Yet another well-timed intervention: “Trump Says US in ‘Final Stages” With Iran.” Crude closed Wednesday trading at $98.26, down almost 6% from earlier trading highs. The MAG7 Index traded up 1.4% from intraday lows, ending the session 1.3% higher. The Nasdaq100 jumped 1.7% Wednesday, with the Semiconductors surging 4.5%. The S&P500 advanced 1.1%, as the small cap Russell 2000 jumped 2.6%. The Goldman Sachs most short index advanced 3.2%. Ten-year Treasury yields ended the week at 4.56%, 12 bps below Wednesday’s trading high.
May 22 – CBS News (James LaPorta, Jennifer Jacobs and Margaret Brennan): “The Trump administration was preparing Friday for a fresh round of military strikes against Iran, according to sources with direct knowledge of the planning, even as diplomacy continued. No final decision on strikes had been reached as of Friday afternoon. ‘Circumstances pertaining to Government’ are keeping President Trump from attending his son Donald Trump Jr.’s wedding this weekend… The president had planned to spend Memorial Day weekend at his golf property in New Jersey but will now return to the White House. Some members of the U.S. military and intelligence community canceled their plans for the Memorial Day weekend in anticipation of possible strikes, several sources said.”
May 22 – Axios (Barak Ravid): “President Trump convened a meeting with his senior national security team on the war with Iran on Friday morning, two U.S. officials told Axios. Trump is seriously considering launching new strikes against Iran barring a last-minute breakthrough in negotiations, sources who have spoken directly with the president say. Trump’s Iran meeting took place as the head of the Pakistani military, Field Marshal Asim Munir, traveled to Tehran in an apparent eleventh-hour effort to bridge the gaps and prevent a resumption of the war.”
May 22 – New York Times (David E. Sanger, Eric Schmitt, Tyler Pager, Jonathan Swan and Julian E. Barnes): “And after weeks of declaring that an agreement was near, and then that the Iranians were ‘dangling’ him, negotiations seem to be at a standstill. Mr. Trump announced on Friday that he was skipping the wedding this weekend of his son and namesake… because of ‘circumstances pertaining to the Government, and my love of the United States of America.’ For Mr. Trump, the risks of resuming combat operations appear far greater now than they were in late February, when he ordered the first strikes in Operation Epic Fury, in coordination with Israel. Now he has to deal with the reality that after five weeks of war and six weeks of cease-fire, he has failed to force Iran’s leaders to relent.”
Meanwhile, we have a new Fed Chair.
“Honestly, I really mean this. This is not said in any other way. I want Kevin to be totally independent. I want him to be independent and just do a great job. Don’t look at me. Don’t look at anybody. Do your own thing and do a great job.” President Trump, at Kevin Warsh’s Friday swearing in ceremony.
A few hours later…
May 22 – Bloomberg (Sam Kim): “‘We’re going to get it down very quickly,’ President Trump says at a rally in the state of New York, referring to interest rates. Trump talks about a White House ceremony earlier in the day to swear in Kevin Warsh as Federal Reserve chairman. Everybody will be happy ‘if you get the interest rate down,’ he says…”
“I now have a great head of the Fed in Warsh.” “He’s going to be great.”
As my preferred candidate to succeed Chair Yellen, I titled a CBB back in October 2017, “Kevin Warsh to Lead Fed in a New Direction.” “He is viewed as the reformer candidate – somewhat of a disrupter that might shake things up a bit. From my perspective, he is more the outcast traditionalist in an age of monetary radicalism. Fed governor Warsh was the most outspoken member of the Fed’s inner circle arguing against Bernanke’s radical monetary doctrine. Importantly, Warsh is not an inflationist – and for this he is on the receiving end of criticism from the left as well as the right. Willing to stand tall against the powerful consensus view, Warsh recognizes the great risks that come with monetary inflation.”
I ponder the size of pandemic QE had it been a Warsh Federal Reserve. I doubt he would have managed the crisis much differently than Powell. Perhaps he would not have restarted QE as early in 2019, and he might have moved earlier to begin drawing down the Fed’s bloated balance sheet.
The world has changed so momentously since Powell’s swearing in. Incredibly, Treasury debt has almost doubled (90%) to surpass $37 TN. The Fed’s balance sheet is 50% larger. Money Market Fund Assets have inflated from $2.8 TN to $7.8 TN. System “repo” assets have more than doubled (115%) to $8.2 TN. Broker/Dealer Assets have ballooned 76% to $6.3 TN. Hedge fund “repo” borrowings have inflated from $700 billion to $3.4 TN, as long Treasury holdings surged from $700 billion to $2.4 TN. The AI mania/arms race has made some headway, with the MAG7 Index having inflated more than 1,100%.
Judy Shelton’s Friday evening WSJ opinion piece, “Kevin Warsh Can Tame Inflation Without Higher Rates,” evoked memories.
“Reforms under Mr. Warsh that reduce the Fed’s outsize presence in financial markets and reinforce free-market price signals will help wean monetary-policy makers off seeking to manage economic performance through artificially induced interest rates. One result of the central bank’s allowing market forces to determine the cost of capital would be that the Fed has to give up its predilection for imposing restrictive interest rates to squelch inflationary pressures-curtailing demand by suppressing economic growth. In this way, pro-market reform would mean over time interest rates lower than they otherwise would be.”
Chair Powell surely had hopes to “reduce the Fed’s outsize presence in financial markets.” Every head of a central bank has a plan – until they’re smacked in the face by financial crisis. Judy Shelton suggests that resolving some of our nation’s most intractable problems is simply a matter of adopting free-market reforms and allowing the resulting supply-side boom to whip inflation now and balance the federal budget. Haven’t we followed a similar “reform” playbook a few times over recent decades?
Unfortunately, there will be no growing our way out of today’s pickle. In theory, economies can inflate away over-indebtedness. In reality, efforts to inflate out of Bubbles ensure only greater and more destructive Bubble excess. And it is fundamental to my analysis that prolonging “Terminal Phase Excess” courts disaster.
The Trump administration is pursuing every avenue to bolster late-cycle excess and prolong history’s greatest Bubble. Overheating risks are high and rising. The Iran war has significantly bolstered already powerful inflationary pressures. And, importantly, bond markets now recognize that they are on the losing end of inflationary policymaking – the sucker at the table.
Is Kevin Warsh “independent”? Things would be relatively straightforward for the old Warsh. He would focus on the Fed’s principal responsibility for maintaining price stability; invoke the legacy of Paul Volcker; and prepare to marshal the FOMC in the direction of tighter monetary policy.
Warsh: “To fulfill this mission, I will lead a reform-oriented Federal Reserve, learning from past successes and mistakes, both escaping static frameworks and models, and upholding clear standards of integrity and performance.”
“While I’m not naive about the challenges we face, I believe, Mr. President, these years can bring unmatched prosperity that will raise living standards for Americans from all walks of life, and the Fed has something to do with it.”
Kevin Warsh took the opportunity to praise his “idol” Alan Greenspan. And it was the free-market ideologue, “The Maestro,” that mastered the art of harnessing market speculative impulses to achieve his policy objectives. Just provide “free” markets a little needed boost on occasion to ensure righteous outcomes. It was Greenspan’s aggressive monetary easing, yield curve manipulation, and general “asymmetrical” policy approach that fomented leveraged speculation and booming Wall Street finance, which evolved over decades into history’s greatest global financial Bubble.
Starting in the mid-nineties, Greenspan argued that technology-driven productivity gains allowed the economy to grow at a faster “speed limit” without triggering inflation. In 1999, near the peak of the Bubble he so readily accommodated, it was that “something special has happened to the American economy.”
Back to Shelton: “By reforming how the Fed models the effect of its interest-rate decisions on the economy, discarding Keynesian theories that bristle at low unemployment and high growth, Mr. Warsh can align monetary policy with the Trump administration’s goal of higher economic output to increase prosperity and to reduce inflationary pressures.”
Back on February 5, 2018, Jay Powell took his oath and was sworn in the Federal Reserve’s boardroom, administered by vice chairman Randal Quarles.
It was a revealing backdrop Friday for Warsh festivities: A packed East Room of the White House, with the oath administered by Supreme Court Justice Clarence Thomas. Warsh’s long-time friend Justice Brett Kavanaugh was in attendance, along with Justice Samuel Alito, former vice president Dan Quayle, former Secretary of State Condoleezza Rice, and former House Speaker Kevin McCarthy.
I immediately miss Jay Powell’s non-ideological, apolitical approach to managing the FOMC. Fed independence has already been compromised. And it’s difficult to see how the Warsh Fed avoids the political and ideological fractures that have taken hold virtually everywhere. For half of the committee, notions of AI-induced productivity supporting lower rates and supply-side stimulus curbing inflation will be tough sells. A deeply divided Fed is an unpredictable central bank institution.
In Warsh’s confirmation hearing, he chided Fed “mission creep.” “…The central bank, an independent body, should not be adopting a set of policies that have that kind of distributional consequence.” “Inflation is the Fed’s choice.”
Making difficult decisions necessary to safeguard price stability for our frustrated nation will be the Warsh Fed’s choice. While Kevin Warsh was relishing White House fanfare and ceremony, one of the committee’s ardent doves announced a responsible change in his inflation view.
May 22 – Bloomberg (Enda Curran): “Federal Reserve Governor Christopher Waller said he supports making clear the central bank’s next interest-rate move is just as likely to be an increase as a cut, as the energy shock from the Iran war pushes up prices. Waller said his current position is to be patient in holding rates until the war’s impact is clearer, but he warned on Friday that he wouldn’t rule out a future rate hike if inflation doesn’t start to slow soon. ‘Inflation is not headed in the right direction,’ Waller said Friday in a speech titled Policy Risks Have Changed... ‘I would support removing the ‘easing bias’ language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase.’ Waller said the oil shock could dissipate soon, but, he added, ‘I can no longer rule out rate hikes further down the road if inflation does not abate soon.’”
While on the subject of Fed doves, it’s worth highlighting comments by Trump’s former chair of the Council of Economic Advisers and Fed governor appointee, Stephen Miran (Bloomberg TV 5/14/26)
Bloomberg’s Lisa Abramowicz: “One thing you’ve been known for – a hallmark of your time on the Fed – was that you voted to cut rates at least once at every single meeting. Do you think that that still holds, even though in the short-term it does seem like the inflationary shock is overwhelming potential structural changes that could lead to disinflation?”
Stephen Miran: “I do. And I think this is maybe one of the biggest differences between me and a lot of other folks, is that I take very seriously the idea of monetary policy lags – very, very seriously. Monetary policy doesn’t hit the economy right now. If we changed interest rates today, it wouldn’t flow through into the economy until 12 to 18 months from now. There is some disagreement over exactly how long those lags are, but I think 12 to 18 is the consensus view. And, therefore, for any shock that’s in the economy today, you can’t think about what the effect in the next few months is. You need to think of the effect 12 to 18 months out. So, if oil goes higher, it’s a supply shock. The Strait of Hormuz is closed, right. That’s going to boost the oil price today and with it a bunch of other stuff that’s very tightly tied to energy prices, like airfares. That’s going to go higher very quickly, within the course of a few months. And we’ve been living through that. And that is very real inflation. But it is not inflation that monetary policy can affect. Monetary policy can affect 12 to 18 months from now. So, there’s got to be a reason you think airfares and oil prices are going to be moving higher in the summer of 2027 and the fall of 2027, not the summer and fall of 2026. And so, it’s those lags that really should be driving where you think forward monetary policy should be. And that’s a lot of what I’ve tried to hone into when thinking about population growth and deregulation - and saying that the traditional view that we should look through an oil shock should prevail. This is very vanilla, basic, traditional monetary policy.”
Lisa: “Part of the problem is that the market doesn’t agree, at least not in terms of where longer-dated bonds are trading and where yields are shifting higher even as the front end stays where it is…”
Miran: “So, the market not agreeing is in part a hall of mirrors issue. Because if the Fed says we’re very backward looking and inflation over the past 12 months is going to determine policy that affects 12 to 18 months from now - meaning the economy in 2027 is affected by data in 2025 in that world. It’s very, very backward looking. If that’s how the Fed communicates that that’s how it’s setting policy, then the market is going to start to reflect that. And so the market reflecting a lack of interest rate cuts – right – is in part because the Fed is telling them we’re backward looking. So that’s going to create a self-reinforcement problem.”
I assume Chair Warsh doesn’t share Stephen Miran’s deeply flawed analytical framework. It was Alan Greenspan who first realized that financial conditions could be immediately loosened with a mere terse comment. Just a dovish utterance would spark “risk on” speculation, leveraging, looser conditions, higher market prices, and economic activity.
More recently, the Powell “pivot” spurred a swift surge in speculative leverage and looser conditions. Miran’s view that the Fed should look through the war’s inflation shock and reduce rates today for a better 2027 outcome is irresponsible. His analysis that bond yields have moved higher because of the Fed’s misguided “backward looking” market signaling is misguided.
Ten-year Treasury yields have jumped 90 bps since the Fed began its 175 bps rate-cutting cycle in September 2024. Yields are up significantly because the Fed failed to tighten conditions sufficiently to quash inflationary pressures. And the longer loose conditions accommodate inflationary biases, the more resistance deeply entrenched inflationary forces will be to future tightening measures.
Reform can wait. “Mission creep” and Fed communications are not pressing issues. It is inflation that has emerged as the predominant issue of this era. “Bessent: Warsh to do Right Thing for Inflation, Growth.” The right thing would be to err on the side of reining in inflation. At this point, necessary tightening measures would cause major upheaval. Allowing inflation and Bubble excess to spiral out of control risks catastrophe. And when it comes to reform, the Fed should shift its analytical focus to financial conditions and Credit. I’m not optimistic. Optimism is not enveloping global bond markets.
May 18 – Axios (Neil Irwin and Courtenay Brown): “Kevin Warsh hasn’t even been sworn in as leader of the Federal Reserve yet, and his first great test has already arrived. Global bond markets are sending borrowing costs markedly higher in this era of energy supply disruptions, AI-fueled demand for capital and massive fiscal deficits. The yield on 30-year U.S. Treasury bonds has surged to 5.11%, its highest level since 2007... It sets up an environment where the Fed may well need to prevent inflation expectations — as reflected in bond traders’ bets — from coming unmoored. It’s a paradox of monetary policy: Sometimes, the only solution for higher long-term interest rates is higher short-term interest rates. Warsh has spent years criticizing the Fed for letting inflation run too hot for too long. Now, he's inheriting a bond market that’s pricing in exactly that scenario.”
May 19 – Axios (Courtenay Brown): “The global economy faces the types of massive imbalances that preceded previous crises… and it’s not yet clear how this debt cycle will end. The last four decades of economic turbulence trace back to a similar underlying issue, that the world's biggest economies are chronically out of sync, former top International Monetary Fund official Gita Gopinath argued... She spoke at the Atlanta Federal Reserve Bank’s annual financial markets conference... Gopinath pointed to three major eras of global imbalances: the U.S.-Japan tensions of the 1980s, which culminated in the Plaza Accord; the buildup to the 2008 financial crisis; and today’s standoff between the U.S. and surplus economies like China. ‘How will this one end compared to the previous two?’ Gopinath asked.”
May 19 – Financial Times (Joachim Klement): “In December 1996, Federal Reserve chair Alan Greenspan characterised the boom in technology, media and telecom stocks as showing signs of ‘irrational exuberance’. Almost 30 years later, we can say the same about the AI boom. But while there are similarities between the current tech boom and the one a generation ago, there is an important difference. One aspect of today’s boom is already much larger than the TMT bubble ever was. In 2025, US businesses invested almost $1.5tn in IT equipment and software. At the peak of the TMT bubble, it was $466bn or $829bn when adjusted for inflation. Indeed, the US economy is growing solely because of the tech boom. I calculate that over the past four quarters, 93% of US GDP growth was explained by tech investments. Even at the peak of the TMT bubble, it barely reached 60%.”
For the Week:
The S&P500 increased 0.9% (up 9.2% y-t-d), and the Dow rose 2.1% (up 5.2%). The Utilities rallied 3.0% (up 6.7%). The Banks recovered 3.4% (up 2.5%), while the Broker/Dealers declined 1.6% (up 4.1%). The Transports advanced 3.1% (up 19.6%). The S&P 400 Midcaps gained 1.8% (up 11.1%), and the small cap Russell 2000 jumped 2.7% (up 15.6%). The Nasdaq100 gained 1.2% (up 16.8%). The Semiconductors surged 5.3% (up 72.3%). The Biotechs rallied 3.0% (up 3.6%). With bullion declining $31, the HUI gold index fell 2.6% (up 3.7%).
Three-month Treasury bill rates ended the week at 3.5812%. Two-year government yields gained another five bps to 4.12% (up 65bps y-t-d). Five-year T-note yields were unchanged at 4.26% (up 53bps). Ten-year Treasury yields dipped four bps to 4.56% (up 39bps). Long bond yields declined five bps to 5.07% (up 22bps). Benchmark Fannie Mae MBS yields slipped two bps to 5.54% (up 50bps).
Italian 10-year yields dropped 18 bps to 3.77% (up 22bps y-t-d). Greek 10-year yields fell 18 bps to 3.71% (up 27bps). Spain's 10-year yields dropped 14 bps to 3.47% (up 18bps). German bund yields declined 13 bps to 3.04% (up 18bps). French yields fell 16 bps to 3.67% (up 10bps). The French to German 10-year bond spread narrowed about three to 63 bps. U.K. 10-year gilt yields sank 27 bps to 4.90% (up 42bps). U.K.’s FTSE equities index rallied 2.7% (up 5.3% y-t-d).
Japan’s Nikkei 225 Equities Index rose 3.1% (up 25.8% y-t-d). Japan’s 10-year “JGB” yields rose another five bps to 2.76% (up 70bps y-t-d). France’s CAC40 rallied 2.1% (down 0.4%). The German DAX equities index jumped 3.9% (up 16%). Spain’s IBEX 35 equities index rose 2.1% (up 3.9%). Italy’s FTSE MIB index increased 0.8% (up 10.2%). EM equities were mixed. Brazil’s Bovespa index slipped 0.6% (up 9.4%), while Mexico’s Bolsa index recovered 0.6% (up 6.2%). South Korea’s Kospi surged 4.7% (up 86.2%). India’s Sensex equities index inched 0.2% higher (down 11.5%). China’s Shanghai Exchange Index declined 0.5% (up 3.6%). Turkey’s Borsa Istanbul National 100 index dropped 3.9% (up 22.6%).
Federal Reserve Credit slipped $5.7 billion last week to $6.667 TN, with a 23-week expansion of $177 billion. Fed Credit was down $2.222 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.941 TN, or 79%. Fed Credit inflated $3.856 TN, or 137%, since November 7, 2012 (706 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $34.6 billion last week to $2.971 TN - sinking to the low back to October 2010. “Custody holdings” were down $282 billion y-o-y, or 8.7%.
Total money market fund assets (MMFA) rose $17 billion last week to $7.771 TN. MMFA were up $803 billion, or 11.5%, y-o-y - having ballooned a historic $3.187 TN, or 70%, since October 26, 2022.
Total Commercial Paper was little changed at $1.431 TN. CP declined $12 billion, or 0.8%, y-o-y.
Freddie Mac 30-year fixed mortgage rates jumped 15 bps to 6.51% (down 35bps y-o-y). Fifteen-year rates rose 14 bps to 5.85% (down 16bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 14 bps to a nine-month high of 6.74% (down 25bps).
Currency Watch:
For the week, the U.S. Dollar Index was unchanged at 99.239 (up 0.9% y-t-d). On the upside, the South African rand increased 1.4%, the British pound 0.8%, the Swedish krona 0.8%, the Norwegian krone 0.5%, the Brazilian real 0.4%, the Swiss franc 0.3%, the New Zealand dollar 0.2%, and the Singapore dollar 0.1%. On the downside, the South Korean won declined 1.3%, the Canadian dollar 0.5%, the Australian dollar 0.3%, the Japanese yen 0.3%, and the euro 0.2%. China's (onshore) renminbi increased 0.24% versus the dollar (up 2.82% y-t-d).
Commodities Watch:
May 18 – Bloomberg (Yihui Xie): “Central banks are expected to step up gold-buying, helping prices to recover by year-end, according to Goldman Sachs… Purchases are expected to pick up to average 60 tons a month over 2026, analysts Lina Thomas and Daan Struyven said... The 12-month moving average of purchases was 50 tons in March, up from a prior figure of 29. For central banks, there’s ‘strong underlying interest in gold, and recent geopolitical developments are likely to reinforce diversification,’ the analysts said, citing an in-house survey…”
The Bloomberg Commodities Index declined 1.6% (up 26.4% y-t-d). Spot Gold dipped 0.7% to $4,509 (up 4.4%). Silver recovered 5.4% to $75.5415 (up 5.4%). WTI Crude dropped $8.82, or 8.4%, to $96.60 (up 68%). Gasoline fell 6.7% (up 101%), and Natural Gas declined 1.8% to $2.907 (down 21%). Copper added 1.3% (up 12%). Wheat added 1.7% (up 28%), and Corn gained 1.6% (up 5%). Bitcoin sank $3,690, or 4.7%, to $75,400 (down 14.0%).
Market Instability Watch:
May 19 – Bloomberg (Greg Ritchie): “Yields on the US Treasury’s longest-dated bond rose to the highest level in almost two decades as investor concerns mount that accelerating inflation will force central bankers to raise interest rates. The 30-year yield rose as much as seven basis points to 5.20% on Tuesday, a level last seen in 2007, on the eve of the global financial crisis. Bond markets across Europe and Japan also fell, while the selloff spilled over into US equity markets.”
May 20 – Bloomberg (Ruth Carson and Matthew Burgess): “The selloff in longer-maturity government bonds has pushed up yields to levels last seen during the global financial crisis, and market participants are warning the move has room to run. A surge in global inflation expectations has brought the average yield on sovereign debt due in a decade or more to the highest since July 2008… ‘We’re seeing a broader repricing of duration driven by fiscal realities, persistent inflation risks and some political uncertainty, as well as a more demanding investor base,’ said Patrick Coffey, head of a research group at Barclays Plc in London. ‘It’s hard to point to a near-term catalyst outside of the reopening of the Strait of Hormuz that could fully reverse the current selloff.’”
May 19 – Bloomberg (Mia Gindis): “A huge options bet Tuesday on Brent crude prices plunging rattled oil traders already on high alert for unusual flows, as Iran war headlines continue to whipsaw prices and regulators probe suspicious trading. Put options equivalent to 134 million barrels of Brent crude oil traded in a single $91/$90 put spread transaction… A buyer of the spread would profit as much as $129 million if July futures tumble roughly 19% from their current level by the May 26 expiration.”
May 22 – Telegraph (Chris Price): “Record debt interest payments pushed public borrowing higher last month amid fears that Labour leadership changes and the Iran war could drive up debt even further. Rachel Reeves borrowed £24.3bn in April to plug the gap between tax revenues and public spending… This was £3.4bn higher than the £20.9bn forecast by the Office for Budget Responsibility (OBR) in March… The war in Iran has sent government borrowing costs surging on bond markets as investors braced for higher inflation.”
May 21 – Reuters (Gertrude Chavez-Dreyfuss): “Surging U.S. Treasury yields have prompted mortgage investors to hedge the loans in their portfolios by selling government debt, a shift that probably exacerbated the bond selloff this week and added to the biggest rate spike in a year. “
May 16 – Financial Times (Kate Duguid, Harriet Clarfelt and Leo Lewis): “Investment firms are positioning for a potential repatriation of Japanese investor cash out of US Treasuries and back into Japanese government bonds, as domestic yields surge to record highs. The yield on the benchmark 10-year JGB rose to 2.73% during trading on Friday — its highest level since May 1997 — with investors increasingly convinced that rising inflation will prompt the Bank of Japan to raise its policy interest rate by a quarter point to 1% in June.”
May 18 – Bloomberg (Chris Anstey and Ye Xie): “Foreign holdings of US Treasuries dropped in March from a record high as overseas investors dumped bills while adding to their stockpile of longer-dated federal securities. Overseas holdings fell by $138.4 billion in March from the month before…. The Treasury’s data showed foreign investors logged a $142.1 billion valuation loss on their long-term Treasuries holdings for March.”
May 21 – Bloomberg (Ruth Carson and Haslinda Amin): “Jamie Dimon said interest rates may climb much further, a warning to bond investors at a time when yields have touched multi-year highs. ‘They could be much higher than they are today,’ the chairman and chief executive of JPMorgan… said... ‘We may have gone from a saving glut to not enough savings… Bond rates can go up… The notion that somehow people say they will never go up is the wrong notion. Companies like us prepare for higher rates, lower rates.’”
U.S. Credit Trouble Watch:
May 18 – Bloomberg (Nabila Ahmed): “The default rate for US private credit loans hit a record 6% in the 12 months ended April 30, Fitch Ratings said… Of the 99 default events over the period, 81 borrowers defaulted for the first time — the highest number since the firm began tracking in August 2024. More than half of the defaults were driven by interest payment deferrals and the introduction of payment-in-kind, or PIK, meaning the borrower can pay interest in more debt rather than cash. Consumer products companies had the highest default rate, at 11.1%, up from 5.9% a year ago.”
May 19 – Bloomberg (Michelle Cheng): “Borrowing tied to the AI data-center boom is quickly climbing Wall Street’s list of potential credit threats, as investors increasingly worry that the breakneck pace of financing could sow the seeds of the next market shock. Roughly 34% of global fund managers surveyed by Bank of America Corp. earlier this month said AI hyperscaler capital spending was the most likely source of a future systemic credit event, double the share from April. US private credit remains the top concern for 42% of respondents… The results highlight a rapid shift in what investors see as the market’s biggest credit threat. Tech companies have borrowed more than $300 billion from US investors to fund AI spending since the beginning of last year…”
May 19 – Wall Street Journal (Katherine Hamilton): “When Jan Bruno, a real-estate agent, started shopping last year for a beach house in Massachusetts, she had trouble getting a traditional mortgage. Her taxable income is less than half of what she earns in a year, due to commissions and tax write-offs for expenses like staging homes. So Bruno’s lender suggested a ‘nonconforming loan,’ which allows lenders to count income from outside traditional employment. ‘It was a huge difference in buying power,’ she said. Bruno was approved for a loan of up to $1 million… Mortgage lenders are increasingly turning to alternative loans to drum up business in a housing market that has been stalled for years.”
Global Credit Bubble Watch:
May 22 – New York Times (Rob Copeland): “It is a golden moment for banks. Trading profits are at record highs, and so are employee bonuses. Mergers, acquisitions and other deals are piling up at the second-fastest pace in at least a decade, producing billions of dollars in fees. And after they operated for nearly two decades in what one banker described as a regulatory ‘straitjacket,’ the Trump administration is making it easier for banks to expand and take more risks. ‘The stars are aligning for banks in a way that hasn’t been seen in multiple decades,’ Citi analysts wrote in a research note…”
May 21 – Bloomberg: “Junk debt is beating just about everything else in fixed-income markets after surging yields wiped out gains on most other bonds. Yet with high-yield credit spreads near two-decade lows, investor unease is building. The lower-rated notes extended their outperformance over investment-grade bonds this week to the most so far in 2026 at 1.6 percentage points… Junk bond issuance has also been on a tear this year. Fundraising in the US high-yield market is running at its most in five years, up over 40% on the same period in 2025…”
May 20 – Bloomberg (Aashna Shah): “Muni deals are getting bigger, as expensive infrastructure projects drive borrowing in the US state and local debt market. ‘We’re seeing billion-dollar deals become much more of the norm,’ said Bo Daniels, head of public finance at Loop Capital Markets… Municipalities have sold about $216 billion in debt so far this year as of Wednesday, up about 10% from the same period last year…”
May 20 – Reuters (Chibuike Oguh): “Corporate America is tapping the convertible bond market at a record pace as companies linked to artificial intelligence drive a surge in demand for debt that often draws extra investor interest in hot markets because it can convert into equity. U.S. convertible issuance reached about $34 billion in the first four months of 2026, more than double the same period a year earlier… That start puts the market on track to surpass last year’s full-year record of over $120 billion.”
Iran War Watch:
May 19 – New York Times (Mark Mazzetti, Julian E. Barnes, Farnaz Fassihi and Ronen Bergman): “Days after Israeli strikes killed Iran’s supreme leader and other top officials in the opening salvos of the war, President Trump mused publicly that it would be best if ‘someone from within’ Iran took over the country. It turns out that the United States and Israel went into the conflict with a particular and very surprising someone in mind: Mahmoud Ahmadinejad, the former Iranian president known for his hard-line, anti-Israel and anti-American views. But the audacious plan, developed by the Israelis and which Mr. Ahmadinejad had been consulted about, quickly went awry, according to the U.S. officials... Mr. Ahmadinejad was injured on the war’s first day by an Israeli strike at his home in Tehran that had been designed to free him from house arrest, the American officials and an associate of Mr. Ahmadinejad said.”
May 20 – New York Times (Amanda Taub): “Nearly three months into the conflict, the Iranian regime has succeeded in confounding U.S. and Israeli expectations for a speedy victory. The regime survived a wave of targeted killings early in the war. It then managed to turn the tables on its more powerful adversaries, introducing something of a stalemate. Since mid-March, Iran has maintained control over the Strait of Hormuz, an international waterway crucial to the world’s oil and gas trade. It has been able to limit U.S. and Israeli attacks on its energy industry. It even got President Trump to rein in Israel’s war in Lebanon against Hezbollah, an Iranian-backed militia. ‘Iran definitely has the advantage here,’ said Nicole Grajewski, who teaches at the Center for International Studies... ‘The U.S. is just kind of flailing at the moment’… To gain an edge over its much more powerful adversary, Iran used a method that game-theory scholars call ‘triangular coercion,’ said Daniel Sobelman, a professor at Hebrew University… who studies Iranian deterrence strategies. The strategy works by attacking a more vulnerable third party that has some leverage over an adversary to gain advantage over an opponent that cannot be outmatched directly.”
May 18 – Associated Press (Matthew Lee and Farnoush Amiri): “President Donald Trump has considered himself an effective dealmaker above all else, but he appears to have hit a wall with Iran as his tough talk, threats and even military action have not moved Tehran from its long-established positions. With shifting goals that make it difficult to judge the status of the U.S. effort, Trump and his top aides have insisted the United States has already won the war and that Iran is ready to reach an agreement in the wake of escalating U.S. threats during a tenuous ceasefire. But Trump once again backed down, saying Monday that he had put plans for an imminent resumption of attacks on hold at the request of Gulf Arab states…”
May 19 – Bloomberg (Skylar Woodhouse and Omar Tamo): “President Donald Trump threatened to resume strikes on Iran in the coming days as part of the push for a deal to end the war, after he said he had just called off a US attack. ‘I hope we don’t have to do the war, but we may have to give them another big hit,’ Trump told reporters… When asked how long he would wait, he said: ‘Well, I mean, I’m saying two or three days, maybe Friday, Saturday, Sunday. Something maybe early next week — a limited period of time.’”
May 21 – Reuters (Parisa Hafezi and Rami Ayyub): “Iran’s Supreme Leader has issued a directive that the country’s near-weapons-grade uranium should not be sent abroad, two senior Iranian sources said, hardening Tehran’s stance on one of the main U.S. demands at peace talks. Ayatollah Mojtaba Khamenei’s order could further frustrate U.S. President Donald Trump and complicate talks on ending the U.S.-Israeli war on Iran. Trump vowed on Thursday that the United States will not allow Iran to have its stockpile of highly enriched uranium. ‘We will get it. We don’t need it, we don’t want it. We’ll probably destroy it after we get it, but we’re not going to let them have it,’ Trump told reporters…”
May 20 – Bloomberg (Patrick Sykes and Eltaf Najafizada): “Iran warned it would retaliate beyond the Middle East if the US or Israel attacks it again, following renewed threats from President Donald Trump… ‘If aggression against Iran is repeated, the regional war that had been promised will this time extend beyond the region,’ the Islamic Revolutionary Guard Corps said… The IRGC, which has gained even more influence over Iranian decision-making since the war erupted in late February, vowed ‘crushing blows in places you do not expect.’”
May 20 – Axios (Barak Ravid): “President Trump and Israeli Prime Minister Benjamin Netanyahu discussed a new effort to reach a deal with Iran in a difficult call on Tuesday…, with one source saying Netanyahu’s ‘hair was on fire’ after the call. A revised peace memo was drafted by Qatar and Pakistan with input from the other regional mediators to try to bridge the gaps between the U.S. and Iran, the sources said. It comes with Trump vacillating over ordering a massive strike on Iran and holding out for a deal. Netanyahu is highly skeptical about the negotiations and wants to resume the war to further degrade Iran’s military capabilities and weaken the regime by destroying its critical infrastructure.”
May 17 – Financial Times (Nicolas Parasie): “The United Arab Emirates said a drone strike caused a fire at the perimeter of its Barakah nuclear power plant, but that there were no injuries and radiation levels remained safe. The emirate’s state news agency said on Sunday that authorities were ‘handling a fire that broke out in an electric generator outside the inner perimeter’ of the Barakah power plant ‘caused by a drone strike’.”
May 21 – Bloomberg (Samy Adghirni, Flavia Krause-Jackson and Alan Katz): “Iran is discussing with Oman how to set up some form of a permanent toll system that will formalize its control of maritime traffic through the Strait of Hormuz. ‘Iran and Oman must mobilize all their resources both to provide security services and to manage navigation in the most appropriate manner,’ the Iranian ambassador to France, Mohammad Amin-Nejad, said…”
Iran War Ramifications Watch:
May 18 – Bloomberg (Kamil Kowalcze, Daniel Flatley and William Horobin): “International Energy Agency Executive Director Fatih Birol warned that the tally of commercial oil inventories is shrinking at an accelerated pace. ‘I think it is depleting very fast,’ he told reporters... It will be ‘several weeks, but we should be aware of the fact that it is declining rapidly,’ he said. He also highlighted that the spike in fertilizer and diesel prices comes at the start of the travel and planting season. ‘This could have major implications for the food prices and together with the higher energy prices they might give a big push to inflation numbers,’ he said.”
May 20 – Bloomberg (Nathan Risser and Alex Longley): “US crude inventories, including strategic reserves, plunged by a record as soaring exports start to erode domestic supply cushions. The decline of 17.8 million barrels brings crude inventories to the lowest levels in nearly a year, according to data from the US Energy Information Administration. Excluding strategic reserves, nationwide petroleum stocks still fell about 9 million barrels last week. America has emerged as a major supplier to the world as the war in Iran leaves top buyers in Asia and Europe without access to Middle Eastern barrels.”
May 20 – Politico (Bartosz Brzezinski): “The closure of the Strait of Hormuz could trigger a severe global food price crisis within six to 12 months unless governments act quickly, the Food and Agriculture Organization warned… Decisions now by farmers and governments on fertilizer use, imports, financing and crop choices will determine whether food prices spike later this year or in early 2027, the agency said. ‘Start seriously thinking about how to increase the absorption capacity of countries, how to increase their resilience to this choke, so that we start to minimize the potential impacts,’ FAO Chief Economist Maximo Torero said…”
May 16 – Axios (Nathan Bomey): “Farmers across the Midwest are entering planting season under mounting financial pressure, as the Iran conflict drives up diesel and fertilizer prices — deepening an agricultural downturn that some say is the worst since the crisis of the 1980s. Rising fuel and fertilizer costs threaten to push more family farms out of business, drive up food prices and further strain rural economies already battered by trade disruptions, inflation and extreme weather. Mark Mueller — a northeast Iowa farmer and president of the Iowa Corn Growers Association — tells Axios that the current landscape is more challenging than at any time since the 1980s farm crisis… The stresses are showing, with rising bankruptcies and lenders becoming more reluctant to provide farmers with operational loans. ‘There’s going to be fewer farmers next year than there is this year,’ Mueller says.”
May 18 – Reuters (Peter Hobson): “Justin Everitt is planting 50% less wheat this year than he thought he would. Standing in muddy brown boots and jeans by his tractor and 36-foot-wide seeding rig in a bare field, the 44-year-old said a lack of rainfall and rapid increases in fuel and fertiliser prices due to the war in Iran had ripped up his sowing plans. He is one of thousands of farmers across Australia deciding to plant less wheat and spread less fertiliser. Their choices… mean Australia, the third-largest wheat exporting nation, may have as much as 10 million tons less to ship in the upcoming season, an amount equivalent to 5% of annual global exports.”
May 19 – Financial Times (Martin Wolf): “First came the war. Then came the blockade. Now come the shortages. The tankers full of essential commodities — oil, liquid natural gas, urea, refined oil products, hydrogen, helium and so forth — have not sailed through the Strait of Hormuz since the end of February. Those that left before the closure have mostly arrived. From now on, the shipments that did not leave will increasingly be missed. As inventories are also drawn down, we will move into an era of physical shortages. Up to now, shortages have been mostly imaginary. Now they will become real. They must be managed, ultimately by suppressing demand. The latter in turn will require some combination of rationing and recession. A blend of higher prices with tighter monetary policy could deliver both. The longer the strait remains closed and the bigger the physical damage, the longer shortages will remain and the worse their impact.”
May 21 – Bloomberg (Jaewon Kang): “Walmart Inc. warned rising fuel costs are squeezing the company’s bottom line and could lead to higher prices for shoppers. The world’s largest retailer said comparable sales in US stores, excluding fuel, rose 4.1% in the latest quarter, slightly better than what… analysts were expecting. It also forecast adjusted profit for the second quarter that missed expectations… ‘The high-income consumer is spending with confidence in many categories, whereas the low-income consumer, we can tell, is more budget-conscious, trying to navigate certain financial distress,’ Chief Financial Officer John David Rainey said…”
May 21 – Bloomberg (Beril Akman and Selcuk Gokoluk): “Turkey offloaded almost all of its US Treasuries in March as it stepped up efforts to defend the lira amid intense economic pressure from soaring energy costs. The amount of Treasuries held by Turkey fell to $1.8 billion by the end of March, down from $16 billion the previous month… Turkey has taken dramatic action in recent weeks to prevent a depreciation in the lira as the country, which needs to import almost all its energy, grapples with the effects of higher oil prices stemming from the US-Iran war.”
May 17 – Bloomberg (Craig Stirling): “The global rush to stockpile manufactured goods on fears of an energy-supply crunch will again overshadow business surveys in the coming week gauging the impact of a third month of war in the Middle East. Among the purchasing manager indexes for May measuring industrial activity in key economies, all of those for which Bloomberg polls analysts are projected to show continued expansion, in many cases bolstered by front-loaded stockbuilding.”
May 15 – Axios (Kelly Tyko): “Motor oil could become the next supply-chain headache as major companies warn that Middle East turmoil is squeezing key ingredients used in synthetic lubricants. Drivers, repair shops and auto suppliers could soon see higher prices, reduced selection and temporary out-of-stocks for some synthetic motor oils. Executives at Shell, Valvoline, O'Reilly Automotive and other companies are warning investors about lubricant cost spikes and pressure on synthetic motor-oil supply chains.”
May 16 – Wall Street Journal (Rebecca Feng): “Coal is making a comeback. Countries around the world are returning to the highly polluting but reliable source of power after the Iran war effectively shut the Strait of Hormuz and cut off around 20% of global liquefied natural gas supplies. Taiwan is restarting idled coal-fired power plants and South Korea boosted the amount of electricity it generated from coal by more than a third last month. In Europe, Italy has put its coal plants on standby as it girds for a prolonged energy shock. Spot coal prices at Australia’s Newcastle port, a key supplier to Asia, have jumped 12% since the war started.”
May 21 – Bloomberg (Dayanne Sousa): “A spike in fertilizer costs driven by the Iran war is hitting farmers in agriculture powerhouse Brazil at the worst possible time, underscoring how the Middle East conflict is threatening global food supplies. Brazilian farmers have already been grappling with lower commodity prices, limited access to credit, elevated debt, unfavorable currency exchange rates and surging costs of moving goods to ports. Now the rapid rise in fertilizer is taking things to a tipping point…”
May 20 – Financial Times (Andrew England, Arash Massoudi, Ellesheva Kissin and Nicolas Parasie): “Saudi Arabia has stopped issuing new contracts for western consultancies working in the kingdom and delayed some payments as the government manages a widening deficit and the fallout of the Iran war. Executives at consultancies told the FT that Riyadh took the decision after the US-Israeli war against Iran erupted, threatening the kingdom’s oil revenues and as the Islamic republic targeted its Arab neighbours with drones and missiles.”
May 19 – Financial Times (Leslie Hook, Joseph Cotterill, Monica Mark, William Wallis and David Pilling): “Rising fuel prices have triggered deadly protests in Kenya and forced countries across Africa to take emergency measures, as a deepening energy crisis drives severe disruption across the continent. Diesel and petrol prices at the pump have surged in recent weeks, as the economic shock of the war in the Middle East starts to reach consumers across sub-Saharan Africa. The impact of the war on many African economies was initially blunted by government fuel subsidies and regulated prices… But states have been forced to pass on more fuel price rises as they can no longer afford the subsidy bill.”
Trump Administration Watch:
May 16 – Associated Press (Simina Mistreanu): “Recent comments by U.S. President Donald Trump that arms sales to Taiwan are a ‘very good negotiating chip’ in the United States’ dealings with China are heightening anxieties on the island democracy that Beijing claims as its own… Asked if he would approve a $14 billion arms package to Taiwan that has been held up for months, Trump said that’s up to China. ‘I’m holding that in abeyance and it depends on China,’ he said. ‘It’s a very good negotiating chip for us, frankly. It’s a lot of weapons.’”
May 21 – Financial Times (Joe Miller and Michael Peel): “The US government will take equity stakes worth a total of $2bn in a slew of quantum computing companies, including a start-up backed by a firm with links to the Trump family and one taken public by a Pentagon official. The announcement by the commerce department that it had signed letters of intent with nine companies — including GlobalFoundries and IBM — sent shares in quantum specialists soaring... Both IBM, which is set to get $1bn, and GlobalFoundries, which will receive $375mn, were up more than 6% in pre-market trading. D-Wave Quantum, an awardee that was taken public in 2022 by Emil Michael — now a top Pentagon official — was up more than 20%.”
May 21 – Wall Street Journal (Amrith Ramkumar): “President Trump postponed the signing of an executive order that would have given the government more oversight over the artificial-intelligence industry, saying he didn’t want to take any action that would slow down the U.S. in the AI race. Hours before a scheduled signing event Thursday that was set to include industry executives, Trump told reporters… the order would have asked AI companies to preview models with the federal government. Such a move would set back the U.S. in its competition with China, which AI analysts say the U.S. is winning, he said. ‘I really thought that could have been a blocker, and I want to make sure it’s not,’ he said, citing the number of jobs the technology is creating. ‘I don’t want to do anything that will get in the way of that lead.’”
May 17 – Axios (Marc Caputo): “Cuba has acquired more than 300 military drones and recently began discussing plans to use them to attack the U.S. base at Guantanamo Bay, U.S. military vessels and possibly Key West…, according to classified intelligence... The intelligence — which could become a pretext for U.S. military action — shows the degree to which the Trump administration sees Cuba as a threat because of developments in drone warfare and the presence of Iranian military advisers in Havana, a senior U.S. official said. ‘When we think about those types of technologies being that close, and a range of bad actors from terror groups to drug cartels to Iranians to the Russians, it’s concerning,’ the official said. ‘It’s a growing threat.’”
May 18 – New York Times (Andrew Duehren): “The top lawyer at the Treasury Department stepped down… in the wake of the creation of a $1.8 billion ‘anti-weaponization’ fund that could soon make payments to President Trump’s political allies… Brian Morrissey, the Treasury’s general counsel, resigned from the position seven months after he was confirmed to it by the Senate and just hours after the Trump administration announced the fund on Monday.”
May 19 – Wall Street Journal (Jared Mitovich and Kara Dapena): “Before he entered the White House, President Trump was a real-estate developer and speculator. Lately, his fortune has been wagered on some Big Tech stocks. Money managers for the president made more than 3,700 trades in the first quarter, including million-dollar purchases of Nvidia, Dell and other Big Tech stocks. Trump’s managers pared his holdings in Microsoft and Amazon with sizable sales in the quarter… The accounts purchased at least $1.75 million of Nvidia’s stock in the quarter, including $500,000 on Jan. 6. A week later, the administration cleared the way for Nvidia to send its H200 artificial-intelligence chips to China…”
May 19 – Wall Street Journal (David Uberti, Joe Palazzolo and Dylan Tokar): “A trader couldn’t hope for better timing. Moments before President Trump postponed strikes on Tehran’s energy infrastructure in a morning social-media post on March 23, a spasm of trades hit the market during off-hours. More than $800 million worth of U.S. and international oil futures changed hands in a matter of minutes, according to LSEG data. The traders on the right side of those well-timed bets profited when U.S. oil prices fell as much as 13% in the wake of Trump’s change of heart. At least five firms posted gains of $5 million or more on crude futures they bought and sold that day…”
Trade War Watch:
May 21 – New York Times (Meaghan Tobin and Tripp Mickle): “When President Trump announced late last year that Nvidia could sell one of its most powerful chips to China, the deal looked like a rare win-win in a fraying geopolitical relationship… But six months on, Beijing has not allowed any of its companies to buy a single one.”
May 18 – Bloomberg (Ben Westcott, Pyotr Kozlov and Erin Ailworth): “An agreement on US agricultural sales to China outlined by the White House is raising optimism for a demand pickup beyond soybeans, helping to drive prices higher across the board for crop futures. China has agreed to buy at least $17 billion annually in American agricultural produce through 2028, according to a fact sheet… That’s in addition to a soybean purchase pledge from late 2025…”
Constitution Watch:
May 19 – Wall Street Journal (C. Ryan Barber, Richard Rubin and Sadie Gurman): “President Trump has alleged for years that his opponents weaponized the legal system against him and his supporters for political gain. On Monday, his administration created an extraordinary program to pay his allies back—with taxpayer funds. The Justice Department unveiled what it called the ‘Anti-Weaponization Fund,’ backed by nearly $1.8 billion. It described the initiative as a resolution to a lawsuit and two administrative claims that Trump filed in his personal capacity against the government he now runs. The fund drew the immediate ire of lawmakers on Capitol Hill, who clashed with acting Attorney General Todd Blanche during an appearance before a Senate panel…. The controversy later grew when the Justice Department expanded the deal to end all pending tax audits of Trump and his businesses.”
U.S./Russia/China/Europe/Iran Watch:
May 19 – Financial Times (Edward White, Thomas Hale, Joe Leahy and Max Seddon): “President Xi Jinping has told Russia’s Vladimir Putin the world is in danger of regressing to ‘the law of the jungle’ as he sought to portray China as a force of global stability… Xi said China and Russia should promote co-operation in energy and technology, including in artificial intelligence, and work together to ‘improve global governance’. ‘Unilateralism and hegemonism are deeply harmful, and the world faces the danger of regressing back to the law of the jungle,’ the Chinese president said in a veiled criticism of the US.”
May 20 – Bloomberg: “Russian President Vladimir Putin left Beijing after a day of talks with Chinese counterpart Xi Jinping, with the two leaders seeking to underscore the strength of their relations amid global tensions over wars in Ukraine and Iran. ‘It was successful, fruitful and intensive work,’ Putin said… Xi said they’d reached a ‘new important consensus’ on advancing their partnership… ‘We have built a stable system of mutual trade that is protected from external influence and negative trends in global markets,’ Putin said…”
May 20 – Bloomberg: “Russian President Vladimir Putin left Beijing after a day of talks with Chinese counterpart Xi Jinping, with the two leaders seeking to underscore the strength of their relations amid global tensions over wars in Ukraine and Iran. ‘It was successful, fruitful and intensive work,’ Putin said at a meeting over tea with Xi late Wednesday. Xi said they’d reached a ‘new important consensus’ on advancing their partnership.”
May 21 – Politico (Jonas Loesel): “Russia will provide Cuba with ‘active support’ as the U.S. increases pressure on Havana, Kremlin foreign ministry spokeswoman Maria Zakharova said… On Wednesday, tensions between the two countries escalated further after the U.S. Justice Department announced it was bringing charges against former Cuban President Raúl Castro in connection with the 1996 killings of four people involved in civilian rescue flights.”
May 18 – Bloomberg (Aliaksandr Kudrytski): “Belarus announced that its armed forces would conduct snap nuclear exercises alongside Russian allies, following warnings from Kyiv that it could retaliate if Minsk becomes more deeply involved in the Kremlin’s war. Missile units and the air force will practice the use and delivery of nuclear weapons in ‘unprepared locations’ across Belarus, the defense ministry in Minsk said…”
May 20 – Reuters (Guy Faulconbridge and Vladimir Soldatkin): “Russia launched nuclear-capable missiles and issued nuclear munitions to some units on Thursday as part of major nuclear exercises amid heightened tensions with NATO over the Ukraine war and drone activity in the Baltic. Russia is conducting some of the biggest nuclear exercises in years, involving 64,000 people to drill its forces in ‘the preparation and use of nuclear forces in the event of aggression’… ‘Given the growing tensions in the world and the emergence of new threats and risks, our nuclear triad must continue to serve as a reliable guarantor of the sovereignty of the Union State of Russia and Belarus,’ Putin said…”
May 19 – Reuters: “China’s armed forces secretly trained about 200 Russian military personnel in China late last year and some have since returned to fight in Ukraine, according to three European intelligence agencies… While China and Russia have held a number of joint military exercises since Moscow’s full-scale invasion of Ukraine in 2022, Beijing has repeatedly stated that it is neutral in the conflict and presents itself as a peace mediator.”
Ukraine War Watch:
May 21 – Bloomberg (Volodymyr Verbianyi): “Ukraine and its allies are increasingly confident that Russia’s invasion is running out of steam as Kyiv stabilizes the front line and stalls a spring offensive by Moscow. Ukraine’s growing effectiveness at deploying drones to inflict heavy Russian troop losses is being matched by strikes behind the front lines and deep inside Russia that are stoking increasing domestic criticism of President Vladimir Putin. Alongside an economic slowdown and restrictions on the internet, that’s leading to a deepening war fatigue among ordinary Russians.”
May 18 – Politico (Veronika Melkozerova): “Ukraine hit Russia with more than 1,300 drones over the weekend, penetrating Moscow’s heavy air defenses and successfully hitting targets in and around the capital. While Ukrainian drones have penetrated Moscow's air defenses before, this time they hit a wide range of targets, including industrial plants and an oil refinery. Three people were killed and 12 wounded… ‘This is significant also because the Moscow region is the most heavily saturated with Russian air defense systems,’ Ukrainian President Volodymyr Zelenskyy said…”
May 18 – Wall Street Journal (Marcus Walker and Anastasiia Malenko): “Ukraine’s military has wrestled Russia’s much-larger army almost to a halt in recent months, having gained a tactical and technological edge. This summer will test whether it can turn that slender advantage into a strategic turning point. Fast-improving Ukrainian drone capabilities are hurting the invaders’ logistics behind the battlefield, and pounding oil infrastructure and military targets deeper inside Russia. ‘We are not only holding the line, but we are also increasing pressure,’ Ukrainian Defense Minister Mykhailo Fedorov said... Russia’s monthly casualties now exceed its army recruitment, he said. ‘We are making every meter of Ukrainian land extremely costly for the enemy.’”
May 19 – Reuters (Dan Peleschuk and Tom Balmforth): “From burning oil refineries to a stalling ground offensive, Russia is suffering problems in its war against Ukraine that partly stem from a growing Ukrainian military strength: the use of medium-range drone attacks. By targeting Russian air defences and logistics dozens of kilometres behind front lines, Ukraine is disrupting Russia’s battlefield advances and opening the way for long-range strikes on Russian oil and military facilities, said two Ukrainian commanders, two drone specialists and three military analysts.”
Taiwan Watch:
May 17 – Bloomberg (Catherine Ngai and Twinnie Siu): “Taiwan’s President Lai Ching-te said the self-ruled democracy cannot be traded away, days after US President Donald Trump described a planned $14 billion arms sale to Taipei as a bargaining chip with China. ‘Taiwan will never be sacrificed or traded,’ Lai said…, adding that the island’s central role in Indo-Pacific security and global supply chains, particularly for artificial intelligence and semiconductors, makes stability a shared interest among democratic nations.”
May 17 – Axios (Jim VandeHei and Mike Allen): “Some close advisers to President Trump fear the biggest substantive result of the China summit is heightened danger that Chinese President Xi Jinping will invade Taiwan in the next five years… Trump loved the pageantry and the special access Xi shrewdly rolled out during the Beijing visit. But the words didn’t match the bonhomie. One Trump adviser told us Xi is ‘trying to move China to a new position where he’s saying: ‘We’re not a rising power. We’re your equal. And Taiwan is mine.’’ ‘This trip signaled a much higher likelihood that Taiwan will be on the table in the next five years,’ the adviser added.”
AI Bubble/Arms Race Watch:
May 22 – Bloomberg (Farah Elbahrawy and Michael Msika): “Mega IPOs like those eyed by SpaceX and OpenAI threaten to push the weighting of tech in equity benchmarks beyond market-bubble levels of concentration, according to Bank of America Corp. strategist Michael Hartnett. Elon Musk’s SpaceX has set out plans for the world’s biggest initial public offering, while ChatGPT maker OpenAI aims to beat rival Anthropic to the market. The gigantic share sales would feed into the optimism around tech and artificial intelligence that’s already powering one of the narrowest rallies in decades. ‘Strong price action, retail mania, slumping vol ... so bubbly,’ Hartnett said... ‘Add mega IPOs to AI big boys and market concentration easily surpasses (~48%) bubbles of roaring ‘20s, Nifty 50 ‘70s, Japan ‘80s, TMT ‘90s.’”
May 18 – Wall Street Journal (Amrith Ramkumar, Katherine Blunt and Lindsay Ellis): “The only thing growing faster than the artificial-intelligence industry may be Americans’ negative feelings about it—as former Google Chief Executive Eric Schmidt saw… Delivering a commencement address at the University of Arizona, Schmidt told students the ‘technological transformation’ wrought by artificial intelligence will be ‘larger, faster and more consequential than what came before.’ Like some other graduation speakers mentioning AI, Schmidt was met with a chorus of boos. In one poll after another in recent weeks, respondents have overwhelmingly voiced concerns about AI, a challenge to claims by industry executives that their technology would gain popularity by improving people’s lives. Consumers resent energy-price jumps exacerbated by the spread of data centers. Workers fear widespread job losses. Parents worry about AI undermining education and harming children’s mental health.”
May 18 – Financial Times (Oliver Barnes, James Fontanella-Khan, Martha Muir and Jamie Smyth): “In the northern Virginia town of Ashburn, the suburban quiet for its 40,000 residents is punctured by the constant hum of more than 150 data centres that power the AI revolution rewiring the US economy. Dozens more are planned for this 40 sq km patch of land, known as ‘data centre alley’, which has become one of the most strategic infrastructure locations in America and the logic behind NextEra Energy’s $420bn tie-up with Dominion Energy unveiled on Monday. One of the largest mergers in US history would hand a single company enormous influence over the electricity network across the eastern seaboard underpinning the AI boom. The merger captures a defining feature of President Donald Trump’s second term: the return of politically explosive megadeals once deemed unthinkable because of their size and impact on Americans.”
May 21 – Bloomberg (Myungshin Cho and Yoolim Lee): “Samsung Electronics Co. will distribute about 40 trillion won ($26.6bn) to chip employees as a bonus for this year after the company struck a last-minute deal with labor unions to avert a strike. Samsung employs 78,000 people in its semiconductors division. While bonus levels will vary, workers stand to get 513 million won on average, equivalent to $340,000… Samsung employees earned 158 million won on average in 2025, according to a company filing in March.”
Bubble Watch:
May 20 – Reuters (Canan Sevgili, Alessandro Parodi and Vera Dvorakova): “A wave of retail-driven trading dynamics is reshaping how markets respond to U.S. President Donald Trump's second term and his war in Iran, turning political volatility into a set of widely recognised and traded patterns. Acronyms like ‘TACO’ – ‘Trump always chickens out’ – ‘FAFO’ – ‘f*** around, find out’ and ‘FOMO’ – ‘fear of missing out’ - have emerged and increasingly reflect the behaviour of retail investors, who are reacting to an incessant news flow to lean into short-term swings. ‘Bull and bear are still the foundation, but ‘TACO’ and ‘FAFO’ are becoming part of the everyday language on trading desks,’ said Lale Akoner, global market strategist at eToro.”
May 17 – Bloomberg (Christian Dass): “The tech-fueled stock rally is looking bubble-like to some investors, and they’re turning to exotic options that better protect against an eventual slump… The challenge: Even if an investor correctly identifies a bubble, timing the pop is tough. That has some traders reaching for exotic options that can help, in particular ‘lookback’ puts, which reset higher as the market rallies. They are a bit more expensive but tend to outperform vanilla puts when a market continues to rise before an eventual plunge.”
Inflation Watch:
May 22 – CNBC (Spencer Kimball): “U.S. drivers will pay gasoline prices near four-year highs when they fuel up for travel over the long Memorial Day weekend and should expect more pain at the pump this summer if the Strait of Hormuz does not reopen. The average gasoline price stood at $4.55 per gallon on Friday, an increase of more than 50% since the U.S. and Israel began the war with Iran on Feb. 28, according to AAA.”
May 20 – Axios (Ben Berkowitz): “All 50 states have average gas prices above $4 a gallon, AAA said Wednesday, with seven now topping $5 a gallon. As the war with Iran approaches the three-month mark, soaring fuel prices are costing Americans millions of dollars a day, crushing small business profits, and driving a surge in inflation. The national average now stands at $4.56 a gallon, AAA said. California is the nation’s high, at $6.15 per gallon, while Georgia is the lowest at $4.01 a gallon.”
May 20 – Reuters (Tom Polansek and Julie Ingwersen): “Since the closure of the Strait of Hormuz in late February, the cost of farm diesel has climbed 72%, the Kentucky Farm Bureau wrote… Prices for urea, one of the major fertilizers produced in the Gulf region, were up 55%, while prices for another nitrogen-based fertilizer rose 33%, the farmers’ group said.”
May 21 – Bloomberg (Enda Curran, Mark Schroers, Ye Xie, and Jorgelina Do Rosario): “One inflation spike in the 2020s might be an accident, the world’s biggest bond markets seem to have decided, but two looks like an alarming new trend. The US war on Iran is inflicting another wave of price hikes on a global economy that’s barely recovered from the last one. A material chunk of the world’s fuel and fertilizers is trapped inside the Strait of Hormuz, and the pain is spreading. European airlines canceled flights, Americans have spent an extra $20 billion at the gas pump, and Asian rice farmers wondered if they should skip planting… As all this damage mounts, it’s starting to rattle the safest haven in world finance: the $50 trillion-plus market for Group of Seven sovereign bonds, where long-term yields hit a two-decade high this week. Put simply, investors are starting to worry, like they never quite did even at the post-Covid peak, that higher inflation is here to stay. They want compensation for that risk, and expect central banks will have to raise interest rates to contain it.”
May 18 – USA Today (Betty Lin-Fisher): “Owning a car is becoming more difficult as the rising costs of vehicles and insurance make ownership a luxury for more Americans, a new study finds. Nearly 4 in 10 Americans surveyed by Lending Tree, or 39%, said a car is a luxury they cannot afford… Rising fixed costs, especially in loan payments and insurance, are the main reasons people cited for why car ownership has become so expensive and elusive. Loan payments average $7,275 annually, with insurance averaging $2,277, gas $2,105 and maintenance coming in at $1,184. Insurance costs have surged 37.5% since 2021, outpacing income growth (23.9%) and other vehicle expenses, Lending Tree said.”
May 19 – Associated Press (Ali Swenson): “Nationwide enrollment in the Affordable Care Act health insurance marketplace could plummet by nearly 5 million people this year, shrinking the number of participants in the program by more than 20%, according to… nonprofit KFF. Those who remain covered are also paying more for healthcare than they used to, the group found, with the average enrollee’s deductible growing by more than $1,000 and the average monthly premium payment rising by $65. ‘No matter how you slice it, people are paying more,’ said Cynthia Cox, a vice president of KFF…”
May 20 – Bloomberg (Megan Durisin Albery): “A benchmark Asia rice price rose to the highest in more than a year, as worries loom over harvests across the region. Prices for Thai 5% broken white rice climbed to $446 a ton as of Wednesday, the highest since February 2025… It marks a third weekly gain… A spike in fertilizer and fuel prices has raised concerns that some farmers in Southeast Asia may skip planting of the current crop. India, the world’s largest exporter, is also facing the prospect of a lower-than-average monsoon.”
Federal Reserve Watch:
May 19 – Reuters (Balazs Koranyi and Francesco Canepa): “Incoming Federal Reserve Chair Kevin Warsh’s suggestion that independence may not extend fully to the Fed’s crisis-fighting role abroad has unsettled central banking peers, who fear any reduction in its global footprint could risk market stability. With the dollar by far the world’s most used currency, the U.S. central bank plays a pivotal role in stabilising financial markets during periods of stress. It has expanded its crisis-fighting tools over time to keep funding flowing. But Warsh… raised eyebrows by suggesting that outside monetary policy, including in international finance, the Fed needs to work closely with the presidential administration and Congress. Warsh told his confirmation hearing that independence in setting interest rates did not fully extend to the Fed’s broader operations, prompting some to question whether it would remain fast and decisive when the next crisis hits.”
May 20 – Axios (Courtenay Brown): “Incoming Federal Reserve chief Kevin Warsh’s ambition to shrink the central bank’s multitrillion-dollar bond portfolio may quickly run into hard limits. For nearly two decades, the Fed’s ability to flood markets with liquidity has been among its most powerful crisis-fighting weapons — and, in Warsh’s view, too often a go-to tool for monetary stimulus outside of crises. Now, the hot discussion among Fed officials and commentators is about how to responsibly shrink the Fed's asset portfolio — and whether that’s even a worthwhile goal. The Fed’s assets ballooned from about $800 billion before the 2008 financial crisis to nearly $9 trillion at its 2022 peak — swelling each time the central bank stepped in to stabilize the economy, particularly through open-ended quantitative easing programs starting in 2012 and 2020. Three years of runoff brought the balance sheet back to $6.7 trillion, though the Fed resumed slowly growing it again after signs of stress in critical funding markets last December.”
May 20 – Financial Times (Claire Jones): “Many top Federal Reserve officials wanted the US central bank to drop language signalling its next move would be to lower borrowing costs at its April meeting, highlighting mounting concerns over the Iran war. ‘Many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the [Federal Open Market Committee’s] future interest rate decisions,’ minutes from the late-April meeting… said. The minutes also showed that ‘a majority of participants’ said rate rises would probably become appropriate if inflation were to “continue to run persistently’ above the central bank’s 2% goal.”
May 21 – Bloomberg (MarÃa Paula Mijares Torres): “Federal Reserve Bank of Richmond President Tom Barkin said the ability of businesses and consumers to tolerate the latest in a series of supply shocks will determine whether the US central bank can continue to ‘look through’ higher inflation without raising interest rates. ‘With inflation above our 2% target for over five years now, it’s worth asking whether the cumulative impact of so many waves risks loosening the anchor,’ Barkin said... ‘For me, it comes down to how much businesses, consumers, and inflation expectations can take.’”
May 17 – Bloomberg (Jordan Fitzgerald and Sam Kim): “Investors won’t see a rate cut out of the next Federal Reserve policy meeting, according to DoubleLine Capital LP chief executive officer Jeffrey Gundlach. ‘People were looking for two rate cuts this year, but the inflation market has simply not cooperated,’ Gundlach said… ‘It’s just not possible, in my view, to cut interest rates when the two-year Treasury is almost 50 bps higher than the Fed funds rate.’ Newly confirmed as Federal Reserve chair, Kevin Warsh is coming into the role at a ‘rough time,’ Gundlach said.”
U.S. Economic Bubble Watch:
May 21 – Bloomberg (Conor Sen): “There is a growing risk of economic overheating in the US as the artificial intelligence boom expands beyond semiconductors and spills into the broader economy… If AI spending continues apace, accompanied by a rising stock market, there’s likely no way to avoid a widening pickup in inflation. This marks a shift from last year when AI optimism was roughly offset by weakness in other parts of the economy, leading to a K-shaped dynamic that Americans have generally disliked. More than $700 billion in capital spending by four technology behemoths alone this year is creating new winners and new bottlenecks as it spreads through the economy.”
May 21 – Bloomberg (Vince Golle): “US manufacturing activity expanded in May by the most in four years as customers strived to get ahead of mounting price pressures tied to the Iran war. The S&P Global flash May factory purchasing managers index rose 0.8 point to 55.3… A gauge of prices paid for inputs jumped more than 11 points to the highest level since June 2022.”
May 21 – Associated Press (Matt Ott): “Fewer Americans filed for jobless aid last week as layoffs remain low despite a number of uncertainties that continue to cloud the economy. U.S. applications for unemployment benefits for the week ending May 16 fell by 3,000 to 209,000… The total number of Americans filing for unemployment benefits for the previous week ending May 9 grew by 6,000 to 1.78 million.”
May 19 – CNBC (Diana Olick): “Growing concern over the trajectory of the Iran war has bond yields rising and mortgage rates following suit. The average rate on the 30-year fixed loan rose 7 bps Tuesday to 6.75%... That is the highest level since July 31. Rates are now up 33 bps in just the past 10 days and are 46 bps higher than their recent April low of 6.29%.”
May 20 – CNBC (Diana Olick): “Mortgage rates continued to climb higher last week, dampening demand for loans from both current homeowners and potential homebuyers. They also pushed consumers to riskier loans that offer lower rates… The adjustable-rate mortgage, or ARM, share of total applications rose to nearly 10%, the highest since October 2025. ARMs are considered riskier… Applications for a mortgage to purchase a home fell 4% for the week and were just 8% higher than the same week one year ago.”
May 21 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding dropped sharply in April and permits for future construction fell, suggesting the housing market could remain subdued for a while as the Iran war drives up mortgage rates and an oversupply of new houses persists. Single-family housing starts, which account for the bulk of homebuilding, tumbled 9.0% to a seasonally adjusted annual rate of 930,000 units… Single-family homebuilding fell in all four regions. It declined 2.4% year-on-year in April.”
May 18 – Bloomberg (Julia Fanzeres): “US homebuilder sentiment rebounded in May but remained low overall… An index of market conditions from the National Association of Home Builders and Wells Fargo increased 3 points to 37… ‘Recent increases for long-term interest rates will continue to hold back home buyer demand,’ NAHB Chief Economist Robert Dietz said... ‘Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges.’”
May 19 – Wall Street Journal (Dean Seal): “Luxury homebuilder Toll Brothers said the average price of homes it completed sales on last quarter broke above $1 million for the first time since mid-2024… Toll delivered nearly 2,500 homes from February through April at an average price of just under $1.01 million. Average prices had fallen below seven figures for the previous seven quarters after first eclipsing the million-dollar mark in mid-2023…”
China Watch:
May 18 – Wall Street Journal (Hannah Miao): “China’s economic momentum slowed broadly in April, underscoring persistent areas of weakness in the world’s second-largest economy as risks from the Iran war mount. The marked slowdown, which was tempered by continued strength in China’s export sector, underscores the challenges facing leader Xi Jinping at home… A gauge of consumer spending decelerated to its slowest growth since 2022. Industrial output, investment and the real-estate sector all showed signs of deterioration, undershooting economists’ expectations.”
May 20 – Bloomberg: “China scaled back government spending at its fastest pace in six months in April… A broad measure of public expenditure fell 7.3% from a year ago, accelerating from the 2.5% decrease in March to mark its sharpest decline since October… By contrast, broad fiscal revenue rose 2%. The data helps explain a surprising contraction in fixed-asset investment that China recorded in April…”
May 22 – Bloomberg: “China’s stock exchanges are scrutinizing recent stock rallies that have been fueled by artificial intelligence optimism, asking some listed companies and funds to give more details about their approach to the technology… The Shanghai and Shenzhen stock exchanges have recently asked several listed companies to clarify whether their core businesses have any meaningful link with AI, and whether their disclosures to investors have been clear enough…”
Central Banker Watch:
May 19 – Bloomberg (Oliver Crook, Mark Schroers, and Jana Randow): “The European Central Bank may have to respond to the economic challenges arising from the conflict in the Middle East, according to Governing Council member Joachim Nagel. ‘This energy supply shock is more persistent, so we are moving away from our baseline scenario,’ the Bundesbank president told Bloomberg... ‘It means maybe we have to do something’… ‘The probability is rising that we will see more inflation everywhere,’ he said. ‘This is something we have to take into consideration, and we will do this at our next meeting.’”
Europe Watch:
May 21 – Bloomberg (Mark Schroers): “Business activity in the euro area shrank at the quickest pace in 2 1/2 years, adding to fears that the Iran war and accompanying surge in energy costs are dealing a severe blow to the economy. The Composite Purchasing Managers’ Index… fell to 47.5 in May from 48.8 in April, holding below the 50 threshold separating growth from contraction for a second month.”
May 19 – Financial Times (Ashley Armstrong): “The UK Treasury is pushing large supermarkets to introduce voluntary price caps on key groceries in return for lifting some regulations, according to people familiar with the situation. Supermarkets have reacted furiously to the proposals, under which grocers would agree to identify and cap the prices of essential goods such as eggs, bread and milk.”
Japan Watch:
May 17 – Financial Times (Leo Lewis and Harry Dempsey): “Japan’s Prime Minister Sanae Takaichi has asked her government to compile a supplementary budget to fund huge government subsidies for energy… Takaichi’s abrupt U-turn… triggered speculation that her government might fund the move by issuing new bonds, fuelling concern about Japan’s fiscal position. The yield on the benchmark 10-year Japanese government bond rose slightly to 2.75%... The yen weakened to about ¥159 versus the dollar…”
May 21 – Wall Street Journal (Megumi Fujikawa): “A Bank of Japan policymaker has warned that Middle East tensions could cause underlying inflation to overshoot the BOJ’s target, offering another signal that rate hikes are around the corner. ‘It is reasonable for the bank to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy,’ policy board member Junko Koeda told business leaders…”
May 18 – Bloomberg (Erica Yokoyama): “Japan’s economy grew much faster than expected at the start of the year, supporting the case for further Bank of Japan interest-rate hikes, though the outlook remains highly uncertain due to the Middle East conflict. Real gross domestic product expanded 2.1% on an annualized basis in the first quarter…”
Emerging Market Watch:
May 19 – Bloomberg (Swati Pandey and Claire Jiao): “Three of Asia’s most vulnerable economies are showing rising strains as their central banks come under pressure to tighten policy even as the economic hit from the Iran-war oil shock deepens. Indonesia, the Philippines and India are already grappling with capital outflows and free-falling currencies as Middle East tensions hurt consumers and companies alike. Now, global bond ructions are piling on further pressure. Higher US bond yields drive up the dollar and reduce the appeal of emerging-market assets, fueling capital outflows from Asia.”
May 21 – Bloomberg (Subhadip Sircar and Marcus Wong): “The Iran war is piling pressure on emerging Asian markets, pushing some currencies and bond yields toward levels once considered unlikely. As the conflict drags on, some analysts are mapping out more extreme bearish scenarios. That includes India’s rupee weakening to 100 per dollar, the Indonesian rupiah sliding to 18,000, and the Philippine peso depreciating to 65 as high energy prices fuel inflation and weigh on import-dependent economies. Bond markets are also feeling the strain.”
May 20 – Bloomberg (Maria Elena Vizcaino and Kelsey Butler): “Moody’s… cut Mexico’s credit score to the lowest tier of investment grade, citing the country’s weakening fiscal position and stoking concern Latin America’s second-largest economy is heading toward junk status… The downgrade ‘reflects a sustained weakening in fiscal strength that accelerated in 2024 and that we expect to persist,’ Moody’s analysts wrote. ‘Rigid spending, a narrow revenue base, and continued support to Petroleos Mexicanos limit the government’s ability to stabilize debt in a low-growth environment.’”
May 22 – Bloomberg (Rajesh Kumar Singh): “India’s power ministry… appealed to citizens to be mindful of electricity consumption as harsh summer heat drives demand for cooling. ‘Although we are prepared to supply electricity as required, due to the intense summer, let us all try to use electricity wise and judiciously,’ the ministry said... Peak power demand in the country has been on the rise for the past four days, hitting a new record each time.”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 19 – Bloomberg (Lauren Rosenthal): “A blast of late-spring heat is straining electric grids in the eastern US as power-plant owners race to repair equipment ahead of rising demand and hotter-than-normal weather expected this summer. With temperatures forecast to crest above 90F this week across a large swath of the East Coast, PJM Interconnection LLC asked all generators to remain online to help prevent blackouts. The operator of the country’s biggest grid also moved to revoke permission for planned maintenance, and it declared a low-level emergency for parts of Virginia and the Washington DC area…”
May 20 – Bloomberg (Emily Forgash and Will Kubzansky): “New England is burning oil as a power source amid record May heat, highlighting how the region’s energy mix can worsen pollution during bouts of extreme weather. The region’s power plants generated more than 700 megawatts of electricity from burning oil early Wednesday, enough for about half a million homes. That came hours after grid operator ISO New England declared ‘abnormal conditions,’ which alerted generators to suspend maintenance that risks reducing output.”
May 17 – Associated Press (Jennifer Sinco Kelleher): “The reddish-brown mud that smothered Bok Kongphan’s Hawaii farm has hardened in the tropical sun. Irrigation tubes lie in a tangle where his lemongrass, cucumber and okra once flourished. His niece, Jeni Balanay, lost her crops too… The leaves of her recently planted banana, coconut and mango have gone yellow, the trees unlikely to survive. Across Oahu’s North Shore, an area famed for its big-wave surfing, the small farms that help supply the island’s food are struggling after back-to-back storms in March brought the state’s worst flooding in two decades.”
The S&P500 increased 0.9% (up 9.2% y-t-d), and the Dow rose 2.1% (up 5.2%). The Utilities rallied 3.0% (up 6.7%). The Banks recovered 3.4% (up 2.5%), while the Broker/Dealers declined 1.6% (up 4.1%). The Transports advanced 3.1% (up 19.6%). The S&P 400 Midcaps gained 1.8% (up 11.1%), and the small cap Russell 2000 jumped 2.7% (up 15.6%). The Nasdaq100 gained 1.2% (up 16.8%). The Semiconductors surged 5.3% (up 72.3%). The Biotechs rallied 3.0% (up 3.6%). With bullion declining $31, the HUI gold index fell 2.6% (up 3.7%).
Three-month Treasury bill rates ended the week at 3.5812%. Two-year government yields gained another five bps to 4.12% (up 65bps y-t-d). Five-year T-note yields were unchanged at 4.26% (up 53bps). Ten-year Treasury yields dipped four bps to 4.56% (up 39bps). Long bond yields declined five bps to 5.07% (up 22bps). Benchmark Fannie Mae MBS yields slipped two bps to 5.54% (up 50bps).
Italian 10-year yields dropped 18 bps to 3.77% (up 22bps y-t-d). Greek 10-year yields fell 18 bps to 3.71% (up 27bps). Spain's 10-year yields dropped 14 bps to 3.47% (up 18bps). German bund yields declined 13 bps to 3.04% (up 18bps). French yields fell 16 bps to 3.67% (up 10bps). The French to German 10-year bond spread narrowed about three to 63 bps. U.K. 10-year gilt yields sank 27 bps to 4.90% (up 42bps). U.K.’s FTSE equities index rallied 2.7% (up 5.3% y-t-d).
Japan’s Nikkei 225 Equities Index rose 3.1% (up 25.8% y-t-d). Japan’s 10-year “JGB” yields rose another five bps to 2.76% (up 70bps y-t-d). France’s CAC40 rallied 2.1% (down 0.4%). The German DAX equities index jumped 3.9% (up 16%). Spain’s IBEX 35 equities index rose 2.1% (up 3.9%). Italy’s FTSE MIB index increased 0.8% (up 10.2%). EM equities were mixed. Brazil’s Bovespa index slipped 0.6% (up 9.4%), while Mexico’s Bolsa index recovered 0.6% (up 6.2%). South Korea’s Kospi surged 4.7% (up 86.2%). India’s Sensex equities index inched 0.2% higher (down 11.5%). China’s Shanghai Exchange Index declined 0.5% (up 3.6%). Turkey’s Borsa Istanbul National 100 index dropped 3.9% (up 22.6%).
Federal Reserve Credit slipped $5.7 billion last week to $6.667 TN, with a 23-week expansion of $177 billion. Fed Credit was down $2.222 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.941 TN, or 79%. Fed Credit inflated $3.856 TN, or 137%, since November 7, 2012 (706 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $34.6 billion last week to $2.971 TN - sinking to the low back to October 2010. “Custody holdings” were down $282 billion y-o-y, or 8.7%.
Total money market fund assets (MMFA) rose $17 billion last week to $7.771 TN. MMFA were up $803 billion, or 11.5%, y-o-y - having ballooned a historic $3.187 TN, or 70%, since October 26, 2022.
Total Commercial Paper was little changed at $1.431 TN. CP declined $12 billion, or 0.8%, y-o-y.
Freddie Mac 30-year fixed mortgage rates jumped 15 bps to 6.51% (down 35bps y-o-y). Fifteen-year rates rose 14 bps to 5.85% (down 16bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 14 bps to a nine-month high of 6.74% (down 25bps).
Currency Watch:
For the week, the U.S. Dollar Index was unchanged at 99.239 (up 0.9% y-t-d). On the upside, the South African rand increased 1.4%, the British pound 0.8%, the Swedish krona 0.8%, the Norwegian krone 0.5%, the Brazilian real 0.4%, the Swiss franc 0.3%, the New Zealand dollar 0.2%, and the Singapore dollar 0.1%. On the downside, the South Korean won declined 1.3%, the Canadian dollar 0.5%, the Australian dollar 0.3%, the Japanese yen 0.3%, and the euro 0.2%. China's (onshore) renminbi increased 0.24% versus the dollar (up 2.82% y-t-d).
Commodities Watch:
May 18 – Bloomberg (Yihui Xie): “Central banks are expected to step up gold-buying, helping prices to recover by year-end, according to Goldman Sachs… Purchases are expected to pick up to average 60 tons a month over 2026, analysts Lina Thomas and Daan Struyven said... The 12-month moving average of purchases was 50 tons in March, up from a prior figure of 29. For central banks, there’s ‘strong underlying interest in gold, and recent geopolitical developments are likely to reinforce diversification,’ the analysts said, citing an in-house survey…”
The Bloomberg Commodities Index declined 1.6% (up 26.4% y-t-d). Spot Gold dipped 0.7% to $4,509 (up 4.4%). Silver recovered 5.4% to $75.5415 (up 5.4%). WTI Crude dropped $8.82, or 8.4%, to $96.60 (up 68%). Gasoline fell 6.7% (up 101%), and Natural Gas declined 1.8% to $2.907 (down 21%). Copper added 1.3% (up 12%). Wheat added 1.7% (up 28%), and Corn gained 1.6% (up 5%). Bitcoin sank $3,690, or 4.7%, to $75,400 (down 14.0%).
Market Instability Watch:
May 19 – Bloomberg (Greg Ritchie): “Yields on the US Treasury’s longest-dated bond rose to the highest level in almost two decades as investor concerns mount that accelerating inflation will force central bankers to raise interest rates. The 30-year yield rose as much as seven basis points to 5.20% on Tuesday, a level last seen in 2007, on the eve of the global financial crisis. Bond markets across Europe and Japan also fell, while the selloff spilled over into US equity markets.”
May 20 – Bloomberg (Ruth Carson and Matthew Burgess): “The selloff in longer-maturity government bonds has pushed up yields to levels last seen during the global financial crisis, and market participants are warning the move has room to run. A surge in global inflation expectations has brought the average yield on sovereign debt due in a decade or more to the highest since July 2008… ‘We’re seeing a broader repricing of duration driven by fiscal realities, persistent inflation risks and some political uncertainty, as well as a more demanding investor base,’ said Patrick Coffey, head of a research group at Barclays Plc in London. ‘It’s hard to point to a near-term catalyst outside of the reopening of the Strait of Hormuz that could fully reverse the current selloff.’”
May 19 – Bloomberg (Mia Gindis): “A huge options bet Tuesday on Brent crude prices plunging rattled oil traders already on high alert for unusual flows, as Iran war headlines continue to whipsaw prices and regulators probe suspicious trading. Put options equivalent to 134 million barrels of Brent crude oil traded in a single $91/$90 put spread transaction… A buyer of the spread would profit as much as $129 million if July futures tumble roughly 19% from their current level by the May 26 expiration.”
May 22 – Telegraph (Chris Price): “Record debt interest payments pushed public borrowing higher last month amid fears that Labour leadership changes and the Iran war could drive up debt even further. Rachel Reeves borrowed £24.3bn in April to plug the gap between tax revenues and public spending… This was £3.4bn higher than the £20.9bn forecast by the Office for Budget Responsibility (OBR) in March… The war in Iran has sent government borrowing costs surging on bond markets as investors braced for higher inflation.”
May 21 – Reuters (Gertrude Chavez-Dreyfuss): “Surging U.S. Treasury yields have prompted mortgage investors to hedge the loans in their portfolios by selling government debt, a shift that probably exacerbated the bond selloff this week and added to the biggest rate spike in a year. “
May 16 – Financial Times (Kate Duguid, Harriet Clarfelt and Leo Lewis): “Investment firms are positioning for a potential repatriation of Japanese investor cash out of US Treasuries and back into Japanese government bonds, as domestic yields surge to record highs. The yield on the benchmark 10-year JGB rose to 2.73% during trading on Friday — its highest level since May 1997 — with investors increasingly convinced that rising inflation will prompt the Bank of Japan to raise its policy interest rate by a quarter point to 1% in June.”
May 18 – Bloomberg (Chris Anstey and Ye Xie): “Foreign holdings of US Treasuries dropped in March from a record high as overseas investors dumped bills while adding to their stockpile of longer-dated federal securities. Overseas holdings fell by $138.4 billion in March from the month before…. The Treasury’s data showed foreign investors logged a $142.1 billion valuation loss on their long-term Treasuries holdings for March.”
May 21 – Bloomberg (Ruth Carson and Haslinda Amin): “Jamie Dimon said interest rates may climb much further, a warning to bond investors at a time when yields have touched multi-year highs. ‘They could be much higher than they are today,’ the chairman and chief executive of JPMorgan… said... ‘We may have gone from a saving glut to not enough savings… Bond rates can go up… The notion that somehow people say they will never go up is the wrong notion. Companies like us prepare for higher rates, lower rates.’”
U.S. Credit Trouble Watch:
May 18 – Bloomberg (Nabila Ahmed): “The default rate for US private credit loans hit a record 6% in the 12 months ended April 30, Fitch Ratings said… Of the 99 default events over the period, 81 borrowers defaulted for the first time — the highest number since the firm began tracking in August 2024. More than half of the defaults were driven by interest payment deferrals and the introduction of payment-in-kind, or PIK, meaning the borrower can pay interest in more debt rather than cash. Consumer products companies had the highest default rate, at 11.1%, up from 5.9% a year ago.”
May 19 – Bloomberg (Michelle Cheng): “Borrowing tied to the AI data-center boom is quickly climbing Wall Street’s list of potential credit threats, as investors increasingly worry that the breakneck pace of financing could sow the seeds of the next market shock. Roughly 34% of global fund managers surveyed by Bank of America Corp. earlier this month said AI hyperscaler capital spending was the most likely source of a future systemic credit event, double the share from April. US private credit remains the top concern for 42% of respondents… The results highlight a rapid shift in what investors see as the market’s biggest credit threat. Tech companies have borrowed more than $300 billion from US investors to fund AI spending since the beginning of last year…”
May 19 – Wall Street Journal (Katherine Hamilton): “When Jan Bruno, a real-estate agent, started shopping last year for a beach house in Massachusetts, she had trouble getting a traditional mortgage. Her taxable income is less than half of what she earns in a year, due to commissions and tax write-offs for expenses like staging homes. So Bruno’s lender suggested a ‘nonconforming loan,’ which allows lenders to count income from outside traditional employment. ‘It was a huge difference in buying power,’ she said. Bruno was approved for a loan of up to $1 million… Mortgage lenders are increasingly turning to alternative loans to drum up business in a housing market that has been stalled for years.”
Global Credit Bubble Watch:
May 22 – New York Times (Rob Copeland): “It is a golden moment for banks. Trading profits are at record highs, and so are employee bonuses. Mergers, acquisitions and other deals are piling up at the second-fastest pace in at least a decade, producing billions of dollars in fees. And after they operated for nearly two decades in what one banker described as a regulatory ‘straitjacket,’ the Trump administration is making it easier for banks to expand and take more risks. ‘The stars are aligning for banks in a way that hasn’t been seen in multiple decades,’ Citi analysts wrote in a research note…”
May 21 – Bloomberg: “Junk debt is beating just about everything else in fixed-income markets after surging yields wiped out gains on most other bonds. Yet with high-yield credit spreads near two-decade lows, investor unease is building. The lower-rated notes extended their outperformance over investment-grade bonds this week to the most so far in 2026 at 1.6 percentage points… Junk bond issuance has also been on a tear this year. Fundraising in the US high-yield market is running at its most in five years, up over 40% on the same period in 2025…”
May 20 – Bloomberg (Aashna Shah): “Muni deals are getting bigger, as expensive infrastructure projects drive borrowing in the US state and local debt market. ‘We’re seeing billion-dollar deals become much more of the norm,’ said Bo Daniels, head of public finance at Loop Capital Markets… Municipalities have sold about $216 billion in debt so far this year as of Wednesday, up about 10% from the same period last year…”
May 20 – Reuters (Chibuike Oguh): “Corporate America is tapping the convertible bond market at a record pace as companies linked to artificial intelligence drive a surge in demand for debt that often draws extra investor interest in hot markets because it can convert into equity. U.S. convertible issuance reached about $34 billion in the first four months of 2026, more than double the same period a year earlier… That start puts the market on track to surpass last year’s full-year record of over $120 billion.”
Iran War Watch:
May 19 – New York Times (Mark Mazzetti, Julian E. Barnes, Farnaz Fassihi and Ronen Bergman): “Days after Israeli strikes killed Iran’s supreme leader and other top officials in the opening salvos of the war, President Trump mused publicly that it would be best if ‘someone from within’ Iran took over the country. It turns out that the United States and Israel went into the conflict with a particular and very surprising someone in mind: Mahmoud Ahmadinejad, the former Iranian president known for his hard-line, anti-Israel and anti-American views. But the audacious plan, developed by the Israelis and which Mr. Ahmadinejad had been consulted about, quickly went awry, according to the U.S. officials... Mr. Ahmadinejad was injured on the war’s first day by an Israeli strike at his home in Tehran that had been designed to free him from house arrest, the American officials and an associate of Mr. Ahmadinejad said.”
May 20 – New York Times (Amanda Taub): “Nearly three months into the conflict, the Iranian regime has succeeded in confounding U.S. and Israeli expectations for a speedy victory. The regime survived a wave of targeted killings early in the war. It then managed to turn the tables on its more powerful adversaries, introducing something of a stalemate. Since mid-March, Iran has maintained control over the Strait of Hormuz, an international waterway crucial to the world’s oil and gas trade. It has been able to limit U.S. and Israeli attacks on its energy industry. It even got President Trump to rein in Israel’s war in Lebanon against Hezbollah, an Iranian-backed militia. ‘Iran definitely has the advantage here,’ said Nicole Grajewski, who teaches at the Center for International Studies... ‘The U.S. is just kind of flailing at the moment’… To gain an edge over its much more powerful adversary, Iran used a method that game-theory scholars call ‘triangular coercion,’ said Daniel Sobelman, a professor at Hebrew University… who studies Iranian deterrence strategies. The strategy works by attacking a more vulnerable third party that has some leverage over an adversary to gain advantage over an opponent that cannot be outmatched directly.”
May 18 – Associated Press (Matthew Lee and Farnoush Amiri): “President Donald Trump has considered himself an effective dealmaker above all else, but he appears to have hit a wall with Iran as his tough talk, threats and even military action have not moved Tehran from its long-established positions. With shifting goals that make it difficult to judge the status of the U.S. effort, Trump and his top aides have insisted the United States has already won the war and that Iran is ready to reach an agreement in the wake of escalating U.S. threats during a tenuous ceasefire. But Trump once again backed down, saying Monday that he had put plans for an imminent resumption of attacks on hold at the request of Gulf Arab states…”
May 19 – Bloomberg (Skylar Woodhouse and Omar Tamo): “President Donald Trump threatened to resume strikes on Iran in the coming days as part of the push for a deal to end the war, after he said he had just called off a US attack. ‘I hope we don’t have to do the war, but we may have to give them another big hit,’ Trump told reporters… When asked how long he would wait, he said: ‘Well, I mean, I’m saying two or three days, maybe Friday, Saturday, Sunday. Something maybe early next week — a limited period of time.’”
May 21 – Reuters (Parisa Hafezi and Rami Ayyub): “Iran’s Supreme Leader has issued a directive that the country’s near-weapons-grade uranium should not be sent abroad, two senior Iranian sources said, hardening Tehran’s stance on one of the main U.S. demands at peace talks. Ayatollah Mojtaba Khamenei’s order could further frustrate U.S. President Donald Trump and complicate talks on ending the U.S.-Israeli war on Iran. Trump vowed on Thursday that the United States will not allow Iran to have its stockpile of highly enriched uranium. ‘We will get it. We don’t need it, we don’t want it. We’ll probably destroy it after we get it, but we’re not going to let them have it,’ Trump told reporters…”
May 20 – Bloomberg (Patrick Sykes and Eltaf Najafizada): “Iran warned it would retaliate beyond the Middle East if the US or Israel attacks it again, following renewed threats from President Donald Trump… ‘If aggression against Iran is repeated, the regional war that had been promised will this time extend beyond the region,’ the Islamic Revolutionary Guard Corps said… The IRGC, which has gained even more influence over Iranian decision-making since the war erupted in late February, vowed ‘crushing blows in places you do not expect.’”
May 20 – Axios (Barak Ravid): “President Trump and Israeli Prime Minister Benjamin Netanyahu discussed a new effort to reach a deal with Iran in a difficult call on Tuesday…, with one source saying Netanyahu’s ‘hair was on fire’ after the call. A revised peace memo was drafted by Qatar and Pakistan with input from the other regional mediators to try to bridge the gaps between the U.S. and Iran, the sources said. It comes with Trump vacillating over ordering a massive strike on Iran and holding out for a deal. Netanyahu is highly skeptical about the negotiations and wants to resume the war to further degrade Iran’s military capabilities and weaken the regime by destroying its critical infrastructure.”
May 17 – Financial Times (Nicolas Parasie): “The United Arab Emirates said a drone strike caused a fire at the perimeter of its Barakah nuclear power plant, but that there were no injuries and radiation levels remained safe. The emirate’s state news agency said on Sunday that authorities were ‘handling a fire that broke out in an electric generator outside the inner perimeter’ of the Barakah power plant ‘caused by a drone strike’.”
May 21 – Bloomberg (Samy Adghirni, Flavia Krause-Jackson and Alan Katz): “Iran is discussing with Oman how to set up some form of a permanent toll system that will formalize its control of maritime traffic through the Strait of Hormuz. ‘Iran and Oman must mobilize all their resources both to provide security services and to manage navigation in the most appropriate manner,’ the Iranian ambassador to France, Mohammad Amin-Nejad, said…”
Iran War Ramifications Watch:
May 18 – Bloomberg (Kamil Kowalcze, Daniel Flatley and William Horobin): “International Energy Agency Executive Director Fatih Birol warned that the tally of commercial oil inventories is shrinking at an accelerated pace. ‘I think it is depleting very fast,’ he told reporters... It will be ‘several weeks, but we should be aware of the fact that it is declining rapidly,’ he said. He also highlighted that the spike in fertilizer and diesel prices comes at the start of the travel and planting season. ‘This could have major implications for the food prices and together with the higher energy prices they might give a big push to inflation numbers,’ he said.”
May 20 – Bloomberg (Nathan Risser and Alex Longley): “US crude inventories, including strategic reserves, plunged by a record as soaring exports start to erode domestic supply cushions. The decline of 17.8 million barrels brings crude inventories to the lowest levels in nearly a year, according to data from the US Energy Information Administration. Excluding strategic reserves, nationwide petroleum stocks still fell about 9 million barrels last week. America has emerged as a major supplier to the world as the war in Iran leaves top buyers in Asia and Europe without access to Middle Eastern barrels.”
May 20 – Politico (Bartosz Brzezinski): “The closure of the Strait of Hormuz could trigger a severe global food price crisis within six to 12 months unless governments act quickly, the Food and Agriculture Organization warned… Decisions now by farmers and governments on fertilizer use, imports, financing and crop choices will determine whether food prices spike later this year or in early 2027, the agency said. ‘Start seriously thinking about how to increase the absorption capacity of countries, how to increase their resilience to this choke, so that we start to minimize the potential impacts,’ FAO Chief Economist Maximo Torero said…”
May 16 – Axios (Nathan Bomey): “Farmers across the Midwest are entering planting season under mounting financial pressure, as the Iran conflict drives up diesel and fertilizer prices — deepening an agricultural downturn that some say is the worst since the crisis of the 1980s. Rising fuel and fertilizer costs threaten to push more family farms out of business, drive up food prices and further strain rural economies already battered by trade disruptions, inflation and extreme weather. Mark Mueller — a northeast Iowa farmer and president of the Iowa Corn Growers Association — tells Axios that the current landscape is more challenging than at any time since the 1980s farm crisis… The stresses are showing, with rising bankruptcies and lenders becoming more reluctant to provide farmers with operational loans. ‘There’s going to be fewer farmers next year than there is this year,’ Mueller says.”
May 18 – Reuters (Peter Hobson): “Justin Everitt is planting 50% less wheat this year than he thought he would. Standing in muddy brown boots and jeans by his tractor and 36-foot-wide seeding rig in a bare field, the 44-year-old said a lack of rainfall and rapid increases in fuel and fertiliser prices due to the war in Iran had ripped up his sowing plans. He is one of thousands of farmers across Australia deciding to plant less wheat and spread less fertiliser. Their choices… mean Australia, the third-largest wheat exporting nation, may have as much as 10 million tons less to ship in the upcoming season, an amount equivalent to 5% of annual global exports.”
May 19 – Financial Times (Martin Wolf): “First came the war. Then came the blockade. Now come the shortages. The tankers full of essential commodities — oil, liquid natural gas, urea, refined oil products, hydrogen, helium and so forth — have not sailed through the Strait of Hormuz since the end of February. Those that left before the closure have mostly arrived. From now on, the shipments that did not leave will increasingly be missed. As inventories are also drawn down, we will move into an era of physical shortages. Up to now, shortages have been mostly imaginary. Now they will become real. They must be managed, ultimately by suppressing demand. The latter in turn will require some combination of rationing and recession. A blend of higher prices with tighter monetary policy could deliver both. The longer the strait remains closed and the bigger the physical damage, the longer shortages will remain and the worse their impact.”
May 21 – Bloomberg (Jaewon Kang): “Walmart Inc. warned rising fuel costs are squeezing the company’s bottom line and could lead to higher prices for shoppers. The world’s largest retailer said comparable sales in US stores, excluding fuel, rose 4.1% in the latest quarter, slightly better than what… analysts were expecting. It also forecast adjusted profit for the second quarter that missed expectations… ‘The high-income consumer is spending with confidence in many categories, whereas the low-income consumer, we can tell, is more budget-conscious, trying to navigate certain financial distress,’ Chief Financial Officer John David Rainey said…”
May 21 – Bloomberg (Beril Akman and Selcuk Gokoluk): “Turkey offloaded almost all of its US Treasuries in March as it stepped up efforts to defend the lira amid intense economic pressure from soaring energy costs. The amount of Treasuries held by Turkey fell to $1.8 billion by the end of March, down from $16 billion the previous month… Turkey has taken dramatic action in recent weeks to prevent a depreciation in the lira as the country, which needs to import almost all its energy, grapples with the effects of higher oil prices stemming from the US-Iran war.”
May 17 – Bloomberg (Craig Stirling): “The global rush to stockpile manufactured goods on fears of an energy-supply crunch will again overshadow business surveys in the coming week gauging the impact of a third month of war in the Middle East. Among the purchasing manager indexes for May measuring industrial activity in key economies, all of those for which Bloomberg polls analysts are projected to show continued expansion, in many cases bolstered by front-loaded stockbuilding.”
May 15 – Axios (Kelly Tyko): “Motor oil could become the next supply-chain headache as major companies warn that Middle East turmoil is squeezing key ingredients used in synthetic lubricants. Drivers, repair shops and auto suppliers could soon see higher prices, reduced selection and temporary out-of-stocks for some synthetic motor oils. Executives at Shell, Valvoline, O'Reilly Automotive and other companies are warning investors about lubricant cost spikes and pressure on synthetic motor-oil supply chains.”
May 16 – Wall Street Journal (Rebecca Feng): “Coal is making a comeback. Countries around the world are returning to the highly polluting but reliable source of power after the Iran war effectively shut the Strait of Hormuz and cut off around 20% of global liquefied natural gas supplies. Taiwan is restarting idled coal-fired power plants and South Korea boosted the amount of electricity it generated from coal by more than a third last month. In Europe, Italy has put its coal plants on standby as it girds for a prolonged energy shock. Spot coal prices at Australia’s Newcastle port, a key supplier to Asia, have jumped 12% since the war started.”
May 21 – Bloomberg (Dayanne Sousa): “A spike in fertilizer costs driven by the Iran war is hitting farmers in agriculture powerhouse Brazil at the worst possible time, underscoring how the Middle East conflict is threatening global food supplies. Brazilian farmers have already been grappling with lower commodity prices, limited access to credit, elevated debt, unfavorable currency exchange rates and surging costs of moving goods to ports. Now the rapid rise in fertilizer is taking things to a tipping point…”
May 20 – Financial Times (Andrew England, Arash Massoudi, Ellesheva Kissin and Nicolas Parasie): “Saudi Arabia has stopped issuing new contracts for western consultancies working in the kingdom and delayed some payments as the government manages a widening deficit and the fallout of the Iran war. Executives at consultancies told the FT that Riyadh took the decision after the US-Israeli war against Iran erupted, threatening the kingdom’s oil revenues and as the Islamic republic targeted its Arab neighbours with drones and missiles.”
May 19 – Financial Times (Leslie Hook, Joseph Cotterill, Monica Mark, William Wallis and David Pilling): “Rising fuel prices have triggered deadly protests in Kenya and forced countries across Africa to take emergency measures, as a deepening energy crisis drives severe disruption across the continent. Diesel and petrol prices at the pump have surged in recent weeks, as the economic shock of the war in the Middle East starts to reach consumers across sub-Saharan Africa. The impact of the war on many African economies was initially blunted by government fuel subsidies and regulated prices… But states have been forced to pass on more fuel price rises as they can no longer afford the subsidy bill.”
Trump Administration Watch:
May 16 – Associated Press (Simina Mistreanu): “Recent comments by U.S. President Donald Trump that arms sales to Taiwan are a ‘very good negotiating chip’ in the United States’ dealings with China are heightening anxieties on the island democracy that Beijing claims as its own… Asked if he would approve a $14 billion arms package to Taiwan that has been held up for months, Trump said that’s up to China. ‘I’m holding that in abeyance and it depends on China,’ he said. ‘It’s a very good negotiating chip for us, frankly. It’s a lot of weapons.’”
May 21 – Financial Times (Joe Miller and Michael Peel): “The US government will take equity stakes worth a total of $2bn in a slew of quantum computing companies, including a start-up backed by a firm with links to the Trump family and one taken public by a Pentagon official. The announcement by the commerce department that it had signed letters of intent with nine companies — including GlobalFoundries and IBM — sent shares in quantum specialists soaring... Both IBM, which is set to get $1bn, and GlobalFoundries, which will receive $375mn, were up more than 6% in pre-market trading. D-Wave Quantum, an awardee that was taken public in 2022 by Emil Michael — now a top Pentagon official — was up more than 20%.”
May 21 – Wall Street Journal (Amrith Ramkumar): “President Trump postponed the signing of an executive order that would have given the government more oversight over the artificial-intelligence industry, saying he didn’t want to take any action that would slow down the U.S. in the AI race. Hours before a scheduled signing event Thursday that was set to include industry executives, Trump told reporters… the order would have asked AI companies to preview models with the federal government. Such a move would set back the U.S. in its competition with China, which AI analysts say the U.S. is winning, he said. ‘I really thought that could have been a blocker, and I want to make sure it’s not,’ he said, citing the number of jobs the technology is creating. ‘I don’t want to do anything that will get in the way of that lead.’”
May 17 – Axios (Marc Caputo): “Cuba has acquired more than 300 military drones and recently began discussing plans to use them to attack the U.S. base at Guantanamo Bay, U.S. military vessels and possibly Key West…, according to classified intelligence... The intelligence — which could become a pretext for U.S. military action — shows the degree to which the Trump administration sees Cuba as a threat because of developments in drone warfare and the presence of Iranian military advisers in Havana, a senior U.S. official said. ‘When we think about those types of technologies being that close, and a range of bad actors from terror groups to drug cartels to Iranians to the Russians, it’s concerning,’ the official said. ‘It’s a growing threat.’”
May 18 – New York Times (Andrew Duehren): “The top lawyer at the Treasury Department stepped down… in the wake of the creation of a $1.8 billion ‘anti-weaponization’ fund that could soon make payments to President Trump’s political allies… Brian Morrissey, the Treasury’s general counsel, resigned from the position seven months after he was confirmed to it by the Senate and just hours after the Trump administration announced the fund on Monday.”
May 19 – Wall Street Journal (Jared Mitovich and Kara Dapena): “Before he entered the White House, President Trump was a real-estate developer and speculator. Lately, his fortune has been wagered on some Big Tech stocks. Money managers for the president made more than 3,700 trades in the first quarter, including million-dollar purchases of Nvidia, Dell and other Big Tech stocks. Trump’s managers pared his holdings in Microsoft and Amazon with sizable sales in the quarter… The accounts purchased at least $1.75 million of Nvidia’s stock in the quarter, including $500,000 on Jan. 6. A week later, the administration cleared the way for Nvidia to send its H200 artificial-intelligence chips to China…”
May 19 – Wall Street Journal (David Uberti, Joe Palazzolo and Dylan Tokar): “A trader couldn’t hope for better timing. Moments before President Trump postponed strikes on Tehran’s energy infrastructure in a morning social-media post on March 23, a spasm of trades hit the market during off-hours. More than $800 million worth of U.S. and international oil futures changed hands in a matter of minutes, according to LSEG data. The traders on the right side of those well-timed bets profited when U.S. oil prices fell as much as 13% in the wake of Trump’s change of heart. At least five firms posted gains of $5 million or more on crude futures they bought and sold that day…”
Trade War Watch:
May 21 – New York Times (Meaghan Tobin and Tripp Mickle): “When President Trump announced late last year that Nvidia could sell one of its most powerful chips to China, the deal looked like a rare win-win in a fraying geopolitical relationship… But six months on, Beijing has not allowed any of its companies to buy a single one.”
May 18 – Bloomberg (Ben Westcott, Pyotr Kozlov and Erin Ailworth): “An agreement on US agricultural sales to China outlined by the White House is raising optimism for a demand pickup beyond soybeans, helping to drive prices higher across the board for crop futures. China has agreed to buy at least $17 billion annually in American agricultural produce through 2028, according to a fact sheet… That’s in addition to a soybean purchase pledge from late 2025…”
Constitution Watch:
May 19 – Wall Street Journal (C. Ryan Barber, Richard Rubin and Sadie Gurman): “President Trump has alleged for years that his opponents weaponized the legal system against him and his supporters for political gain. On Monday, his administration created an extraordinary program to pay his allies back—with taxpayer funds. The Justice Department unveiled what it called the ‘Anti-Weaponization Fund,’ backed by nearly $1.8 billion. It described the initiative as a resolution to a lawsuit and two administrative claims that Trump filed in his personal capacity against the government he now runs. The fund drew the immediate ire of lawmakers on Capitol Hill, who clashed with acting Attorney General Todd Blanche during an appearance before a Senate panel…. The controversy later grew when the Justice Department expanded the deal to end all pending tax audits of Trump and his businesses.”
U.S./Russia/China/Europe/Iran Watch:
May 19 – Financial Times (Edward White, Thomas Hale, Joe Leahy and Max Seddon): “President Xi Jinping has told Russia’s Vladimir Putin the world is in danger of regressing to ‘the law of the jungle’ as he sought to portray China as a force of global stability… Xi said China and Russia should promote co-operation in energy and technology, including in artificial intelligence, and work together to ‘improve global governance’. ‘Unilateralism and hegemonism are deeply harmful, and the world faces the danger of regressing back to the law of the jungle,’ the Chinese president said in a veiled criticism of the US.”
May 20 – Bloomberg: “Russian President Vladimir Putin left Beijing after a day of talks with Chinese counterpart Xi Jinping, with the two leaders seeking to underscore the strength of their relations amid global tensions over wars in Ukraine and Iran. ‘It was successful, fruitful and intensive work,’ Putin said… Xi said they’d reached a ‘new important consensus’ on advancing their partnership… ‘We have built a stable system of mutual trade that is protected from external influence and negative trends in global markets,’ Putin said…”
May 20 – Bloomberg: “Russian President Vladimir Putin left Beijing after a day of talks with Chinese counterpart Xi Jinping, with the two leaders seeking to underscore the strength of their relations amid global tensions over wars in Ukraine and Iran. ‘It was successful, fruitful and intensive work,’ Putin said at a meeting over tea with Xi late Wednesday. Xi said they’d reached a ‘new important consensus’ on advancing their partnership.”
May 21 – Politico (Jonas Loesel): “Russia will provide Cuba with ‘active support’ as the U.S. increases pressure on Havana, Kremlin foreign ministry spokeswoman Maria Zakharova said… On Wednesday, tensions between the two countries escalated further after the U.S. Justice Department announced it was bringing charges against former Cuban President Raúl Castro in connection with the 1996 killings of four people involved in civilian rescue flights.”
May 18 – Bloomberg (Aliaksandr Kudrytski): “Belarus announced that its armed forces would conduct snap nuclear exercises alongside Russian allies, following warnings from Kyiv that it could retaliate if Minsk becomes more deeply involved in the Kremlin’s war. Missile units and the air force will practice the use and delivery of nuclear weapons in ‘unprepared locations’ across Belarus, the defense ministry in Minsk said…”
May 20 – Reuters (Guy Faulconbridge and Vladimir Soldatkin): “Russia launched nuclear-capable missiles and issued nuclear munitions to some units on Thursday as part of major nuclear exercises amid heightened tensions with NATO over the Ukraine war and drone activity in the Baltic. Russia is conducting some of the biggest nuclear exercises in years, involving 64,000 people to drill its forces in ‘the preparation and use of nuclear forces in the event of aggression’… ‘Given the growing tensions in the world and the emergence of new threats and risks, our nuclear triad must continue to serve as a reliable guarantor of the sovereignty of the Union State of Russia and Belarus,’ Putin said…”
May 19 – Reuters: “China’s armed forces secretly trained about 200 Russian military personnel in China late last year and some have since returned to fight in Ukraine, according to three European intelligence agencies… While China and Russia have held a number of joint military exercises since Moscow’s full-scale invasion of Ukraine in 2022, Beijing has repeatedly stated that it is neutral in the conflict and presents itself as a peace mediator.”
Ukraine War Watch:
May 21 – Bloomberg (Volodymyr Verbianyi): “Ukraine and its allies are increasingly confident that Russia’s invasion is running out of steam as Kyiv stabilizes the front line and stalls a spring offensive by Moscow. Ukraine’s growing effectiveness at deploying drones to inflict heavy Russian troop losses is being matched by strikes behind the front lines and deep inside Russia that are stoking increasing domestic criticism of President Vladimir Putin. Alongside an economic slowdown and restrictions on the internet, that’s leading to a deepening war fatigue among ordinary Russians.”
May 18 – Politico (Veronika Melkozerova): “Ukraine hit Russia with more than 1,300 drones over the weekend, penetrating Moscow’s heavy air defenses and successfully hitting targets in and around the capital. While Ukrainian drones have penetrated Moscow's air defenses before, this time they hit a wide range of targets, including industrial plants and an oil refinery. Three people were killed and 12 wounded… ‘This is significant also because the Moscow region is the most heavily saturated with Russian air defense systems,’ Ukrainian President Volodymyr Zelenskyy said…”
May 18 – Wall Street Journal (Marcus Walker and Anastasiia Malenko): “Ukraine’s military has wrestled Russia’s much-larger army almost to a halt in recent months, having gained a tactical and technological edge. This summer will test whether it can turn that slender advantage into a strategic turning point. Fast-improving Ukrainian drone capabilities are hurting the invaders’ logistics behind the battlefield, and pounding oil infrastructure and military targets deeper inside Russia. ‘We are not only holding the line, but we are also increasing pressure,’ Ukrainian Defense Minister Mykhailo Fedorov said... Russia’s monthly casualties now exceed its army recruitment, he said. ‘We are making every meter of Ukrainian land extremely costly for the enemy.’”
May 19 – Reuters (Dan Peleschuk and Tom Balmforth): “From burning oil refineries to a stalling ground offensive, Russia is suffering problems in its war against Ukraine that partly stem from a growing Ukrainian military strength: the use of medium-range drone attacks. By targeting Russian air defences and logistics dozens of kilometres behind front lines, Ukraine is disrupting Russia’s battlefield advances and opening the way for long-range strikes on Russian oil and military facilities, said two Ukrainian commanders, two drone specialists and three military analysts.”
Taiwan Watch:
May 17 – Bloomberg (Catherine Ngai and Twinnie Siu): “Taiwan’s President Lai Ching-te said the self-ruled democracy cannot be traded away, days after US President Donald Trump described a planned $14 billion arms sale to Taipei as a bargaining chip with China. ‘Taiwan will never be sacrificed or traded,’ Lai said…, adding that the island’s central role in Indo-Pacific security and global supply chains, particularly for artificial intelligence and semiconductors, makes stability a shared interest among democratic nations.”
May 17 – Axios (Jim VandeHei and Mike Allen): “Some close advisers to President Trump fear the biggest substantive result of the China summit is heightened danger that Chinese President Xi Jinping will invade Taiwan in the next five years… Trump loved the pageantry and the special access Xi shrewdly rolled out during the Beijing visit. But the words didn’t match the bonhomie. One Trump adviser told us Xi is ‘trying to move China to a new position where he’s saying: ‘We’re not a rising power. We’re your equal. And Taiwan is mine.’’ ‘This trip signaled a much higher likelihood that Taiwan will be on the table in the next five years,’ the adviser added.”
AI Bubble/Arms Race Watch:
May 22 – Bloomberg (Farah Elbahrawy and Michael Msika): “Mega IPOs like those eyed by SpaceX and OpenAI threaten to push the weighting of tech in equity benchmarks beyond market-bubble levels of concentration, according to Bank of America Corp. strategist Michael Hartnett. Elon Musk’s SpaceX has set out plans for the world’s biggest initial public offering, while ChatGPT maker OpenAI aims to beat rival Anthropic to the market. The gigantic share sales would feed into the optimism around tech and artificial intelligence that’s already powering one of the narrowest rallies in decades. ‘Strong price action, retail mania, slumping vol ... so bubbly,’ Hartnett said... ‘Add mega IPOs to AI big boys and market concentration easily surpasses (~48%) bubbles of roaring ‘20s, Nifty 50 ‘70s, Japan ‘80s, TMT ‘90s.’”
May 18 – Wall Street Journal (Amrith Ramkumar, Katherine Blunt and Lindsay Ellis): “The only thing growing faster than the artificial-intelligence industry may be Americans’ negative feelings about it—as former Google Chief Executive Eric Schmidt saw… Delivering a commencement address at the University of Arizona, Schmidt told students the ‘technological transformation’ wrought by artificial intelligence will be ‘larger, faster and more consequential than what came before.’ Like some other graduation speakers mentioning AI, Schmidt was met with a chorus of boos. In one poll after another in recent weeks, respondents have overwhelmingly voiced concerns about AI, a challenge to claims by industry executives that their technology would gain popularity by improving people’s lives. Consumers resent energy-price jumps exacerbated by the spread of data centers. Workers fear widespread job losses. Parents worry about AI undermining education and harming children’s mental health.”
May 18 – Financial Times (Oliver Barnes, James Fontanella-Khan, Martha Muir and Jamie Smyth): “In the northern Virginia town of Ashburn, the suburban quiet for its 40,000 residents is punctured by the constant hum of more than 150 data centres that power the AI revolution rewiring the US economy. Dozens more are planned for this 40 sq km patch of land, known as ‘data centre alley’, which has become one of the most strategic infrastructure locations in America and the logic behind NextEra Energy’s $420bn tie-up with Dominion Energy unveiled on Monday. One of the largest mergers in US history would hand a single company enormous influence over the electricity network across the eastern seaboard underpinning the AI boom. The merger captures a defining feature of President Donald Trump’s second term: the return of politically explosive megadeals once deemed unthinkable because of their size and impact on Americans.”
May 21 – Bloomberg (Myungshin Cho and Yoolim Lee): “Samsung Electronics Co. will distribute about 40 trillion won ($26.6bn) to chip employees as a bonus for this year after the company struck a last-minute deal with labor unions to avert a strike. Samsung employs 78,000 people in its semiconductors division. While bonus levels will vary, workers stand to get 513 million won on average, equivalent to $340,000… Samsung employees earned 158 million won on average in 2025, according to a company filing in March.”
Bubble Watch:
May 20 – Reuters (Canan Sevgili, Alessandro Parodi and Vera Dvorakova): “A wave of retail-driven trading dynamics is reshaping how markets respond to U.S. President Donald Trump's second term and his war in Iran, turning political volatility into a set of widely recognised and traded patterns. Acronyms like ‘TACO’ – ‘Trump always chickens out’ – ‘FAFO’ – ‘f*** around, find out’ and ‘FOMO’ – ‘fear of missing out’ - have emerged and increasingly reflect the behaviour of retail investors, who are reacting to an incessant news flow to lean into short-term swings. ‘Bull and bear are still the foundation, but ‘TACO’ and ‘FAFO’ are becoming part of the everyday language on trading desks,’ said Lale Akoner, global market strategist at eToro.”
May 17 – Bloomberg (Christian Dass): “The tech-fueled stock rally is looking bubble-like to some investors, and they’re turning to exotic options that better protect against an eventual slump… The challenge: Even if an investor correctly identifies a bubble, timing the pop is tough. That has some traders reaching for exotic options that can help, in particular ‘lookback’ puts, which reset higher as the market rallies. They are a bit more expensive but tend to outperform vanilla puts when a market continues to rise before an eventual plunge.”
Inflation Watch:
May 22 – CNBC (Spencer Kimball): “U.S. drivers will pay gasoline prices near four-year highs when they fuel up for travel over the long Memorial Day weekend and should expect more pain at the pump this summer if the Strait of Hormuz does not reopen. The average gasoline price stood at $4.55 per gallon on Friday, an increase of more than 50% since the U.S. and Israel began the war with Iran on Feb. 28, according to AAA.”
May 20 – Axios (Ben Berkowitz): “All 50 states have average gas prices above $4 a gallon, AAA said Wednesday, with seven now topping $5 a gallon. As the war with Iran approaches the three-month mark, soaring fuel prices are costing Americans millions of dollars a day, crushing small business profits, and driving a surge in inflation. The national average now stands at $4.56 a gallon, AAA said. California is the nation’s high, at $6.15 per gallon, while Georgia is the lowest at $4.01 a gallon.”
May 20 – Reuters (Tom Polansek and Julie Ingwersen): “Since the closure of the Strait of Hormuz in late February, the cost of farm diesel has climbed 72%, the Kentucky Farm Bureau wrote… Prices for urea, one of the major fertilizers produced in the Gulf region, were up 55%, while prices for another nitrogen-based fertilizer rose 33%, the farmers’ group said.”
May 21 – Bloomberg (Enda Curran, Mark Schroers, Ye Xie, and Jorgelina Do Rosario): “One inflation spike in the 2020s might be an accident, the world’s biggest bond markets seem to have decided, but two looks like an alarming new trend. The US war on Iran is inflicting another wave of price hikes on a global economy that’s barely recovered from the last one. A material chunk of the world’s fuel and fertilizers is trapped inside the Strait of Hormuz, and the pain is spreading. European airlines canceled flights, Americans have spent an extra $20 billion at the gas pump, and Asian rice farmers wondered if they should skip planting… As all this damage mounts, it’s starting to rattle the safest haven in world finance: the $50 trillion-plus market for Group of Seven sovereign bonds, where long-term yields hit a two-decade high this week. Put simply, investors are starting to worry, like they never quite did even at the post-Covid peak, that higher inflation is here to stay. They want compensation for that risk, and expect central banks will have to raise interest rates to contain it.”
May 18 – USA Today (Betty Lin-Fisher): “Owning a car is becoming more difficult as the rising costs of vehicles and insurance make ownership a luxury for more Americans, a new study finds. Nearly 4 in 10 Americans surveyed by Lending Tree, or 39%, said a car is a luxury they cannot afford… Rising fixed costs, especially in loan payments and insurance, are the main reasons people cited for why car ownership has become so expensive and elusive. Loan payments average $7,275 annually, with insurance averaging $2,277, gas $2,105 and maintenance coming in at $1,184. Insurance costs have surged 37.5% since 2021, outpacing income growth (23.9%) and other vehicle expenses, Lending Tree said.”
May 19 – Associated Press (Ali Swenson): “Nationwide enrollment in the Affordable Care Act health insurance marketplace could plummet by nearly 5 million people this year, shrinking the number of participants in the program by more than 20%, according to… nonprofit KFF. Those who remain covered are also paying more for healthcare than they used to, the group found, with the average enrollee’s deductible growing by more than $1,000 and the average monthly premium payment rising by $65. ‘No matter how you slice it, people are paying more,’ said Cynthia Cox, a vice president of KFF…”
May 20 – Bloomberg (Megan Durisin Albery): “A benchmark Asia rice price rose to the highest in more than a year, as worries loom over harvests across the region. Prices for Thai 5% broken white rice climbed to $446 a ton as of Wednesday, the highest since February 2025… It marks a third weekly gain… A spike in fertilizer and fuel prices has raised concerns that some farmers in Southeast Asia may skip planting of the current crop. India, the world’s largest exporter, is also facing the prospect of a lower-than-average monsoon.”
Federal Reserve Watch:
May 19 – Reuters (Balazs Koranyi and Francesco Canepa): “Incoming Federal Reserve Chair Kevin Warsh’s suggestion that independence may not extend fully to the Fed’s crisis-fighting role abroad has unsettled central banking peers, who fear any reduction in its global footprint could risk market stability. With the dollar by far the world’s most used currency, the U.S. central bank plays a pivotal role in stabilising financial markets during periods of stress. It has expanded its crisis-fighting tools over time to keep funding flowing. But Warsh… raised eyebrows by suggesting that outside monetary policy, including in international finance, the Fed needs to work closely with the presidential administration and Congress. Warsh told his confirmation hearing that independence in setting interest rates did not fully extend to the Fed’s broader operations, prompting some to question whether it would remain fast and decisive when the next crisis hits.”
May 20 – Axios (Courtenay Brown): “Incoming Federal Reserve chief Kevin Warsh’s ambition to shrink the central bank’s multitrillion-dollar bond portfolio may quickly run into hard limits. For nearly two decades, the Fed’s ability to flood markets with liquidity has been among its most powerful crisis-fighting weapons — and, in Warsh’s view, too often a go-to tool for monetary stimulus outside of crises. Now, the hot discussion among Fed officials and commentators is about how to responsibly shrink the Fed's asset portfolio — and whether that’s even a worthwhile goal. The Fed’s assets ballooned from about $800 billion before the 2008 financial crisis to nearly $9 trillion at its 2022 peak — swelling each time the central bank stepped in to stabilize the economy, particularly through open-ended quantitative easing programs starting in 2012 and 2020. Three years of runoff brought the balance sheet back to $6.7 trillion, though the Fed resumed slowly growing it again after signs of stress in critical funding markets last December.”
May 20 – Financial Times (Claire Jones): “Many top Federal Reserve officials wanted the US central bank to drop language signalling its next move would be to lower borrowing costs at its April meeting, highlighting mounting concerns over the Iran war. ‘Many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the [Federal Open Market Committee’s] future interest rate decisions,’ minutes from the late-April meeting… said. The minutes also showed that ‘a majority of participants’ said rate rises would probably become appropriate if inflation were to “continue to run persistently’ above the central bank’s 2% goal.”
May 21 – Bloomberg (MarÃa Paula Mijares Torres): “Federal Reserve Bank of Richmond President Tom Barkin said the ability of businesses and consumers to tolerate the latest in a series of supply shocks will determine whether the US central bank can continue to ‘look through’ higher inflation without raising interest rates. ‘With inflation above our 2% target for over five years now, it’s worth asking whether the cumulative impact of so many waves risks loosening the anchor,’ Barkin said... ‘For me, it comes down to how much businesses, consumers, and inflation expectations can take.’”
May 17 – Bloomberg (Jordan Fitzgerald and Sam Kim): “Investors won’t see a rate cut out of the next Federal Reserve policy meeting, according to DoubleLine Capital LP chief executive officer Jeffrey Gundlach. ‘People were looking for two rate cuts this year, but the inflation market has simply not cooperated,’ Gundlach said… ‘It’s just not possible, in my view, to cut interest rates when the two-year Treasury is almost 50 bps higher than the Fed funds rate.’ Newly confirmed as Federal Reserve chair, Kevin Warsh is coming into the role at a ‘rough time,’ Gundlach said.”
U.S. Economic Bubble Watch:
May 21 – Bloomberg (Conor Sen): “There is a growing risk of economic overheating in the US as the artificial intelligence boom expands beyond semiconductors and spills into the broader economy… If AI spending continues apace, accompanied by a rising stock market, there’s likely no way to avoid a widening pickup in inflation. This marks a shift from last year when AI optimism was roughly offset by weakness in other parts of the economy, leading to a K-shaped dynamic that Americans have generally disliked. More than $700 billion in capital spending by four technology behemoths alone this year is creating new winners and new bottlenecks as it spreads through the economy.”
May 21 – Bloomberg (Vince Golle): “US manufacturing activity expanded in May by the most in four years as customers strived to get ahead of mounting price pressures tied to the Iran war. The S&P Global flash May factory purchasing managers index rose 0.8 point to 55.3… A gauge of prices paid for inputs jumped more than 11 points to the highest level since June 2022.”
May 21 – Associated Press (Matt Ott): “Fewer Americans filed for jobless aid last week as layoffs remain low despite a number of uncertainties that continue to cloud the economy. U.S. applications for unemployment benefits for the week ending May 16 fell by 3,000 to 209,000… The total number of Americans filing for unemployment benefits for the previous week ending May 9 grew by 6,000 to 1.78 million.”
May 19 – CNBC (Diana Olick): “Growing concern over the trajectory of the Iran war has bond yields rising and mortgage rates following suit. The average rate on the 30-year fixed loan rose 7 bps Tuesday to 6.75%... That is the highest level since July 31. Rates are now up 33 bps in just the past 10 days and are 46 bps higher than their recent April low of 6.29%.”
May 20 – CNBC (Diana Olick): “Mortgage rates continued to climb higher last week, dampening demand for loans from both current homeowners and potential homebuyers. They also pushed consumers to riskier loans that offer lower rates… The adjustable-rate mortgage, or ARM, share of total applications rose to nearly 10%, the highest since October 2025. ARMs are considered riskier… Applications for a mortgage to purchase a home fell 4% for the week and were just 8% higher than the same week one year ago.”
May 21 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding dropped sharply in April and permits for future construction fell, suggesting the housing market could remain subdued for a while as the Iran war drives up mortgage rates and an oversupply of new houses persists. Single-family housing starts, which account for the bulk of homebuilding, tumbled 9.0% to a seasonally adjusted annual rate of 930,000 units… Single-family homebuilding fell in all four regions. It declined 2.4% year-on-year in April.”
May 18 – Bloomberg (Julia Fanzeres): “US homebuilder sentiment rebounded in May but remained low overall… An index of market conditions from the National Association of Home Builders and Wells Fargo increased 3 points to 37… ‘Recent increases for long-term interest rates will continue to hold back home buyer demand,’ NAHB Chief Economist Robert Dietz said... ‘Although some regional markets, including parts of the Midwest, are showing relative strength, the housing market continues to face significant affordability challenges.’”
May 19 – Wall Street Journal (Dean Seal): “Luxury homebuilder Toll Brothers said the average price of homes it completed sales on last quarter broke above $1 million for the first time since mid-2024… Toll delivered nearly 2,500 homes from February through April at an average price of just under $1.01 million. Average prices had fallen below seven figures for the previous seven quarters after first eclipsing the million-dollar mark in mid-2023…”
China Watch:
May 18 – Wall Street Journal (Hannah Miao): “China’s economic momentum slowed broadly in April, underscoring persistent areas of weakness in the world’s second-largest economy as risks from the Iran war mount. The marked slowdown, which was tempered by continued strength in China’s export sector, underscores the challenges facing leader Xi Jinping at home… A gauge of consumer spending decelerated to its slowest growth since 2022. Industrial output, investment and the real-estate sector all showed signs of deterioration, undershooting economists’ expectations.”
May 20 – Bloomberg: “China scaled back government spending at its fastest pace in six months in April… A broad measure of public expenditure fell 7.3% from a year ago, accelerating from the 2.5% decrease in March to mark its sharpest decline since October… By contrast, broad fiscal revenue rose 2%. The data helps explain a surprising contraction in fixed-asset investment that China recorded in April…”
May 22 – Bloomberg: “China’s stock exchanges are scrutinizing recent stock rallies that have been fueled by artificial intelligence optimism, asking some listed companies and funds to give more details about their approach to the technology… The Shanghai and Shenzhen stock exchanges have recently asked several listed companies to clarify whether their core businesses have any meaningful link with AI, and whether their disclosures to investors have been clear enough…”
Central Banker Watch:
May 19 – Bloomberg (Oliver Crook, Mark Schroers, and Jana Randow): “The European Central Bank may have to respond to the economic challenges arising from the conflict in the Middle East, according to Governing Council member Joachim Nagel. ‘This energy supply shock is more persistent, so we are moving away from our baseline scenario,’ the Bundesbank president told Bloomberg... ‘It means maybe we have to do something’… ‘The probability is rising that we will see more inflation everywhere,’ he said. ‘This is something we have to take into consideration, and we will do this at our next meeting.’”
Europe Watch:
May 21 – Bloomberg (Mark Schroers): “Business activity in the euro area shrank at the quickest pace in 2 1/2 years, adding to fears that the Iran war and accompanying surge in energy costs are dealing a severe blow to the economy. The Composite Purchasing Managers’ Index… fell to 47.5 in May from 48.8 in April, holding below the 50 threshold separating growth from contraction for a second month.”
May 19 – Financial Times (Ashley Armstrong): “The UK Treasury is pushing large supermarkets to introduce voluntary price caps on key groceries in return for lifting some regulations, according to people familiar with the situation. Supermarkets have reacted furiously to the proposals, under which grocers would agree to identify and cap the prices of essential goods such as eggs, bread and milk.”
Japan Watch:
May 17 – Financial Times (Leo Lewis and Harry Dempsey): “Japan’s Prime Minister Sanae Takaichi has asked her government to compile a supplementary budget to fund huge government subsidies for energy… Takaichi’s abrupt U-turn… triggered speculation that her government might fund the move by issuing new bonds, fuelling concern about Japan’s fiscal position. The yield on the benchmark 10-year Japanese government bond rose slightly to 2.75%... The yen weakened to about ¥159 versus the dollar…”
May 21 – Wall Street Journal (Megumi Fujikawa): “A Bank of Japan policymaker has warned that Middle East tensions could cause underlying inflation to overshoot the BOJ’s target, offering another signal that rate hikes are around the corner. ‘It is reasonable for the bank to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy,’ policy board member Junko Koeda told business leaders…”
May 18 – Bloomberg (Erica Yokoyama): “Japan’s economy grew much faster than expected at the start of the year, supporting the case for further Bank of Japan interest-rate hikes, though the outlook remains highly uncertain due to the Middle East conflict. Real gross domestic product expanded 2.1% on an annualized basis in the first quarter…”
Emerging Market Watch:
May 19 – Bloomberg (Swati Pandey and Claire Jiao): “Three of Asia’s most vulnerable economies are showing rising strains as their central banks come under pressure to tighten policy even as the economic hit from the Iran-war oil shock deepens. Indonesia, the Philippines and India are already grappling with capital outflows and free-falling currencies as Middle East tensions hurt consumers and companies alike. Now, global bond ructions are piling on further pressure. Higher US bond yields drive up the dollar and reduce the appeal of emerging-market assets, fueling capital outflows from Asia.”
May 21 – Bloomberg (Subhadip Sircar and Marcus Wong): “The Iran war is piling pressure on emerging Asian markets, pushing some currencies and bond yields toward levels once considered unlikely. As the conflict drags on, some analysts are mapping out more extreme bearish scenarios. That includes India’s rupee weakening to 100 per dollar, the Indonesian rupiah sliding to 18,000, and the Philippine peso depreciating to 65 as high energy prices fuel inflation and weigh on import-dependent economies. Bond markets are also feeling the strain.”
May 20 – Bloomberg (Maria Elena Vizcaino and Kelsey Butler): “Moody’s… cut Mexico’s credit score to the lowest tier of investment grade, citing the country’s weakening fiscal position and stoking concern Latin America’s second-largest economy is heading toward junk status… The downgrade ‘reflects a sustained weakening in fiscal strength that accelerated in 2024 and that we expect to persist,’ Moody’s analysts wrote. ‘Rigid spending, a narrow revenue base, and continued support to Petroleos Mexicanos limit the government’s ability to stabilize debt in a low-growth environment.’”
May 22 – Bloomberg (Rajesh Kumar Singh): “India’s power ministry… appealed to citizens to be mindful of electricity consumption as harsh summer heat drives demand for cooling. ‘Although we are prepared to supply electricity as required, due to the intense summer, let us all try to use electricity wise and judiciously,’ the ministry said... Peak power demand in the country has been on the rise for the past four days, hitting a new record each time.”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 19 – Bloomberg (Lauren Rosenthal): “A blast of late-spring heat is straining electric grids in the eastern US as power-plant owners race to repair equipment ahead of rising demand and hotter-than-normal weather expected this summer. With temperatures forecast to crest above 90F this week across a large swath of the East Coast, PJM Interconnection LLC asked all generators to remain online to help prevent blackouts. The operator of the country’s biggest grid also moved to revoke permission for planned maintenance, and it declared a low-level emergency for parts of Virginia and the Washington DC area…”
May 20 – Bloomberg (Emily Forgash and Will Kubzansky): “New England is burning oil as a power source amid record May heat, highlighting how the region’s energy mix can worsen pollution during bouts of extreme weather. The region’s power plants generated more than 700 megawatts of electricity from burning oil early Wednesday, enough for about half a million homes. That came hours after grid operator ISO New England declared ‘abnormal conditions,’ which alerted generators to suspend maintenance that risks reducing output.”
May 17 – Associated Press (Jennifer Sinco Kelleher): “The reddish-brown mud that smothered Bok Kongphan’s Hawaii farm has hardened in the tropical sun. Irrigation tubes lie in a tangle where his lemongrass, cucumber and okra once flourished. His niece, Jeni Balanay, lost her crops too… The leaves of her recently planted banana, coconut and mango have gone yellow, the trees unlikely to survive. Across Oahu’s North Shore, an area famed for its big-wave surfing, the small farms that help supply the island’s food are struggling after back-to-back storms in March brought the state’s worst flooding in two decades.”
