariffs or stop trading with Europe on many things.’ Trump’s remarks came after European Commission President Ursula von der Leyen said EU was opening the door for Canada to become the first associate member of the 27-member bloc.”
September 12 – Reuters (Nivedita Balu): “A growing consumer push to buy Canadian and boycott U.S. products is reshaping supermarket shelves in Canada, forcing grocers to improve country-of-origin labeling and secure new sources of supply. In Ontario, the president of independent grocer Vince's Market, Giancarlo Trimarchi, turned to Facebook to show customers that most produce on the shelves of his stores is Canadian after receiving angry emails and comments about the grocer stocking U.S. produce.”
September 16 – Bloomberg (Alicia Diaz): “President Donald Trump directed agencies to remove Canadian goods from government contracts, executing an earlier threat as tensions between the two countries flare. In a presidential memorandum, the White House criticized Canada for its barriers to US companies seeking access to the Canadian government market through a ‘Buy Canadian’ policy.”
September 16 – Reuters (Ingrid Melander, Charlotte Van Campenhout and Yves Herman): “Canada and Europe should ally to protect their markets, democracies and rule of law in a world dominated by the United States and China, Prime Minister Mark Carney said…, after an EU proposal to make Canada an ‘associate member’. The Canadian prime minister received warm applause for his speech to the European Parliament… ‘Europe and Canada are each strong. Europe and Canada are even stronger together,’ Carney said.”
September 17 – Bloomberg (Heesu Lee and Soo-hyang Choi): “South Korean President Lee Jae Myung said talks with the US over projects tied to Seoul’s $350 billion investment commitment were causing him to lose sleep, with discussions reopening after he found parts of a nearly completed deal hard to accept. ‘I myself have spent sleepless nights thinking about this,’ Lee said... ‘It carries enormous weight.’ The comments highlight the challenges Seoul faces in implementing the investment package agreed with the Trump administration last year, as the two sides work toward selecting the first projects under the deal.”
Constitution Watch:
September 18 – Bloomberg (Catherine Lucey): “President Donald Trump said he would ban cable news outlets CNN and MS NOW as well as online publication Politico from the White House, a move that strikes at the heart of First Amendment protections for the news media. Trump posted Friday on social media that the ban would become ‘effective immediately,’ citing what he said was unfavorable coverage of his administration. He also threatened to bar other outlets from the executive mansion, saying ‘other Fake News Media Outlets to follow.’”
U.S./Russia/China/Europe/Iran Watch:
September 17 – Bloomberg (Piotr Bujnicki and Maciej Martewicz): “Polish Prime Minister Donald Tusk warned that Russia plans to launch ‘hybrid-style’ drone and missile strikes against nations supporting Ukraine, including NATO-member Poland, as the war enters its most crucial phase. The Kremlin’s main goal now, as supported by evidence gathered by intelligence services, is to destroy Ukraine’s economy and logistics and weaken NATO’s resolve by attacks on its member states, Tusk said... It’s the ‘most likely scenario,’ the premier told lawmakers.”
September 14 – Politico (Victor Jack and Jacopo Barigazzi): “Despite Russia’s intensifying attacks on European critical infrastructure and weapons factories, NATO countries remain wary of making immediate tough moves that could provoke the Kremlin. European capitals are eyeing options including opening a debate about whether a so-called hybrid attack could trigger NATO’s Article 5 mutual defense clause, more unified communication in response to incidents and a greater push on protecting critical infrastructure… But so far, Europe is avoiding taking any drastic steps — in part over fears it could escalate into an all-out war with Russia.”
New World Order Watch:
September 15 - New York Times (Damien Cave): “The world is furious — again — over rising energy prices caused by the American-Israeli war against Iran. Since the latest surge pushed oil above $100 a barrel, protesters have burned tires and cars in Guatemala and Syria to express their rage. Portugal’s roads have featured cars crawling in protest with honking horns after diesel reached a record high of more than $9 a gallon. And especially in the developing countries of Asia, which are heavily reliant on Middle Eastern energy and deep in debt from earlier efforts to offset the war’s impacts, transport systems and governments are facing another round of enormous strain.”
September 12 – Axios (Neal Rothschild): “America is shedding its status as the default choice for foreign governments to park money, buy weapons and send students. Even modest shifts away from the U.S. could chip away at advantages that have helped sustain American economic and geopolitical power for decades. The Netherlands moved 86 tons of gold out of the U.S. and Canada last week, citing the move as a hedge against ‘extreme systemic risks.’ France already moved all of its gold out of New York, while Germany debated doing the same. Norway’s sovereign wealth fund — the world’s largest — announced plans to reduce its holdings of U.S. government bonds amid turbulence in the Treasury market. Beyond finance, European countries are looking for ways to wean off the U.S. On weapons, Europe is seeking to source more equipment locally to reduce its dependence on American firepower… On technology, the EU this summer set out plans to reduce its reliance on American companies, drafting cloud rules that would restrict Amazon, Google and Microsoft from competing for sensitive contracts.”
September 13 – Financial Times (Michael Stott, Andres Schipani and Joe Leahy): “Critics often slate the Brics as a motley collection of emerging markets that agree on little and achieve even less. But when faced with US President Donald Trump’s tariffs, his war in Iran and his attacks on international co-operation, leaders of the 10-nation bloc had little difficulty in uniting this weekend to express their opposition. China’s Xi Jinping, Russia’s Vladimir Putin and summit host Narendra Modi of India were among the leaders who agreed a 45-page statement… blasting protectionism and economic sanctions and calling for peace in the Gulf. ‘What you’re seeing this weekend in Delhi at Brics… is growing frustration with Trumpism,’ said Ashok Malik, head of India at the Asia Group consultancy. ‘Brics is not a political bloc or a trade organisation but this statement… is about the closest the Brics has got to taking a common political position. And in a sense, Trumpism has invited it upon itself.’”
September 13 – Associated Press (Aljaz Hussain and Sheikh Saaliq): “Indian Prime Minister Narendra Modi… warned that rising geopolitical tensions, supply chain disruptions and climate crises are increasingly affecting people worldwide and called for strengthened cooperation and support across the Global South. Addressing the BRICS summit of leading developing nations…, Modi also warned that the ‘weaponization of technology and critical minerals’ could hinder global development and shared prosperity… ‘The number of conflicts and tensions in the world is continuously increasing, and this is having an increasingly negative and far-reaching impact on the lives of ordinary people,’ Modi said, alongside bloc leaders, including Chinese President Xi Jinping, Russian President Vladimir Putin and Iranian President Masoud Pezeshkian.”
September 12 – Financial Times (Ilya Gridneff): “Prime Minister Mark Carney is pitching 200 of the world’s top financial executives gathering in Toronto next week a simple plan: invest 1% more in Canada as a hedge against Donald Trump’s volatility. The investor summit, hosting a C$120tn (US$87tn) pool of global capital, is an attempt to invigorate the former Goldman Sachs executive’s effort to decouple Canada from the US in the face of unrelenting hostility from the US president. ‘At a time of unprecedented trade disruption, our bold mission to unlock $1tn in new capital will create growth, good jobs and long-term prosperity,’ Carney said.”
September 14 – Reuters (Alasdair Pal): “An Australian cabinet minister said… the country was aligned with Canada’s attempt to seek deeper ties with the European Union, amid Ottowa’s escalating trade war with the United States. Canada is seeking a ‘unique alliance’ with the European Union but is not looking to become a member, Prime Minister Mark Carney said… he was exploring whether Canada could become an ‘associate member’ of the bloc. ‘We are on the same page,’ Australian Trade Minister Don Farrell told the Sydney Morning Herald... ‘We will take great interest in what Carney does.’”
September 17 – Bloomberg (Arne Delfs): “German Chancellor Friedrich Merz said the era of ‘unconditional’ ties between the US and Europe built since World War II are over, at least for now, the latest pronouncement of a breakdown in relations under Donald Trump’s presidency. ‘This era of unconditional transatlantic friendship is probably over for the foreseeable future,’ Merz told party members... ‘On the other side of the Atlantic, we are seeing a change in political attitudes, a change in the assessment of the transatlantic alliance, which we might not have thought possible.’”
Ukraine War Watch:
September 14 – Reuters (Olena Harmash): “Russia hit petrol stations in Kyiv on Tuesday and Ukraine struck a Russian oil refinery, as the warring sides carried on with strikes on each other’s energy targets despite an announcement by U.S. President Donald Trump that they had agreed to stop. Russia launched 200 drones at Ukraine’s capital and other cities in overnight attacks... In addition to petrol stations in Kyiv it struck energy and port infrastructure in other regions…”
September 16 – Bloomberg: “Ukraine damaged a major Russian oil refinery less than 200 miles northeast of Moscow while Russian forces attacked Ukrainian infrastructure overnight, a fresh indication the sides haven’t agreed to an energy truce despite claims by US President Donald Trump.”
September 13 – Wall Street Journal (Daniel Michaels): “Just as Ukraine was learning how to parry Russia’s drone attacks, Moscow has moved the goal posts with a new generation of innovative jet-powered weapons. New Geran drones and Banderol cruise missiles are lethal reminders that Russia still has the resources and supply chains to field fresh threats, this time packed with advanced electronics that allow them to find targets accurately and evade interception. Crucially, the leap forward was enabled in large part by components sourced from China, in violation of international sanctions, say Ukraine and others, based in part on wreckage from the few shot down so far.”
AI Bubble/Arms Race Watch:
September 14 – Wall Street Journal (Gareth Vipers): “Artificial-intelligence companies shouldn’t wait for governments to legislate on the technology before putting in their own safety controls, OpenAI Chief Executive Sam Altman has said… Altman warned that the dizzying pace of progress could go ‘very badly’ and that humans could lose ‘control of the future to AI’ or that too much power could become concentrated in the hands of a single person or company. ‘We welcome a federal framework that sets consistent safety requirements for frontier AI… No amount of American competitive pressure should justify recklessness’…”
September 14 – Bloomberg (Naureen S Malik): “America’s data center boom will need $110 billion to build 45 gigawatts of new power generation through 2030, according to… Moody’s… The vast majority of that new supply, more than 30 gigawatts, will come from natural gas-fired units and represents about 4 billion cubic feet of incremental gas supply… The bulk of the remaining supply will come from solar and energy storage, with nuclear restarts accounting for less than 5%. One gigawatt is roughly equivalent to the output of a traditional nuclear reactor.”
September 12 – Axios (Ben Berkowitz and Donica Phifer): “OpenAI will not go public this year given all the safety work it needs to do, CEO Sam Altman said… Altman’s comments come as fears over doomsday AI scenarios have ramped up since an Anthropic employee resigned and issued a dire warning about AI’s capabilities. ‘Right now would be an ill-advised moment to go public,’ Altman said. ‘I would say not 2026, yeah. We got a lot of stuff to do,’ Altman told Fortune editor-in-chief Alyson Shontell.”
Bubble Watch:
September 14 – Financial Times (Emily Herbert and Ian Smith): “Foreign investors are now buying more US stocks than government bonds, in a rare move that comes amid fears that inflation and America’s fast-growing debt pile are undermining the ‘risk-free’ status of Treasuries. International flows into US stocks reached 2.8% of US GDP on average in the year to June, overtaking Treasuries — at 2% of GDP — for the first time this century outside brief episodes in the Covid-19 pandemic and the aftermath of the global financial crisis, according to analysis… by Deutsche Bank. The change reflects the ever-growing lure of the US stock market… Powering the rally has been vast AI investment… At the same time, Treasuries’ traditional role as the global risk-free asset is coming under increasing pressure as investors grow warier of lending money to heavily indebted governments and question the independence of the Federal Reserve…”
September 17 – Financial Times (Akila Quinio): “Wall Street bankers have warned that the blockbuster trading gains that turbocharged profits in the second quarter are unlikely to be repeated, in a sign that the boom in banks’ market businesses may be starting to lose steam. Executives from the largest US banks told an industry conference this week that growth in trading revenues had started to slow after unprecedented performance in the previous quarter, when frenzied trading in AI-linked stocks helped banks’ earnings blow past records. Bank of America’s chief executive Brian Moynihan… said sales and trading revenue would be ‘flat’ at the bank in the third quarter, prompting a 5% fall in the company’s shares on the day and knocking rivals’ stock prices.”
September 14 – Wall Street Journal (Emma Tucker): “Over the past year, mall values jumped 13%—more than double the overall commercial market’s gains. Resilient consumer spending and smart pivots into luxury retail, dining and entertainment have helped bring shoppers back. Simon Property, the U.S.’s largest mall owner, is hitting record stock highs.”
Inflation Watch:
September 16 – Reuters (Lucia Mutikani): “U.S. import prices surged in August amid solid increases in the costs of capital and consumer goods, suggesting inflation could rise further in the coming months. Import prices rebounded 0.7% last month after declining by 0.3% for two straight months… Economists… had forecast import prices, which exclude tariffs, would rise 0.4%. In the 12 months through August, import prices soared 7.0%, the largest increase since August 2022, after advancing 6.1% in July.”
September 15 – Wall Street Journal (Adam Whittaker): “The average price of a gallon of diesel in the U.S. hit a fresh record high of $6.27 on Tuesday… U.S. diesel prices are soaring once again as the squeeze in the fuel market tightens, breaching $6 a gallon for the first time... Prices had jumped at the start of the Iran conflict before cooling after refiners ramped up production. The average price for a gallon of diesel was $3.69 a year ago.”
September 15 – Reuters: “Half of Russia’s six top diesel-producing refineries were forced to significantly cut back or completely halt output in September due to damage sustained in drone attacks… Russia’s fuel crunch was underscored by U.S. President Donald Trump…, when he called on Ukrainian President Volodymyr Zelenskiy to stop targeting Russian diesel infrastructure, saying the attacks were causing a shortage of the fuel that is ‘hurting the world’.”
September 13 – Bloomberg (Javier Blas): “In times of crisis, the oil industry delivers a perennial warning: ‘You can’t print barrels.’ While central banks can — and do — run their presses to soothe financial markets, the same option isn’t available in energy markets. And if conjuring crude is implausible, delivering diesel out of thin air is even more impossible. Right now, the world wishes it had a diesel printer as two wars — US-Iran and Russia-Ukraine — combine to create an enormous shortage, pushing the cost of the fuel to all-time highs. In the US, the retail price topped $6 a gallon last week for the first time; it was about $3.50 at the beginning of the year.”
September 16 – CNBC (Alex Harring): “Consumers are facing a double-whammy of jumping oil prices and Treasury yields amid the U.S. war with Iran that is leaving them increasingly cash-strapped… ‘Consumers are under a lot of financial pressure,’ said Mark Zandi, chief economist at Moody’s Analytics. The total bill per household since the U.S.-Iran conflict began is around $1,760, according to an analysis from Moody’s Analytics as of Sept. 11.”
September 15 – Wall Street Journal (David Uberti): “Oil prices’ lurch above $100 a barrel is propelling the U.S. past another unwelcome milestone: The war with Iran is sticking Americans with a 12-figure bill. U.S. consumers have collectively spent about $107 billion more on gasoline and diesel during the Iran conflict and disruptions from the Russia-Ukraine conflict than they would have had there been no war, according to estimates by the Climate Solutions Lab at Brown University. That averages to more than $500 million a day…”
September 14 – Financial Times (Myles McCormick): “Industrial America is contending with a fresh wave of supply chain inflation as Donald Trump’s Iran war pushes up energy costs, tariffs raise import prices and the AI boom strains supplies of crucial electronics. Manufacturers are paying sharply more for raw materials, energy and freight, with some input costs rising by double-digit rates, according to executives and industry data… ‘We just need to spend more and more money for the same stuff,’ said Julie Robbins, chief executive of EarthQuaker Devices, a… manufacturer of guitar pedals. ‘It feels like we have to try twice as hard to get the same results,’ added Robbins, whose company has had to raise prices twice this year. The mounting price pressures in the American factory sector are the latest sign of the inflation that is sweeping the US, driven by sharply higher fuel prices, levies on imports and the rush to procure electronics used in AI data centres.”
September 17 – Bloomberg (George Nixon and Andras Gergely): “Energy prices have been the scourge of bond markets this year. Now investors worry that the next inflation spike will come from food. They see a risk that a ‘Super’ El Niño, tight fertilizer supplies, attacks on shipping and fallout from Europe’s record hot summer will push the cost of staple foods higher. Even after the Federal Reserve raised rates and vowed to tame inflation, a sustained rise in prices could create a new problem for bond portfolios.”
Federal Reserve Watch:
September 16 – Financial Times (Claire Jones and Myles McCormick): “Kevin Warsh has rebuffed Donald Trump’s demands for low borrowing costs, as the president’s pick to run the Federal Reserve led it to the first rate rise since 2023 less than four months into the job. The central bank chair… offered the strongest evidence yet that he is prepared to disregard Trump when he corralled all 12 rate setters on the Federal Open Market Committee into backing a quarter-point rate rise. ‘The plain fact is that inflation is too high and has been for too long,’ Warsh said, as he repeatedly told journalists that he would be ‘hard pressed’ to describe current interest rates as so high that they would slow the economy. Warsh’s signal to Wall Street — just weeks before pivotal midterm elections — that he is ready to take further measures to tame the inflation pulsing across the US economy contrasts sharply with the president’s understanding that he was choosing a Fed boss who ‘certainly wants to cut rates’.”
September 16 – New York Times (Tony Romm): “President Trump lashed out at the Federal Reserve… over its decision to raise interest rates, as he reprised his earlier threats to cut off a broad swath of U.S. trade unless the central bank bows soon to his demands for lower borrowing costs… Mr. Trump acknowledged that he had talked to Kevin M. Warsh… at some point before the Fed board voted unanimously to lift rates by a quarter of a percentage point for the first time in three years. ‘I told Kevin, I said, you might as well vote with the board because it’s just not going to matter,’ Mr. Trump said. ‘The board is very hostile. They’re very political. They’re doing the wrong thing. They’re a bunch of politicians. They are people put on by politicians.’”
U.S. Economic Bubble Watch:
September 15 - Bloomberg (Julia Fanzeres and Mark Niquette): “US household incomes rose last year to an all-time high and the poverty rate fell to one of the lowest levels on record. The median household’s inflation-adjusted income increased 2.6% last year to $87,460, according to the Census Bureau’s annual report… That was the highest in data back to 1967.”
September 17 – Associated Press (Paul Wiseman): “The number of people applying for unemployment benefits dropped sharply last week, another sign that layoffs remain rare and most Americans enjoy job security. The Labor Department reported… jobless claims slid to 196,000, the fewest since mid-July and down from 206,000 the week before…”
September 16 – Bloomberg (Jeffrey Sparshott): “US retail sales rose by the most in five months in a broad advance, showing consumers continued to spend despite rising gasoline prices. The value of retail purchases increased 1.2% in August after a revised 0.5% decline in July… The median estimate… called for a 0.8% advance… Twelve of 13 retail categories in the report posted increases… So-called control-group sales… increased 1.4%, the most in nearly two years. The measure excludes food services, auto dealers, building materials stores and gas stations. Sales at nonstore retailers, primarily online shopping, climbed 2.6% in August — the most since February 2025… The value of gasoline station sales rose 3.1%.”
September 15 – Yahoo Finance (David Hollerith): “JPMorgan… CEO Jamie Dimon said… that he thinks the country’s small businesses are having a ‘mini boom.’ ‘I think it is a mini boom, and it’s different by state,’ Dimon told Yahoo Finance... He added, ‘The rules and regulations are different by state, but I think we see a lot of growth in new small businesses, much more than We’ve had.’”
September 16 – CNBC (Diana Olick): “Fast-rising interest rates are taking their toll on mortgage demand, as both potential homebuyers and current homeowners head to the sidelines… Applications to refinance a home loan, which are most sensitive to weekly rate changes, dropped 9% for the week and were 65% lower than the same week one year ago… Applications for a mortgage to purchase a home dropped 1% for the week and were 19% lower than the same week one year ago.”
September 17 – Reuters (Lucia Mutikani): “US single-family homebuilding increased in August… Single-family housing starts, which account for the bulk of homebuilding, jumped 7.6% to a seasonally adjusted annual rate of 918,000 units last month… They rose 5.2% on a year-over-year basis in August. Single-family building permits fell 1.8% to a rate of 878,000 units in August. They increased 1.3% on a year-over-year basis… Starts for housing projects with five units or more, a very volatile segment, plunged 22.5% to a rate of 344,000 units in August. Multi-family housing starts decreased 15.5% on a year-over-year basis. Overall housing starts fell 2.6% to a pace of 1.275 million units. They decreased 1.2% on a year-over-year basis in August.”
China Watch:
September 15 – Bloomberg: “China’s central bank governor signaled a long period of massive credit growth has come to an end, in what amounted to a message of reassurance for markets after an abrupt deceleration in lending as the economy loses its appetite for borrowing… Pan described it as a natural development during the economy’s transition toward a new normal of slower loan growth. In an unusually lengthy analysis, he cited several reasons for the moderation, including the rise of high-tech sectors that rely less on debt compared with property developers. ‘The real economy’s demand for credit growth is changing,’ Pan wrote. ‘It is difficult, and also unnecessary, for overall credit to maintain its past growth rate.’”
September 16 – Reuters (Kevin Yao): “China’s slower loan growth is becoming the new normal as shrinking property and local government sectors sap credit demand faster than emerging industries can fill the gap, central bank governor Pan Gongsheng said… ‘Slower but higher-quality loan growth is likely to become one of the new normal features of macroeconomic operations,’ Pan said in the Communist Party’s flagship theoretical journal, Qiushi. The slowdown reflects China’s economic shifts, with lending to the property sector and local government financing vehicles shrinking and new industries still unable to fully offset the decline, he added. ‘Maintaining previous rates of overall credit growth will be difficult and unnecessary.’”
September 14 – Reuters (Kevin Yao and Shi Bu): “China’s new bank loans returned to positive territory in August but fell well short of analysts’ forecasts after a record contraction in July, as weak demand from the household and corporate sectors continued to weigh on credit growth. Chinese banks extended 60 billion yuan ($8.95bn) in new loans last month, bouncing back from a 340 billion yuan contraction in July… New loans totalled 10.44 trillion yuan in January-August, down from 13.46 trillion yuan in the same period last year, highlighting tepid demand. Outstanding yuan loans in August grew 4.9% from a year earlier, slowing from 5.1% in July to the weakest pace on record. Household loans, including mortgages, shrank by 202.9 billion yuan in August after a contraction of 460.3 billion yuan in July… Corporate loans rose by 260 billion yuan last month, rebounding from a fall of 130 billion yuan in July.”
September 14 – Bloomberg: “China’s residential prices fell in August, with used-home values dropping at a faster pace, the latest sign of a slump that pushed policymakers to unveil fresh steps to support the market at the end of last month. New-home prices in 70 cities declined 0.17% from July, when they slid 0.18… Resale home values… slid 0.31%, accelerating from the previous month’s 0.29%.”
September 14 – Reuters (Kevin Yao and Yukun Zhang): “China’s industrial sector showed renewed strength in August as the AI-driven tech boom fuelled factory output, though sluggish consumption and a worsening investment slump reinforced concerns over deepening economic imbalances… Industrial output grew 5.2% from a year earlier in August, quickening from a 4.5% increase in July and beating expectations for a 4.8% rise… Strong expansion in equipment and high-tech manufacturing underpinned the production upturn. Retail sales, a gauge of consumer activity, rose 0.4%, slowing from a 0.6% gain in July and below an expected 0.8% rise.”
Central Banker Watch:
September 17 – Financial Times (Sam Fleming, Ian Smith and Emily Herbert): “The Bank of England has given its strongest signal yet that it will need to raise interest rates in response to the Middle East energy crisis, even as it sparked a bond market rally by curbing its sales of long-dated gilts. The Monetary Policy Committee voted six to three to hold rates at 3.75%..., as had been expected by financial markets. Governor Andrew Bailey put households and businesses on notice that ‘policy may have to tighten’, with inflation forecast to head above 4% next year.”
September 12 – Associated Press (Zoe Schneeweiss and Mark Schroers): “Euro-area inflation will stay elevated for some time, according to European Central Bank President Christine Lagarde. ‘The current shock is longer-lasting,’ she told Ouest-France… The conflict in the Middle East ‘is continuing. We expect the volatility and pressure on energy prices to continue, even though the increase in prices also poses a risk of lower growth.’”
Europe/UK Watch:
September 17 – Financial Times (Leila Abboud): “France’s minority government has said it aims to reduce the country’s deficit next year by proposing a budget that includes a €54bn savings drive, paving the way for a showdown with parliament that could lead to its collapse. French Prime Minister Sébastien Lecornu said… he will submit a draft budget to lawmakers that would lower the deficit to 5% of GDP in 2027, notably through big cuts to spending on pensions and reductions in the expenditure of government ministries, excluding defence.”
September 18 – Reuters (Giuseppe Fonte): “The cost of servicing Italy's public debt is rising at ‘an alarming rate’ in the wake of geopolitical tensions, Economy Minister Giancarlo Giorgetti said on Friday, as the government prepares to update its budget plans for 2027 onwards. Inflation is bound to rise ‘ineluctably’ if the wars in Ukraine and the Middle East continue, Giorgetti told a conference… Under its most recent budget plan, Italy sees its public debt peaking at almost 139% of GDP this year, replacing Greece as the euro zone's most indebted country.”
Japan Watch:
September 17 – New York Times (River Akira Davis): “The Bank of Japan raised interest rates on Friday in a closely watched move that followed unusual scrutiny by the Trump administration. Japan’s central bank moved its policy rate from 1% to 1.25%, the highest level in 31 years in a country that has long combated stagnant prices with near-zero interest rates… U.S. Treasury Secretary Scott Bessent publicly pressured Tokyo to tighten policy. Speaking… last week, Mr. Bessent even suggested that he had inside knowledge of the bank’s plans to raise rates.”
September 15 – New York Times (River Akira Davis and Hisako Ueno): “As Japan’s central bank prepares to meet this week, the architects of the country’s decade-long policy of low interest rates say that strategy has outlived its usefulness. Their concern has flipped from stagnant prices to entrenched inflation. Japan’s current leader appears unconvinced. Since taking office last year, Prime Minister Sanae Takaichi has continued to embrace Abenomics…, leaning on the central bank to keep rates low while pursuing record fiscal spending. Abenomics was conceived in 2012 to jolt Japan back into growth. But the deflationary spiral and strong yen that it was designed to address have reversed. For most of the past four years, inflation has remained above the central bank’s 2% target. The yen has fallen against the dollar to multidecade lows. ‘The situation is completely different now,’ said Koichi Hamada, a former top aide to Mr. Abe and one of the key advisers behind Abenomics. Therefore, he said, ‘I changed my mind right now to recommend monetary constraint.’”
September 16 – Associated Press (Yuri Kageyama): “Japan’s trade deficit totaled 1.1 trillion yen ($7bn) last month as surging oil prices due to the conflicts in the Middle East sent the cost of imports soaring. It was the fourth straight month of red ink… Resource-poor Japan imports virtually all its oil. Previously that came mostly through the Strait of Hormuz, where traffic has been curtailed due the stalemated Iran war. Japan’s imports in August rose 28% from the same month a year ago to 11.15 trillion yen ($71.9bn)… Japan’s exports rose 19.3% to 10 trillion yen ($64.5 billion), mainly in computer chips and autos.”
September 17 – Bloomberg (Taiga Uranaka and Hideki Suzuki): “Japan’s main bank industry group warned that government bond yields are likely to keep rising, running the risk of writedowns and a hit to profits. A prolonged increase in Japanese government bond yields could lead to writedowns and realized losses, Masahiko Kato, chairman of the Japanese Bankers Association, said…”
Emerging Markets Watch:
September 18 – Financial Times (John Paul Rathbone): “Turkey has drafted in two of the country’s biggest banks to liquidate 131 investment funds involved in the collapse of a speculative bubble that has shaken its capital markets and put billions of dollars of investments held by tens of thousands of investors at risk. Turkey’s İş Bankası and state-run Ziraat Bankası will oversee the funds’ liquidation... Recent data suggests the liquidated funds have about $17bn of investments, held in more than half a million accounts on behalf of 300,000 investors.”
September 14 – Reuters (Shubham Batra and Nikunj Ohri): “India’s annual retail inflation accelerated further in August as price pressures spread beyond food and transport, strengthening the case for a rate hike by the central bank next month. The August print of 4.82% was marginally higher than a 4.80% inflation that the economists were expecting… and 4.45% in the previous month.”
The S&P500 was little changed (up 11.8% y-t-d), while the Dow fell 1.7% (up 7.5%). The Utilities slumped 3.0% (down 2.6%). The Banks sank 4.9% (up 8.9%), and the Broker/Dealers fell 3.3% (up 18.6%). The Transports dropped 2.7% (up 15.7%). The S&P 400 Midcaps fell 1.7% (up 10.5%), and the small cap Russell 2000 lost 1.5% (up 15.2%). The Nasdaq100 added 0.9% (up 17.4%). The Semiconductors increased 0.8% (up 68.3%). The Biotechs advanced 2.4% (up 30.5%). While bullion recovered $30, the HUI gold index declined 1.0% (up 14.8%).
Three-month Treasury bill rates ended the week at 3.9763%. Two-year government yields jumped 12 bps to 4.75% (up 127bps y-t-d). Five-year T-note yields rose eight bps to 4.86% (up 113bps). Ten-year Treasury yields added three bps to 5.00% (up 83bps). Long bond yields declined three bps to 5.33% (up 48bps). Benchmark Fannie Mae MBS yields rose six bps to 6.09% (up 105bps).
Italian 10-year yields gained eight bps to 4.43% (up 88bps y-t-d). Greek 10-year yields rose nine bps to 4.31% (up 87bps). Spain's 10-year yields increased four bps to 4.00% (up 71bps). German bund yields added two bps to 3.52% (up 66bps). French yields surged 11 bps to 4.57% (up 88bps). The French to German 10-year bond spread widened about nine bps to 105 bps. U.K. 10-year gilt yields declined five bps to 5.30% (up 82bps). U.K.’s FTSE equities index was about unchanged (up 7.2% y-t-d).
Japan’s Nikkei 225 Equities Index recovered 1.6% (up 29.2% y-t-d). Japan’s 10-year “JGB” yields were unchanged at 2.99% (up 92bps y-t-d). France’s CAC40 declined 1.4% (down 1.0%). The German DAX equities index fell 1.0% (up 3.3%). Spain’s IBEX 35 equities index lost 1.6% (up 12.7%). Italy’s FTSE MIB index dropped 1.8% (up 14.7%). EM equities were mostly lower. Brazil’s Bovespa index declined 1.1% (up 15.0%), and Mexico’s Bolsa index dipped 0.8% (down 1.5%). South Korea’s Kospi slipped 0.2% (up 63.2%). India’s Sensex equities index declined 0.7% (down 12.8%). China’s Shanghai Exchange Index increased 0.6% (down 1.4%). Turkey’s Borsa Istanbul National 100 index sank 8.2% (up 18.0%).
Federal Reserve Credit increased $5.8 billion last week to $6.698 TN, with a 40-week expansion of $207 billion. Fed Credit was down $2.192 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.971 TN, or 80%. Fed Credit inflated $3.887 TN, or 138%, since November 7, 2012 (723 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt slipped $450 million last week to $2.874 TN - just off the low back to August 2010. “Custody holdings” were down $246 billion y-o-y, or 7.9%.
Total money market fund assets (MMFA) dropped $52 billion to $7.921 TN. MMFA were up $638 billion, or 8.8%, y-o-y - having ballooned a historic $3.337 TN, or 73%, since October 26, 2022.
Total Commercial Paper gained $5.2 billion to $1.442 TN. CP increased $60 billion, or 4.3%, y-o-y.
Freddie Mac 30-year fixed mortgage rates surged 19 bps to 6.95% (up 69bps y-o-y) - the high back to January 2025. Fifteen-year rates jumped 17 bps to 6.26% (up 85bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 13 bps to 6.97% (up 44bps).
Currency Watch:
For the week, the U.S. Dollar Index rose 1.1% to 100.214 (up 1.9% y-t-d). On the downside, the South Korean won declined 3.2%, the Japanese yen 2.1%, the New Zealand dollar 1.6%, the Mexico peso 1.5%, the Swedish krona 1.3%, the Norwegian krone 1.3%, the euro 1.0%, the British pound 1.0%, the Canadian dollar 0.8%, the Singapore dollar 0.7%, the South African rand 0.7%, the Swiss franc 0.7%, the Australian dollar 0.6%, and the Brazilian real 0.4%. China's (onshore) renminbi increased 0.14% versus the dollar (up 4.33% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index added 0.2% (up 32.6% y-t-d). Spot Gold recovered 0.7% to $4,379 (up 1.4%). Silver rallied 2.7% to $66.2593 (down 7.5%). WTI Crude slipped 53 cents, or 0.5%, to $99.52 (up 73%). Gasoline jumped 6.3% (up 105%), and Natural Gas gained 2.5% to $2.901 (down 21%). Copper surged 2.5% (up 18%). Wheat added 0.9% (up 41%), and Corn gained 3.3% (up 20%). Bitcoin surged $3,850, or 5.0%, to $81.140 (down 7.4%).
Market Instability Watch:
September 18 – Bloomberg (Bernard Goyder): “Around $7 trillion of US options notional value rolls off the books Friday, accounting for around a quarter of the market, according to… Citadel Securities. The so-called ‘triple witching,’ where monthly S&P 500 Index options and single stock options all expire at the same time, is set to be the second-largest on record… The expiry, 60% of which takes place at the open, creates a ‘potential reset in the market’s technical backdrop,’ wrote Citadel Securities’ market intelligence team, led by Scott Rubner.”
September 16 – New York Times (Alan Rappeport): “Global investors are balking at U.S. bonds. Talk of the dollar’s dwindling power is getting louder. Foreign governments are hauling their gold out of American vaults. Almost two years into President Trump’s second term, the world economy is increasingly looking for ways to distance itself from America. Concerns about a $40 trillion debt burden, the excessive use of sanctions to solve foreign policy problems and Mr. Trump’s penchant for pushing the limits of the rule of law are raising questions about the appeal of the United States as a haven for global investment. Despite pledges by foreign companies and nations to invest in the United States — in many cases to curry favor with the White House — capital is starting to seek alternative destinations. ‘Geopolitical factors and U.S. weaponization of the dollar through financial sanctions are causing central banks and other official investors to attempt to diversify away from dollar assets,’ said Eswar Prasad, the former head of the International Monetary Fund’s China division.”
September 17 – Bloomberg (Philip Aldrick, Georgia Hall, and Julian Harris): “The Bank of England gave Britain’s bond market some much needed relief with an overhaul of its plan for selling off excess gilts that piled up on its balance sheet in the previous decade… Under the new schedule, the BOE will pause all bond sales from its £488 billion ($650bn) portfolio until April and stop selling long-dated bonds altogether.”
September 16 – Bloomberg (Anya Andrianova and Chris Anstey): “Foreign holdings of US Treasuries fell in July to the lowest level since October, led by declines in the stockpiles of France and Canada. Overseas holdings dropped by $50.4 billion from June… The total now stands at $9.25 trillion… Mainland China, the third-largest holder of Treasuries, saw a $15.4 billion fall in July…”
U.S. Credit Trouble Watch:
September 14 – Wall Street Journal (Heather Gillers): “Rick Phillips has been buying annuities for about a decade, paying upfront sums for the peace of mind of fixed returns. Now… he is swearing off the policies… Phillips is one of hundreds of thousands of Americans whose savings have fueled Walter’s vast business empire… Walter’s biggest insurer, Delaware Life, collected $10 billion in individual annuity premiums last year. Group 1001, the parent company of Walter’s insurers, ranks among the 10 biggest sellers of fixed and fixed-indexed annuities, according to… AM Best. Wall Street investment titans such as Apollo and KKR that sell private equity and private credit have increasingly tapped into insurance money to supercharge their lending, in many cases acquiring life insurers outright. Regulators require insurers to disclose when they make investments with their parent companies, known as ‘affiliated’ deals. In Walter’s case, the probe focuses on $20 billion of investments by Delaware Life and Clear Spring that weren’t properly marked as affiliated.”
September 17 – Bloomberg (Ava Benny-Morrison, Loukia Gyftopoulou and Zachary R. Mider): “US regulators are seeking interviews with employees of Guggenheim Partners LLC as they hunt for evidence of potential wrongdoing at Chief Executive Officer Mark Walter’s business empire. The Securities and Exchange Commission sent requests in recent weeks to current and former employees from the firm’s $367 billion asset manager, Guggenheim Investments… People who have managed portfolios of assets for insurance companies are among those the agency is seeking to interview.”
September 17 – Financial Times (Chak Raghunathan): “In the last decade, there has been a sharp turn in the market share of the US annuity business as a result of some big structural shifts. The fastest-growing issuers of annuities now are a bunch of asset managers who have built their own insurance companies or acquired one to add to their stable of financial services. The pace of that takeover should worry anyone who owns one of these products. A Federal Reserve Bank of Chicago working paper from 2025 found that private-equity-owned life insurers increased their market share of annuities sold in the US from 8.5% to 18% between 2017 and 2024. Some 61% of this growth can be attributed to private credit investments.”
September 16 – CNBC (Tobias Burns): “Corporate debt issued by the giant cloud computing players powering the artificial intelligence boom is getting riskier, private equity firm Apollo Global Management warned… Risk insurance contracts, known as credit default swaps, or CDS, for bonds issued by hyperscalers are getting pricier, and it’s not because banks are hedging more of their bets as bond issuance climbs, Apollo chief economist Torsten Slok wrote… ‘What the market is repricing is hyperscaler credit fundamentals, namely a debt-financed AI capex cycle with rising leverage, negative free cash flow and uncertain payback on depreciating assets,’ Slok wrote.”
September 14 – Bloomberg (Rene Ismail): “The default rate for a group of US private debt borrowers rose to a record in August, according to Fitch Ratings. The trailing 12-month private credit default rate across 1,300 borrowers rose to 6.3% at the end of last month, surpassing the previous high of 6.1% in the prior month… Fitch also recorded the highest monthly total of private credit default events in the past year. ‘Private credit defaults continued to rise in August, driven by maturity extension transactions that Fitch deems defaults, as uncertainty around rates and inflation has stifled deal flow making it difficult for sponsors to sell struggling portfolio companies ahead of loan maturities,’ said Lyle Margolis, Fitch’s head of private credit for North America.”
September 17 – Bloomberg (Upmanyu Trivedi and Jack Farchy): “Radiant World, the iron ore trading group that’s under fire amid allegations of fraud, has revealed to lawyers for a Jefferies Financial Group Inc. fund that it has hardly any cash left. The Jefferies fund is seeking to continue a worldwide freezing order of $499 million… In court filings…, lawyers for the Jefferies fund said that Radiant World had disclosed to them ‘enormously lower’ cash and inventories than was shown in their most recent annual accounts.”
Global Credit Bubble and Boom Watch:
September 15 - Bloomberg (Allison McNeely): “Lenders’ approach to data centers has a troubling similarity to the model applied to mortgages before the financial crisis, said Jason Thomas, head of global research and investment strategy for Carlyle Group Inc. Specifically, project financing for artificial intelligence development is often supported by the investment-grade credit quality of the financial sponsor… Lenders aren’t necessarily taking a view on the underlying project, he added. ‘I do worry though, because this is reminiscent in some ways of 2005 to 2007,’ Thomas said. At the time, lenders said they weren’t taking a view on the mortgage loan collateral but instead on the ability of the bank to take it onto its balance sheet if need be. Eventually, that no longer became feasible as liabilities grew, he said.”
September 17 – Bloomberg (Alastair Marsh): “The world’s banks allocated 15% more capital to the energy sector last year than in 2024, arranging and underwriting deals worth $2.3 trillion, according to… BloombergNEF. Against a backdrop of rising demand spurred by AI data centers, cooling technologies and the proliferation of electric vehicles, banks stepped up low-carbon financing by 16%, with such deals reaching a five-year high, BNEF wrote... Deals backing oil, gas and coal, meanwhile, rose 13% last year, it said.”
September 15 – Bloomberg (Allison McNeely): “KKR & Co. doubled the amount of private investment-grade financing it structured this year, reflecting growing demand from companies seeking flexible borrowing options. The firm structured or syndicated more than $80 billion of deals in the first half of the year, according to a presentation seen by Bloomberg. As of Sept. 1, KKR doubled the amount it originated in all of 2025.”
September 17 – Financial Times (Arjun Neil Alim and Haohsiang Ko): “China’s holdings of US Treasuries have fallen to the lowest since August 2008, underlining a shift in Beijing’s management of its reserves and a deepening rift between the world’s two largest economies. The value of US government debt held by Chinese investors… fell to $618bn in July, according to… the US Treasury. At its peak in November 2013, China held more than $1.3tn in US sovereign debt.”
September 17 – Bloomberg (Greg Ritchie and Michael MacKenzie): “DoubleLine Capital chief executive Jeffrey Gundlach warned that the next US downturn could trigger a debt crisis that sends long-term Treasury yields sharply higher — defying decades of conventional wisdom that bonds will always serve as safe haven during times of economic strife. Such a scenario could push the Federal Reserve and the Treasury into unconventional policies… ‘If there’s a recession, there’s going to be incredible attention paid to the fiscal situation,’ he said… ‘You would have the budget deficit go easily to 12% of GDP. That would create $3 trillion of interest expense probably per year, and you just can’t do it.’”
Leveraged Speculation Watch:
September 14 – Wall Street Journal (Timothy W. Martin, Gregory Zuckerman and Jason Douglas): “Anxiety about the Iran war, inflation and mushrooming public debt have driven the recent selloff in Treasury bonds. There is another factor that could add volatility into the mix: hedge funds, a growing force in this market. For decades, governments could rely on predictable buy-and-hold investors to snap up their sovereign debt. Now, pensions and other long-run investors are pulling back in search of higher returns elsewhere, leaving a void filled by hedge funds and other faster-twitch traders. Hedge funds held about $2 trillion of Treasurys at the start of this year, more than double their holdings five years earlier, according to the Treasury Department’s Office of Financial Research… At least some of those holdings are the result of funds pursuing the so-called basis trade…”
September 14 – Bloomberg (Craig Stirling): “Situational Awareness’s near collapse is a cautionary tale on the increasing role leveraged hedge funds play in global markets, the Bank for International Settlements warned. Officials at the… institution… highlighted the episode in July as they repeated warnings of underlying fragilities that central banks and investors must navigate. ‘Increased use of leverage across various markets is a concern, as it has the potential to amplify ordinary market movements into significant disruptions,’ Frank Smets, the BIS’s head of economic analysis and statistics, told reporters. ‘The failure of a highly leveraged AI-focused hedge fund serves as another reminder of these risks.’”
September 16 – Bloomberg (Naomi Tajitsu): “Currencies such as the Swedish krona and Swiss franc are emerging as prime candidates to finance carry trades as the yen’s recent surge makes it a less reliable bet than in the past. Russell Investments Ltd., and Allianz Global Investors favor the franc…, while JPMorgan… strategists recommend the Swedish krona and the Canadian dollar as attractive options. All those are vying to replace the yen in carry trades, where investors borrow in low-yielding currencies to buy higher-yield assets. For decades, the yen was traders’ currency of choice to sell but now its appeal is fading as Japan’s bond yields rise and joint US-Japanese intervention to support it underscored a preference for higher Japanese interest rates and a stronger yen.”
September 11 – Financial Times (Joshua Franklin, James Fontanella-Khan, Antoine Gara, Kate Duguid, George Steer, Amelia Pollard and Costas Mourselas): “JPMorgan… cut off its lending activity for Leopold Aschenbrenner’s hedge fund Situational Awareness after the wunderkind investor suffered the largest loss in the history of the hedge fund industry. Aschenbrenner, who is in his mid-twenties, was the star investor of the AI boom before tens of billions of dollars in losses forced him to sell a large chunk of his portfolio and cut back on leverage. JPMorgan was one of the primary lenders to Situational Awareness through the bank’s prime brokerage business. After the losses, the bank notified Aschenbrenner’s fund that it would end their lending relationship…”
Iran War Watch:
September 16 – Reuters (Samia Nakhoul and Timour Azhari): “The Houthi capture of ground overlooking the Bab el-Mandeb Strait has dealt Saudi Arabia its gravest setback in Yemen in years, exposing intelligence failures, the collapse of Yemeni allies and the limits of U.S. protection. A Houthi advance this week along the Red Sea coast and the capture of islands at the mouth of the strait… has also left the kingdom scrambling for backing as Iran and its allies expand their reach. Senior Western, regional and Yemeni officials and sources said the Houthi breakthrough reflected various factors: deep divisions among anti-Houthi Yemeni factions, an untested Saudi-led command structure that replaced Emirati oversight, limited Saudi air support and an underestimation of Houthi preparations. The diplomat said the Houthis had quietly assembled about 100,000 fighters, vastly outnumbering forces on the opposing side, adding: ‘Everyone, including the Saudis, missed this build-up and miscalculated the Houthis' intentions.’”
September 14 – New York Times (Vivian Nereim): “Saudi Arabia has increasingly found itself caught in the middle of the war between the United States and Iran. Now, the kingdom’s leadership is assessing dwindling options on how to respond. In recent weeks, the Iran-allied Houthi militia in Yemen has repeatedly attacked the kingdom, threatening to throttle its ability to export oil and piling pressure on the global economy. But Saudi Arabia has been left frustrated and disappointed by President Trump’s reluctance to confront the Houthis, former diplomats and analysts say. The kingdom’s diplomatic efforts to engage with Iran have also had limited results. A meeting planned on Monday between officials from Iran, Saudi Arabia and other Gulf countries was abruptly postponed… ‘Right now the Saudis are really frustrated,’ said Michael Ratney, a former U.S. ambassador to Saudi Arabia. ‘In some sense it’s their worst-case scenario.’”
September 14 – Associated Press: “Yemen’s Houthi rebels have seized the strategic islands of Greater and Lesser Hanish in the southern Red Sea, bolstering the Iran-backed rebels’ ability to control a key maritime shipping route. Recent fighting between the Iran-backed rebels and government forces in Yemen has killed hundreds of people and displaced tens of thousands. Meanwhile, repairs to a crucial Saudi Arabian oil pipeline that was struck in an attack last week could last three to five weeks, putting it mostly out of service…”
September 13 – Associated Press: “Oman said it had to postpone a meeting with Iran and other regional countries to discuss the Strait of Hormuz, while an Iranian commercial ship was struck early Sunday near the waterway... Iran had said foreign ministers from regional countries would meet in Oman to discuss efforts by Iran and Oman… But the foreign minister of Oman, Badr Albusaidi, said… the meeting had been postponed ‘in the interests of consensus.’”
September 14 – CNBC (Lim Hui Jie): “Iranian strikes have damaged and destroyed ‘hundreds of buildings and structures’ at U.S. bases in the Middle East as well as ‘dozens’ of U.S. aircraft as of the end of June, according to a government report. The Iran war cost an estimated $33.4 billion as of June 29, according to the U.S. Department of Defense… That includes $184 million in physical damage to U.S. diplomatic facilities in four countries — Iraq, Kuwait, Saudi Arabia and the United Arab Emirates — from Iranian strikes, it said. The expenditure of U.S. munitions during the conflict had ‘resulted in strategic inventory shortfalls and revealed industrial base bottlenecks for munitions resupply.’”
Iran War Ramifications Watch:
September 16 – New York Times (Lisa Friedman): “As Iran and its allies tightened their grip on shipping lanes in the Persian Gulf, Saudi Arabia scrambled this week to reroute millions of barrels of oil after being forced to close a critical pipeline damaged in an attack. The shutdown of the East-West pipeline risks keeping 4% of the world’s oil supply from reaching international markets and driving energy prices even higher… Now, Saudi Arabia, running out of options and under pressure to rapidly restore supply lines, is facing the prospect of a severe energy crisis with global implications, analysts said. ‘It is unprecedented,’ said Amena Bakr, head of Middle East & OPEC+ Insights at Kpler… ‘We have two major waterways obstructed, active attacks, Iran escalating attacks, proxies being active and no signs of diplomatic talks,’ Ms. Bakr said. ‘It’s a disastrous situation when you’re looking at it from an energy security angle.’”
September 16 – Bloomberg (Paul Burkhardt and Anthony Di Paola): “The price of Middle Eastern crude loading outside the Persian Gulf rose to the highest since March on growing concerns that supply shortages may be returning to the critical levels seen in the early days of the conflict. As traders scrambled for replacement barrels following attacks last week that halted a key Saudi pipeline, Oman crude futures advanced to $132.09 a barrel. Their premium to international benchmark Brent jumped to almost $24, also the highest since March. Demand is high for crude from Oman because the country lies beyond the Strait of Hormuz.”
September 15 - Financial Times (Steff Chávez): “The US military has a ‘strategic inventory shortfall’ of munitions after expending more than $22bn worth of them in the first four months of Donald Trump’s war on Iran, according to the Pentagon’s watchdog. In the fullest public accounting to date of the war’s costs to the US, the Defence Department’s Inspector General report stood in contrast to the insistence of Trump and Defence secretary Pete Hegseth that there is no shortage… The ‘munitions expenditure’ during the war ‘has resulted in strategic inventory shortfalls and revealed industrial base bottlenecks for munitions resupply’, said the office of Michael Duffy, the under-secretary of defence for acquisition and sustainment…”
September 15 – Wall Street Journal (Jared Malsin, Summer Said and Shelby Holliday): “The U.S. military fired up to 70 or more of its high-end air defense interceptors last week when Iran launched a missile attack on Jordan, U.S. and regional officials familiar… said, a heavy expenditure that underscores Iran’s improved ability to target U.S. forces and challenge American air defenses. U.S. forces fired 60 to 70 Patriot interceptors to counter the attack, which consisted of about 20 ballistic missiles… The U.S. also fired more than a dozen Thaad interceptors… The expenditure is about what the U.S. has used in a full week at other times in the war, another of the officials said. The exchanges showed how air-defense math can favor the attacker and how Iran has adapted its attacks to force the U.S. to burn precious munitions.”
September 15 – Bloomberg: “China’s gasoline and diesel inventories are plunging as refiners grapple with a tightening domestic market, raising the chance the government may move to limit fuel exports again. Gasoline stockpiles at Chinese state-owned fuel suppliers dropped 2.9% last week to the lowest since 2022… Diesel holdings declined 2.4% to a 15-month low… ‘With the domestic market tightening, we see an increasing risk that Beijing could restrict monthly clean product exports to around 1.2 million tons in the fourth quarter,’ said Jianan Sun, an analyst at Energy Aspects Ltd. in London.”
September 14 – Bloomberg (Alex Longley): “The cost of hiring an oil tanker on the industry’s benchmark trade route topped $1 million a day for the first time, as the Iran war leaves too few ships willing to cross the Strait of Hormuz to collect cargoes. Vessels hauling oil from inside the Persian Gulf to China were being hired at $1.035 million a day…”
September 14 – Wall Street Journal (Omar Abdel-Baqui and Eliot Brown): “The day after the U.S. and Israel launched their opening strikes on Iran, the Islamic Republic shot back with swarms of drones aimed at the Gulf’s newest high-value targets: American data centers. More than six months after the barrage, a damaged Amazon Web Services facility in Abu Dhabi and another one in Bahrain are still mostly offline. The company has told clients to move their data to other regions while it repairs the sites and hasn’t given a date for completing the work. The attacks and lasting damage are complicating the pitch by Gulf states like the United Arab Emirates to become world-leading data processors for industries such as artificial intelligence. They add a huge new risk for U.S. companies weighing investments that can cost tens of billions of dollars.”
September 15 – New York Times (Vivian Nereim): “Gulf Arab countries have long relied for their security on the U.S. military bases that they host. But after six months of war, the repeated pummeling of those countries by Iranian missiles and drones has made the limitations of American security guarantees abundantly clear. Iran and its allies have nearly destroyed some of the U.S. bases, set luxury hotels ablaze and, most recently, knocked offline one of the most critical pieces of energy infrastructure in the world, an oil pipeline that stretches across Saudi Arabia. Their backs against a wall, Gulf Arab officials are now trying to cobble together different ways to avoid attacks by Iran and its allies, including direct diplomacy with the Islamic Republic.”
September 15 - New York Times (David Yaffe-Bellany and Michael Forsythe): “Two Chinese companies used accounts on the cryptocurrency exchange Binance to launder illegal proceeds from the sale of Iranian oil, the Justice Department said... Binance was not charged with any wrongdoing. A group of crypto wallets linked to Iran received more than $1.5 billion of the illegal proceeds, the complaint said…”
Trump Administration Watch:
September 17 – Axios (Barak Ravid): “President Trump is expected to hold a meeting with Gulf leaders on the sidelines of the UN General Assembly in New York next Tuesday to discuss the next steps in the war with Iran, three sources… tell Axios. The meeting is expected to focus on U.S. ideas for a postwar strategy as Trump and his senior team work on a day-after plan expected to be finalized after the midterms.”
September 14 – Financial Times (Andrew England): “As Iran-backed Houthi rebels swept down Yemen’s Red Sea coast last week, Saudi Crown Prince Mohammed bin Salman called Donald Trump to seek US support stemming the militants’ advance. The Houthis were closing in on the Bab al-Mandeb, the narrow strait that has become crucial for Saudi crude exports… They were also firing waves of missiles and drones at energy facilities in Saudi Arabia’s southern provinces. And an attack from the north, by Shia militants in Iraq, forced the closure of a vital oil pipeline. But when Trump spoke publicly about the Houthi threat, he appeared unperturbed. The Houthis… had called Washington to say ‘they don’t want to fight with us’, he claimed. ‘They don’t want us to go after them,’ Trump said… ‘They’re letting most ships go through. There’s just one country that they’re not too happy with, and we’ll get that straightened out.’”
September 14 – Associated Press (Josh Boak): “President Donald Trump… lashed out against concerns about rogue artificial intelligence, claiming that any efforts to limit the technology are part of a ‘SICK conspiracy.’ ‘AI taking over the World, destroying Humanity, and all other things bad, is a HOAX,’ Trump posted…, later suggesting that those calling for guardrails on the technology had also warned about climate change, which he also called a hoax. The president was pushing back against calls by tech leaders such as Anthropic’s Dario Amodei, OpenAI’s Sam Altman and SpaceXAI’s Elon Musk to have greater government oversight of AI… ‘The only control or ‘guardrails’ that AI needs is a STRONG AND SMART (High IQ!) PRESIDENT, and the U.S.A. has that, in spades!’ Trump posted.”
September 14 – CNBC (Kevin Breuninger CJ Haddad): “President Donald Trump… raged against growing calls for greater regulation of artificial intelligence, lashing out at concerns about the controversial data center buildout as well as Anthropic CEO Dario Amodei’s plea for an AI slowdown. ‘The people that say AI is going to destroy the World, and that Data Centers are bad for your neighborhood, are the same people that said, just a short time ago, that the World would be extinguished by ‘Climate Change,’’ Trump wrote… In his fifth post about AI on Monday, Trump called himself the ‘Hoax Buster.’ ‘I’m right now breaking another Hoax — That AI is going to take over, consume, and destroy the World, and that Robots will be marching into our Cities, and getting rid of us all!’ he wrote.”
September 14 – Reuters (Bo Erickson, Chuck Mikolajczak and Padraic Halpin): “President Donald Trump said… the United States can afford his promise to send $5,000 to every U.S. adult should his Republican Party keep control of Congress in this year’s elections. ‘I don’t know but it’s easy if the Republicans win. $5,000 to all adults in the country and we can easily handle that because we’re taking in so much money,’ Trump told reporters when asked if Congress would need to approve the payments, adding that trillions of dollars were coming into the country.”
September 15 - Bloomberg (Yash Roy): “Treasury Secretary Scott Bessent said he’s supportive of a plan floated by President Donald Trump to send $5,000 checks to American adults if Republicans retain their majorities in Congress, downplaying concerns about the potential cost. ‘I believe there are ways to do it that would not affect the deficit,’ Bessent told lawmakers… Bessent didn’t provide details about how the cost would be offset, though he said the Treasury had been working on the plan for ‘quite awhile.’”
September 15 - Reuters (David Lawder): “U.S. Treasury Secretary Scott Bessent… blamed rising bond yields on ‘global issues’… U.S. bond yields have risen despite recent Treasury buybacks of longer-term debt that Bessent has described as a way to inject liquidity and to counter the rise in yields, or at least slow it down. Bessent told lawmakers the buybacks were a success and underscored U.S. credibility. ‘There is a counterfactual of what would it have done -- and we then proceeded to have the two most successful Treasury auctions that we've had in 20 years… Since President Trump has come in, (the U.S. bond market) has been the best-performing bond market in the developed world.’”
September 13 – Reuters (Bo Erickson, Padraic Halpin and Conor Humphries): “No country should have lower interest rates than the U.S., President Donald Trump said… days before the Federal Reserve’s next policy meeting… Trump said he did not know whether Fed policymakers will raise interest rates at their meeting this week. But he said the U.S. ‘should be paying the lowest interest rate in the world’ no matter what the Federal Reserve’s data indicates about inflation and the economy… ‘I know more about formulas than anybody, and with the best credit in the world, we make other countries rich,’ Trump said…”
September 15 – Bloomberg (Gregory Korte and Adrienne Tong): “President Donald Trump has traded more securities than every member of Congress combined since he returned to office — even as he seeks to pass a stock-purchasing ban for lawmakers that would exclude him from any restrictions. Trump or his money managers made nearly 28,700 trades in the 17 months between his second inauguration and the end of June… During that same period, Capitol Hill lawmakers collectively reported about 22,200 similar transactions.”
September 14 – New York Times (Alan Rappeport): “Sometimes the house doesn’t win. At a fireside chat at Southern Methodist University last week, Treasury Secretary Scott Bessent scoffed at those who doubted the wisdom of his interventions in currency and bond markets and dared investors to bet against him. ‘It’s my dream,’ Mr. Bessent said. ‘I have asymmetric information. I am the house now.’ He added: ‘You can bet against me if you want.’ On Monday, the bond market rebuked Mr. Bessent. The yield on 10-year Treasury bonds surpassed 5% for the first time since 2023 and only the second time since the 2008 financial crisis.”
September 15 – Financial Times (Edward Luce): “‘Credibility’ is a Washington measure devalued by overuse. The credibility of what the US Treasury secretary says, however, can be gauged minute by minute. For reasons even his defenders find hard to explain, Scott Bessent has been on a credibility-spending spree. Bessent told the currency markets last week that he was ‘the house’ and warned that nobody should bet against him. But the bond markets did and he lost. What weight will traders attach to his next pronouncement? For a figure who it was initially hoped would be the rare adult in Donald Trump’s second administration, Bessent’s behaviour has turned noticeably adolescent. He recently described Canada as a ‘little yippy dog’ biting at the heels of America’s German shepherd. At the Republican convention in Dallas last week, he warned that a Democratic midterm victory would result in a ‘socialist hellscape’. Then to the markets he said: ‘Look, if some of the Bloomberg Terminal bros are unhappy with what I’m doing, well, that’s too bad.’”
Trade War Watch:
September 16 – CNBC (Anniek Bao): “President Donald Trump… threatened to impose tariffs on the European Union or halt trade with the bloc entirely if it proceeds with its plan to make Canada its first-ever ‘associate member.’ ‘I think it’s laughable... Canada has been a terrible trade partner,’ Trump told reporters… He conditioned his threat on the intention of European leaders, saying that ‘if I think it’s at all a hostile act, I will put very serious tariffs or stop trading with Europe on many things.’ Trump’s remarks came after European Commission President Ursula von der Leyen said EU was opening the door for Canada to become the first associate member of the 27-member bloc.”
September 12 – Reuters (Nivedita Balu): “A growing consumer push to buy Canadian and boycott U.S. products is reshaping supermarket shelves in Canada, forcing grocers to improve country-of-origin labeling and secure new sources of supply. In Ontario, the president of independent grocer Vince's Market, Giancarlo Trimarchi, turned to Facebook to show customers that most produce on the shelves of his stores is Canadian after receiving angry emails and comments about the grocer stocking U.S. produce.”
September 16 – Bloomberg (Alicia Diaz): “President Donald Trump directed agencies to remove Canadian goods from government contracts, executing an earlier threat as tensions between the two countries flare. In a presidential memorandum, the White House criticized Canada for its barriers to US companies seeking access to the Canadian government market through a ‘Buy Canadian’ policy.”
September 16 – Reuters (Ingrid Melander, Charlotte Van Campenhout and Yves Herman): “Canada and Europe should ally to protect their markets, democracies and rule of law in a world dominated by the United States and China, Prime Minister Mark Carney said…, after an EU proposal to make Canada an ‘associate member’. The Canadian prime minister received warm applause for his speech to the European Parliament… ‘Europe and Canada are each strong. Europe and Canada are even stronger together,’ Carney said.”
September 17 – Bloomberg (Heesu Lee and Soo-hyang Choi): “South Korean President Lee Jae Myung said talks with the US over projects tied to Seoul’s $350 billion investment commitment were causing him to lose sleep, with discussions reopening after he found parts of a nearly completed deal hard to accept. ‘I myself have spent sleepless nights thinking about this,’ Lee said... ‘It carries enormous weight.’ The comments highlight the challenges Seoul faces in implementing the investment package agreed with the Trump administration last year, as the two sides work toward selecting the first projects under the deal.”
Constitution Watch:
September 18 – Bloomberg (Catherine Lucey): “President Donald Trump said he would ban cable news outlets CNN and MS NOW as well as online publication Politico from the White House, a move that strikes at the heart of First Amendment protections for the news media. Trump posted Friday on social media that the ban would become ‘effective immediately,’ citing what he said was unfavorable coverage of his administration. He also threatened to bar other outlets from the executive mansion, saying ‘other Fake News Media Outlets to follow.’”
U.S./Russia/China/Europe/Iran Watch:
September 17 – Bloomberg (Piotr Bujnicki and Maciej Martewicz): “Polish Prime Minister Donald Tusk warned that Russia plans to launch ‘hybrid-style’ drone and missile strikes against nations supporting Ukraine, including NATO-member Poland, as the war enters its most crucial phase. The Kremlin’s main goal now, as supported by evidence gathered by intelligence services, is to destroy Ukraine’s economy and logistics and weaken NATO’s resolve by attacks on its member states, Tusk said... It’s the ‘most likely scenario,’ the premier told lawmakers.”
September 14 – Politico (Victor Jack and Jacopo Barigazzi): “Despite Russia’s intensifying attacks on European critical infrastructure and weapons factories, NATO countries remain wary of making immediate tough moves that could provoke the Kremlin. European capitals are eyeing options including opening a debate about whether a so-called hybrid attack could trigger NATO’s Article 5 mutual defense clause, more unified communication in response to incidents and a greater push on protecting critical infrastructure… But so far, Europe is avoiding taking any drastic steps — in part over fears it could escalate into an all-out war with Russia.”
New World Order Watch:
September 15 - New York Times (Damien Cave): “The world is furious — again — over rising energy prices caused by the American-Israeli war against Iran. Since the latest surge pushed oil above $100 a barrel, protesters have burned tires and cars in Guatemala and Syria to express their rage. Portugal’s roads have featured cars crawling in protest with honking horns after diesel reached a record high of more than $9 a gallon. And especially in the developing countries of Asia, which are heavily reliant on Middle Eastern energy and deep in debt from earlier efforts to offset the war’s impacts, transport systems and governments are facing another round of enormous strain.”
September 12 – Axios (Neal Rothschild): “America is shedding its status as the default choice for foreign governments to park money, buy weapons and send students. Even modest shifts away from the U.S. could chip away at advantages that have helped sustain American economic and geopolitical power for decades. The Netherlands moved 86 tons of gold out of the U.S. and Canada last week, citing the move as a hedge against ‘extreme systemic risks.’ France already moved all of its gold out of New York, while Germany debated doing the same. Norway’s sovereign wealth fund — the world’s largest — announced plans to reduce its holdings of U.S. government bonds amid turbulence in the Treasury market. Beyond finance, European countries are looking for ways to wean off the U.S. On weapons, Europe is seeking to source more equipment locally to reduce its dependence on American firepower… On technology, the EU this summer set out plans to reduce its reliance on American companies, drafting cloud rules that would restrict Amazon, Google and Microsoft from competing for sensitive contracts.”
September 13 – Financial Times (Michael Stott, Andres Schipani and Joe Leahy): “Critics often slate the Brics as a motley collection of emerging markets that agree on little and achieve even less. But when faced with US President Donald Trump’s tariffs, his war in Iran and his attacks on international co-operation, leaders of the 10-nation bloc had little difficulty in uniting this weekend to express their opposition. China’s Xi Jinping, Russia’s Vladimir Putin and summit host Narendra Modi of India were among the leaders who agreed a 45-page statement… blasting protectionism and economic sanctions and calling for peace in the Gulf. ‘What you’re seeing this weekend in Delhi at Brics… is growing frustration with Trumpism,’ said Ashok Malik, head of India at the Asia Group consultancy. ‘Brics is not a political bloc or a trade organisation but this statement… is about the closest the Brics has got to taking a common political position. And in a sense, Trumpism has invited it upon itself.’”
September 13 – Associated Press (Aljaz Hussain and Sheikh Saaliq): “Indian Prime Minister Narendra Modi… warned that rising geopolitical tensions, supply chain disruptions and climate crises are increasingly affecting people worldwide and called for strengthened cooperation and support across the Global South. Addressing the BRICS summit of leading developing nations…, Modi also warned that the ‘weaponization of technology and critical minerals’ could hinder global development and shared prosperity… ‘The number of conflicts and tensions in the world is continuously increasing, and this is having an increasingly negative and far-reaching impact on the lives of ordinary people,’ Modi said, alongside bloc leaders, including Chinese President Xi Jinping, Russian President Vladimir Putin and Iranian President Masoud Pezeshkian.”
September 12 – Financial Times (Ilya Gridneff): “Prime Minister Mark Carney is pitching 200 of the world’s top financial executives gathering in Toronto next week a simple plan: invest 1% more in Canada as a hedge against Donald Trump’s volatility. The investor summit, hosting a C$120tn (US$87tn) pool of global capital, is an attempt to invigorate the former Goldman Sachs executive’s effort to decouple Canada from the US in the face of unrelenting hostility from the US president. ‘At a time of unprecedented trade disruption, our bold mission to unlock $1tn in new capital will create growth, good jobs and long-term prosperity,’ Carney said.”
September 14 – Reuters (Alasdair Pal): “An Australian cabinet minister said… the country was aligned with Canada’s attempt to seek deeper ties with the European Union, amid Ottowa’s escalating trade war with the United States. Canada is seeking a ‘unique alliance’ with the European Union but is not looking to become a member, Prime Minister Mark Carney said… he was exploring whether Canada could become an ‘associate member’ of the bloc. ‘We are on the same page,’ Australian Trade Minister Don Farrell told the Sydney Morning Herald... ‘We will take great interest in what Carney does.’”
September 17 – Bloomberg (Arne Delfs): “German Chancellor Friedrich Merz said the era of ‘unconditional’ ties between the US and Europe built since World War II are over, at least for now, the latest pronouncement of a breakdown in relations under Donald Trump’s presidency. ‘This era of unconditional transatlantic friendship is probably over for the foreseeable future,’ Merz told party members... ‘On the other side of the Atlantic, we are seeing a change in political attitudes, a change in the assessment of the transatlantic alliance, which we might not have thought possible.’”
Ukraine War Watch:
September 14 – Reuters (Olena Harmash): “Russia hit petrol stations in Kyiv on Tuesday and Ukraine struck a Russian oil refinery, as the warring sides carried on with strikes on each other’s energy targets despite an announcement by U.S. President Donald Trump that they had agreed to stop. Russia launched 200 drones at Ukraine’s capital and other cities in overnight attacks... In addition to petrol stations in Kyiv it struck energy and port infrastructure in other regions…”
September 16 – Bloomberg: “Ukraine damaged a major Russian oil refinery less than 200 miles northeast of Moscow while Russian forces attacked Ukrainian infrastructure overnight, a fresh indication the sides haven’t agreed to an energy truce despite claims by US President Donald Trump.”
September 13 – Wall Street Journal (Daniel Michaels): “Just as Ukraine was learning how to parry Russia’s drone attacks, Moscow has moved the goal posts with a new generation of innovative jet-powered weapons. New Geran drones and Banderol cruise missiles are lethal reminders that Russia still has the resources and supply chains to field fresh threats, this time packed with advanced electronics that allow them to find targets accurately and evade interception. Crucially, the leap forward was enabled in large part by components sourced from China, in violation of international sanctions, say Ukraine and others, based in part on wreckage from the few shot down so far.”
AI Bubble/Arms Race Watch:
September 14 – Wall Street Journal (Gareth Vipers): “Artificial-intelligence companies shouldn’t wait for governments to legislate on the technology before putting in their own safety controls, OpenAI Chief Executive Sam Altman has said… Altman warned that the dizzying pace of progress could go ‘very badly’ and that humans could lose ‘control of the future to AI’ or that too much power could become concentrated in the hands of a single person or company. ‘We welcome a federal framework that sets consistent safety requirements for frontier AI… No amount of American competitive pressure should justify recklessness’…”
September 14 – Bloomberg (Naureen S Malik): “America’s data center boom will need $110 billion to build 45 gigawatts of new power generation through 2030, according to… Moody’s… The vast majority of that new supply, more than 30 gigawatts, will come from natural gas-fired units and represents about 4 billion cubic feet of incremental gas supply… The bulk of the remaining supply will come from solar and energy storage, with nuclear restarts accounting for less than 5%. One gigawatt is roughly equivalent to the output of a traditional nuclear reactor.”
September 12 – Axios (Ben Berkowitz and Donica Phifer): “OpenAI will not go public this year given all the safety work it needs to do, CEO Sam Altman said… Altman’s comments come as fears over doomsday AI scenarios have ramped up since an Anthropic employee resigned and issued a dire warning about AI’s capabilities. ‘Right now would be an ill-advised moment to go public,’ Altman said. ‘I would say not 2026, yeah. We got a lot of stuff to do,’ Altman told Fortune editor-in-chief Alyson Shontell.”
Bubble Watch:
September 14 – Financial Times (Emily Herbert and Ian Smith): “Foreign investors are now buying more US stocks than government bonds, in a rare move that comes amid fears that inflation and America’s fast-growing debt pile are undermining the ‘risk-free’ status of Treasuries. International flows into US stocks reached 2.8% of US GDP on average in the year to June, overtaking Treasuries — at 2% of GDP — for the first time this century outside brief episodes in the Covid-19 pandemic and the aftermath of the global financial crisis, according to analysis… by Deutsche Bank. The change reflects the ever-growing lure of the US stock market… Powering the rally has been vast AI investment… At the same time, Treasuries’ traditional role as the global risk-free asset is coming under increasing pressure as investors grow warier of lending money to heavily indebted governments and question the independence of the Federal Reserve…”
September 17 – Financial Times (Akila Quinio): “Wall Street bankers have warned that the blockbuster trading gains that turbocharged profits in the second quarter are unlikely to be repeated, in a sign that the boom in banks’ market businesses may be starting to lose steam. Executives from the largest US banks told an industry conference this week that growth in trading revenues had started to slow after unprecedented performance in the previous quarter, when frenzied trading in AI-linked stocks helped banks’ earnings blow past records. Bank of America’s chief executive Brian Moynihan… said sales and trading revenue would be ‘flat’ at the bank in the third quarter, prompting a 5% fall in the company’s shares on the day and knocking rivals’ stock prices.”
September 14 – Wall Street Journal (Emma Tucker): “Over the past year, mall values jumped 13%—more than double the overall commercial market’s gains. Resilient consumer spending and smart pivots into luxury retail, dining and entertainment have helped bring shoppers back. Simon Property, the U.S.’s largest mall owner, is hitting record stock highs.”
Inflation Watch:
September 16 – Reuters (Lucia Mutikani): “U.S. import prices surged in August amid solid increases in the costs of capital and consumer goods, suggesting inflation could rise further in the coming months. Import prices rebounded 0.7% last month after declining by 0.3% for two straight months… Economists… had forecast import prices, which exclude tariffs, would rise 0.4%. In the 12 months through August, import prices soared 7.0%, the largest increase since August 2022, after advancing 6.1% in July.”
September 15 – Wall Street Journal (Adam Whittaker): “The average price of a gallon of diesel in the U.S. hit a fresh record high of $6.27 on Tuesday… U.S. diesel prices are soaring once again as the squeeze in the fuel market tightens, breaching $6 a gallon for the first time... Prices had jumped at the start of the Iran conflict before cooling after refiners ramped up production. The average price for a gallon of diesel was $3.69 a year ago.”
September 15 – Reuters: “Half of Russia’s six top diesel-producing refineries were forced to significantly cut back or completely halt output in September due to damage sustained in drone attacks… Russia’s fuel crunch was underscored by U.S. President Donald Trump…, when he called on Ukrainian President Volodymyr Zelenskiy to stop targeting Russian diesel infrastructure, saying the attacks were causing a shortage of the fuel that is ‘hurting the world’.”
September 13 – Bloomberg (Javier Blas): “In times of crisis, the oil industry delivers a perennial warning: ‘You can’t print barrels.’ While central banks can — and do — run their presses to soothe financial markets, the same option isn’t available in energy markets. And if conjuring crude is implausible, delivering diesel out of thin air is even more impossible. Right now, the world wishes it had a diesel printer as two wars — US-Iran and Russia-Ukraine — combine to create an enormous shortage, pushing the cost of the fuel to all-time highs. In the US, the retail price topped $6 a gallon last week for the first time; it was about $3.50 at the beginning of the year.”
September 16 – CNBC (Alex Harring): “Consumers are facing a double-whammy of jumping oil prices and Treasury yields amid the U.S. war with Iran that is leaving them increasingly cash-strapped… ‘Consumers are under a lot of financial pressure,’ said Mark Zandi, chief economist at Moody’s Analytics. The total bill per household since the U.S.-Iran conflict began is around $1,760, according to an analysis from Moody’s Analytics as of Sept. 11.”
September 15 – Wall Street Journal (David Uberti): “Oil prices’ lurch above $100 a barrel is propelling the U.S. past another unwelcome milestone: The war with Iran is sticking Americans with a 12-figure bill. U.S. consumers have collectively spent about $107 billion more on gasoline and diesel during the Iran conflict and disruptions from the Russia-Ukraine conflict than they would have had there been no war, according to estimates by the Climate Solutions Lab at Brown University. That averages to more than $500 million a day…”
September 14 – Financial Times (Myles McCormick): “Industrial America is contending with a fresh wave of supply chain inflation as Donald Trump’s Iran war pushes up energy costs, tariffs raise import prices and the AI boom strains supplies of crucial electronics. Manufacturers are paying sharply more for raw materials, energy and freight, with some input costs rising by double-digit rates, according to executives and industry data… ‘We just need to spend more and more money for the same stuff,’ said Julie Robbins, chief executive of EarthQuaker Devices, a… manufacturer of guitar pedals. ‘It feels like we have to try twice as hard to get the same results,’ added Robbins, whose company has had to raise prices twice this year. The mounting price pressures in the American factory sector are the latest sign of the inflation that is sweeping the US, driven by sharply higher fuel prices, levies on imports and the rush to procure electronics used in AI data centres.”
September 17 – Bloomberg (George Nixon and Andras Gergely): “Energy prices have been the scourge of bond markets this year. Now investors worry that the next inflation spike will come from food. They see a risk that a ‘Super’ El Niño, tight fertilizer supplies, attacks on shipping and fallout from Europe’s record hot summer will push the cost of staple foods higher. Even after the Federal Reserve raised rates and vowed to tame inflation, a sustained rise in prices could create a new problem for bond portfolios.”
Federal Reserve Watch:
September 16 – Financial Times (Claire Jones and Myles McCormick): “Kevin Warsh has rebuffed Donald Trump’s demands for low borrowing costs, as the president’s pick to run the Federal Reserve led it to the first rate rise since 2023 less than four months into the job. The central bank chair… offered the strongest evidence yet that he is prepared to disregard Trump when he corralled all 12 rate setters on the Federal Open Market Committee into backing a quarter-point rate rise. ‘The plain fact is that inflation is too high and has been for too long,’ Warsh said, as he repeatedly told journalists that he would be ‘hard pressed’ to describe current interest rates as so high that they would slow the economy. Warsh’s signal to Wall Street — just weeks before pivotal midterm elections — that he is ready to take further measures to tame the inflation pulsing across the US economy contrasts sharply with the president’s understanding that he was choosing a Fed boss who ‘certainly wants to cut rates’.”
September 16 – New York Times (Tony Romm): “President Trump lashed out at the Federal Reserve… over its decision to raise interest rates, as he reprised his earlier threats to cut off a broad swath of U.S. trade unless the central bank bows soon to his demands for lower borrowing costs… Mr. Trump acknowledged that he had talked to Kevin M. Warsh… at some point before the Fed board voted unanimously to lift rates by a quarter of a percentage point for the first time in three years. ‘I told Kevin, I said, you might as well vote with the board because it’s just not going to matter,’ Mr. Trump said. ‘The board is very hostile. They’re very political. They’re doing the wrong thing. They’re a bunch of politicians. They are people put on by politicians.’”
U.S. Economic Bubble Watch:
September 15 - Bloomberg (Julia Fanzeres and Mark Niquette): “US household incomes rose last year to an all-time high and the poverty rate fell to one of the lowest levels on record. The median household’s inflation-adjusted income increased 2.6% last year to $87,460, according to the Census Bureau’s annual report… That was the highest in data back to 1967.”
September 17 – Associated Press (Paul Wiseman): “The number of people applying for unemployment benefits dropped sharply last week, another sign that layoffs remain rare and most Americans enjoy job security. The Labor Department reported… jobless claims slid to 196,000, the fewest since mid-July and down from 206,000 the week before…”
September 16 – Bloomberg (Jeffrey Sparshott): “US retail sales rose by the most in five months in a broad advance, showing consumers continued to spend despite rising gasoline prices. The value of retail purchases increased 1.2% in August after a revised 0.5% decline in July… The median estimate… called for a 0.8% advance… Twelve of 13 retail categories in the report posted increases… So-called control-group sales… increased 1.4%, the most in nearly two years. The measure excludes food services, auto dealers, building materials stores and gas stations. Sales at nonstore retailers, primarily online shopping, climbed 2.6% in August — the most since February 2025… The value of gasoline station sales rose 3.1%.”
September 15 – Yahoo Finance (David Hollerith): “JPMorgan… CEO Jamie Dimon said… that he thinks the country’s small businesses are having a ‘mini boom.’ ‘I think it is a mini boom, and it’s different by state,’ Dimon told Yahoo Finance... He added, ‘The rules and regulations are different by state, but I think we see a lot of growth in new small businesses, much more than We’ve had.’”
September 16 – CNBC (Diana Olick): “Fast-rising interest rates are taking their toll on mortgage demand, as both potential homebuyers and current homeowners head to the sidelines… Applications to refinance a home loan, which are most sensitive to weekly rate changes, dropped 9% for the week and were 65% lower than the same week one year ago… Applications for a mortgage to purchase a home dropped 1% for the week and were 19% lower than the same week one year ago.”
September 17 – Reuters (Lucia Mutikani): “US single-family homebuilding increased in August… Single-family housing starts, which account for the bulk of homebuilding, jumped 7.6% to a seasonally adjusted annual rate of 918,000 units last month… They rose 5.2% on a year-over-year basis in August. Single-family building permits fell 1.8% to a rate of 878,000 units in August. They increased 1.3% on a year-over-year basis… Starts for housing projects with five units or more, a very volatile segment, plunged 22.5% to a rate of 344,000 units in August. Multi-family housing starts decreased 15.5% on a year-over-year basis. Overall housing starts fell 2.6% to a pace of 1.275 million units. They decreased 1.2% on a year-over-year basis in August.”
China Watch:
September 15 – Bloomberg: “China’s central bank governor signaled a long period of massive credit growth has come to an end, in what amounted to a message of reassurance for markets after an abrupt deceleration in lending as the economy loses its appetite for borrowing… Pan described it as a natural development during the economy’s transition toward a new normal of slower loan growth. In an unusually lengthy analysis, he cited several reasons for the moderation, including the rise of high-tech sectors that rely less on debt compared with property developers. ‘The real economy’s demand for credit growth is changing,’ Pan wrote. ‘It is difficult, and also unnecessary, for overall credit to maintain its past growth rate.’”
September 16 – Reuters (Kevin Yao): “China’s slower loan growth is becoming the new normal as shrinking property and local government sectors sap credit demand faster than emerging industries can fill the gap, central bank governor Pan Gongsheng said… ‘Slower but higher-quality loan growth is likely to become one of the new normal features of macroeconomic operations,’ Pan said in the Communist Party’s flagship theoretical journal, Qiushi. The slowdown reflects China’s economic shifts, with lending to the property sector and local government financing vehicles shrinking and new industries still unable to fully offset the decline, he added. ‘Maintaining previous rates of overall credit growth will be difficult and unnecessary.’”
September 14 – Reuters (Kevin Yao and Shi Bu): “China’s new bank loans returned to positive territory in August but fell well short of analysts’ forecasts after a record contraction in July, as weak demand from the household and corporate sectors continued to weigh on credit growth. Chinese banks extended 60 billion yuan ($8.95bn) in new loans last month, bouncing back from a 340 billion yuan contraction in July… New loans totalled 10.44 trillion yuan in January-August, down from 13.46 trillion yuan in the same period last year, highlighting tepid demand. Outstanding yuan loans in August grew 4.9% from a year earlier, slowing from 5.1% in July to the weakest pace on record. Household loans, including mortgages, shrank by 202.9 billion yuan in August after a contraction of 460.3 billion yuan in July… Corporate loans rose by 260 billion yuan last month, rebounding from a fall of 130 billion yuan in July.”
September 14 – Bloomberg: “China’s residential prices fell in August, with used-home values dropping at a faster pace, the latest sign of a slump that pushed policymakers to unveil fresh steps to support the market at the end of last month. New-home prices in 70 cities declined 0.17% from July, when they slid 0.18… Resale home values… slid 0.31%, accelerating from the previous month’s 0.29%.”
September 14 – Reuters (Kevin Yao and Yukun Zhang): “China’s industrial sector showed renewed strength in August as the AI-driven tech boom fuelled factory output, though sluggish consumption and a worsening investment slump reinforced concerns over deepening economic imbalances… Industrial output grew 5.2% from a year earlier in August, quickening from a 4.5% increase in July and beating expectations for a 4.8% rise… Strong expansion in equipment and high-tech manufacturing underpinned the production upturn. Retail sales, a gauge of consumer activity, rose 0.4%, slowing from a 0.6% gain in July and below an expected 0.8% rise.”
Central Banker Watch:
September 17 – Financial Times (Sam Fleming, Ian Smith and Emily Herbert): “The Bank of England has given its strongest signal yet that it will need to raise interest rates in response to the Middle East energy crisis, even as it sparked a bond market rally by curbing its sales of long-dated gilts. The Monetary Policy Committee voted six to three to hold rates at 3.75%..., as had been expected by financial markets. Governor Andrew Bailey put households and businesses on notice that ‘policy may have to tighten’, with inflation forecast to head above 4% next year.”
September 12 – Associated Press (Zoe Schneeweiss and Mark Schroers): “Euro-area inflation will stay elevated for some time, according to European Central Bank President Christine Lagarde. ‘The current shock is longer-lasting,’ she told Ouest-France… The conflict in the Middle East ‘is continuing. We expect the volatility and pressure on energy prices to continue, even though the increase in prices also poses a risk of lower growth.’”
Europe/UK Watch:
September 17 – Financial Times (Leila Abboud): “France’s minority government has said it aims to reduce the country’s deficit next year by proposing a budget that includes a €54bn savings drive, paving the way for a showdown with parliament that could lead to its collapse. French Prime Minister Sébastien Lecornu said… he will submit a draft budget to lawmakers that would lower the deficit to 5% of GDP in 2027, notably through big cuts to spending on pensions and reductions in the expenditure of government ministries, excluding defence.”
September 18 – Reuters (Giuseppe Fonte): “The cost of servicing Italy's public debt is rising at ‘an alarming rate’ in the wake of geopolitical tensions, Economy Minister Giancarlo Giorgetti said on Friday, as the government prepares to update its budget plans for 2027 onwards. Inflation is bound to rise ‘ineluctably’ if the wars in Ukraine and the Middle East continue, Giorgetti told a conference… Under its most recent budget plan, Italy sees its public debt peaking at almost 139% of GDP this year, replacing Greece as the euro zone's most indebted country.”
Japan Watch:
September 17 – New York Times (River Akira Davis): “The Bank of Japan raised interest rates on Friday in a closely watched move that followed unusual scrutiny by the Trump administration. Japan’s central bank moved its policy rate from 1% to 1.25%, the highest level in 31 years in a country that has long combated stagnant prices with near-zero interest rates… U.S. Treasury Secretary Scott Bessent publicly pressured Tokyo to tighten policy. Speaking… last week, Mr. Bessent even suggested that he had inside knowledge of the bank’s plans to raise rates.”
September 15 – New York Times (River Akira Davis and Hisako Ueno): “As Japan’s central bank prepares to meet this week, the architects of the country’s decade-long policy of low interest rates say that strategy has outlived its usefulness. Their concern has flipped from stagnant prices to entrenched inflation. Japan’s current leader appears unconvinced. Since taking office last year, Prime Minister Sanae Takaichi has continued to embrace Abenomics…, leaning on the central bank to keep rates low while pursuing record fiscal spending. Abenomics was conceived in 2012 to jolt Japan back into growth. But the deflationary spiral and strong yen that it was designed to address have reversed. For most of the past four years, inflation has remained above the central bank’s 2% target. The yen has fallen against the dollar to multidecade lows. ‘The situation is completely different now,’ said Koichi Hamada, a former top aide to Mr. Abe and one of the key advisers behind Abenomics. Therefore, he said, ‘I changed my mind right now to recommend monetary constraint.’”
September 16 – Associated Press (Yuri Kageyama): “Japan’s trade deficit totaled 1.1 trillion yen ($7bn) last month as surging oil prices due to the conflicts in the Middle East sent the cost of imports soaring. It was the fourth straight month of red ink… Resource-poor Japan imports virtually all its oil. Previously that came mostly through the Strait of Hormuz, where traffic has been curtailed due the stalemated Iran war. Japan’s imports in August rose 28% from the same month a year ago to 11.15 trillion yen ($71.9bn)… Japan’s exports rose 19.3% to 10 trillion yen ($64.5 billion), mainly in computer chips and autos.”
September 17 – Bloomberg (Taiga Uranaka and Hideki Suzuki): “Japan’s main bank industry group warned that government bond yields are likely to keep rising, running the risk of writedowns and a hit to profits. A prolonged increase in Japanese government bond yields could lead to writedowns and realized losses, Masahiko Kato, chairman of the Japanese Bankers Association, said…”
Emerging Markets Watch:
September 18 – Financial Times (John Paul Rathbone): “Turkey has drafted in two of the country’s biggest banks to liquidate 131 investment funds involved in the collapse of a speculative bubble that has shaken its capital markets and put billions of dollars of investments held by tens of thousands of investors at risk. Turkey’s İş Bankası and state-run Ziraat Bankası will oversee the funds’ liquidation... Recent data suggests the liquidated funds have about $17bn of investments, held in more than half a million accounts on behalf of 300,000 investors.”
September 14 – Reuters (Shubham Batra and Nikunj Ohri): “India’s annual retail inflation accelerated further in August as price pressures spread beyond food and transport, strengthening the case for a rate hike by the central bank next month. The August print of 4.82% was marginally higher than a 4.80% inflation that the economists were expecting… and 4.45% in the previous month.”
