An additional million plus workers have left the labor force since the start of the year. There are various reasons people opt out of traditional work, some directly linked to Bubble excess. How many millions have become work-from-home market gurus, earning their living day-trading stocks and options? How many millions have retired early, content to live off huge market gains? And how many millions have used market gains along with loose Credit to pursue entrepreneurship? These are extraordinary times, and the monthly change in non-farm payrolls no longer provides a reliable gauge of economic activity or labor market conditions.
August 3 – Bloomberg (Jeffrey Sparshott): “US manufacturing activity expanded in July at the fastest pace in more than four years as demand remained strong, production surged and firms added workers. The Institute for Supply Management’s July manufacturing gauge rose to 55.6, the highest since May 2022. Readings above 50 indicate growth, and the sector has now been above that mark for seven consecutive months. The gauge for production rose to 58.5, its highest level since late 2021, while the employment measure indicated manufacturers increased headcount for the first time since September 2023. New orders growth… also picked up… ISM’s prices index fell to 71.1 in July, the lowest in five months but still significantly higher than at the beginning of the year. ISM’s gauge of exports for July was the highest since March 2022 and a measure of imports climbed to its best mark since June 2021.”
It’s worth repeating. Manufacturing activity expanded at the fast pace since May 2022. The ISM Manufacturing Index has surged 7.7 points so far in 2026, the steepest advance since emerging from the pandemic. Strength was notably broad-based. In particular, factories are ramping up production.
Manufacturing data corroborate the “overheating” thesis. That said, I generally downplay the relatively small manufacturing sector while overweighting data from services. A weakening services sector would ameliorate overheating risks. We’re just not seeing that play out, as financial conditions remain extraordinarily loose.
The ISM Services Index increased slightly to a solid 54.1. New Orders jumped two to 57.2, with Prices Paid rising back above 70. The S&P Global U.S. Service PMI added a full point to a stronger-than-expected 54.6, the highest reading since last October. The Employment component popped more than a point to 50.8, the high since November. Prices charged (58.5) jumped to a more than one-year high.
I’ll toss into the analysis July’s 7.359 million job openings (“JOLTS”). Weekly Unemployment Claims remain at a historically low 200k level. There was also July’s stronger-than-expected Durable Goods data (“non-defense, ex-air” up 2% for the month).
August 6 – Wall Street Journal: “U.S.-based employers announced about 33,500 job cuts in July, the lowest monthly total in two years, according to Challenger, Gray & Christmas, a global outplacement firm. So far this year, layoffs are 41% lower than they were at this point in 2025. The tech sector has been hit hardest, with more than 30% of all the jobs lost to date in 2026. ‘The pace of layoffs fell dramatically this summer,’ said Andy Challenger, who tracks workplace data and trends. ‘Hiring has also increased over last year by 25%, so while AI is shifting the labor market, it is not dismantling it.’”
I do not see compelling data that would warrant downgrading overheating risks. Instead, financial conditions remain exceptionally loose, and inflationary pressures are ever more deeply ingrained.
It was, however, a conveniently timed weak jobs report. Stocks added to strong weekly gains, with the VIX (equities volatility) Index closing the week at 14.9, the low back to the week of January 9th. The S&P500 Friday posted a record close.
Notably, 10-year Treasury bond yields dipped a measly three bps (30-yr 2.5bps) on the surprising job losses – closing the week at 4.65% (down 9bps for the week). The rates market ended the week pricing 28 bps of rate cuts this year, down from last Friday’s 37 bps.
What impact might Friday’s Non-Farm Payrolls have on a divided Warsh Fed? I doubt the hawks will be swayed, while the doves will be emboldened. The new chair’s job was not made any easier.
August 3 – Axios (Neil Irwin): “The U.S. and Japanese governments have acted together to try to prop up the value of the yen on global currency markets. The way they did it contains a clue about U.S. goals — and has some worrying implications for global markets… The two governments appear to have used complementary tools. The New York Fed, acting for the Treasury, reportedly sold euros to buy yen. Meanwhile, the Fed’s Foreign and International Monetary Authorities (FIMA) Repo Facility gave Japanese authorities a way to borrow dollars against Treasury securities rather than selling those securities outright. In effect, the U.S. Treasury was acting to strengthen the yen-euro exchange rate. It apparently achieved its goal of strengthening the yen on global currency markets, without the Japanese government selling U.S. government debt on a large scale… A Treasury official tells Axios that the action was a response to the speed and disorderliness of the yen sell-off, and meant to prevent that instability from spreading. ‘Markets are treating this as a currency issue, but it’s far bigger than that,’ Nigel Green, CEO of the financial consulting firm deVere Group, wrote… ‘When two of the world’s largest economies step into the market together for the first time in over a decade, they’re telling investors something about stress building beneath the surface of the global financial system, not just about an exchange rate.’”
August 2 – Bloomberg (Cormac Mullen and Matthew Burgess): “Treasury Secretary Scott Bessent’s championing of a Federal Reserve facility Japan can use to boost the yen comes with the benefit of protecting the US bond market from excess sales. The Foreign and International Monetary Authorities Repo Facility enables overseas central banks to use their Treasury holdings as collateral to access dollars, rather than sell the bonds on the open market to raise cash. It was created during the pandemic in 2020 to allow counterparties to raise liquidity without overly disrupting the Treasuries market.”
August 5 – Wall Street Journal (James Mackintosh): “The joint U.S.-Japan support of the yen is unusual. The way it is being financed is unprecedented, and adds liquidity when the punch bowl of the U.S. economy and markets is already overflowing. So far the scale of intervention is small. But Treasury Secretary Scott Bessent wants the Fed to drop the $60 billion cap on the emergency facility Japan plans to use—or abuse—and pledged to do ‘whatever it takes’ to help. Put simply: America is offering to print dollars to buy yen. It’s not quite quantitative easing, because the way it works is the Federal Reserve lends Japan money in return for temporary ownership of Treasurys in repurchase agreements, rather than outright buying the Treasurys. But like QE it expands the Fed balance sheet and pumps billions of dollars into the economy. When the Fed is widely thought to be moving toward raising rates, this is exactly the opposite of what it should be doing. Expanding the balance sheet is also the opposite of what Chairman Kevin Warsh has repeatedly said he wants to do.”
August 3 – Financial Times (Ian Smith, David Keohane, Kate Duguid and Claire Jones): “When Washington and Tokyo staged their first joint intervention to boost the Japanese yen in almost three decades, the man steering the US effort was no stranger to making high-stakes currency trades. Friday’s move was spearheaded by Scott Bessent, a former trader who made his name betting against the pound in 1992 and the yen in 2013 while at George Soros’s investment firm. At the helm of President Donald Trump’s Treasury, he has taken an increasingly activist approach to financial markets. Washington’s historic intervention to prop up another nation’s currency stunned investors in part because the yen had been weakening more steadily than the chaotic moves that typically prompt co-ordinated action. They were also struck by the decision to sell euros to buy the Japanese currency rather than using dollars. The trade reflected the growing willingness of Bessent’s Treasury to delve deeper into forex markets after it swooped in to support the Argentine peso last year. ‘It’s not for soft power, it’s not for the greater good, so what is the US doing?’ said one big US bond investor.”
“So what IS the US doing?” My read has the Trump administration recognizing acute underlying market fragility. Bessent is willing to take extraordinary measures to prevent potentially unmanageable market instability – an egregiously speculative stock market near record highs notwithstanding. And this is what markets have expected – what’s built into elevated prices and historically depressed risk premiums. The “Trump put” in action – sophisticated, crafty, aggressive and proactive. Bessent this week went so far as to invoke Mario Draghi’s “whatever it takes” (from 2012 European bond crisis).
So, we can pretty much dismiss Kevin Warsh’s rhetoric on scaling back the Fed’s balance sheet and market interventions more generally (less than three months into his term!). I’ll assume the Fed Chair shares Bessent’s worry that intensifying currency instability might force Japan to liquidate Treasuries to fund yen support operations, selling that would push Treasury yields even higher while further pressuring vulnerable marketplace liquidity. Higher Treasury yields and waning liquidity would reverberate through fragile global bond markets, risking a disorderly unwind of “carry-” and “basis-trade” leverage around the world. That’s the nightmare scenario the administration is hellbent on avoiding, especially while at war and with midterms looming less than three months away.
Coincidentally, it was two years to the week that U.S. and global markets were buffeted by a major yen “carry trade” “flash crash.” To refresh memories: From Reuters: “Wall Street’s most-watched gauge of investor anxiety logged its largest ever intraday jump on Monday and closed at its highest since October 2020, as traders scrambled to hedge against market volatility during a global selloff…”
And from the August 10, 2024, CBB: “At Monday’s intraday lows, the S&P500 was down 4.3%, the Nasdaq100 5.5%, the KBW Bank Index 5.0%, Germany’s DAX Index 3.6%, France’s CAC40 3.1%, UK FTSE100 3.2%, and Japan’s Nikkei 225 Index 13.2%. Bitcoin was 13.8% lower at Monday’s low… During peak Monday panic, the market was pricing a 3.85% December policy rate, down an incredible 79 bps in four sessions. At rate lows, market pricing implied 148 bps of rate reduction by year-end. Two-year Treasury yields sank as low as 3.65% in Monday trading, down 40 bps to a 15-month low. At lows, two-year yields were down 71 bps in four sessions.”
It’s the type of chaotic market dislocation not soon forgotten by Scott Bessent or Kevin Warsh. The August 2024 incipient de-risking/deleveraging episode, however, was quickly reversed by market-induced dovish BOJ comments (Shinichi Uchida: “I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile.”). Global Bubble rescued and further energized. And in two years of additional policymaker accommodation, global speculative leverage only ballooned to more precarious extremes, ensuring today’s much greater fragility.
Bessent’s Gambit triggered yet another market reversal and short squeeze. The Nasdaq100 rallied 5.1% this week, as the Semiconductor Index surged 9.2%. The Goldman Sachs Most Short Index spiked 9.6% higher. Short squeezes and the unwind of market hedges are powerful liquidity generators. Accordingly, the week saw gold jump 7.3% ($295) and silver surge 10.4%. The NYSE Arca Gold BUGS Index rallied a blistering 21.9%. Most financial conditions indicators retreated to near multiyear lows (loose conditions).
I was thinking this week about a George Soros quote: “When I see a bubble forming, I rush in to buy, adding fuel to the fire.” Of course, speculators will aggressively play market Bubbles. Lots of fuel will be thrown on the fire. But what happens when everyone becomes a speculator – when policymakers accommodate Bubble excess for so long that it becomes such a rational decision for all to partake in the mania? When basically anyone with the wherewithal – including government policymakers and Fed officials – has a significant chunk of their wealth in the markets and a vested interest in sustaining asset inflation? Who will safeguard system stability?
Kevin Warsh’s affinity for Alan Greenspan is fascinating. “Like Alan, I intend to fill the role of chairman with energy and purpose, just the way Chairman Greenspan did.” Okay, but there will be no second coming of “The Maestro.”
Greenspan was credited for rescuing the markets following the 1987 stock market crash; resuscitating the economy from the early-nineties deep recession; resurrecting the banking system from the depths of crisis; successfully orchestrating multiple bailouts; and adroitly supporting the economy’s technology revolution.
“The Maestro” had a secret partner: unfolding booms in non-bank Credit creation and “Wall Street finance.” And some three decades later, the Federal Reserve still has no analytical framework or policy mechanism for managing unfettered Credit creation and asset Bubbles. The imperative of early Bubble recognition goes unrecognized.
This week, I also thought of a quote I stumbled across years ago when studying the “Roaring Twenties.” It was a simple comment by a Federal Reserve official in 1929 while discussing dangerous Wall Street speculative excess and the dilemma it presented for policymaking. He asked: “How are we to stop people from doing what they want to do?”
Markets have succumbed to a precariously dysfunctional phase. There’s no turning back. For too long it has paid to ignore risk, buy every pullback, and lever up for big returns. Broken markets have proven incapable of orderly adjustment/correction. At this point, risk management is for suckers. Hedging only hurts performance. And from a macro perspective, derivative hedges and short positions create highly flammable fuel for squeezes, panic buying, and FOMO speculation.
Will this week’s reversal and squeeze evolve into the typical FOMO market run higher? While the stock market is hankering for speculative blow-off, bond market fragility is a mounting issue. Financial conditions are too loose and inflation too deeply entrenched. The likelihood of ongoing issues in the Gulf ensures energy and supply chain issues. Tariff and trade war issues will also continue to stoke inflationary tailwinds. And to anyone paying attention, intensifying climate change coupled with a powerful El Niño has inflation ramifications.
Throw into the mix reckless fiscal deficits and an evolving Federal Reserve credibility crisis, and I’d bet on a bond market these days less than friendly to stock market shenanigans. Bessent’s Gambit was conspicuously pro-Bubble. Structural damage — deep and wide-reaching — runs unabated.
August 5 – Bloomberg (Simone Foxman): “Surging retail trading isn’t just transforming markets; it’s also highly correlated with demoralization in young men, according to a new study. One-quarter of men aged 18-29 said they trade stocks daily, and almost two-thirds of them (64%) report feeling like failures, according to a study of 2,000 men published Wednesday by the Institute for Family Studies… Of the 23% of young men who said they gambled daily, including on sports and events, 66% reported similar angst…”
For the Week:
The S&P500 surged 3.6% (up 13.3% y-t-d), and the Dow rose 3.0% (up 12.4%). The Utilities declined 1.2% (up 3.5%). The Banks gained 1.6% (up 15.7%), while the Broker/Dealers slipped 0.6% (up 15.4%). The Transports advanced 2.2% (up 23.9%). The S&P 400 Midcaps rallied 3.5% (up 17.6%), and the small cap Russell 2000 jumped 3.5% (up 22.3%). The Nasdaq100 jumped 5.1% (up 17.7%). The Semiconductors surged 9.2% (up 74.5%). The Biotechs advanced 4.5% (up 24.6%). With bullion rallying $295, the HUI gold index spiked 21.9% (up 7.4%).
Three-month Treasury bill rates ended the week at 3.7093%. Two-year government yields dropped 10 bps to 4.20% (up 72bps y-t-d). Five-year T-note yields fell 10 bps to 4.35% (up 63bps). Ten-year Treasury yields reversed nine bps lower to 4.65% (up 48bps). Long bond yields declined seven bps to 5.20% (up 36bps). Benchmark Fannie Mae MBS yields sank 14 bps to 5.63% (up 59bps).
Italian 10-year yields dropped 12 bps to 3.90% (up 35bps y-t-d). Greek 10-year yields fell 12 bps to 3.79% (up 36bps). Spain's 10-year yields declined nine bps to 3.56% (up 27bps). German bund yields declined seven bps to 3.13% (up 28bps). French yields fell eight bps to 3.92% (up 35bps). The French to German 10-year bond spread narrowed about one to 79 bps. U.K. 10-year gilt yields dropped 13 bps to 4.92% (up 44bps). U.K.’s FTSE equities index added 0.3% (up 9.7% y-t-d).
Japan’s Nikkei 225 Equities Index rallied 1.9% (up 30.3% y-t-d). Japan’s 10-year “JGB” yields were unchanged at 2.81% (up 74bps y-t-d). France’s CAC40 rose 2.4% (up 6.9%). The German DAX equities index jumped 2.7% (up 7.5%). Spain’s IBEX 35 equities index rose 2.0% (up 16.6%). Italy’s FTSE MIB index rose 3.0% (up 19.5%). EM equities were mixed. Brazil’s Bovespa index dropped 3.1% (up 7.1%), while Mexico’s Bolsa index was little changed (up 4.0%). South Korea’s Kospi sank 5.1% (up 48.5%). India’s Sensex equities index increased 0.5% (down 7.9%). China’s Shanghai Exchange Index rallied 2.8% (down 0.7%). Turkey’s Borsa Istanbul National 100 index gained 2.4% (up 22.4%).
Federal Reserve Credit slipped $3.0 billion last week (from a 16-month high) to $6.696 TN, with a 34-week expansion of $206 billion. Fed Credit was down $2.193 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.970 TN, or 80%. Fed Credit inflated $3.885 TN, or 138%, since November 7, 2012 (717 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt gained $8.2 billion last week to $2.926 TN. “Custody holdings” were down $302 billion y-o-y, or 9.4%.
Total money market fund assets (MMFA) recovered $55.4 billion to $7.909 TN. MMFA were up $757 billion, or 10.6%, y-o-y - having ballooned a historic $3.225 TN, or 73%, since October 26, 2022.
Total Commercial Paper jumped $30.0 billion to $1.427 TN. CP increased $29.1 billion, or 2.1%, y-o-y.
Freddie Mac 30-year fixed mortgage rates rose three bps to 6.69% (up 6bps y-o-y). Fifteen-year rates slipped three bps to 6.01% (up 26bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up four bps to 6.80% (down 1bp).
Currency Watch:
August 6 – Reuters (Makiko Yamazaki): “Japanese authorities conducted a record single-day yen-buying intervention in foreign exchange markets in April, selling $40 billion of the country’s currency reserves, as they resumed massive yen-buying operations to stem the yen’s slide… Quarterly data… showed authorities intervened on three days from April 30 through May 6, when market liquidity was thin due to Golden Week public holidays. The largest operation amounted to 6.28 trillion yen ($39.64bn) on April 30, surpassing the previous single-day record of 5.92 trillion yen set on April 29, 2024…”
August 4 – Reuters (David Lawder and Doina Chiacu): “The U.S. will do ‘whatever it takes’ to support Japan’s effort to stabilize the yen, Treasury Secretary Scott Bessent said…, following last week’s joint intervention by Washington and Tokyo to buy the Japanese currency. ‘We will do whatever it takes to support them in a way that helps the American economy, the American taxpayer,’ Bessent said…”
For the week, the U.S. Dollar Index dipped 0.3% to 99.604 (up 1.3% y-t-d). On the upside, the South African rand increased 2.4%, the South Korean won 2.1%, the Mexican peso 1.2%, the Australian dollar 0.7%, the Canadian dollar 0.6%, the Singapore dollar 0.4%, the Swedish krona 0.4%, the euro 0.3% the New Zealand dollar 0.2%, and the British pound 0.1%, On the downside, the Norwegian krone declined 0.4%, the Japanese yen 0.2%, the Brazilian real 0.2%, and the Swiss franc 0.1%. China's (onshore) renminbi added 0.11% versus the dollar (up 3.60% y-t-d).
Commodities Watch:
August 7 – Bloomberg (Julian Luk): “The copper market is tightening fast, with a surge in shipments to the US and rising orders in China setting the stage for a rally that could take global benchmark prices to all-time highs. Futures in London this week pushed past $14,000 a ton, a ceiling that had only been breached on a handful of days this year, and many traders see prices soon surging past the record $14,500-plus level…”
August 5 – Wall Street Journal (Ryan Dezember): “Home sales are slumping, renovation spending is losing steam and yet lumber prices have risen this summer to their highest level in four years. Back in 2022, the price of two-by-fours was falling back to earth after a record-setting spike during the Covid pandemic… This time around, reduced supply rather than unyielding demand has driven lumber prices higher. Imports are down due to steep duties on Canadian boards and President Trump’s 10% softwood lumber tariff… The lumber benchmark remains 23% higher than a year ago.”
The Bloomberg Commodities Index slipped 0.2% (up 20.1% y-t-d). Spot Gold jumped 7.3% to $4,342 (up 0.5%). Silver surged 10.4% to $63.5583 (down 11.3%). WTI Crude sank $6.49, or 7.7%, to $78.18 (up 36%). Gasoline fell 4.1% (up 74%), and Natural Gas dropped 3.1% to $2.662 (down 28%). Copper gained 1.9% (up 16%). Wheat was little changed (up 26%), while Corn declined 0.4% (unchanged). Bitcoin rose $2000, or 3.2%, to $64,940 (down 25.9%).
Market Instability Watch:
August 7 – New York Times (Jeff Sommer): “The Federal Reserve held interest rates steady in its latest meeting. But another important power in the financial world raised them. That’s the bond market… The bond market is a global giant, with more than $58 trillion in assets in the United States alone. It doesn’t command headlines the way the stock market does, but when the bond market talks, people need to listen, in finance and beyond. What the bond market has been saying lately is that risks are rising: risks of increased inflation; wars and tariffs and other geopolitical dislocations; questionable use of vast sums of capital to build artificial intelligence; an uncertain direction for the Fed under new leadership; mounting national debt; and broad political dysfunction.”
August 5 – Reuters (Gertrude Chavez-Dreyfuss): “Investors piled into U.S. swap futures early this week after a sharp back-up in Treasury yields, as investors scrambled to hedge against further increases in borrowing costs — a sign of concern that rates could stay elevated for longer. The hedging activity appeared tied to mortgage investors seeking protection against the risk of higher rates extending the duration of their portfolios, traders said. In the mortgage sector, when Treasury yields rise, the duration in portfolios extends because homeowners are less likely to refinance, leading to lower prepayments. To bring that duration back down to their target, investors typically pay fixed in interest rate swaps or swap futures — derivatives in which they exchange a fixed coupon with another trader for a floating rate. By paying a fixed rate in a swap, they add an investment that tends to gain value when rates rise, helping offset price declines on their mortgage holdings.”
August 6 – Bloomberg (Bernard Goyder): “Traders can’t get enough of options betting on more gains in the S&P 500 Index, a gauge that has for months been in the shadow of its more volatile rival, the Nasdaq 100. More than 4 million call contracts on the benchmark equities index changed hands on Tuesday, a record, while the volume of puts remained in line with the average. Simplex Trading's Jason Coogan… described the setup in the two days through Tuesday as a ‘one-way flow in orders.’”
August 7 – Bloomberg (Levin Stamm): “Investor bullishness has become so extreme that it’s time to start reducing exposure to risky assets, according to Bank of America Corp. strategists. The bank’s bull-and-bear reading climbed to its highest level since 2021, rising to 9.7 from 9.4, the team led by Michael Hartnett wrote... They pointed to broadening equity markets, strong inflows into high-yield debt and tighter credit spreads as reasons behind investor optimism.”
U.S. Credit Trouble Watch:
August 5 – Bloomberg (Charlotte Plaskwa and Dorothy Ma): “Those howls of dismay echoing across Wall Street are from senior lenders who thought they’d be protected by their status as the top dog among all of a company’s creditors if it ever went bust. Instead, recovery rates are plummeting, with more first-lien lenders getting close to nothing. They wound up with less than 30 cents on the dollar after 23% of bankruptcies during the past three years, compared with just 7% of the cases from 2008 to 2022, according to S&P Global Ratings.”
August 6 – Wall Street Journal (Shane Shifflett and Heather Gillers): “U.S. insurers have some $40 billion of debt investments on their books that have been privately graded by Egan-Jones, a firm whose ratings have come under significant scrutiny from regulators, according to a Wall Street Journal analysis of public data. Egan-Jones Ratings… is being sued by two former employees who allege that it pressured staff to inflate ratings to gain business. The Securities and Exchange Commission has questioned the company’s reliability, and a regulator in Bermuda, where insurers park a huge amount of capital, has stopped accepting the firm’s ratings.”
August 5 – Bloomberg (Ellen DiMauro): “Two private credit funds managed by Blue Owl Capital Inc. bought back a combined $90 million of shares, marking a consecutive quarter of repurchases as the asset manager sought to steady the vehicles’ value amid turbulence in the sector.”
Global Credit Bubble and Boom Watch:
August 3 – Bloomberg (Caleb Mutua): “The credit markets may have had their fill of record borrowing for data centers, but tech companies aren’t done yet. Citadel Securities LLC is forecasting another $500 billion-plus of debt in the public and private markets by 2028 to bankroll the chips that go inside the artificial intelligence campuses. For context, that amount would be equal to more than 5% of the Bloomberg US high-grade index by 2028, says Jeff Eason, head investment-grade desk analyst at the firm. He expects most of that issuance will likely be shorter-dated — around three to five year — to match the life-span of the chips, and a portion could be issued as 144A private offerings… ‘This has the potential to become one of the largest new sectors in investment-grade credit,’ said Eason... ‘The scale is unprecedented relative to today’s market.’”
August 6 – Bloomberg (Brian Smith, Caleb Mutua and Davide Barbuscia): “Alphabet Inc. has received about $115 billion of orders for its latest jumbo bond sale… With an order book of that magnitude, the deal has attracted more than four times the anticipated size of as much as $25 billion…”
August 7 – Yahoo Finance (Jared Blikre): “Alphabet is borrowing at a historic pace. It is not alone. Alphabet, Amazon, Meta, and Oracle have issued about $194 billion of bonds this year, nearly twice their combined total for all of 2025. Alphabet’s latest sale could add as much as $25 billion more.”
Leveraged Speculation Watch:
August 5 – Bloomberg (Vinícius Andrade and Anya Andrianova): “Emerging-market carry trades, some of this year's most popular foreign-exchange bets, are showing resilience even after joint US-Japan currency intervention dented the appeal of this yen-funded strategy. The Bloomberg EM FX Carry Risk Premia Index has fallen about 1% since Japan used direct action to bolster its currency, about the same as a similar benchmark for Group-of-10 currencies. That’s a far cry from the 4% the EM carry measure fell in August 2024, when a sharp yen rally roiled global markets as traders rushed to repay their yen-denominated borrowings. The muted response has eased fears of a repeat of the 2024 blowup…”
August 5 – Bloomberg (Hannah Levitt): “JPMorgan... Chief Executive Officer Jamie Dimon said that market leverage — including prime brokerage, hedge funds, exchange traded funds and Treasury market arbitrage — is running high. ‘Market leverage is pretty high,’ Dimon said... ‘When you have that, you do have a higher chance that something will disrupt the market in a quick way and people will get rattled over it.’”
August 6 – CNBC (Lee Ying Shan): “JPMorgan CEO Jamie Dimon has warned that leverage across financial markets remained elevated, adding that investors should be mindful that hidden borrowing could amplify market disruptions. ‘Margin debt is the highest it has ever been,’ he said… ‘There’s a lot of margin debt you don’t see because it’s not called margin debt. It’s called other things. It’s that kind of leverage, some hidden, some public.’ He pointed to borrowing through prime brokerages, hedge funds, exchange-traded funds and Treasury arbitrage strategies. ‘The market leverage is pretty high.’”
August 5 – CNBC (Hugh Son): “Bank of America CEO Brian Moynihan… called the recent near collapse of high-flying AI hedge fund Situational Awareness a warning shot for financial markets that are being fueled by elevated valuations and borrowed money… Bank of America was among the firm’s prime brokers, executing trades and providing leverage to the fund, along with Goldman Sachs and JPMorgan... ‘These are all warning shots,’ Moynihan told CNBC’s Andrew Ross Sorkin. ‘Valuations get out, leverage in the system gets there. You have to be careful.’”
August 5 – Bloomberg (Shawna Kwan and Hema Parmar): “A spate of well-known hedge funds reported steep losses in July as AI shares tumbled, most notably forcing the highly leveraged Situational Awareness to sell most of its stock portfolio at a deep discount to Ken Griffin’s Citadel… Hedge funds had historically high exposure to momentum trades, crowded long bets and equity market returns, according to research firm PivotalPath. The firm’s index that tracks hedge funds trading technology, media and telecom stocks fell 10% last month alone, the most of all the firm’s benchmarks.”
July 29 – Reuters (Anirban Sen and Pritam Biswas): “Hedge fund Millennium Management is in talks to raise about $20 billion in new capital, much more than what it had initially set out to, a source familiar… told Reuters… The hedge fund will raise the cash in two tranches while separately seeking deals to replace the external capital of outside managers, according to the source.”
August 6 – Financial Times (Jill R Shah, Eric Platt and Michelle Chan): “Jane Street is in talks to refinance its debt with a small group of investors including Pimco in a landmark private credit deal that would help the secretive trading firm boost its AI investments. The deal would shift its $11bn debt load from public markets into a private vehicle… The size of the loan could be upsized and come as soon as next week, one person added. Jane Street’s talks with investors come as the firm has generated booming trading revenues as it seizes on volatility in markets and muscles in on Wall Street giants… It has also made sizeable investments in AI to support its trading, including data centres and other technology. A shift towards private markets would also allow the proprietary trading firm to limit disclosures on its financials…”
August 4 – Bloomberg (Bei Hu and David Ramli): “Asia-based hedge funds logged extensive losses in July, as the tech selloff led to what Goldman Sachs… prime brokers said was the worst month for regional stockpickers on record. Funds overseen by Hel Ved Capital Management, E20 Capital, Valliance Asset Management and WT Asset Management reported double-digit losses for the month, after posting some of the best performances in the first half. Regional firms that bet on rising and falling stocks lost 15% in July…”
August 7 – Bloomberg: “China’s quantitative hedge funds suffered steep losses in July after a rout in stocks linked to artificial intelligence, pushing some funds into the red for the year and leaving others doing little better than benchmark stock indexes. Long-only quants in the country suffered an average loss of 17% last month…”
August 4 – Bloomberg (Hema Parmar and Nishant Kumar): “Whale Rock Capital Management’s flagship hedge fund is one of the biggest losers in last month’s AI selloff, with a 21.7% drop in July erasing about half of its gains for the year. Investors are now left with a 35.1% gain for the year, a steep plunge from the fund’s 72.5% return through June 30… Whale Rock, which managed about $19 billion as of June 30, makes concentrated technology investments and is known for its huge gains and equally sizable losses.”
Iran War Watch:
August 7 – Wall Street Journal (David S. Cloud, Summer Said, Alexander Ward and Benoit Faucon): “Iran is vowing to bar U.S. Navy warships from passing through the Strait of Hormuz as part of an agreement to reopen the waterway, pressing its goal of curtailing America’s decades-old military presence in the Persian Gulf. Tehran’s threat highlights the ascendance within the Iranian leadership of hard-liners in the Islamic Revolutionary Guard Corps, who have long sought the ouster of American forces from the region. Though Iran has taken a devastating military beating, its leaders now see an opportunity to use negotiations on ending the six-month war to dislodge the U.S. as the dominant power in the Persian Gulf.”
August 4 – Wall Street Journal (Omar Abdel-Baqui, Benoit Faucon and Alexander Ward): “Iran’s leadership has made a high-stakes calculation in its showdown with President Trump: maintaining control over the Strait of Hormuz is a nonnegotiable red line. By asserting authority over a critical waterway for global crude-oil flows, Tehran is betting that its ability to inflict pain on the American economy is its best leverage to avoid future military action from the U.S. and Israel. With gasoline prices and inflation elevated, Tehran believes Trump will ultimately accept its terms ahead of fast-approaching midterm elections that could determine the future of his presidency. Centering strategy on controlling the Strait of Hormuz is an extraordinary gamble. It assumes Trump will prefer a messy, volatile stalemate over an all-out war.”
August 6 – Bloomberg (Eltaf Najafizada, Sara Gharaibeh and Skylar Woodhouse): “Iran will seek to bar US and Israeli ships from the Strait of Hormuz and require compensation from hostile countries before they’re allowed to use it, according to local media reports on a proposed Iran-Oman deal to manage the crucial waterway. The agreement has become key to expectations for a reopening of Hormuz and a resumption of energy flows that have been throttled since the US and Israel attacked Iran in February. The text is now under review in Iran’s parliament…”
August 6 – Reuters (Parisa Hafezi and Samia Nakhoul): “Iran has made a concerted diplomatic push with Gulf states, warning them explicitly that Tehran will hit their oil, power and water plants unless they convince Donald Trump to end U.S. strikes on Iran and instead seek a negotiated end to the war. The warning envisaged attacks on the energy facilities, oil fields, refineries, electricity grids, water infrastructure, transport networks and other strategic assets of Washington's closest Arab allies, according to a senior Iranian official. The message, part of a broader Iranian effort to deter further U.S. military action by raising the prospect of severe economic disruption across the Gulf, was delivered through a flurry of high-level diplomatic contacts after Trump threatened on July 28 to strike Iran’s energy network and infrastructure…”
August 6 – CNBC (Anniek Bao): “Iran’s chief negotiator has accused U.S. President Donald Trump of staging ‘theater diplomacy,’ as Washington and Tehran offer conflicting accounts of bilateral engagement aimed at ending their monthslong hostilities. ‘‘Massive attack coming… wait, never mind, they want to negotiate.’ That’s theater diplomacy on loop,’ Mohammad Bagher Ghalibaf, Iran’s parliament speaker and top negotiator, wrote…”
August 7 – Associated Press (Fatma Khaled and Ahmed Al-Haj): “Yemen’s Iran-backed Houthi rebels claimed responsibility for a series of deadly attacks this week, escalating the conflict between them and Saudi-backed Yemeni forces and raising fears of a wider regional conflagration. The attacks have killed dozens of civilians and troops and also targeted Saudi tankers in transit from Red Sea ports through the Bab el-Mandeb Strait out to the Gulf of Aden and the rest of the world. Though less significant than the Strait of Hormuz, around 12% of the world’s trade, including a fourth of global container traffic, once passed through Bab el-Mandeb, moving between Europe and Asia via Egypt’s Suez Canal. Fewer tankers have passed through the strait since this week’s attacks…”
August 6 – Bloomberg (Sara Gharaibeh): “The Houthi militant group said it conducted a ‘large-scale’ attack against forces from Yemen's Saudi-backed government, raising concerns over a broadening of the US-Israeli war on Iran into a region-wide conflict. The Tehran-backed Houthis said Thursday that drone and missile attacks in northern and eastern Yemen killed and injured ‘hundreds’ of troops… A report by the Associated Press said earlier that at least 30 troops of Yemen’s internationally recognized government were killed in the strikes, citing officials from the government.”
August 5 – Bloomberg (Alex Longley and Omar Tamo): “Yemen’s Houthi militant group said it would attack Saudi oil tankers in the northern Red Sea, a potential fresh escalation in its attacks on shipping. Houthi military spokesperson Yahya Saree said the move was a result of the kingdom diverting ships away from the Bab el-Mandeb chokepoint to the south of the waterway. The group said last month that it would begin attacking Saudi vessels in retaliation for a blockade on Yemeni ports.”
Iran War Ramifications Watch:
August 3 – Bloomberg (Elena Mazneva): “European gas-storage levels fell to their lowest for this time of year in almost two decades after the war in the Middle East drove up prices and stalled winter stockpiling… Utilities and traders typically buy natural gas during the summer, when prices are lower, and store it in depleted fields and salt caverns for use in winter. But stubbornly high costs have made that uneconomical this year. As a result, European Union inventories were only 57.1% full at the start of August. That’s the lowest share of utilized capacity for this date in records going back to 2009.”
August 6 – Axios (Rebecca Falconer): “Suspected Iran-linked cyberattacks are exposing long-standing vulnerabilities in fragmented U.S. drinking water systems facing aging infrastructure and intensifying climate threats. Drinking water systems disruptions can threaten public health and essential services, while many utilities… lack the staff and resources to strengthen their defenses. Kevin Morley, federal relations manager for the American Water Works Association (AWWA), tells Axios utilities now have to manage acute cybersecurity threats alongside chronic challenges, including climate change and infrastructure deterioration. There are more than 144,000 public water systems in the U.S., including about 50,000 community water systems that provide drinking water to residents year-round, according to the EPA.”
August 5 – Reuters (Pritam Biswas, Raphael Satter and Anirban Sen): “Hackers attempted a series of sophisticated cyberattacks on major Wall Street financial services firms and money managers in recent days, targeting their information systems, according to two people familiar... Some of the world’s largest hedge funds along with several private equity firms were targeted… The hacking attempts featured phone calls in which cybercriminals tried to trick employees into granting them access or handing over other sensitive information, the sources said.”
August 5 – Bloomberg (Hema Parmar, Katherine Burton and Sridhar Natarajan): “Hackers launched a wave of sophisticated attacks on Wall Street firms in recent days, targeting information systems at major money managers, according to people familiar… The attackers attempted to breach information systems at some of the world's biggest hedge funds including Two Sigma Investments, Citadel and Point72 Asset Management… Several private equity firms were also targeted as part of the assault, the people said.”
August 4 – Reuters (Mike Stone): “Defense tech startups are repurposing automotive chips and pipes used in fracking -- while copying production methods from drugmakers -- in an effort to deliver weapons to the Pentagon faster and at lower cost. Soaring demand for rocket motors used to power missiles and other weapons has spurred new thinking about supply chains.”
Trump Administration Watch:
August 4 – New York Times (Michael Crowley): “President Trump’s angry claim on Monday that Iran was being ‘unbelievably duplicitous’ in its dealings with the United States was just the latest sign of his struggle to understand his rivals in Tehran. Mr. Trump considers himself a master of sizing up and exploiting his adversaries. But Iran’s leaders have baffled him. ‘All they do is make me angry,’ he told reporters last week. ‘They just make me angry.’ More frustration could be in store for the American president. Trump officials say a new deal to reopen the Strait of Hormuz may be near, but Iran continues to insist on collecting fees there that Mr. Trump has ruled unacceptable.”
August 3 – Reuters (Samia Nakhoul): “Iran is betting it can outlast Washington by turning the Middle East’s trade routes, shipping lanes and energy infrastructure into pressure points that steadily raise the cost of confrontation, according to Gulf officials and analysts. Rather than seeking a decisive military victory, Tehran is pursuing a strategy of calibrated escalation aimed at widening the conflict without triggering full-scale war. The goal, they say, is to convince the United States and its allies that containing the crisis is more costly than accommodating Iran’s demands over the Strait of Hormuz. The message from Tehran is that unless Washington accepts a new status quo that gives Iran a greater role in Hormuz, the conflict could spread beyond the Gulf. By putting multiple maritime chokepoints and energy assets at risk, Iran believes it can strengthen its hand in any future negotiations. ‘Iran, from the beginning, has tried to out-escalate the United States by stretching out its escalation options so that it always has something new to bring every week -- a new geography, a new type of weapon, a new type of target,’ Michael Knights of the Washington Institute told Reuters.”
August 5 – Wall Street Journal (Anat Peled and Summer Said): “President Trump’s road map to disarm Hamas has wobbled in the days since he announced it, with Israeli airstrikes on Gaza and growing disputes over the terms threatening to collapse the effort to wind down the war in the enclave. The Board of Peace, created by Trump to oversee Gaza’s postwar transition, laid out a 15-point plan Friday for the decommissioning of Hamas’s weapons and Israel’s withdrawal. But Israel and Hamas never saw eye to eye on the terms, and the gap has widened in the five days since the announcement.”
August 4 – Reuters (Erin Banco, Mike Stone and Jonathan Landay): “The U.S. Army has used up much of its global stockpile of highly accurate long-range missiles during its five-month war with Iran, according to three people familiar with the data, raising concerns about the military’s readiness for future conflicts. The missiles are principally the Army’s surface-to-surface weapons, known as Army Tactical Missile Systems (ATACMS) and Precision Strike Missiles (PrSM). The U.S. has used ‘virtually all’ of these weapons, according to… sources.”
August 3 – Bloomberg (Shery Ahn): “Iran believes it holds the upper hand in its conflict with the US after the Trump administration repeatedly held off following through on its most severe threats, said Mona Yacoubian, Middle East program director at the Center for Strategic and International Studies. ‘Every time he does it, however, Iran takes away the message that the US is weak and that Iran has the upper hand in this conflict,’ Yacoubian said… Yacoubian described a recurring pattern of military escalation, announced diplomatic breakthroughs that fail to materialize, and a return to threats.”
August 5 – New York Times (Joe Rennison): “The U.S. Treasury Department’s official reason for intervening in the Japanese yen last week was to prop up a major currency that is critical to global trade and stabilize the finances of an important ally. But the unusual move also served to calm anxious investors around the world, underscoring how myriad market risks are tightly connected. The intervention… was one of several forces fueling the recent rally in the S&P 500 index, which hit a fresh record on Tuesday. ‘It’s one part of a big connected picture,’ said Matt King, founder at Satori Insights, adding that it became necessary for the Treasury to intervene in the yen ‘but for weird reasons.’ ‘The decision and the manner of the intervention ultimately say as much about U.S. vulnerabilities as they do about Japan,’ he said.”
August 6 – Axios (Neil Irwin): “A legal cat-and-mouse game has played out over whether the president can use various obscure, untested provisions to impose tariffs. Now, Congress appears on track to give him a big, new — and explicit — tariff authority. A bill on Russia sanctions, named for the late Sen. Lindsey Graham, has received overwhelming bipartisan support in the Senate and would allow President Trump and future presidents to impose tariffs of up to 100% on major importers of Russian energy. If enacted in its current form, it would give the president greater flexibility to raise import taxes on major economies including India, China and the European Union, without the legal limits and ambiguity of the tools he has used thus far.”
August 7 – Axios (Courtenay Brown): “The Trump administration has launched a new effort to remove Federal Reserve Gov. Lisa Cook, notifying her that President Trump is considering her removal and giving her 21 days to respond to mortgage fraud allegations in a letter obtained by Axios. The Supreme Court this year blocked Trump’s first attempt to remove Cook, finding that the Fed official was not given notice or a chance to respond. The new letter seeks to satisfy those requirements in what remains an unprecedented effort to fire a sitting Federal Reserve governor.”
August 6 – New York Times (Alan Rappeport): “Treasury Secretary Scott Bessent downplayed the impact of inflation on lower-income Americans, declaring this week that the ‘K-shaped’ economy — shorthand for the divergent fortunes of the rich and poor — is a thing of the past… With midterm elections in just three months, Mr. Bessent has continually tried to talk up the economy. But despite promises of lower prices, the U.S. has continued to confront inflationary pressures that have been amplified by tariffs and the war in Iran, which has increased the cost of gasoline. Mr. Bessent suggested that those economic concerns are overblown. ‘I got sick of hearing about this K-shaped economy,’ Mr. Bessent said... ‘I can say here definitively, the K-shaped economy is over.’”
Trade War Watch:
August 6 – Associated Press (Rob Gillies): “Canadian Prime Minister Mark Carney said… trade negotiations with the United States had turned ‘nasty’ after President Donald Trump derided America’s neighbor and its leadership while threatening to expand tariffs. Carney said Canada remained engaged in the negotiations despite Trump’s comments, describing the talks as a fight to protect Canadian workers and businesses. ‘This is a tough negotiation,’ Carney said... ‘You can say ‘nasty.’ But this is a question of Canadian jobs. It’s a question of the future of Canadian businesses.’ Trump criticized Canada during a speech Wednesday... ‘Canada’s nasty. They are. They’re nasty… I love the people, but they’re nasty. Nasty leadership.’ Carney said ‘we are in the middle of a tariff war with the Americans’ but laughed when asked about Trump’s description.”
August 5 – Bloomberg (Yvonne Yue Li): “Last summer, about 80 government officials and industry executives gathered in Washington to answer a key question: How would the US aluminum supply chain hold up in the event of a major global conflict?... The report noted that while China is the world’s dominant aluminum producer, the United Arab Emirates is a crucial supplier of the high-purity variety to the US. It provides about 90% of American imports of that metal… Any hostilities that disrupt UAE aluminum production, then, threaten deliveries to the US.”
August 6 – Wall Street Journal (Gavin Bade): “The Trump administration will impose tariffs and set minimum prices on imported polysilicon, solar panels and their components, aiming to reshore clean-energy supply chains and reduce Chinese market control of an element critical for solar systems and semiconductors. President Trump signed a proclamation Thursday that will set a 15% tariff on imports of the solar-energy materials and equipment.”
Constitution Watch:
August 7 – Bloomberg (Suzanne Monyak): “President Donald Trump doesn’t have legal authority to build a sprawling new White House ballroom without congressional approval, a federal appeals court held. A split three-judge panel for the US Court of Appeals for the DC Circuit on Friday ruled against Trump’s effort to build a 90,000-square-foot ballroom… using up to $400 million in private donations. ‘Whether or not a massive ballroom should be constructed is for Congress to decide and is not a matter for Executive self-help,’ Judges Bradley Garcia… and Patricia Millett… wrote in a 101-page opinion.”
Deficit Watch:
August 3 – Reuters (Karen Brettell): “The U.S. Treasury said… it expects to borrow $739 billion in the third quarter, $68 billion more than it projected in May, as lower projected cash flows were only partly offset by a higher-than-assumed starting cash balance. Stripping out the benefit of that larger starting cushion, the increase in borrowing needs is $87 billion above the May estimate. The department’s quarterly refunding statement assumes a cash balance of $950 billion at the end of September.”
August 5 – Bloomberg (Greg Ritchie): “The US Treasury… retained its previous guidance for future debt issuance… Based on current projections, officials expect to maintain current sales amounts for nominal interest-bearing securities — coupons — and floating rate notes ‘for at least the next several quarters’… The Treasury did tweak one sentence, however. Wednesday, it said it was continuing to evaluate potential future ‘changes’ in coupon and floating-rate note sales. Previously, officials said they were looking at ‘increases’ in those securities.”
August 5 – Bloomberg (Tony Capaccio): “President Donald Trump’s so-called Golden Fleet of around 15 nuclear-powered battleships could cost as much as $275 billion to develop and acquire through 2056, according to the non-partisan Congressional Budget Office. The agency pegged its preliminary estimate at $23 billion for the first vessel and roughly $18 billion each for the subsequent 14 ships…”
August 4 – Financial Times (Aime Williams): “Donald Trump’s administration has paid out about $100bn in tariff refunds since the US Supreme Court struck down its use of emergency powers to levy duties on its trading partners earlier this year. The sum, which is 60% of the $165bn collected from the president’s ‘liberation day’ tariffs, was reported by US customs officials…”
U.S./Russia/China/Europe/Iran Watch:
August 3 – Bloomberg: “China is growing anxious that Anthropic PBC’s Mythos could be wielded against the world’s second-biggest economy, adding a volatile new issue to already heightened tensions before a planned summit between Xi Jinping and Donald Trump. Officials in Beijing are concerned about the cyber capabilities of Mythos and other AI frontier models developed by US companies, according to people familiar… They see the potential for models like Mythos to be used as an offensive weapon, and question why Anthropic is denying China access to the systems for normal purposes, the people said.”
August 3 – Bloomberg (Alastair Gale): “Growing military coordination between China, Russia and North Korea is heightening security risks for Japan, Tokyo said in its latest defense white paper, citing increasingly provocative Chinese-Russian bomber patrols and Moscow’s support for North Korea’s military modernization. The report… noted a patrol by Chinese and Russian bombers in December last year that for the first time traveled in the direction of Tokyo after passing over Japan’s southern islands.”
Ukraine War Watch:
August 4 – Reuters (Tom Balmforth): “A North Korean missile unit has begun deploying to western Russia and could be equipped with 120 ballistic missiles and six launchers for strikes against Ukraine, an official at Ukraine’s military intelligence agency said. Ukraine is very short of high-end air defences and Russia has tried to exploit this by using more ballistic missiles, which are particularly hard to shoot down.”
August 6 – Bloomberg: “Ukraine struck two of Russia’s oil refineries overnight, the latest in a flurry of attacks that show a resumption of the assault on the nation’s fuel-production industry. Ukrainian forces hit the Yaroslavl refinery, one of Russia’s largest facilities located some 700 kilometers (435 miles) from its border…”
Taiwan Watch:
August 5 – Wall Street Journal (Joyu Wang): “Taiwan kicked off 10 days of military and civil defense exercises on Wednesday, advancing its strategy for deterring a Chinese invasion. The ultimate goal: show China that attacking Taiwan isn’t worth the pain, even if U.S. forces don’t come to Taiwan’s aid… The annual exercises serve as a chance to test new plans and tactics developed to fend off China’s military…”
AI Bubble/Arms Race Watch:
August 5 – Axios (Nathan Bomey): “Investors are scrutinizing the AI trade amid concerns that companies may be throwing money into a bottomless pit. Not all AI spending is created equal. Investors are drawing a harder line on companies that fail to show how today’s AI investments will translate into profits. ‘It’s all about capex and free cash flow — and investors are not rewarding negative free cash flow,’ Melissa Otto, head of S&P Global’s Visible Alpha Research, tells Axios… The markets have punished several AI titans over AI capital expenditure concerns in recent days. SpaceX plunged to new lows Wednesday… as investors fretted over its massive capex plans. AMD shares slumped Wednesday despite a 50% jump in revenue as investors look for evidence that its customers’ AI infrastructure investments will continue translating into accelerating returns… Meta shares are down nearly $200 per share from their peak as the company continues to invest heavily in capex, having reported a 55% increase in expenses in its most recent quarter.”
August 4 – Wall Street Journal (Robert McMillan): “Powerful AI models have once again gone rogue. This time, they were particularly sneaky. A U.K. government-backed AI research institute said… during routine tests, models built by OpenAI and Anthropic unexpectedly took ‘autonomous, unsanctioned action on the live internet, targeting real people and organisations.’ Most of the bad behavior happened over a three-day period in late July during one test. In it, Anthropic’s Mythos 5 ventured out on the internet and tried to trick two unidentified developers into adding malicious software to their open-source coding project. Its goal was to succeed at a benchmarking test, the security research agency said. The institute said its tests used computers that were granted internet access… Anthropic said the model didn’t have its standard cybersecurity safeguards turned on.”
August 4 – Bloomberg (Samantha Oltman): “OpenAI said… some of its artificial intelligence models, along with models from another AI lab, were involved in three previously unreported cybersecurity incidents. ‘During recent evaluations, two external testing partners identified incidents in which testing configurations and controls combined with the advancing capabilities of the recent models allowed for model activity to extend beyond their intended testing boundaries,’ OpenAI wrote…”
August 5 – Reuters (Rajveer Singh Pardesi, Abu Sultan and Mrinmay Dey): “Meta said… that one of its AI models hacked another company during cybersecurity testing, after an error by its testing partner gave the model unintended internet access. The incident adds to a growing list of cases in which AI agents from major developers breached systems at other companies during testing, after Anthropic said last week that some of its models hacked three companies and OpenAI disclosed that an AI agent breached startup Hugging Face.”
August 3 – New York Times (Lydia DePillis): “Corporate America was enthusiastic about artificial intelligence. Until it got the bill. Whiplash around spending on ‘tokens,’ the units of computing power in which A.I. is sold, is hitting engineering teams and board rooms. First there was ‘tokenmaxxing,’ as executives encouraged as much A.I. use as possible. Then there was ‘tokenminning,’ after they rapidly burned through millions of dollars in company money. The simultaneous urgency and uncertainty is raising complex questions. What is A.I. even good for? How do you know what you’re buying, and measure the value of what it enables? How is it priced, and how will those prices change in the future? What does the spending on it displace? ‘It’s a currency where you have no instinct to know what you’re using, and the accounting practices aren’t even there for it,’ said Howard Rubin, an economist who advises companies on technology spending. ‘The A.I. stuff is being treated as an investment right now, but it’s a risky investment in case it has no return.’”
August 6 – Bloomberg (Naureen S Malik): “Rapid swings in AI data centers’ power demands are straining vital equipment, causing batteries, generators and cooling systems to malfunction or wear out far sooner than expected. As the AI boom accelerates, these technical problems suggest added costs and unforeseen reliability problems, with even a few minutes of lost uptime hitting data-center developers’ revenue. They come at a time when investors and lenders are already jittery about hyperscalers’ hundreds of billions of dollars of spending, amid growing concerns that these facilities could be depreciating much faster than estimated. The problems are also a potential source of wider instability in power grids that are already straining to keep the lights on.”
August 6 – Wall Street Journal (Ed Ballard): “How are you supposed to save 1.5 million Olympic swimming pools’ worth of water? That’s the prospect confronting Arizona, California and Nevada as they consider the latest plan for dividing up the dwindling Colorado River. A drought well into its third decade has left water levels in the reservoirs of Lake Mead and Lake Powell at record lows. Now, after a winter of measly snowfall in the Rocky Mountains, a crisis is approaching. If the coming winter is like the last one, water levels could get so low next year that the whole intricate system for storing and releasing water breaks down, warned a recent report by a group of water-policy experts.”
August 3 – CNBC (Samantha Subin): “Hugging Face CEO Clément Delangue said China is winning the artificial intelligence race with open-weight models and could catch up to U.S. model makers as soon as this year. ‘They’re clearly dominating on open models right now, and I wouldn’t be surprised if they start dominating at the frontier either by the end of this year or next year at the rate of progress,’ he told CNBC… Fueling this revolution is the open collaboration and sharing ecosystem in China, while model makers in the U.S. are ‘building in silos’ and risk falling behind, he said.”
Bubble Watch:
August 5 – Wall Street Journal (Michael Msika, Julien Ponthus and Jan-Patrick Barnert): “A dramatic turnaround in technology stocks has powered a $3.5 trillion increase in the Nasdaq 100’s market capitalization in just four days, driven by strong earnings that have emboldened investors about the AI outlook.”
August 5 – Wall Street Journal (Ben Glickman): “Traders and investment bankers are reigning supreme on Wall Street, at least if you are judging by their bonuses. Those employees work in banks’ hot spots this year and are expected to see year-end bonuses rise as much as 30% from a year ago, according to… compensation consultant Johnson Associates. The outsize rewards for traders and investment bankers seem all but guaranteed, with big banks raking in bumper profits this year from volatile markets and huge stock offerings, including the stock-market debut of Elon Musk’s SpaceX and Google parent Alphabet’s $80 billion equity financing. Year-end bonuses for the wider group of investment and commercial bankers are expected to climb 10% to 15% from a year ago…”
August 3 – Bloomberg (Editorial Board): “As always in financial markets, buyer beware: The almost $16 trillion US exchange-traded fund industry, best known for providing retirement savers with an easy and low-cost way to gain broad stock market exposure, is starting to resemble a casino. Since the Securities and Exchange Commission adopted rules in 2019 and 2020 that made it easier to list new ETFs without prior approval, the number of funds has more than doubled and the assets under management tripled. Their character is changing, too: Instead of offering a simpler way to invest in a basket of stocks or bonds, a growing number simply provide turbocharged wagers on one stock. More than 450 ETFs today offer leveraged or inverse bets on a single security (at least 10 were created for SpaceX alone). These products are more complex than their names suggest.”
August 5 – Bloomberg (Bailey Lipschultz): “Investors hanging onto SpaceX shares after a plunge below their IPO price are bracing for the next potential hit, when $101 billion worth of stock becomes available for trading on Thursday. The scheduled ending of a lockup agreement restricting insider share sales until a specified period after an initial public offering is nothing new.”
August 6 – Bloomberg (Dylan Sloan and Emily Flitter): “Shares in United Wholesale Mortgage fell by a record 49% Thursday, after the country’s biggest mortgage lender announced a net loss of $452 million and suspended its dividend for the first time… United Wholesale Mortgage grew rapidly during the pandemic, when lockdowns and low interest rates propelled a boom in the housing market. But in recent years, the firm has come under pressure as the housing market — and demand for new mortgages — has slowed dramatically.”
Inflation Watch:
August 7 – Bloomberg (Eleanor Thornber): “Global food prices edged higher in July to the highest in more than three years as renewed concerns over key grain export corridors compounded adverse weather across major growing regions. The United Nations’ index of food-commodity prices rose 0.6% in July from the previous month, led by grain, sugar and vegetable oils, according to a report from the Food and Agriculture Organization... The FAO index tracks internationally traded food commodities.”
August 6 – Financial Times (Susannah Savage): “A strengthening El Niño is threatening to disrupt production of some of the world’s most heavily traded agricultural commodities, driving sharp swings in prices and raising the risk of food shortages and widespread inflation. The weather pattern, which causes severe rains and droughts and typically occurs every two to seven years, has already hit coffee and cocoa prices as investors anticipate crop damage from Brazil to West Africa and south-east Asia. Arabica coffee prices have risen about 30% since early June to $3.12 a pound. The rally included its biggest one-day gain in 47 years. Cocoa has moved just as sharply.”
Federal Reserve Watch:
August 5 – Bloomberg (Editorial Board): “Kevin Warsh’s second policy meeting as chairman of the Federal Reserve last week wasn’t a resounding success. Analysts were puzzled by his refusal to explain the central bank’s decision to leave its policy rate unchanged. Amid the confusion, long-term bond yields rose sharply. Next day came reports that he was planning to have fewer such meetings in the future. Whatever his rationale for such a change, Warsh needs to think again. Denying investors useful information is a big mistake, as the fallout from the meeting has amply shown.”
August 6 – Wall Street Journal (Brian Schwartz, Philip Wegmann and Nick Timiraos): “President Trump has spoken repeatedly with Kevin Warsh since he became chairman of the Federal Reserve, according to people familiar with the matter, maintaining a line of communication between a president and a central bank chief that departs from recent precedent. The president calls Warsh in bursts, the people said—several times in a stretch of days, then quiet for longer periods. Trump has sought Warsh’s counsel on a range of matters, including how the war in Iran and the rapid rise of artificial intelligence are affecting the economy, some of the people said.”
August 6 – Financial Times (Claire Jones and Kate Duguid): “Kevin Warsh is set to stick to his stripped-back communications style even after the Federal Reserve chair’s decision to offer scant details of his strategy on interest rates fuelled a powerful sell-off in Treasury bonds. Long-term US borrowing costs soared after last week’s Fed meeting as investors said Warsh failed to offer sufficient guidance on how he would contain the bout of inflation triggered by Donald Trump’s Iran war. People close to Warsh said he acknowledged that he had made mistakes in his first 10 weeks at the helm of the world’s most important central bank, including failing to reinforce his key messages on price stability and sowing confusion over whether his longer-term plans to reform the Fed could affect near-term policy decisions.”
August 2 – Bloomberg (Enda Curran): “Federal Reserve Chairman Kevin Warsh has raised the possibility of changing the frequency of the US central bank’s regular policy meetings, according to people familiar... One idea Warsh floated is for Fed policymakers to meet six times a year to decide on interest rates and other monetary policy issues and twice a year for discussion of a substantive economic topic… No decision has yet been made. The Fed chief broached a rethink of the meeting schedule at last week’s gathering of the rate-setting Federal Open Market Committee… The 12-member FOMC currently meets eight times a year in Washington to set interest rates, a practice it has followed since the early 1980s. A reduction in the number of policy meetings would mark a significant shift in the way the central bank operates.”
August 6 – Reuters (Michael S. Derby): “Federal Reserve officials are beginning to mull whether the frenzied investment driving the buildout of the artificial intelligence sector is getting out of hand and creating risks for the financial sector. For now, some of the officials who have tackled the subject call for vigilance, dashed with a sense that a financial crisis mirroring what happened 20 years ago with housing, and to a lesser degree, the dot-com shakeout before that, is probably not in the offing. Still, the scale of investment, the uncertain returns for an unproven technology, the rise of tricky financing structures and increased use of debt have moved AI finance onto central bankers’ radar.”
August 6 – Bloomberg (Jonnelle Marte and Barbara Nascimento): “Federal Reserve Bank of St. Louis President Alberto Musalem said that with inflation running above the central bank’s 2% target, policymakers cannot afford to tolerate higher inflation while they wait for the possibility of stronger productivity growth. ‘Against this backdrop, it is crucial that monetary policy put a meaningful restraint on underlying inflation, rather than tolerating somewhat higher inflation today to pursue productivity growth tomorrow,’ Musalem said… ‘A central bank’s most valuable contribution to long-run growth is to supply the stable prices backdrop against which firms can plan the investment and innovation that fuel economic growth,’ he added.”
August 6 – Reuters (Michael S. Derby): “Federal Reserve Bank of St. Louis President Alberto Musalem… added his voice to the chorus of central bankers who believed the central bank should have raised its interest rate target last week. ‘The federal funds rate is our primary tool for making monetary policy, and I expressed a preference at the meeting to raise the federal funds rate by 25 bps,’ Musalem said… Musalem said he also favored an increase now because ‘earlier gradual incremental interest rate increases are preferable, less disruptive, less costly than potentially later, more abrupt interest rate changes.’”
August 4 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Kansas City President Jeff Schmid suggested higher interest rates are needed to achieve the Fed’s price stability goals, and reiterated that inflation is his primary concern. ‘Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive,’ Schmid said... ‘As such, I believe that bringing inflation down to the Fed’s 2% objective will require tighter policy.’”
August 5 – Reuters (Dan Burns): “Clearly communicating what the Federal Reserve’s ‘reaction function’ will be to various scenarios is helpful for the public and markets and should be continued, Minneapolis Fed President Neel Kashkari said… in a jab at the communications stance adopted by new U.S. central bank chief Kevin Warsh. Kashkari… repeated his call for the Fed to begin a series of small interest rate hikes to contain inflation that is running above the central bank’s 2% target, said it is valuable for market participants and others to understand how the Fed might likely respond to a given set of economic developments. ‘I think there is value in continuing the tradition of explaining our reaction function to the public, and letting the public figure it out from there,’ he said. Kashkari and other U.S. central bank officials… contend that public depictions of the reaction function are distinct from so-called forward guidance, which Warsh actively steers away from.”
August 5 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Minneapolis President Neel Kashkari said the US central bank should start to raise interest rates incrementally right now to curb inflation that remains too high. ‘Now is the time to start slowly moving up as we get more data in,’ Kashkari said…”
August 5 – Reuters (Michael S. Derby): “Federal Reserve Governor Lisa Cook said… she’s open to the idea that the central bank may need to raise its short-term interest rate target to deal with ‘too high’ levels of inflation in the U.S. economy. If inflation doesn’t start to cool off ‘I am prepared to act by raising rates, if necessary,’ Cook said… Cook warned ‘Inflation may become entrenched in price- and wage-setting behavior, leading to persistence that would be much harder for us to attack,’ adding, ‘while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one.’”
August 3 – Reuters (Michael S. Derby): “Federal Reserve Bank of New York President John Williams said he remained optimistic that inflation pressures are on track to ease gradually, but if they don’t the U.S. central bank will not hesitate to respond with rate hikes to ensure price pressures return to target. If energy prices and trade tariffs have peaked and the economy remains on a solid footing, ‘I think that some of the big drivers that pushed up inflation’ over the last year and half or so ‘will not be at play as much, and then some of the disinflationary forces that we’ve been seeing’ should reassert themselves, Williams said… ‘I am quite honestly focused quite a bit on, what are we seeing in the core inflation data over the next several months, and is that consistent with a kind of a run rate of inflation moving towards 2% and really on a disinflationary path consistent with us achieving our 2% inflation goal on a sustained basis by 2028… My forecast personally is for inflation to come down in the second half of this year and come down further next year.’”
U.S. Economic Bubble Watch:
August 5 – Bloomberg (Julia Fanzeres): “The US service sector expanded at a steady pace in July, bolstered by a pickup in new orders and business activity. The Institute for Supply Management’s services index rose 0.1 point to 54.1… New orders growth accelerated and a measure of business activity climbed to a five-month high, pointing to resilient consumer demand. Even so, rising costs for services and materials continued to weigh on firms. ISM’s index of prices paid jumped to 70.3 in July as the collapse of an interim deal between the US and Iran pushed oil and gasoline prices higher.”
August 3 – CNBC (Jeff Cox): “A burst in factory activity shows the U.S. economy may be escaping the burden of tariffs and gaining manufacturing jobs… In its July survey of the manufacturing landscape, the Institute for Supply Manufacturing reported the fastest pace of growth in more than four years — a 55.6 reading that was the best since May 2022 and above… expectations for 54.0… Leading the way were strong gains in new export orders, backlogs and a 6.3-point spike in production. At the same time, the employment gauge hit its highest since August 2022…”
August 3 – Wall Street Journal (Justin Lahart): “The U.S. economy keeps putting more eggs in the artificial-intelligence basket. Tech companies are spending hundreds of billions of dollars to meet AI computing needs and issuing billions of dollars of debt to help make those purchases. The rapid data-center build-out is powering construction spending, hiring and municipal revenues. Meanwhile, a stock-market rally fueled by the rise in shares of chip makers and other companies benefiting from the AI boom has led to a massive increase in household wealth. That is helping to bolster consumer spending. Combined, those factors are likely responsible for roughly one-third of the nation’s recent economic growth, according to Michael Pearce, an economist at Oxford Economics.”
August 5 – Associated Press (Ben Glickman): “U.S. job openings fell slightly in June, but the labor market continued to show resilience in the face of an economic shock from fighting in Iran and the closure of the Strait of Hormuz. Employers posted 7.36 million vacancies in June, down from 7.54 million in May, the Labor Department said... Openings rose by 97,000 at warehouse, transportation and utility companies and 39,000 at federal government agencies. Openings dropped at wholesalers and manufacturers of nondurable goods. Layoffs were little-changed at 1.8 million, and the number of people quitting their jobs — a sign of confidence in their prospects — rose slightly. The gross number of people hired — before subtracting those who quit or lost their jobs — rose slightly 5.3 million.”
August 7 – CNBC (Jeff Cox): “The U.S. economy saw an unexpected declined in jobs during July while the unemployment rate edged lower… Nonfarm payrolls fell by a seasonally adjusted 23,000 for the month, compared with a downwardly revised 20,000 for June. The… consensus forecast had been looking for a gain of 83,000. At the same time, the unemployment slipped to 4.1% as the labor force participation rate fell further to 61.4%, its lowest in more than five years… In addition to the weak numbers for June and July, the final count for May was revised down to 63,000, or 66,000 lower than the prior estimate. The revised numbers brought the 12-month average down to just 34,000… The drop was led by a 50,000 decline in local government education and a loss of 19,000 retail jobs. Financial activities also posted a fall of 14,000 and leisure and hospitality lost 40,000, a possible consequence of the World Cup tournament ending.”
August 5 – CNBC (Jeff Cox): “Hiring at private companies slowed considerably in July, with most of the job growth coming from healthcare, payrolls processing firm ADP reported… Nonfarm job growth excluding government totaled a seasonally adjusted 44,000 for the month, below the downwardly revised 95,000 in June and less than the… consensus forecast for 75,000. On net, all of the gains came from the services sector, which added 47,000 while goods-producing companies saw a decline of 3,000. Of those jobs, the education and health services sector produced 36,000…”
August 6 – Reuters (Lucia Mutikani): “The number of Americans filing claims for unemployment benefits increased slightly last week, while layoffs dropped to a two-year low in July, consistent with a stable labor market… Initial claims for state unemployment benefits rose 1,000 to a seasonally adjusted 199,000 for the week ended August 1… Claims have dropped considerably since surging in early June, and are at the lower end of their 189,000-230,000 range for this year.”
August 5 – Bloomberg (Jeffrey Sparshott): “US mortgage rates rose last week to the highest level in a year, curbing demand for home loans in an already subdued housing market. The contract rate on a 30-year mortgage rose 5 bps to 6.81% in the week ended July 31…”
August 3 – Reuters (Michael S. Derby): “Respondents to a Federal Reserve banking survey reported ‘basically unchanged’ lending standards for commercial and industrial loans during roughly the second quarter, with stronger demand for that type of loan coming from large and middle market firms. ‘For loans to households, banks reported mixed changes in lending standards and weaker demand for residential real estate,’ the Fed said in its latest quarterly Senior Loan Officer Survey…”
August 6 – Reuters (Lucia Mutikani): “U.S. worker productivity grew faster than expected in the second quarter and further gains are likely as businesses invest in artificial intelligence… Nonfarm productivity, which measures hourly output per worker, increased at a 1.4% annualized rate last quarter after advancing at an upwardly revised 0.8% pace in the January-March quarter…”
China Watch:
August 4 – Bloomberg: “China’s services activity expanded at its weakest pace in nearly two years, a private survey showed, with businesses turning more cautious about an economy that’s increasingly showing signs of further weakness. The RatingDog China services purchasing managers’ index slipped to 50.4 from 54.1 in June… The reading is the lowest since September 2024.”
August 6 – Wall Street Journal (Hannah Miao): “China’s exports have surged this year, driving its economic growth while threatening to exacerbate tensions with trading partners… China’s exports rose 24% last month from a year ago in dollar-denominated terms. That was down slightly from June’s 27% growth, but still topped economists’ expectations. For the first seven months of 2026, exports have risen about 19% from the same period in 2025. Artificial intelligence-related demand boosted exports. Shipments of semiconductors and computing equipment added more than 10 percentage points to China’s overall export growth in July…, according to Capital Economics analysis. The growth was primarily driven by rising prices.”
Central Banker Watch:
August 5 – Bloomberg (Martha Beck and Beatriz Reis): “Brazil’s central bank cut its key interest rate by a quarter point for a fourth straight decision and left its next move open… Board members… lowered the benchmark Selic to 14%..., as expected… The move brought cumulative easing since March to 100 bps.”
Europe/UK Watch:
August 6 – New York Times (Christopher F. Schuetze and Patricia Cohen): “Ferocious heat waves, wildfires and freakish storms have pulverized Europe this summer. Now a series of droughts, magnified by climate change, have crippled some of the continent’s key waterways… One center of the crisis is the ‘wide and winding Rhine’ river, as Lord Byron put it, which stretches nearly 800 miles through six countries as it journeys from the Swiss Alps to the North Sea. This vital economic artery conveys thousands of vessels and millions of tons of cargo a year that stoke trade and industry throughout the continent. ‘It’s one of the most important heart chambers of the German economy,’ said Carsten Brzeski, global head of macro research at ING… This week, water levels hit their lowest point since 1880, when official measurements were first recorded, disrupting supply chains, raising shipping costs and possibly forcing companies to scale back on production.”
August 6 – Reuters (Luiza Ilie): “Romania delayed plans to sink four rock-filled barges into the Danube until Friday citing unsafe conditions, as the race tightens to divert water from the drought-hit river to its only working nuclear reactor and buy a few more days of operation amid low electricity supplies. Record low water levels on the Danube, used to cool reactor turbines, have already forced the shutdown of one reactor, and authorities have taken unprecedented measures to keep the country’s only other reactor running, including detonating a rock obstruction earlier this week.”
Japan Watch:
August 7 – Bloomberg (Nao Sano): “Japan’s four largest life insurers reported that their combined unrealized losses on domestic bonds increased 7% in the three months through June, showing the risks to the industry from soaring interest rates. Paper losses on bonds held by the insurers including Nippon Life Insurance Co. swelled to ¥15.13 trillion ($96bn), according to the four firms’ earnings reports... All four, comprising Daiichi Life Group Inc., Sumitomo Life Insurance Co. and Meiji Yasuda Life Insurance Co. in addition to Nippon Life, saw increases in unrealized losses.”
EM Watch:
August 5 – Bloomberg (Selcuk Gokoluk): “Private investors are pouring growing sums into artificial intelligence projects across the developing world, pushing deal volumes to record highs in the first half of 2026. Unlike in equity markets, where the AI boom is largely confined to South Korea and Taiwan, private capital is flowing into projects for data centers and digital infrastructure in a range of nations, including across Latin America and Africa, according to… the Global Private Capital Association. Flows from private equity, venture capital and private credit funds reached $8.8 billion in the first half of 2026, surpassing the total for all of 2025…. The inflows are the highest since records began in 2008.”
Social, Political, Environmental, Cybersecurity Instability Watch:
August 5 – Bloomberg (Simone Foxman): “Surging retail trading isn’t just transforming markets; it’s also highly correlated with demoralization in young men, according to a new study. One-quarter of men aged 18-29 said they trade stocks daily, and almost two-thirds of them (64%) report feeling like failures, according to a study of 2,000 men published… by the Institute for Family Studies... The findings were strikingly similar to outcomes among men who gamble: Of the 23% of young men who said they gambled daily, including on sports and events, 66% reported similar angst… Daily fantasy sports and pornography use were similarly correlated to feelings of failure, the survey found.”
August 3 – Reuters (David Ryder, Matt Mcknight and Steve Gorman): “Wildfires raging on the outskirts of Spokane, Washington, for a third day have destroyed at least 700 buildings and forced tens of thousands of people to flee their homes in and around the state’s second-most populous city, officials said…”
The S&P500 surged 3.6% (up 13.3% y-t-d), and the Dow rose 3.0% (up 12.4%). The Utilities declined 1.2% (up 3.5%). The Banks gained 1.6% (up 15.7%), while the Broker/Dealers slipped 0.6% (up 15.4%). The Transports advanced 2.2% (up 23.9%). The S&P 400 Midcaps rallied 3.5% (up 17.6%), and the small cap Russell 2000 jumped 3.5% (up 22.3%). The Nasdaq100 jumped 5.1% (up 17.7%). The Semiconductors surged 9.2% (up 74.5%). The Biotechs advanced 4.5% (up 24.6%). With bullion rallying $295, the HUI gold index spiked 21.9% (up 7.4%).
Three-month Treasury bill rates ended the week at 3.7093%. Two-year government yields dropped 10 bps to 4.20% (up 72bps y-t-d). Five-year T-note yields fell 10 bps to 4.35% (up 63bps). Ten-year Treasury yields reversed nine bps lower to 4.65% (up 48bps). Long bond yields declined seven bps to 5.20% (up 36bps). Benchmark Fannie Mae MBS yields sank 14 bps to 5.63% (up 59bps).
Italian 10-year yields dropped 12 bps to 3.90% (up 35bps y-t-d). Greek 10-year yields fell 12 bps to 3.79% (up 36bps). Spain's 10-year yields declined nine bps to 3.56% (up 27bps). German bund yields declined seven bps to 3.13% (up 28bps). French yields fell eight bps to 3.92% (up 35bps). The French to German 10-year bond spread narrowed about one to 79 bps. U.K. 10-year gilt yields dropped 13 bps to 4.92% (up 44bps). U.K.’s FTSE equities index added 0.3% (up 9.7% y-t-d).
Japan’s Nikkei 225 Equities Index rallied 1.9% (up 30.3% y-t-d). Japan’s 10-year “JGB” yields were unchanged at 2.81% (up 74bps y-t-d). France’s CAC40 rose 2.4% (up 6.9%). The German DAX equities index jumped 2.7% (up 7.5%). Spain’s IBEX 35 equities index rose 2.0% (up 16.6%). Italy’s FTSE MIB index rose 3.0% (up 19.5%). EM equities were mixed. Brazil’s Bovespa index dropped 3.1% (up 7.1%), while Mexico’s Bolsa index was little changed (up 4.0%). South Korea’s Kospi sank 5.1% (up 48.5%). India’s Sensex equities index increased 0.5% (down 7.9%). China’s Shanghai Exchange Index rallied 2.8% (down 0.7%). Turkey’s Borsa Istanbul National 100 index gained 2.4% (up 22.4%).
Federal Reserve Credit slipped $3.0 billion last week (from a 16-month high) to $6.696 TN, with a 34-week expansion of $206 billion. Fed Credit was down $2.193 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.970 TN, or 80%. Fed Credit inflated $3.885 TN, or 138%, since November 7, 2012 (717 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt gained $8.2 billion last week to $2.926 TN. “Custody holdings” were down $302 billion y-o-y, or 9.4%.
Total money market fund assets (MMFA) recovered $55.4 billion to $7.909 TN. MMFA were up $757 billion, or 10.6%, y-o-y - having ballooned a historic $3.225 TN, or 73%, since October 26, 2022.
Total Commercial Paper jumped $30.0 billion to $1.427 TN. CP increased $29.1 billion, or 2.1%, y-o-y.
Freddie Mac 30-year fixed mortgage rates rose three bps to 6.69% (up 6bps y-o-y). Fifteen-year rates slipped three bps to 6.01% (up 26bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up four bps to 6.80% (down 1bp).
Currency Watch:
August 6 – Reuters (Makiko Yamazaki): “Japanese authorities conducted a record single-day yen-buying intervention in foreign exchange markets in April, selling $40 billion of the country’s currency reserves, as they resumed massive yen-buying operations to stem the yen’s slide… Quarterly data… showed authorities intervened on three days from April 30 through May 6, when market liquidity was thin due to Golden Week public holidays. The largest operation amounted to 6.28 trillion yen ($39.64bn) on April 30, surpassing the previous single-day record of 5.92 trillion yen set on April 29, 2024…”
August 4 – Reuters (David Lawder and Doina Chiacu): “The U.S. will do ‘whatever it takes’ to support Japan’s effort to stabilize the yen, Treasury Secretary Scott Bessent said…, following last week’s joint intervention by Washington and Tokyo to buy the Japanese currency. ‘We will do whatever it takes to support them in a way that helps the American economy, the American taxpayer,’ Bessent said…”
For the week, the U.S. Dollar Index dipped 0.3% to 99.604 (up 1.3% y-t-d). On the upside, the South African rand increased 2.4%, the South Korean won 2.1%, the Mexican peso 1.2%, the Australian dollar 0.7%, the Canadian dollar 0.6%, the Singapore dollar 0.4%, the Swedish krona 0.4%, the euro 0.3% the New Zealand dollar 0.2%, and the British pound 0.1%, On the downside, the Norwegian krone declined 0.4%, the Japanese yen 0.2%, the Brazilian real 0.2%, and the Swiss franc 0.1%. China's (onshore) renminbi added 0.11% versus the dollar (up 3.60% y-t-d).
Commodities Watch:
August 7 – Bloomberg (Julian Luk): “The copper market is tightening fast, with a surge in shipments to the US and rising orders in China setting the stage for a rally that could take global benchmark prices to all-time highs. Futures in London this week pushed past $14,000 a ton, a ceiling that had only been breached on a handful of days this year, and many traders see prices soon surging past the record $14,500-plus level…”
August 5 – Wall Street Journal (Ryan Dezember): “Home sales are slumping, renovation spending is losing steam and yet lumber prices have risen this summer to their highest level in four years. Back in 2022, the price of two-by-fours was falling back to earth after a record-setting spike during the Covid pandemic… This time around, reduced supply rather than unyielding demand has driven lumber prices higher. Imports are down due to steep duties on Canadian boards and President Trump’s 10% softwood lumber tariff… The lumber benchmark remains 23% higher than a year ago.”
The Bloomberg Commodities Index slipped 0.2% (up 20.1% y-t-d). Spot Gold jumped 7.3% to $4,342 (up 0.5%). Silver surged 10.4% to $63.5583 (down 11.3%). WTI Crude sank $6.49, or 7.7%, to $78.18 (up 36%). Gasoline fell 4.1% (up 74%), and Natural Gas dropped 3.1% to $2.662 (down 28%). Copper gained 1.9% (up 16%). Wheat was little changed (up 26%), while Corn declined 0.4% (unchanged). Bitcoin rose $2000, or 3.2%, to $64,940 (down 25.9%).
Market Instability Watch:
August 7 – New York Times (Jeff Sommer): “The Federal Reserve held interest rates steady in its latest meeting. But another important power in the financial world raised them. That’s the bond market… The bond market is a global giant, with more than $58 trillion in assets in the United States alone. It doesn’t command headlines the way the stock market does, but when the bond market talks, people need to listen, in finance and beyond. What the bond market has been saying lately is that risks are rising: risks of increased inflation; wars and tariffs and other geopolitical dislocations; questionable use of vast sums of capital to build artificial intelligence; an uncertain direction for the Fed under new leadership; mounting national debt; and broad political dysfunction.”
August 5 – Reuters (Gertrude Chavez-Dreyfuss): “Investors piled into U.S. swap futures early this week after a sharp back-up in Treasury yields, as investors scrambled to hedge against further increases in borrowing costs — a sign of concern that rates could stay elevated for longer. The hedging activity appeared tied to mortgage investors seeking protection against the risk of higher rates extending the duration of their portfolios, traders said. In the mortgage sector, when Treasury yields rise, the duration in portfolios extends because homeowners are less likely to refinance, leading to lower prepayments. To bring that duration back down to their target, investors typically pay fixed in interest rate swaps or swap futures — derivatives in which they exchange a fixed coupon with another trader for a floating rate. By paying a fixed rate in a swap, they add an investment that tends to gain value when rates rise, helping offset price declines on their mortgage holdings.”
August 6 – Bloomberg (Bernard Goyder): “Traders can’t get enough of options betting on more gains in the S&P 500 Index, a gauge that has for months been in the shadow of its more volatile rival, the Nasdaq 100. More than 4 million call contracts on the benchmark equities index changed hands on Tuesday, a record, while the volume of puts remained in line with the average. Simplex Trading's Jason Coogan… described the setup in the two days through Tuesday as a ‘one-way flow in orders.’”
August 7 – Bloomberg (Levin Stamm): “Investor bullishness has become so extreme that it’s time to start reducing exposure to risky assets, according to Bank of America Corp. strategists. The bank’s bull-and-bear reading climbed to its highest level since 2021, rising to 9.7 from 9.4, the team led by Michael Hartnett wrote... They pointed to broadening equity markets, strong inflows into high-yield debt and tighter credit spreads as reasons behind investor optimism.”
U.S. Credit Trouble Watch:
August 5 – Bloomberg (Charlotte Plaskwa and Dorothy Ma): “Those howls of dismay echoing across Wall Street are from senior lenders who thought they’d be protected by their status as the top dog among all of a company’s creditors if it ever went bust. Instead, recovery rates are plummeting, with more first-lien lenders getting close to nothing. They wound up with less than 30 cents on the dollar after 23% of bankruptcies during the past three years, compared with just 7% of the cases from 2008 to 2022, according to S&P Global Ratings.”
August 6 – Wall Street Journal (Shane Shifflett and Heather Gillers): “U.S. insurers have some $40 billion of debt investments on their books that have been privately graded by Egan-Jones, a firm whose ratings have come under significant scrutiny from regulators, according to a Wall Street Journal analysis of public data. Egan-Jones Ratings… is being sued by two former employees who allege that it pressured staff to inflate ratings to gain business. The Securities and Exchange Commission has questioned the company’s reliability, and a regulator in Bermuda, where insurers park a huge amount of capital, has stopped accepting the firm’s ratings.”
August 5 – Bloomberg (Ellen DiMauro): “Two private credit funds managed by Blue Owl Capital Inc. bought back a combined $90 million of shares, marking a consecutive quarter of repurchases as the asset manager sought to steady the vehicles’ value amid turbulence in the sector.”
Global Credit Bubble and Boom Watch:
August 3 – Bloomberg (Caleb Mutua): “The credit markets may have had their fill of record borrowing for data centers, but tech companies aren’t done yet. Citadel Securities LLC is forecasting another $500 billion-plus of debt in the public and private markets by 2028 to bankroll the chips that go inside the artificial intelligence campuses. For context, that amount would be equal to more than 5% of the Bloomberg US high-grade index by 2028, says Jeff Eason, head investment-grade desk analyst at the firm. He expects most of that issuance will likely be shorter-dated — around three to five year — to match the life-span of the chips, and a portion could be issued as 144A private offerings… ‘This has the potential to become one of the largest new sectors in investment-grade credit,’ said Eason... ‘The scale is unprecedented relative to today’s market.’”
August 6 – Bloomberg (Brian Smith, Caleb Mutua and Davide Barbuscia): “Alphabet Inc. has received about $115 billion of orders for its latest jumbo bond sale… With an order book of that magnitude, the deal has attracted more than four times the anticipated size of as much as $25 billion…”
August 7 – Yahoo Finance (Jared Blikre): “Alphabet is borrowing at a historic pace. It is not alone. Alphabet, Amazon, Meta, and Oracle have issued about $194 billion of bonds this year, nearly twice their combined total for all of 2025. Alphabet’s latest sale could add as much as $25 billion more.”
Leveraged Speculation Watch:
August 5 – Bloomberg (Vinícius Andrade and Anya Andrianova): “Emerging-market carry trades, some of this year's most popular foreign-exchange bets, are showing resilience even after joint US-Japan currency intervention dented the appeal of this yen-funded strategy. The Bloomberg EM FX Carry Risk Premia Index has fallen about 1% since Japan used direct action to bolster its currency, about the same as a similar benchmark for Group-of-10 currencies. That’s a far cry from the 4% the EM carry measure fell in August 2024, when a sharp yen rally roiled global markets as traders rushed to repay their yen-denominated borrowings. The muted response has eased fears of a repeat of the 2024 blowup…”
August 5 – Bloomberg (Hannah Levitt): “JPMorgan... Chief Executive Officer Jamie Dimon said that market leverage — including prime brokerage, hedge funds, exchange traded funds and Treasury market arbitrage — is running high. ‘Market leverage is pretty high,’ Dimon said... ‘When you have that, you do have a higher chance that something will disrupt the market in a quick way and people will get rattled over it.’”
August 6 – CNBC (Lee Ying Shan): “JPMorgan CEO Jamie Dimon has warned that leverage across financial markets remained elevated, adding that investors should be mindful that hidden borrowing could amplify market disruptions. ‘Margin debt is the highest it has ever been,’ he said… ‘There’s a lot of margin debt you don’t see because it’s not called margin debt. It’s called other things. It’s that kind of leverage, some hidden, some public.’ He pointed to borrowing through prime brokerages, hedge funds, exchange-traded funds and Treasury arbitrage strategies. ‘The market leverage is pretty high.’”
August 5 – CNBC (Hugh Son): “Bank of America CEO Brian Moynihan… called the recent near collapse of high-flying AI hedge fund Situational Awareness a warning shot for financial markets that are being fueled by elevated valuations and borrowed money… Bank of America was among the firm’s prime brokers, executing trades and providing leverage to the fund, along with Goldman Sachs and JPMorgan... ‘These are all warning shots,’ Moynihan told CNBC’s Andrew Ross Sorkin. ‘Valuations get out, leverage in the system gets there. You have to be careful.’”
August 5 – Bloomberg (Shawna Kwan and Hema Parmar): “A spate of well-known hedge funds reported steep losses in July as AI shares tumbled, most notably forcing the highly leveraged Situational Awareness to sell most of its stock portfolio at a deep discount to Ken Griffin’s Citadel… Hedge funds had historically high exposure to momentum trades, crowded long bets and equity market returns, according to research firm PivotalPath. The firm’s index that tracks hedge funds trading technology, media and telecom stocks fell 10% last month alone, the most of all the firm’s benchmarks.”
July 29 – Reuters (Anirban Sen and Pritam Biswas): “Hedge fund Millennium Management is in talks to raise about $20 billion in new capital, much more than what it had initially set out to, a source familiar… told Reuters… The hedge fund will raise the cash in two tranches while separately seeking deals to replace the external capital of outside managers, according to the source.”
August 6 – Financial Times (Jill R Shah, Eric Platt and Michelle Chan): “Jane Street is in talks to refinance its debt with a small group of investors including Pimco in a landmark private credit deal that would help the secretive trading firm boost its AI investments. The deal would shift its $11bn debt load from public markets into a private vehicle… The size of the loan could be upsized and come as soon as next week, one person added. Jane Street’s talks with investors come as the firm has generated booming trading revenues as it seizes on volatility in markets and muscles in on Wall Street giants… It has also made sizeable investments in AI to support its trading, including data centres and other technology. A shift towards private markets would also allow the proprietary trading firm to limit disclosures on its financials…”
August 4 – Bloomberg (Bei Hu and David Ramli): “Asia-based hedge funds logged extensive losses in July, as the tech selloff led to what Goldman Sachs… prime brokers said was the worst month for regional stockpickers on record. Funds overseen by Hel Ved Capital Management, E20 Capital, Valliance Asset Management and WT Asset Management reported double-digit losses for the month, after posting some of the best performances in the first half. Regional firms that bet on rising and falling stocks lost 15% in July…”
August 7 – Bloomberg: “China’s quantitative hedge funds suffered steep losses in July after a rout in stocks linked to artificial intelligence, pushing some funds into the red for the year and leaving others doing little better than benchmark stock indexes. Long-only quants in the country suffered an average loss of 17% last month…”
August 4 – Bloomberg (Hema Parmar and Nishant Kumar): “Whale Rock Capital Management’s flagship hedge fund is one of the biggest losers in last month’s AI selloff, with a 21.7% drop in July erasing about half of its gains for the year. Investors are now left with a 35.1% gain for the year, a steep plunge from the fund’s 72.5% return through June 30… Whale Rock, which managed about $19 billion as of June 30, makes concentrated technology investments and is known for its huge gains and equally sizable losses.”
Iran War Watch:
August 7 – Wall Street Journal (David S. Cloud, Summer Said, Alexander Ward and Benoit Faucon): “Iran is vowing to bar U.S. Navy warships from passing through the Strait of Hormuz as part of an agreement to reopen the waterway, pressing its goal of curtailing America’s decades-old military presence in the Persian Gulf. Tehran’s threat highlights the ascendance within the Iranian leadership of hard-liners in the Islamic Revolutionary Guard Corps, who have long sought the ouster of American forces from the region. Though Iran has taken a devastating military beating, its leaders now see an opportunity to use negotiations on ending the six-month war to dislodge the U.S. as the dominant power in the Persian Gulf.”
August 4 – Wall Street Journal (Omar Abdel-Baqui, Benoit Faucon and Alexander Ward): “Iran’s leadership has made a high-stakes calculation in its showdown with President Trump: maintaining control over the Strait of Hormuz is a nonnegotiable red line. By asserting authority over a critical waterway for global crude-oil flows, Tehran is betting that its ability to inflict pain on the American economy is its best leverage to avoid future military action from the U.S. and Israel. With gasoline prices and inflation elevated, Tehran believes Trump will ultimately accept its terms ahead of fast-approaching midterm elections that could determine the future of his presidency. Centering strategy on controlling the Strait of Hormuz is an extraordinary gamble. It assumes Trump will prefer a messy, volatile stalemate over an all-out war.”
August 6 – Bloomberg (Eltaf Najafizada, Sara Gharaibeh and Skylar Woodhouse): “Iran will seek to bar US and Israeli ships from the Strait of Hormuz and require compensation from hostile countries before they’re allowed to use it, according to local media reports on a proposed Iran-Oman deal to manage the crucial waterway. The agreement has become key to expectations for a reopening of Hormuz and a resumption of energy flows that have been throttled since the US and Israel attacked Iran in February. The text is now under review in Iran’s parliament…”
August 6 – Reuters (Parisa Hafezi and Samia Nakhoul): “Iran has made a concerted diplomatic push with Gulf states, warning them explicitly that Tehran will hit their oil, power and water plants unless they convince Donald Trump to end U.S. strikes on Iran and instead seek a negotiated end to the war. The warning envisaged attacks on the energy facilities, oil fields, refineries, electricity grids, water infrastructure, transport networks and other strategic assets of Washington's closest Arab allies, according to a senior Iranian official. The message, part of a broader Iranian effort to deter further U.S. military action by raising the prospect of severe economic disruption across the Gulf, was delivered through a flurry of high-level diplomatic contacts after Trump threatened on July 28 to strike Iran’s energy network and infrastructure…”
August 6 – CNBC (Anniek Bao): “Iran’s chief negotiator has accused U.S. President Donald Trump of staging ‘theater diplomacy,’ as Washington and Tehran offer conflicting accounts of bilateral engagement aimed at ending their monthslong hostilities. ‘‘Massive attack coming… wait, never mind, they want to negotiate.’ That’s theater diplomacy on loop,’ Mohammad Bagher Ghalibaf, Iran’s parliament speaker and top negotiator, wrote…”
August 7 – Associated Press (Fatma Khaled and Ahmed Al-Haj): “Yemen’s Iran-backed Houthi rebels claimed responsibility for a series of deadly attacks this week, escalating the conflict between them and Saudi-backed Yemeni forces and raising fears of a wider regional conflagration. The attacks have killed dozens of civilians and troops and also targeted Saudi tankers in transit from Red Sea ports through the Bab el-Mandeb Strait out to the Gulf of Aden and the rest of the world. Though less significant than the Strait of Hormuz, around 12% of the world’s trade, including a fourth of global container traffic, once passed through Bab el-Mandeb, moving between Europe and Asia via Egypt’s Suez Canal. Fewer tankers have passed through the strait since this week’s attacks…”
August 6 – Bloomberg (Sara Gharaibeh): “The Houthi militant group said it conducted a ‘large-scale’ attack against forces from Yemen's Saudi-backed government, raising concerns over a broadening of the US-Israeli war on Iran into a region-wide conflict. The Tehran-backed Houthis said Thursday that drone and missile attacks in northern and eastern Yemen killed and injured ‘hundreds’ of troops… A report by the Associated Press said earlier that at least 30 troops of Yemen’s internationally recognized government were killed in the strikes, citing officials from the government.”
August 5 – Bloomberg (Alex Longley and Omar Tamo): “Yemen’s Houthi militant group said it would attack Saudi oil tankers in the northern Red Sea, a potential fresh escalation in its attacks on shipping. Houthi military spokesperson Yahya Saree said the move was a result of the kingdom diverting ships away from the Bab el-Mandeb chokepoint to the south of the waterway. The group said last month that it would begin attacking Saudi vessels in retaliation for a blockade on Yemeni ports.”
Iran War Ramifications Watch:
August 3 – Bloomberg (Elena Mazneva): “European gas-storage levels fell to their lowest for this time of year in almost two decades after the war in the Middle East drove up prices and stalled winter stockpiling… Utilities and traders typically buy natural gas during the summer, when prices are lower, and store it in depleted fields and salt caverns for use in winter. But stubbornly high costs have made that uneconomical this year. As a result, European Union inventories were only 57.1% full at the start of August. That’s the lowest share of utilized capacity for this date in records going back to 2009.”
August 6 – Axios (Rebecca Falconer): “Suspected Iran-linked cyberattacks are exposing long-standing vulnerabilities in fragmented U.S. drinking water systems facing aging infrastructure and intensifying climate threats. Drinking water systems disruptions can threaten public health and essential services, while many utilities… lack the staff and resources to strengthen their defenses. Kevin Morley, federal relations manager for the American Water Works Association (AWWA), tells Axios utilities now have to manage acute cybersecurity threats alongside chronic challenges, including climate change and infrastructure deterioration. There are more than 144,000 public water systems in the U.S., including about 50,000 community water systems that provide drinking water to residents year-round, according to the EPA.”
August 5 – Reuters (Pritam Biswas, Raphael Satter and Anirban Sen): “Hackers attempted a series of sophisticated cyberattacks on major Wall Street financial services firms and money managers in recent days, targeting their information systems, according to two people familiar... Some of the world’s largest hedge funds along with several private equity firms were targeted… The hacking attempts featured phone calls in which cybercriminals tried to trick employees into granting them access or handing over other sensitive information, the sources said.”
August 5 – Bloomberg (Hema Parmar, Katherine Burton and Sridhar Natarajan): “Hackers launched a wave of sophisticated attacks on Wall Street firms in recent days, targeting information systems at major money managers, according to people familiar… The attackers attempted to breach information systems at some of the world's biggest hedge funds including Two Sigma Investments, Citadel and Point72 Asset Management… Several private equity firms were also targeted as part of the assault, the people said.”
August 4 – Reuters (Mike Stone): “Defense tech startups are repurposing automotive chips and pipes used in fracking -- while copying production methods from drugmakers -- in an effort to deliver weapons to the Pentagon faster and at lower cost. Soaring demand for rocket motors used to power missiles and other weapons has spurred new thinking about supply chains.”
Trump Administration Watch:
August 4 – New York Times (Michael Crowley): “President Trump’s angry claim on Monday that Iran was being ‘unbelievably duplicitous’ in its dealings with the United States was just the latest sign of his struggle to understand his rivals in Tehran. Mr. Trump considers himself a master of sizing up and exploiting his adversaries. But Iran’s leaders have baffled him. ‘All they do is make me angry,’ he told reporters last week. ‘They just make me angry.’ More frustration could be in store for the American president. Trump officials say a new deal to reopen the Strait of Hormuz may be near, but Iran continues to insist on collecting fees there that Mr. Trump has ruled unacceptable.”
August 3 – Reuters (Samia Nakhoul): “Iran is betting it can outlast Washington by turning the Middle East’s trade routes, shipping lanes and energy infrastructure into pressure points that steadily raise the cost of confrontation, according to Gulf officials and analysts. Rather than seeking a decisive military victory, Tehran is pursuing a strategy of calibrated escalation aimed at widening the conflict without triggering full-scale war. The goal, they say, is to convince the United States and its allies that containing the crisis is more costly than accommodating Iran’s demands over the Strait of Hormuz. The message from Tehran is that unless Washington accepts a new status quo that gives Iran a greater role in Hormuz, the conflict could spread beyond the Gulf. By putting multiple maritime chokepoints and energy assets at risk, Iran believes it can strengthen its hand in any future negotiations. ‘Iran, from the beginning, has tried to out-escalate the United States by stretching out its escalation options so that it always has something new to bring every week -- a new geography, a new type of weapon, a new type of target,’ Michael Knights of the Washington Institute told Reuters.”
August 5 – Wall Street Journal (Anat Peled and Summer Said): “President Trump’s road map to disarm Hamas has wobbled in the days since he announced it, with Israeli airstrikes on Gaza and growing disputes over the terms threatening to collapse the effort to wind down the war in the enclave. The Board of Peace, created by Trump to oversee Gaza’s postwar transition, laid out a 15-point plan Friday for the decommissioning of Hamas’s weapons and Israel’s withdrawal. But Israel and Hamas never saw eye to eye on the terms, and the gap has widened in the five days since the announcement.”
August 4 – Reuters (Erin Banco, Mike Stone and Jonathan Landay): “The U.S. Army has used up much of its global stockpile of highly accurate long-range missiles during its five-month war with Iran, according to three people familiar with the data, raising concerns about the military’s readiness for future conflicts. The missiles are principally the Army’s surface-to-surface weapons, known as Army Tactical Missile Systems (ATACMS) and Precision Strike Missiles (PrSM). The U.S. has used ‘virtually all’ of these weapons, according to… sources.”
August 3 – Bloomberg (Shery Ahn): “Iran believes it holds the upper hand in its conflict with the US after the Trump administration repeatedly held off following through on its most severe threats, said Mona Yacoubian, Middle East program director at the Center for Strategic and International Studies. ‘Every time he does it, however, Iran takes away the message that the US is weak and that Iran has the upper hand in this conflict,’ Yacoubian said… Yacoubian described a recurring pattern of military escalation, announced diplomatic breakthroughs that fail to materialize, and a return to threats.”
August 5 – New York Times (Joe Rennison): “The U.S. Treasury Department’s official reason for intervening in the Japanese yen last week was to prop up a major currency that is critical to global trade and stabilize the finances of an important ally. But the unusual move also served to calm anxious investors around the world, underscoring how myriad market risks are tightly connected. The intervention… was one of several forces fueling the recent rally in the S&P 500 index, which hit a fresh record on Tuesday. ‘It’s one part of a big connected picture,’ said Matt King, founder at Satori Insights, adding that it became necessary for the Treasury to intervene in the yen ‘but for weird reasons.’ ‘The decision and the manner of the intervention ultimately say as much about U.S. vulnerabilities as they do about Japan,’ he said.”
August 6 – Axios (Neil Irwin): “A legal cat-and-mouse game has played out over whether the president can use various obscure, untested provisions to impose tariffs. Now, Congress appears on track to give him a big, new — and explicit — tariff authority. A bill on Russia sanctions, named for the late Sen. Lindsey Graham, has received overwhelming bipartisan support in the Senate and would allow President Trump and future presidents to impose tariffs of up to 100% on major importers of Russian energy. If enacted in its current form, it would give the president greater flexibility to raise import taxes on major economies including India, China and the European Union, without the legal limits and ambiguity of the tools he has used thus far.”
August 7 – Axios (Courtenay Brown): “The Trump administration has launched a new effort to remove Federal Reserve Gov. Lisa Cook, notifying her that President Trump is considering her removal and giving her 21 days to respond to mortgage fraud allegations in a letter obtained by Axios. The Supreme Court this year blocked Trump’s first attempt to remove Cook, finding that the Fed official was not given notice or a chance to respond. The new letter seeks to satisfy those requirements in what remains an unprecedented effort to fire a sitting Federal Reserve governor.”
August 6 – New York Times (Alan Rappeport): “Treasury Secretary Scott Bessent downplayed the impact of inflation on lower-income Americans, declaring this week that the ‘K-shaped’ economy — shorthand for the divergent fortunes of the rich and poor — is a thing of the past… With midterm elections in just three months, Mr. Bessent has continually tried to talk up the economy. But despite promises of lower prices, the U.S. has continued to confront inflationary pressures that have been amplified by tariffs and the war in Iran, which has increased the cost of gasoline. Mr. Bessent suggested that those economic concerns are overblown. ‘I got sick of hearing about this K-shaped economy,’ Mr. Bessent said... ‘I can say here definitively, the K-shaped economy is over.’”
Trade War Watch:
August 6 – Associated Press (Rob Gillies): “Canadian Prime Minister Mark Carney said… trade negotiations with the United States had turned ‘nasty’ after President Donald Trump derided America’s neighbor and its leadership while threatening to expand tariffs. Carney said Canada remained engaged in the negotiations despite Trump’s comments, describing the talks as a fight to protect Canadian workers and businesses. ‘This is a tough negotiation,’ Carney said... ‘You can say ‘nasty.’ But this is a question of Canadian jobs. It’s a question of the future of Canadian businesses.’ Trump criticized Canada during a speech Wednesday... ‘Canada’s nasty. They are. They’re nasty… I love the people, but they’re nasty. Nasty leadership.’ Carney said ‘we are in the middle of a tariff war with the Americans’ but laughed when asked about Trump’s description.”
August 5 – Bloomberg (Yvonne Yue Li): “Last summer, about 80 government officials and industry executives gathered in Washington to answer a key question: How would the US aluminum supply chain hold up in the event of a major global conflict?... The report noted that while China is the world’s dominant aluminum producer, the United Arab Emirates is a crucial supplier of the high-purity variety to the US. It provides about 90% of American imports of that metal… Any hostilities that disrupt UAE aluminum production, then, threaten deliveries to the US.”
August 6 – Wall Street Journal (Gavin Bade): “The Trump administration will impose tariffs and set minimum prices on imported polysilicon, solar panels and their components, aiming to reshore clean-energy supply chains and reduce Chinese market control of an element critical for solar systems and semiconductors. President Trump signed a proclamation Thursday that will set a 15% tariff on imports of the solar-energy materials and equipment.”
Constitution Watch:
August 7 – Bloomberg (Suzanne Monyak): “President Donald Trump doesn’t have legal authority to build a sprawling new White House ballroom without congressional approval, a federal appeals court held. A split three-judge panel for the US Court of Appeals for the DC Circuit on Friday ruled against Trump’s effort to build a 90,000-square-foot ballroom… using up to $400 million in private donations. ‘Whether or not a massive ballroom should be constructed is for Congress to decide and is not a matter for Executive self-help,’ Judges Bradley Garcia… and Patricia Millett… wrote in a 101-page opinion.”
Deficit Watch:
August 3 – Reuters (Karen Brettell): “The U.S. Treasury said… it expects to borrow $739 billion in the third quarter, $68 billion more than it projected in May, as lower projected cash flows were only partly offset by a higher-than-assumed starting cash balance. Stripping out the benefit of that larger starting cushion, the increase in borrowing needs is $87 billion above the May estimate. The department’s quarterly refunding statement assumes a cash balance of $950 billion at the end of September.”
August 5 – Bloomberg (Greg Ritchie): “The US Treasury… retained its previous guidance for future debt issuance… Based on current projections, officials expect to maintain current sales amounts for nominal interest-bearing securities — coupons — and floating rate notes ‘for at least the next several quarters’… The Treasury did tweak one sentence, however. Wednesday, it said it was continuing to evaluate potential future ‘changes’ in coupon and floating-rate note sales. Previously, officials said they were looking at ‘increases’ in those securities.”
August 5 – Bloomberg (Tony Capaccio): “President Donald Trump’s so-called Golden Fleet of around 15 nuclear-powered battleships could cost as much as $275 billion to develop and acquire through 2056, according to the non-partisan Congressional Budget Office. The agency pegged its preliminary estimate at $23 billion for the first vessel and roughly $18 billion each for the subsequent 14 ships…”
August 4 – Financial Times (Aime Williams): “Donald Trump’s administration has paid out about $100bn in tariff refunds since the US Supreme Court struck down its use of emergency powers to levy duties on its trading partners earlier this year. The sum, which is 60% of the $165bn collected from the president’s ‘liberation day’ tariffs, was reported by US customs officials…”
U.S./Russia/China/Europe/Iran Watch:
August 3 – Bloomberg: “China is growing anxious that Anthropic PBC’s Mythos could be wielded against the world’s second-biggest economy, adding a volatile new issue to already heightened tensions before a planned summit between Xi Jinping and Donald Trump. Officials in Beijing are concerned about the cyber capabilities of Mythos and other AI frontier models developed by US companies, according to people familiar… They see the potential for models like Mythos to be used as an offensive weapon, and question why Anthropic is denying China access to the systems for normal purposes, the people said.”
August 3 – Bloomberg (Alastair Gale): “Growing military coordination between China, Russia and North Korea is heightening security risks for Japan, Tokyo said in its latest defense white paper, citing increasingly provocative Chinese-Russian bomber patrols and Moscow’s support for North Korea’s military modernization. The report… noted a patrol by Chinese and Russian bombers in December last year that for the first time traveled in the direction of Tokyo after passing over Japan’s southern islands.”
Ukraine War Watch:
August 4 – Reuters (Tom Balmforth): “A North Korean missile unit has begun deploying to western Russia and could be equipped with 120 ballistic missiles and six launchers for strikes against Ukraine, an official at Ukraine’s military intelligence agency said. Ukraine is very short of high-end air defences and Russia has tried to exploit this by using more ballistic missiles, which are particularly hard to shoot down.”
August 6 – Bloomberg: “Ukraine struck two of Russia’s oil refineries overnight, the latest in a flurry of attacks that show a resumption of the assault on the nation’s fuel-production industry. Ukrainian forces hit the Yaroslavl refinery, one of Russia’s largest facilities located some 700 kilometers (435 miles) from its border…”
Taiwan Watch:
August 5 – Wall Street Journal (Joyu Wang): “Taiwan kicked off 10 days of military and civil defense exercises on Wednesday, advancing its strategy for deterring a Chinese invasion. The ultimate goal: show China that attacking Taiwan isn’t worth the pain, even if U.S. forces don’t come to Taiwan’s aid… The annual exercises serve as a chance to test new plans and tactics developed to fend off China’s military…”
AI Bubble/Arms Race Watch:
August 5 – Axios (Nathan Bomey): “Investors are scrutinizing the AI trade amid concerns that companies may be throwing money into a bottomless pit. Not all AI spending is created equal. Investors are drawing a harder line on companies that fail to show how today’s AI investments will translate into profits. ‘It’s all about capex and free cash flow — and investors are not rewarding negative free cash flow,’ Melissa Otto, head of S&P Global’s Visible Alpha Research, tells Axios… The markets have punished several AI titans over AI capital expenditure concerns in recent days. SpaceX plunged to new lows Wednesday… as investors fretted over its massive capex plans. AMD shares slumped Wednesday despite a 50% jump in revenue as investors look for evidence that its customers’ AI infrastructure investments will continue translating into accelerating returns… Meta shares are down nearly $200 per share from their peak as the company continues to invest heavily in capex, having reported a 55% increase in expenses in its most recent quarter.”
August 4 – Wall Street Journal (Robert McMillan): “Powerful AI models have once again gone rogue. This time, they were particularly sneaky. A U.K. government-backed AI research institute said… during routine tests, models built by OpenAI and Anthropic unexpectedly took ‘autonomous, unsanctioned action on the live internet, targeting real people and organisations.’ Most of the bad behavior happened over a three-day period in late July during one test. In it, Anthropic’s Mythos 5 ventured out on the internet and tried to trick two unidentified developers into adding malicious software to their open-source coding project. Its goal was to succeed at a benchmarking test, the security research agency said. The institute said its tests used computers that were granted internet access… Anthropic said the model didn’t have its standard cybersecurity safeguards turned on.”
August 4 – Bloomberg (Samantha Oltman): “OpenAI said… some of its artificial intelligence models, along with models from another AI lab, were involved in three previously unreported cybersecurity incidents. ‘During recent evaluations, two external testing partners identified incidents in which testing configurations and controls combined with the advancing capabilities of the recent models allowed for model activity to extend beyond their intended testing boundaries,’ OpenAI wrote…”
August 5 – Reuters (Rajveer Singh Pardesi, Abu Sultan and Mrinmay Dey): “Meta said… that one of its AI models hacked another company during cybersecurity testing, after an error by its testing partner gave the model unintended internet access. The incident adds to a growing list of cases in which AI agents from major developers breached systems at other companies during testing, after Anthropic said last week that some of its models hacked three companies and OpenAI disclosed that an AI agent breached startup Hugging Face.”
August 3 – New York Times (Lydia DePillis): “Corporate America was enthusiastic about artificial intelligence. Until it got the bill. Whiplash around spending on ‘tokens,’ the units of computing power in which A.I. is sold, is hitting engineering teams and board rooms. First there was ‘tokenmaxxing,’ as executives encouraged as much A.I. use as possible. Then there was ‘tokenminning,’ after they rapidly burned through millions of dollars in company money. The simultaneous urgency and uncertainty is raising complex questions. What is A.I. even good for? How do you know what you’re buying, and measure the value of what it enables? How is it priced, and how will those prices change in the future? What does the spending on it displace? ‘It’s a currency where you have no instinct to know what you’re using, and the accounting practices aren’t even there for it,’ said Howard Rubin, an economist who advises companies on technology spending. ‘The A.I. stuff is being treated as an investment right now, but it’s a risky investment in case it has no return.’”
August 6 – Bloomberg (Naureen S Malik): “Rapid swings in AI data centers’ power demands are straining vital equipment, causing batteries, generators and cooling systems to malfunction or wear out far sooner than expected. As the AI boom accelerates, these technical problems suggest added costs and unforeseen reliability problems, with even a few minutes of lost uptime hitting data-center developers’ revenue. They come at a time when investors and lenders are already jittery about hyperscalers’ hundreds of billions of dollars of spending, amid growing concerns that these facilities could be depreciating much faster than estimated. The problems are also a potential source of wider instability in power grids that are already straining to keep the lights on.”
August 6 – Wall Street Journal (Ed Ballard): “How are you supposed to save 1.5 million Olympic swimming pools’ worth of water? That’s the prospect confronting Arizona, California and Nevada as they consider the latest plan for dividing up the dwindling Colorado River. A drought well into its third decade has left water levels in the reservoirs of Lake Mead and Lake Powell at record lows. Now, after a winter of measly snowfall in the Rocky Mountains, a crisis is approaching. If the coming winter is like the last one, water levels could get so low next year that the whole intricate system for storing and releasing water breaks down, warned a recent report by a group of water-policy experts.”
August 3 – CNBC (Samantha Subin): “Hugging Face CEO Clément Delangue said China is winning the artificial intelligence race with open-weight models and could catch up to U.S. model makers as soon as this year. ‘They’re clearly dominating on open models right now, and I wouldn’t be surprised if they start dominating at the frontier either by the end of this year or next year at the rate of progress,’ he told CNBC… Fueling this revolution is the open collaboration and sharing ecosystem in China, while model makers in the U.S. are ‘building in silos’ and risk falling behind, he said.”
Bubble Watch:
August 5 – Wall Street Journal (Michael Msika, Julien Ponthus and Jan-Patrick Barnert): “A dramatic turnaround in technology stocks has powered a $3.5 trillion increase in the Nasdaq 100’s market capitalization in just four days, driven by strong earnings that have emboldened investors about the AI outlook.”
August 5 – Wall Street Journal (Ben Glickman): “Traders and investment bankers are reigning supreme on Wall Street, at least if you are judging by their bonuses. Those employees work in banks’ hot spots this year and are expected to see year-end bonuses rise as much as 30% from a year ago, according to… compensation consultant Johnson Associates. The outsize rewards for traders and investment bankers seem all but guaranteed, with big banks raking in bumper profits this year from volatile markets and huge stock offerings, including the stock-market debut of Elon Musk’s SpaceX and Google parent Alphabet’s $80 billion equity financing. Year-end bonuses for the wider group of investment and commercial bankers are expected to climb 10% to 15% from a year ago…”
August 3 – Bloomberg (Editorial Board): “As always in financial markets, buyer beware: The almost $16 trillion US exchange-traded fund industry, best known for providing retirement savers with an easy and low-cost way to gain broad stock market exposure, is starting to resemble a casino. Since the Securities and Exchange Commission adopted rules in 2019 and 2020 that made it easier to list new ETFs without prior approval, the number of funds has more than doubled and the assets under management tripled. Their character is changing, too: Instead of offering a simpler way to invest in a basket of stocks or bonds, a growing number simply provide turbocharged wagers on one stock. More than 450 ETFs today offer leveraged or inverse bets on a single security (at least 10 were created for SpaceX alone). These products are more complex than their names suggest.”
August 5 – Bloomberg (Bailey Lipschultz): “Investors hanging onto SpaceX shares after a plunge below their IPO price are bracing for the next potential hit, when $101 billion worth of stock becomes available for trading on Thursday. The scheduled ending of a lockup agreement restricting insider share sales until a specified period after an initial public offering is nothing new.”
August 6 – Bloomberg (Dylan Sloan and Emily Flitter): “Shares in United Wholesale Mortgage fell by a record 49% Thursday, after the country’s biggest mortgage lender announced a net loss of $452 million and suspended its dividend for the first time… United Wholesale Mortgage grew rapidly during the pandemic, when lockdowns and low interest rates propelled a boom in the housing market. But in recent years, the firm has come under pressure as the housing market — and demand for new mortgages — has slowed dramatically.”
Inflation Watch:
August 7 – Bloomberg (Eleanor Thornber): “Global food prices edged higher in July to the highest in more than three years as renewed concerns over key grain export corridors compounded adverse weather across major growing regions. The United Nations’ index of food-commodity prices rose 0.6% in July from the previous month, led by grain, sugar and vegetable oils, according to a report from the Food and Agriculture Organization... The FAO index tracks internationally traded food commodities.”
August 6 – Financial Times (Susannah Savage): “A strengthening El Niño is threatening to disrupt production of some of the world’s most heavily traded agricultural commodities, driving sharp swings in prices and raising the risk of food shortages and widespread inflation. The weather pattern, which causes severe rains and droughts and typically occurs every two to seven years, has already hit coffee and cocoa prices as investors anticipate crop damage from Brazil to West Africa and south-east Asia. Arabica coffee prices have risen about 30% since early June to $3.12 a pound. The rally included its biggest one-day gain in 47 years. Cocoa has moved just as sharply.”
Federal Reserve Watch:
August 5 – Bloomberg (Editorial Board): “Kevin Warsh’s second policy meeting as chairman of the Federal Reserve last week wasn’t a resounding success. Analysts were puzzled by his refusal to explain the central bank’s decision to leave its policy rate unchanged. Amid the confusion, long-term bond yields rose sharply. Next day came reports that he was planning to have fewer such meetings in the future. Whatever his rationale for such a change, Warsh needs to think again. Denying investors useful information is a big mistake, as the fallout from the meeting has amply shown.”
August 6 – Wall Street Journal (Brian Schwartz, Philip Wegmann and Nick Timiraos): “President Trump has spoken repeatedly with Kevin Warsh since he became chairman of the Federal Reserve, according to people familiar with the matter, maintaining a line of communication between a president and a central bank chief that departs from recent precedent. The president calls Warsh in bursts, the people said—several times in a stretch of days, then quiet for longer periods. Trump has sought Warsh’s counsel on a range of matters, including how the war in Iran and the rapid rise of artificial intelligence are affecting the economy, some of the people said.”
August 6 – Financial Times (Claire Jones and Kate Duguid): “Kevin Warsh is set to stick to his stripped-back communications style even after the Federal Reserve chair’s decision to offer scant details of his strategy on interest rates fuelled a powerful sell-off in Treasury bonds. Long-term US borrowing costs soared after last week’s Fed meeting as investors said Warsh failed to offer sufficient guidance on how he would contain the bout of inflation triggered by Donald Trump’s Iran war. People close to Warsh said he acknowledged that he had made mistakes in his first 10 weeks at the helm of the world’s most important central bank, including failing to reinforce his key messages on price stability and sowing confusion over whether his longer-term plans to reform the Fed could affect near-term policy decisions.”
August 2 – Bloomberg (Enda Curran): “Federal Reserve Chairman Kevin Warsh has raised the possibility of changing the frequency of the US central bank’s regular policy meetings, according to people familiar... One idea Warsh floated is for Fed policymakers to meet six times a year to decide on interest rates and other monetary policy issues and twice a year for discussion of a substantive economic topic… No decision has yet been made. The Fed chief broached a rethink of the meeting schedule at last week’s gathering of the rate-setting Federal Open Market Committee… The 12-member FOMC currently meets eight times a year in Washington to set interest rates, a practice it has followed since the early 1980s. A reduction in the number of policy meetings would mark a significant shift in the way the central bank operates.”
August 6 – Reuters (Michael S. Derby): “Federal Reserve officials are beginning to mull whether the frenzied investment driving the buildout of the artificial intelligence sector is getting out of hand and creating risks for the financial sector. For now, some of the officials who have tackled the subject call for vigilance, dashed with a sense that a financial crisis mirroring what happened 20 years ago with housing, and to a lesser degree, the dot-com shakeout before that, is probably not in the offing. Still, the scale of investment, the uncertain returns for an unproven technology, the rise of tricky financing structures and increased use of debt have moved AI finance onto central bankers’ radar.”
August 6 – Bloomberg (Jonnelle Marte and Barbara Nascimento): “Federal Reserve Bank of St. Louis President Alberto Musalem said that with inflation running above the central bank’s 2% target, policymakers cannot afford to tolerate higher inflation while they wait for the possibility of stronger productivity growth. ‘Against this backdrop, it is crucial that monetary policy put a meaningful restraint on underlying inflation, rather than tolerating somewhat higher inflation today to pursue productivity growth tomorrow,’ Musalem said… ‘A central bank’s most valuable contribution to long-run growth is to supply the stable prices backdrop against which firms can plan the investment and innovation that fuel economic growth,’ he added.”
August 6 – Reuters (Michael S. Derby): “Federal Reserve Bank of St. Louis President Alberto Musalem… added his voice to the chorus of central bankers who believed the central bank should have raised its interest rate target last week. ‘The federal funds rate is our primary tool for making monetary policy, and I expressed a preference at the meeting to raise the federal funds rate by 25 bps,’ Musalem said… Musalem said he also favored an increase now because ‘earlier gradual incremental interest rate increases are preferable, less disruptive, less costly than potentially later, more abrupt interest rate changes.’”
August 4 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Kansas City President Jeff Schmid suggested higher interest rates are needed to achieve the Fed’s price stability goals, and reiterated that inflation is his primary concern. ‘Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive,’ Schmid said... ‘As such, I believe that bringing inflation down to the Fed’s 2% objective will require tighter policy.’”
August 5 – Reuters (Dan Burns): “Clearly communicating what the Federal Reserve’s ‘reaction function’ will be to various scenarios is helpful for the public and markets and should be continued, Minneapolis Fed President Neel Kashkari said… in a jab at the communications stance adopted by new U.S. central bank chief Kevin Warsh. Kashkari… repeated his call for the Fed to begin a series of small interest rate hikes to contain inflation that is running above the central bank’s 2% target, said it is valuable for market participants and others to understand how the Fed might likely respond to a given set of economic developments. ‘I think there is value in continuing the tradition of explaining our reaction function to the public, and letting the public figure it out from there,’ he said. Kashkari and other U.S. central bank officials… contend that public depictions of the reaction function are distinct from so-called forward guidance, which Warsh actively steers away from.”
August 5 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Minneapolis President Neel Kashkari said the US central bank should start to raise interest rates incrementally right now to curb inflation that remains too high. ‘Now is the time to start slowly moving up as we get more data in,’ Kashkari said…”
August 5 – Reuters (Michael S. Derby): “Federal Reserve Governor Lisa Cook said… she’s open to the idea that the central bank may need to raise its short-term interest rate target to deal with ‘too high’ levels of inflation in the U.S. economy. If inflation doesn’t start to cool off ‘I am prepared to act by raising rates, if necessary,’ Cook said… Cook warned ‘Inflation may become entrenched in price- and wage-setting behavior, leading to persistence that would be much harder for us to attack,’ adding, ‘while we might be able to afford to wait for longer in a different environment, we do not have that luxury in this one.’”
August 3 – Reuters (Michael S. Derby): “Federal Reserve Bank of New York President John Williams said he remained optimistic that inflation pressures are on track to ease gradually, but if they don’t the U.S. central bank will not hesitate to respond with rate hikes to ensure price pressures return to target. If energy prices and trade tariffs have peaked and the economy remains on a solid footing, ‘I think that some of the big drivers that pushed up inflation’ over the last year and half or so ‘will not be at play as much, and then some of the disinflationary forces that we’ve been seeing’ should reassert themselves, Williams said… ‘I am quite honestly focused quite a bit on, what are we seeing in the core inflation data over the next several months, and is that consistent with a kind of a run rate of inflation moving towards 2% and really on a disinflationary path consistent with us achieving our 2% inflation goal on a sustained basis by 2028… My forecast personally is for inflation to come down in the second half of this year and come down further next year.’”
U.S. Economic Bubble Watch:
August 5 – Bloomberg (Julia Fanzeres): “The US service sector expanded at a steady pace in July, bolstered by a pickup in new orders and business activity. The Institute for Supply Management’s services index rose 0.1 point to 54.1… New orders growth accelerated and a measure of business activity climbed to a five-month high, pointing to resilient consumer demand. Even so, rising costs for services and materials continued to weigh on firms. ISM’s index of prices paid jumped to 70.3 in July as the collapse of an interim deal between the US and Iran pushed oil and gasoline prices higher.”
August 3 – CNBC (Jeff Cox): “A burst in factory activity shows the U.S. economy may be escaping the burden of tariffs and gaining manufacturing jobs… In its July survey of the manufacturing landscape, the Institute for Supply Manufacturing reported the fastest pace of growth in more than four years — a 55.6 reading that was the best since May 2022 and above… expectations for 54.0… Leading the way were strong gains in new export orders, backlogs and a 6.3-point spike in production. At the same time, the employment gauge hit its highest since August 2022…”
August 3 – Wall Street Journal (Justin Lahart): “The U.S. economy keeps putting more eggs in the artificial-intelligence basket. Tech companies are spending hundreds of billions of dollars to meet AI computing needs and issuing billions of dollars of debt to help make those purchases. The rapid data-center build-out is powering construction spending, hiring and municipal revenues. Meanwhile, a stock-market rally fueled by the rise in shares of chip makers and other companies benefiting from the AI boom has led to a massive increase in household wealth. That is helping to bolster consumer spending. Combined, those factors are likely responsible for roughly one-third of the nation’s recent economic growth, according to Michael Pearce, an economist at Oxford Economics.”
August 5 – Associated Press (Ben Glickman): “U.S. job openings fell slightly in June, but the labor market continued to show resilience in the face of an economic shock from fighting in Iran and the closure of the Strait of Hormuz. Employers posted 7.36 million vacancies in June, down from 7.54 million in May, the Labor Department said... Openings rose by 97,000 at warehouse, transportation and utility companies and 39,000 at federal government agencies. Openings dropped at wholesalers and manufacturers of nondurable goods. Layoffs were little-changed at 1.8 million, and the number of people quitting their jobs — a sign of confidence in their prospects — rose slightly. The gross number of people hired — before subtracting those who quit or lost their jobs — rose slightly 5.3 million.”
August 7 – CNBC (Jeff Cox): “The U.S. economy saw an unexpected declined in jobs during July while the unemployment rate edged lower… Nonfarm payrolls fell by a seasonally adjusted 23,000 for the month, compared with a downwardly revised 20,000 for June. The… consensus forecast had been looking for a gain of 83,000. At the same time, the unemployment slipped to 4.1% as the labor force participation rate fell further to 61.4%, its lowest in more than five years… In addition to the weak numbers for June and July, the final count for May was revised down to 63,000, or 66,000 lower than the prior estimate. The revised numbers brought the 12-month average down to just 34,000… The drop was led by a 50,000 decline in local government education and a loss of 19,000 retail jobs. Financial activities also posted a fall of 14,000 and leisure and hospitality lost 40,000, a possible consequence of the World Cup tournament ending.”
August 5 – CNBC (Jeff Cox): “Hiring at private companies slowed considerably in July, with most of the job growth coming from healthcare, payrolls processing firm ADP reported… Nonfarm job growth excluding government totaled a seasonally adjusted 44,000 for the month, below the downwardly revised 95,000 in June and less than the… consensus forecast for 75,000. On net, all of the gains came from the services sector, which added 47,000 while goods-producing companies saw a decline of 3,000. Of those jobs, the education and health services sector produced 36,000…”
August 6 – Reuters (Lucia Mutikani): “The number of Americans filing claims for unemployment benefits increased slightly last week, while layoffs dropped to a two-year low in July, consistent with a stable labor market… Initial claims for state unemployment benefits rose 1,000 to a seasonally adjusted 199,000 for the week ended August 1… Claims have dropped considerably since surging in early June, and are at the lower end of their 189,000-230,000 range for this year.”
August 5 – Bloomberg (Jeffrey Sparshott): “US mortgage rates rose last week to the highest level in a year, curbing demand for home loans in an already subdued housing market. The contract rate on a 30-year mortgage rose 5 bps to 6.81% in the week ended July 31…”
August 3 – Reuters (Michael S. Derby): “Respondents to a Federal Reserve banking survey reported ‘basically unchanged’ lending standards for commercial and industrial loans during roughly the second quarter, with stronger demand for that type of loan coming from large and middle market firms. ‘For loans to households, banks reported mixed changes in lending standards and weaker demand for residential real estate,’ the Fed said in its latest quarterly Senior Loan Officer Survey…”
August 6 – Reuters (Lucia Mutikani): “U.S. worker productivity grew faster than expected in the second quarter and further gains are likely as businesses invest in artificial intelligence… Nonfarm productivity, which measures hourly output per worker, increased at a 1.4% annualized rate last quarter after advancing at an upwardly revised 0.8% pace in the January-March quarter…”
China Watch:
August 4 – Bloomberg: “China’s services activity expanded at its weakest pace in nearly two years, a private survey showed, with businesses turning more cautious about an economy that’s increasingly showing signs of further weakness. The RatingDog China services purchasing managers’ index slipped to 50.4 from 54.1 in June… The reading is the lowest since September 2024.”
August 6 – Wall Street Journal (Hannah Miao): “China’s exports have surged this year, driving its economic growth while threatening to exacerbate tensions with trading partners… China’s exports rose 24% last month from a year ago in dollar-denominated terms. That was down slightly from June’s 27% growth, but still topped economists’ expectations. For the first seven months of 2026, exports have risen about 19% from the same period in 2025. Artificial intelligence-related demand boosted exports. Shipments of semiconductors and computing equipment added more than 10 percentage points to China’s overall export growth in July…, according to Capital Economics analysis. The growth was primarily driven by rising prices.”
Central Banker Watch:
August 5 – Bloomberg (Martha Beck and Beatriz Reis): “Brazil’s central bank cut its key interest rate by a quarter point for a fourth straight decision and left its next move open… Board members… lowered the benchmark Selic to 14%..., as expected… The move brought cumulative easing since March to 100 bps.”
Europe/UK Watch:
August 6 – New York Times (Christopher F. Schuetze and Patricia Cohen): “Ferocious heat waves, wildfires and freakish storms have pulverized Europe this summer. Now a series of droughts, magnified by climate change, have crippled some of the continent’s key waterways… One center of the crisis is the ‘wide and winding Rhine’ river, as Lord Byron put it, which stretches nearly 800 miles through six countries as it journeys from the Swiss Alps to the North Sea. This vital economic artery conveys thousands of vessels and millions of tons of cargo a year that stoke trade and industry throughout the continent. ‘It’s one of the most important heart chambers of the German economy,’ said Carsten Brzeski, global head of macro research at ING… This week, water levels hit their lowest point since 1880, when official measurements were first recorded, disrupting supply chains, raising shipping costs and possibly forcing companies to scale back on production.”
August 6 – Reuters (Luiza Ilie): “Romania delayed plans to sink four rock-filled barges into the Danube until Friday citing unsafe conditions, as the race tightens to divert water from the drought-hit river to its only working nuclear reactor and buy a few more days of operation amid low electricity supplies. Record low water levels on the Danube, used to cool reactor turbines, have already forced the shutdown of one reactor, and authorities have taken unprecedented measures to keep the country’s only other reactor running, including detonating a rock obstruction earlier this week.”
Japan Watch:
August 7 – Bloomberg (Nao Sano): “Japan’s four largest life insurers reported that their combined unrealized losses on domestic bonds increased 7% in the three months through June, showing the risks to the industry from soaring interest rates. Paper losses on bonds held by the insurers including Nippon Life Insurance Co. swelled to ¥15.13 trillion ($96bn), according to the four firms’ earnings reports... All four, comprising Daiichi Life Group Inc., Sumitomo Life Insurance Co. and Meiji Yasuda Life Insurance Co. in addition to Nippon Life, saw increases in unrealized losses.”
EM Watch:
August 5 – Bloomberg (Selcuk Gokoluk): “Private investors are pouring growing sums into artificial intelligence projects across the developing world, pushing deal volumes to record highs in the first half of 2026. Unlike in equity markets, where the AI boom is largely confined to South Korea and Taiwan, private capital is flowing into projects for data centers and digital infrastructure in a range of nations, including across Latin America and Africa, according to… the Global Private Capital Association. Flows from private equity, venture capital and private credit funds reached $8.8 billion in the first half of 2026, surpassing the total for all of 2025…. The inflows are the highest since records began in 2008.”
Social, Political, Environmental, Cybersecurity Instability Watch:
August 5 – Bloomberg (Simone Foxman): “Surging retail trading isn’t just transforming markets; it’s also highly correlated with demoralization in young men, according to a new study. One-quarter of men aged 18-29 said they trade stocks daily, and almost two-thirds of them (64%) report feeling like failures, according to a study of 2,000 men published… by the Institute for Family Studies... The findings were strikingly similar to outcomes among men who gamble: Of the 23% of young men who said they gambled daily, including on sports and events, 66% reported similar angst… Daily fantasy sports and pornography use were similarly correlated to feelings of failure, the survey found.”
August 3 – Reuters (David Ryder, Matt Mcknight and Steve Gorman): “Wildfires raging on the outskirts of Spokane, Washington, for a third day have destroyed at least 700 buildings and forced tens of thousands of people to flee their homes in and around the state’s second-most populous city, officials said…”
