The Semiconductor Index’s (SOX) 6.3% surge this week boosted y-t-d gains to 78.9%. Trading to record highs, the MAG7 Index and Nasdaq100 (NDX) gained 3.1% and 3.3% this week. It’s worth noting that the NDX rose 2.8%, the MAG7 3.5%, and the SOX 4.3% in curious Monday trading.
When referring to equities market “fun and games,” I’m thinking Monday trading dynamics. The previous Friday was a $7 TN quarterly options expiration – the second largest. Especially considering the backdrop, it’s reasonable to assume that an unusually large amount of put option exposure was exercised last Friday (leaving holders with short positions). The backdrop provided an opportunity for yet another “rip your face off” short squeeze.
Not surprisingly, testy bond markets were not impressed. A confluence of hawkish Fed officials, hot economic data, and recognition of an endless supply of debt securities weighs heavily on increasingly fraught funding markets. The reality of the worst bond bear market in decades has begun to sink in.
Before going more granular, it is important to underscore a prevailing analytical focus: financial conditions have commenced a tightening process. Much belatedly, the Fed is now focused on orchestrating a tightening of financial conditions necessary to contain increasingly powerful inflationary forces. We’re entering a highly unstable and uncertain environment, with markets and economies incredibly unbalanced. And it’s difficult to envisage finance in a more disorderly state. The backdrop promises extraordinary dispersion in how various markets and sectors respond initially to tighter conditions.
For several years, unprecedented growth in speculative leverage created global liquidity overabundance. Markets grew to misconceive that this most exceptional of financial landscapes was both ordinary and sustainable. Vulnerability to tightened conditions is virtually systemic.
A brief heads up on how faltering Bubble dynamics tend to unfold: it’ll be as if problems just start to pop up all over the place – seemingly from all directions. The unsuspecting, conditioned to count and extrapolate their bounty, will be caught by complete surprise. Denial for a while, then consternation and confusion - everywhere.
It’s critically important to appreciate that egregiously loose conditions have for years masked myriad festering problems at home and globally, while emboldening untold scores of unrealistic expectations, crazy ideas, fantasy, and malign activities. Infectious diseases have burrowed deep. An initial unmasking is in the works – and it won’t be pretty. And with Trillions of additional speculative leverage over recent years having created such an alluring veil, it’s only fitting that real ugliness is showing its face in the Treasury market.
“U.S. Treasury Yields Soar Most Since ‘Liberation Day’ Tariffs Shook Markets.” “US Bond Sell-off Pushes Long-Term Yields to Highest Since 2004.” “US 30-Year Yield Tops 5.5% in ‘Vacuum’ After Sentiment Gauge.” “Great Bond Shakeout Locks in a 5% World ‘Until Something Breaks.’” “Treasury Volatility Eyes Biggest Jump in Year as Bonds Churn.” “The U.S. Bond Market isn’t Buying What Scott Bessent is Selling.” “Soaring Bond Yields ‘Not Even Close’ to Cooling Red-Hot US Economy, Investors Say.”
It’s worth noting that Wednesday was the worst day of a miserable week. The session saw 10-year Treasury yields surge 15 bps to 5.12%. That morning’s PMI data confirmed heightened fears of red-hot economic overheating. The headline Manufacturing PMI index jumped three points to 57, “best reading since 2002.” Manufacturing New Orders were at the high since April 2022, with the employment gauge at highs since February 2021.
The Services PMI rose to the strongest level since October 2021 (58.7). The Services Employment gauge rose to the highest since June 2022, with New Orders at the high back to March 2022. The Atlanta Fed GDPNow Forecast is currently running at a blistering 5%.
Bloomberg (Jeffrey Sparshott) quoted Chris Williamson, chief business economist at S&P Global Market Intelligence (provider of PMI data): ‘Business is clearly booming now in both manufacturing and services. However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff.”
The week also saw stronger-than-expected August New Home Sales, another week of initial jobless claims below 200k, and a monstrous Q2 Current Account Deficit ($246bn). Friday data had University of Michigan one-year inflation expectations holding at 4.6%, along with August’s much stronger-than-expected 1.6% monthly jump in “core” (non-defense, ex-air) Capital Goods Orders – certainly boosted by AI spending.
An interesting headline: “AI is Crowding Out Demand for US Treasuries.”
September 25 – Bloomberg (Marton Kasnyik): “Spending on AI infrastructure by the five largest US hyperscalers is set to increase by more than half next year to $1.2 trillion, according to… Goldman Sachs... That figure is above the Wall Street consensus of $1.1 trillion in 2027 capex, the team led by Ryan Hammond said... ‘Based on consensus estimates, capex in 2027 is on track to reach a larger share of GDP than any technological investment cycle since the railroad build-out in the late 1800s,’ Hammond and his colleagues said. Amazon.com Inc., Alphabet Inc., Microsoft Corp., Oracle Corp. and Meta Platforms Inc. are on course to spend $800 billion this year developing their AI capacity.”
An imaginary headline: “AI is Crowding Out Demand for MBS and Housing.” Benchmark MBS yields surged a notable 23 bps this week, with a brutal 54 bps three-week spike. Actual headlines: “US Mortgage Rates at 7% Are Forcing Home Sellers to Slash Prices.” “Eroding Homebuyer Purchase Power Hitting House Sales, Prices.” “8% Mortgage Rates are ‘Not an Impossibility’ as the 30-Year Fixed Rate Surges.”
It’s worth noting that the 30-year fixed mortgage rate jumped this week to the high since January 2025, with the 15-year rate to the high since May 2024.
A historic (mega-Trillions) global AI arms race, in a new paradigm of higher market yields and tighter conditions, raises so many issues it’s difficult to know where to start. Borrowers of all stripes better hope AI debt is not the driving force behind tanking bond markets. Serious cracks this week.
September 24 – Financial Times (Toby Nangle): “Oracle has sent a notice to a unit of Blue Owl Capital citing ‘force majeure’ on its lease obligations starting 2028 for Project Jupiter, reporting that: ... Oracle is seeking to assert its contractual position if the build out is delayed. Still, it’s not certain that such a maneuver would free Oracle from its previously agreed financial obligations. Project Jupiter is part of the massive Stargate infrastructure buildout that readers might recall as being one of the bigger blobs on the cool AI-interconnection-chart. And, as MainFT reported a week ago, around $18bn of loans tied to the development are trading, if not distressed, then certainly ‘stressed’ territory of ca 90c in the dollar. It does seem a bit rough that Oracle might be on the hook for hefty rental payments starting 2028 as anchor tenant of a massive data centre complex if the complex is just a hole in the ground.”
September 25 – Wall Street Journal (Peter Rudegeair, Anissa Gardizy and Matt Wirz): “Oracle set out last year to lease a massive AI data-center campus being built in New Mexico’s Doña Ana County, part of a blitz of deals to create computing power for OpenAI. The company made aggressive financial commitments for the facility in contracts that allow it little wiggle room. Now, ‘Project Jupiter’ is mired in challenges over power supply and permitting and is fast becoming a prime example of the risks in the tech giant’s sprawling and expensive artificial-intelligence gambit. Oracle signed a lease for the New Mexico facility with so-called hell-or-high-water terms, meaning the deal can’t be terminated and Oracle is obligated to make rent payments regardless of whether it has secured the power to operate the data centers…”
Oracle (10-yr) yields spiked another 37 bps to close the week at 7.34%. This bond was issued in February with a yield of 5.73%. Oracle CDS surged 44 this week to a record 237 bps (2008 crisis high 198bps), after beginning the year at 31 bps. Nvidia CDS jumped 11 bps to a record 87 bps, after starting 2026 at 42 bps. Amazon (10-yr) yields jumped 18 bps to 5.95%, up 50 bps in a month. Microsoft (10-yr) yields surged 19 bps to 5.51% - with a one-month rise of 48 bps. Rising 19 bps this week to 6.13%, Meta yields surged 40 bps in 30 days.
September 20 – Financial Times (Ryan McMorrow, Michelle Chan and Michael Taffe): “Big Tech companies are rapidly expanding their use of guarantees to back debt for AI data centres and chips, issuing up to $300bn in commitments in less than a year while recording little of that exposure on their balance sheets. First used by Meta on a huge data centre project last autumn, so-called residual value guarantees have been taken up by Broadcom as part of its chip financing deal for Anthropic and by Nvidia to offer support to OpenAI and other customers buying its chips. These arrangements, under which tech companies guarantee a minimum future value for chips or data centres, join a growing set of creative financing structures embraced by Big Tech to accelerate the AI infrastructure boom. According to an FT analysis, tech giants have offered up to $300bn in these guarantees in the past 12 months alone.”
September 24 – Reuters (Howard Schneider): “The artificial intelligence buildout is on track to require a larger share of US output than the rollout of electricity, railroads, interstate highways or the internet, with an increasingly complicated financial structure that poses potentially systemic risks, according to a new study. What had been paid for out of the cash stockpiled by companies like Amazon.com, Meta Platforms and Alphabet's Google has morphed into an expansion that will consume around 3.6% of gross domestic product annually through 2032, or more than $10 trillion, and is using ever more intricate financing arrangements, Stijn Van Nieuwerburgh, a finance and real estate professor at Columbia Business School, wrote… Just as the rail and telecoms expansions led to notable bubbles and busts, Van Nieuwerburgh wrote that the extent of the buildout, the still-untested revenue streams, and the intricate financing structure emerging around AI mean it could be primed for a fall. ‘This is freaking complicated,’ he said… of the arrangements emerging between AI firms, major tech hyperscalers, banks, private credit lenders, real estate firms, and a host of other players involved in building what he conservatively estimated at 183 gigawatts worth of new data-center capacity over the next seven years, compared with about 57 gigawatts currently installed.”
“This is freaking complicated” AI finance is on a collision course with a new market paradigm of tighter conditions, risk aversion, less appetite for leverage, and general data center antipathy. I suspect sophisticated AI financial engineering is on borrowed time. What is a partially constructed data center worth? One completed without sufficient power resources? With risks of a spectacular bust rapidly rising, are really expensive AI chips sound loan collateral?
Bloomberg’s always insightful John Authers’ Friday piece ran with the title “The Big One Is Rumbling in the Bond Market.”
“In financial terms, this is truly an earthquake. What is strange, however, is that even though 10-year government bonds are the financial bedrock, setting the risk-free rates from which virtually all transactions are ultimately priced, they are showing little sign of damaging anything else, either in the markets or the real economy. The Nasdaq 100, one of the world’s most widely tracked indexes, hit a new all-time high this week even as yields were tipping upward.”
“Strange” indeed. The MOVE (bond volatility) Index closed Friday at 105, the high since March’s acute market instability. High yield CDS traded intraday Friday to 324 bps, the high back to May. High yield spreads (to Treasuries) widened 27 this week to 294 bps, the widest level since early April. It’s worth noting that the last time the MOVE Index was at 105, the VIX traded above 30, and when high yield spreads were last at 294, the VIX was above 25. The VIX ended this week at 14.87.
What to make of it all – the disconnect between serious debt market tumult and buoyant technology stocks (and equities more generally)? Strange, but not an unfamiliar dynamic. AI has become the classic “too big to fail” – just like the West would never allow Russia to collapse (1998), and Washington would never tolerate a housing bust. AI has come to command a stock market Bubble that dominates household perceived wealth - fundamental to the “resilient” U.S. Bubble economy.
Importantly, the too big to fail dynamic consumes a scheming administration that operates on its own terms. Too big to fail with five weeks until high-stakes midterm elections. Of course, the President won’t say or do anything that would risk pricking such a momentous Bubble.
Meanwhile…
September 24 – Bloomberg (Srinivasan Sivabalan): “The vaunted emerging-market carry trade is showing signs of cracking as losses mount and volatility jumps. High Treasury yields are finally eroding the appeal of riskier assets. A gauge of dollar-funded carry returns from eight major EM currencies is headed for the biggest monthly decline since March. The widespread losses include popular trades such as the Colombian peso and Hungarian forint. At the same time, currency implied volatility is rising by the most since March.”
September 25 – Bloomberg (Vinícius Andrade and Nicolle Yapur): “The surge that sent US Treasury yields to the highest in decades is threatening carry trades that had become the go-to strategy for emerging-market investors this year. Citigroup Inc. closed its carry basket that included long positions in the South African rand, Mexican and Colombian pesos and Turkish lira against the Canadian dollar and Swiss franc. The move came after a strong US PMI report, a weak 5-year Treasury auction and geopolitical headlines stoked volatility in Markets... ‘We have shown in the past that carry typically does poorly during high volatility and high crowding periods,’ analysts wrote.”
EM currency losses this week included the Colombian peso’s 3.95%, the Mexican peso’s 2.56%, the Peruvian sol’s 1.7%, and the Hungarian forint’s 1.1%. The iShares Emerging Market Bond ETF (EMB) lost 1.3% this week, the weakest performance since May. It’s down 2.4% over three weeks, the worst drubbing since March.
EM dollar-denominated bonds (in particular) were taken out to the woodshed. Mexico ($) yields surged 30 bps this week to 6.92% - the high since March 2009 (up 109bps y-t-d). Colombia ($) yields jumped another 21 bps to 7.43% - up 77 bps in a month to a one-year high. Yields rose 24 bps in Peru (6.04%), 23 bps in Panama (6.40%), 16 bps in Brazil (6.59%), and 15 bps in Chile to a three-year high of 5.85%. Argentina yields spiked 90 bps to 11.25% - with a one-month rise of 148 bps. In Asia, dollar-denominated Philippine yields jumped 23 bps to 6.04% - the high back to 2008. Indonesia ($) yields rose 18 bps to a three-year high of 6.04%.
De-risking/deleveraging has gained important momentum.
September 24 – Reuters (Anirban Sen and Gertrude Chavez-Dreyfuss): “Like Treasuries themselves, the Treasury basis trade has fallen out of favor lately. Funds locked up in leveraged basis trades are down 20% this year to $1.2 trillion, Morgan Stanley estimates. The decline reflects a mostly uneventful rise in US interest-rate expectations and improved trading conditions, both of which tend to limit the trade's profitability… ‘The basis position in the market has been declining because the opportunity set is lower,’ said Meghan Swiber, US rates strategist at Bank of America. ‘The other part of this is that asset manager demand for Treasury futures has also been moderating.’”
I’ll conclude with the opening question: will the AI equities Bubble survive through the midterms?
For the Week:
The S&P500 gained 1.2% (up 13.1% y-t-d), and the Dow added 0.3% (up 7.8%). The Utilities sank 3.1% (down 5.7%). The Banks lost 1.8% (up 6.9%), and the Broker/Dealers fell 2.6% (up 15.5%). The Transports dropped 2.5% (up 12.8%). The S&P 400 Midcaps were little changed (up 10.4%), while the small cap Russell 2000 declined 0.8% (up 14.3%). The Nasdaq100 jumped 3.3% (up 21.2%). The Semiconductors surged 6.3% (up 78.9%). The Biotechs gained 1.7% (up 32.8%). With bullion down $94, the HUI gold index dropped 2.4% (up 12.1%).
Three-month Treasury bill rates ended the week at 4.068%. Two-year government yields jumped another 10 bps to 4.85% (up 138bps y-t-d). Five-year T-note yields rose 13 bps to 4.99% (up 126bps). Ten-year Treasury yields surged 16 bps to 5.16% (up 99bps). Long bond yields rose 17 bps to 5.49% (up 65bps). Benchmark Fannie Mae MBS yields surged 18 bps to 6.27% (up 123bps).
Italian 10-year yields rose eight bps to 4.51% (up 96bps y-t-d). Greek 10-year yields gained seven bps to 4.38% (up 94bps). Spain's 10-year yields increased eight bps to 4.08% (up 79bps). German bund yields gained eight bps to 3.60% (up 75bps). French yields jumped another 13 bps to 4.69% (up 113bps). The French to German 10-year bond spread widened five bps to 109 bps. U.K. 10-year gilt yields rose seven bps to 5.37% (up 89bps). U.K.’s FTSE equities index added 0.3% (up 7.6% y-t-d).
Japan’s Nikkei 225 Equities Index rose 2.1% (up 31.8% y-t-d). Japan’s 10-year “JGB” yields jumped nine bps to 3.08% (up 102bps y-t-d). France’s CAC40 increased 0.2% (down 0.9%). The German DAX equities index added 0.4% (up 3.7%). Spain’s IBEX 35 equities index gained 1.0% (up 13.8%). Italy’s FTSE MIB index increased 0.6% (up 15.4%). EM equities were mixed. Brazil’s Bovespa index declined 0.9% (up 13.9%), while Mexico’s Bolsa index rallied 2.5% (up 1.0%). South Korea’s Kospi rose 2.7% (up 68.0%). India’s Sensex equities index declined 0.5% (down 13.3%). China’s Shanghai Exchange Index slipped 0.6% (down 2.0%). Turkey’s Borsa Istanbul National 100 index dropped 2.9% (up 14.5%).
Federal Reserve Credit increased $4.0 billion last week to $6.701 TN, with a 41-week expansion of $211 billion. Fed Credit was down $2.188 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.975 TN, or 80%. Fed Credit inflated $3.891 TN, or 138%, since November 7, 2012 (724 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt rose $11.8 billion last week to $2.885 TN - coming further off the low back to August 2010. “Custody holdings” were down $237 billion y-o-y, or 7.6%.
Total money market fund assets (MMFA) increased $15 billion to $7.936 TN. MMFA were up $622 billion, or 8.5%, y-o-y - having ballooned a historic $3.352 TN, or 73%, since October 26, 2022.
Total Commercial Paper jumped $19.8 billion to $1.462 TN. CP increased $84 billion, or 6.1%, y-o-y.
Freddie Mac 30-year fixed mortgage rates rose eight bps to 7.03% (up 73bps y-o-y) - the high back to January 2025. Fifteen-year rates surged 16 bps to 6.42% (up 93bps) - high since May 2024. Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 21 bps to 7.18% (up 69bps).
Currency Watch:
For the week, the U.S. Dollar Index increased 0.8% to 101.035 (up 2.8% y-t-d). On the upside, the South Korean won increased 2.1%. On the downside, the Mexican peso declined 2.6%, the Australian dollar 1.4%, the British pound 1.1%, the Canadian dollar 1.1%, the Norwegian krone 1.1%, the New Zealand dollar 1.0%, the Swedish krona 0.9%, the euro 0.8%, the Brazilian real 0.8%, the Swiss franc 0.7%, the South African rand 0.4%, the Japanese yen 0.3%, and the Singapore dollar 0.1%. China's (onshore) renminbi declined 0.23% versus the dollar (up 4.10% y-t-d).
Commodities Watch:
September 22 – Financial Times (William Sandlund): “China has spent a record sum importing more than 1,000 tonnes of gold this year as the central bank and local investors pour cash into bullion amid rising geopolitical tensions abroad and poor returns on local assets. The world’s second-largest economy spent $158.8bn on gold in the first eight months of the year. That compared with spending of $96.5bn for all of 2025 on 886 tonnes of gold… China is also the world’s biggest producer of bullion, with the total for last year standing at 384 tonnes, according to the World Gold Council.”
The Bloomberg Commodities Index declined 0.8% (up 31.6% y-t-d). Spot Gold fell 2.1% to $4,285 (down 0.8%). Silver dropped 3.0% to $64.2957 (down 10.3%). WTI Crude dropped $7.11, or 7.1%, to $92.41 (up 61%). Gasoline fell 3.5% (up 98%), while Natural Gas jumped 10.2% to $3.196 (down 13%). Copper added 0.8% (up 39%). Wheat was little changed (up 39%), while Corn rose 3.2% (up 20%). Bitcoin gained $2,600, or 3.2%, to $83,750 (down 4.5%).
Market Instability Watch:
September 25 – Bloomberg (James Hirai): “A measure of Treasury volatility is heading for its biggest jump in more than a year after bond yields rose to multi-decade highs, jolting the market out of its recent slumber. The ICE BofA MOVE Index, a gauge of bond-market volatility, has surged about 29.69% this week, the biggest increase since the so-called Liberation Day last April, when President Donald Trump’s sweeping import tariffs roiled global markets. It’s now at levels that were last reached in March, soon after the Iran war kicked off.”
September 23 – Bloomberg (Alexandra Harris): “Trading of the two- and five-year notes in the overnight market for repurchase agreements have swung sharply this week, a move that’s seen as unusual given that issues that trade at a premium tend to remain at those levels until the new notes settle, according to Curvature Securities.”
September 23 – Bloomberg (Aashna Shah and Nic Querolo): “Municipal bonds are tumbling and pushing yields on benchmark securities to the highest since at least 2011… Yields on 10-year state and local debt rose nine bps to 3.87%..., the highest since at least January 2011…”
September 21 – Telegraph (Hans van Leeuwen): “France’s public debt is on track to hit its highest level since at least 1978 as its huge budget deficit swells before next year’s presidential election. Public debt in Europe’s second-largest economy is forecast to reach 119.3% of GDP this year and 121.7% in 2027, finance ministry officials said, the highest level since records began. It will push France’s public debt to more than double the EU limit of 60% of GDP… The rise in national debt has become ‘automatic’ as ‘a consequence of a deficit that remains high’, ministry sources told French media…”
U.S. Credit Trouble Watch:
September 23 – Bloomberg (Jorgelina Do Rosario): “Apollo Global Management Inc. Chief Executive Officer Marc Rowan blasted insurance regulators in Delaware for their handling of Mark Walter’s insurance companies, which are now the subject of a federal probe. Rowan singled out the Delaware Department of Insurance for having allowed two of Walter’s insurers to label more than $20 billion in investments as unaffiliated when they weren’t. ‘If one was not aware of affiliate transactions relating to three high-profile sports teams that we can all name, what are you doing as a regulator?’ Rowan said… ‘This has been a wake-up moment for the US regulatory system.’”
September 21 – Wall Street Journal (Rebecca Picciotto): “Few investors are feeling more pain from rising interest rates than America’s apartment landlords. These property owners face a bill of more than $1.8 trillion in debt over the next decade. From this year to 2028, about $757 billion of those loans are coming due, according to the Mortgage Bankers Association. That is the most of any commercial real-estate sector. Nearly $300 billion of those loans are maturing in 2026 alone. This follows a record-setting 2025, when $310 billion in loans came due, the highest the sector had seen in a single year since the Mortgage Bankers Association started tracking. Another $223 billion is due next year.”
September 25 – Bloomberg (Eliza Ronalds-Hannon): “Pacific Investment Management Co. is facing severe losses on a commercial mortgage-backed security tied to a two-tower office complex in downtown Philadelphia. The money management giant is the largest holder of a $368 million CMBS backed by the Centre Square buildings, 43- and 36-story high-rises located at 1500 Market St., based on regulatory filings. Appraised for $471 million in 2019, a judge last month approved the sale of the complex for $70 million…”
September 24 – Bloomberg (Eliza Ronalds-Hannon): “Florida’s Brightline has filed for bankruptcy protection after years of lower-than-expected revenue left it unable to repay billions it borrowed to finance the Miami-to-Orlando private railroad. Fortress Investment Group-backed Brightline Holdings LLC and certain other parent entities filed for Chapter 11 on Thursday in New Jersey, listing assets and liabilities of between $1 billion and $10 billion in the petition. The filing excludes Brightline’s operating company, allowing it to continue running trains during the restructuring process. Brightline plans to keep in place its $4.4 billion in municipal debt throughout the restructuring, it said in a statement, leaving about $1.1 billion in corporate bonds to potentially be shaved from its heavy debt load.”
September 22 – Bloomberg (Olivia Fishlow and Laura Benitez): “Apollo Global Management Inc. is limiting redemptions from a private credit fund for the third straight quarter, as its investors join the rush to pull cash from the $1.8 trillion direct lending market. Apollo Debt Solutions BDC, which has about $26 billion in assets, told investors… it would again cap withdrawals at 5% of outstanding shares after 14.7% sought to pull their cash… Apollo’s results mirror those of its peers, including BlackRock Inc. and Cliffwater…”
Global Credit Bubble and Boom Watch:
September 24 – CNBC (Jenni Reid): “Ever-higher costs to service mounting debt loads pose a major risk to governments around the world, economists have warned. Global debt rose by $10 trillion in the first half of the year to top $365 trillion, according to… the Institute of International Finance… The Washington-based group found that advanced economies paid over $3.3 trillion in interest on internationally traded government bonds last year, more than global spending on AI ($2.6 trillion), defense ($3.1 trillion), or clean energy ($2.3 trillion). Debt has become a political issue, creating a ‘vicious cycle between elections and short-term quick fixes, and a long-term vulnerability as the marginal utility of higher debt diminishes,’ the IIF warned. ‘As benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed,’ it added.”
September 23 – Financial Times (Joseph Cotterill): “Governments in emerging markets are selling foreign currency bonds at a record pace this year despite rising global interest rates and a revival in the US dollar, as sovereigns shrug off the Iran war or borrow to fund the cost of its impact. A $10bn flurry of emerging-market borrowing this month has brought Saudi Arabia and Qatar back to public dollar bond markets for the first time since the start of the war and lifted total sales of EM sovereign debt to about $200bn so far in 2026. Turkey, Kazakhstan and the Dominican Republic are set to issue dollar and euro bonds this week. Governments issued a record $190bn in the eight months to August, eclipsing the $160bn sold in the same period last year…”
September 22 – Reuters (Gertrude Chavez-Dreyfuss): “The market for highly rated corporate credit has split in two: bonds issued by AI-related firms are being met with caution, while those sold by so-called traditional issuers such as financial and industrial firms are prompting spirited bidding. Portfolio managers say they are not concerned that hyperscalers and other AI-linked companies are in danger of defaulting. Rather, the sheer volume and unpredictability of borrowing needed to finance data centers, chips and AI infrastructure are prompting bond market shoppers to demand generous concessions and to rethink portfolio concentration limits. Gross debt issuance from hyperscalers is expected to hit a record $420 billion next year, up 60% from 2026 estimates, Goldman Sachs data show. In comparison, overall US corporate issuance through August was up 30% from a year earlier to $1.9 trillion…”
September 24 – Bloomberg (Claire Ruckin, Gowri Gurumurthy, Jeannine Amodeo and Kevin Kingsbury): “Paramount Skydance Corp. is looking to wrap up a massive $52 billion debt sale to fund its takeover of Warner Bros. Discovery Inc. within the next week, aligning with its compressed timeline to finalize the buyout before facing onerous penalties. The company kicked off a $7.5 billion loan sale on Thursday, with banks planning to sell an additional $32 billion of investment-grade bonds and $12.4 billion of second-lien secured bonds early next week…”
September 21 – Bloomberg (Jack Farchy, Arno Schuetze, and Thomas Biesheuvel): “Radiant World has disclosed $870 million outstanding to six creditors who financed its receivables, according to… a legal filing by the embattled commodity trader. The spreadsheet shows the two largest exposures as being held by Jefferies Financial Group Inc. and Intesa Sanpaolo SpA, followed by Deutsche Bank AG, Mizuho Financial Group Inc., Mariner Investment Group and Incomlend Pte.”
Leveraged Speculation Watch:
September 21 – Financial Times (Leo Lewis and David Keohane): “In early September, the top foreign exchange experts at Japan’s biggest banks started taking calls from investors and regulators with two big questions: how big is the yen carry trade, and how close is it to unwinding? The short answers from the Tokyo forex gurus — ‘nobody exactly knows’ and ‘a lot closer than we would like’ — were of little comfort to them. The yen carry trade is the term for when hedge funds and others use Japan’s currency to access low-cost financing to make bets in markets across the world. For almost 30 years, investors have borrowed the cheap, stable yen in order to fund higher-yielding investments elsewhere, exploiting differences in interest rates and, in particular, the fact that until this month the central bank benchmark rate had not risen above 1% since 1995.”
September 20 – Financial Times (Costas Mourselas, Martin Arnold and Jill R Shah): “The Bank of England and US Federal Reserve have stepped up scrutiny of bank exposures to large trading firms after turmoil at AI-focused hedge fund Situational Awareness caused large losses at Jane Street. The regulators are asking global banks about their exposure to trading firms and market makers including New York-based Jane Street and Ken Griffin’s Citadel Securities… The watchdogs had already made understanding banks’ exposure to so-called non-bank financial intermediaries — a broad category that incorporates private credit providers among others — a longer-term priority.”
Iran War Watch:
September 22 – Associated Press: “Iran’s Revolutionary Guard warned Monday that it would ‘change the geography of the war’ if the United States escalates the conflict… A spokesperson for Iran’s paramilitary Revolutionary Guard, Hossein Mohebbi, said… ‘the war is not over’ and warned that Iran would change its weapons, military tactics and targets if the conflict with the U.S. escalates. ‘We will certainly change the geography of the war,’ Mohebbi said… ‘We will certainly bring new weapons with new capabilities into the battle.’ He said the Guard had prepared for a long-term war. ‘Our targets will no longer necessarily be the same as before,’ he said…”
September 25 – New York Times (Farnaz Fassihi and Pranav Baskar): “Iran’s foreign minister said Thursday that Tehran had proposed to Washington a seven-day plan to cease hostilities, reopen the Strait of Hormuz and then begin comprehensive talks on his country’s nuclear program. Abbas Araghchi, the foreign minister, told reporters at a press briefing at the United Nations General Assembly that the proposal closely mirrored the commitments laid out in a so-called memorandum of understanding that was struck between the United States and Iran in June but quickly unraveled. He said Iran was ready to begin putting the plan into effect as soon as Washington agreed to it.”
September 21 – Reuters (Mohammed Ghobari, Timour Azhari and Jana Choukeir): “Houthi fighters pushed to seize strategic heights in Yemen on Monday to cut off the Red Sea coast from remaining areas held by Saudi-backed forces, after a report that US President Donald Trump had called off American strikes on the group at the last minute. A lightning advance by the Iran-backed group this month has extended the wider Middle East conflict to a new theatre and further threatened global energy supplies. The US has so far rebuffed repeated pleas from Saudi Arabia’s Crown Prince Mohammed bin Salman to join the fight in Yemen.”
September 19 – Associated Press (Toqa Ezzidin and Cara Anna): “Saudi Arabia on Saturday confirmed that Yemen’s Houthi rebels tried to attack its capital with a ballistic missile, the first targeting of Riyadh since the escalation in fighting with the Tehran-backed rebels that has opened a new front in the Iran war.”
September 22 – Financial Times (James Politi, Steff Chávez and Andrew England): “Donald Trump’s reluctance to join Saudi Arabia’s conflict with Houthi rebels in Yemen has added new strain to Washington’s relationship with Riyadh, one already shaken by the US’s conduct of its war with Iran. Under pressure due to high petrol prices and the unpopularity of the conflict with Tehran, the US president has so far resisted new military action to help Saudi Arabia’s effort to quash the Houthi offensive and its attacks on the kingdom’s infrastructure... ‘The US is wavering, and ultimately its decision, at least for now, not to join the Saudis is simply injecting more tension into the bilateral relationship,’ said Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies…”
September 23 – Wall Street Journal (Rory Jones, Jon Emont, Vera Bergengruen and Summer Said): “This summer, when the U.S. and Iran signed a temporary truce, China touted its role in easing tensions in the Middle East. It said its foreign ministry made dozens of calls to nudge peace along, and that President Xi Jinping himself had intervened with suggestions to end the fighting. That same day, a plane from China landed in Tehran. It carried a shipment for Iran’s Ministry of Defense that included electronics components that can be used to make parts for drones and missile guidance systems, according to Iranian customs data… It was one of around 1,300 shipments that included ‘dual use’ components from China to Iran’s defense ministry this year through the end of June... Two days after the electronics components shipment, there were more than a dozen other shipments carrying parts worth more than $6 million that can be used in drones.”
The S&P500 gained 1.2% (up 13.1% y-t-d), and the Dow added 0.3% (up 7.8%). The Utilities sank 3.1% (down 5.7%). The Banks lost 1.8% (up 6.9%), and the Broker/Dealers fell 2.6% (up 15.5%). The Transports dropped 2.5% (up 12.8%). The S&P 400 Midcaps were little changed (up 10.4%), while the small cap Russell 2000 declined 0.8% (up 14.3%). The Nasdaq100 jumped 3.3% (up 21.2%). The Semiconductors surged 6.3% (up 78.9%). The Biotechs gained 1.7% (up 32.8%). With bullion down $94, the HUI gold index dropped 2.4% (up 12.1%).
Three-month Treasury bill rates ended the week at 4.068%. Two-year government yields jumped another 10 bps to 4.85% (up 138bps y-t-d). Five-year T-note yields rose 13 bps to 4.99% (up 126bps). Ten-year Treasury yields surged 16 bps to 5.16% (up 99bps). Long bond yields rose 17 bps to 5.49% (up 65bps). Benchmark Fannie Mae MBS yields surged 18 bps to 6.27% (up 123bps).
Italian 10-year yields rose eight bps to 4.51% (up 96bps y-t-d). Greek 10-year yields gained seven bps to 4.38% (up 94bps). Spain's 10-year yields increased eight bps to 4.08% (up 79bps). German bund yields gained eight bps to 3.60% (up 75bps). French yields jumped another 13 bps to 4.69% (up 113bps). The French to German 10-year bond spread widened five bps to 109 bps. U.K. 10-year gilt yields rose seven bps to 5.37% (up 89bps). U.K.’s FTSE equities index added 0.3% (up 7.6% y-t-d).
Japan’s Nikkei 225 Equities Index rose 2.1% (up 31.8% y-t-d). Japan’s 10-year “JGB” yields jumped nine bps to 3.08% (up 102bps y-t-d). France’s CAC40 increased 0.2% (down 0.9%). The German DAX equities index added 0.4% (up 3.7%). Spain’s IBEX 35 equities index gained 1.0% (up 13.8%). Italy’s FTSE MIB index increased 0.6% (up 15.4%). EM equities were mixed. Brazil’s Bovespa index declined 0.9% (up 13.9%), while Mexico’s Bolsa index rallied 2.5% (up 1.0%). South Korea’s Kospi rose 2.7% (up 68.0%). India’s Sensex equities index declined 0.5% (down 13.3%). China’s Shanghai Exchange Index slipped 0.6% (down 2.0%). Turkey’s Borsa Istanbul National 100 index dropped 2.9% (up 14.5%).
Federal Reserve Credit increased $4.0 billion last week to $6.701 TN, with a 41-week expansion of $211 billion. Fed Credit was down $2.188 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.975 TN, or 80%. Fed Credit inflated $3.891 TN, or 138%, since November 7, 2012 (724 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt rose $11.8 billion last week to $2.885 TN - coming further off the low back to August 2010. “Custody holdings” were down $237 billion y-o-y, or 7.6%.
Total money market fund assets (MMFA) increased $15 billion to $7.936 TN. MMFA were up $622 billion, or 8.5%, y-o-y - having ballooned a historic $3.352 TN, or 73%, since October 26, 2022.
Total Commercial Paper jumped $19.8 billion to $1.462 TN. CP increased $84 billion, or 6.1%, y-o-y.
Freddie Mac 30-year fixed mortgage rates rose eight bps to 7.03% (up 73bps y-o-y) - the high back to January 2025. Fifteen-year rates surged 16 bps to 6.42% (up 93bps) - high since May 2024. Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 21 bps to 7.18% (up 69bps).
Currency Watch:
For the week, the U.S. Dollar Index increased 0.8% to 101.035 (up 2.8% y-t-d). On the upside, the South Korean won increased 2.1%. On the downside, the Mexican peso declined 2.6%, the Australian dollar 1.4%, the British pound 1.1%, the Canadian dollar 1.1%, the Norwegian krone 1.1%, the New Zealand dollar 1.0%, the Swedish krona 0.9%, the euro 0.8%, the Brazilian real 0.8%, the Swiss franc 0.7%, the South African rand 0.4%, the Japanese yen 0.3%, and the Singapore dollar 0.1%. China's (onshore) renminbi declined 0.23% versus the dollar (up 4.10% y-t-d).
Commodities Watch:
September 22 – Financial Times (William Sandlund): “China has spent a record sum importing more than 1,000 tonnes of gold this year as the central bank and local investors pour cash into bullion amid rising geopolitical tensions abroad and poor returns on local assets. The world’s second-largest economy spent $158.8bn on gold in the first eight months of the year. That compared with spending of $96.5bn for all of 2025 on 886 tonnes of gold… China is also the world’s biggest producer of bullion, with the total for last year standing at 384 tonnes, according to the World Gold Council.”
The Bloomberg Commodities Index declined 0.8% (up 31.6% y-t-d). Spot Gold fell 2.1% to $4,285 (down 0.8%). Silver dropped 3.0% to $64.2957 (down 10.3%). WTI Crude dropped $7.11, or 7.1%, to $92.41 (up 61%). Gasoline fell 3.5% (up 98%), while Natural Gas jumped 10.2% to $3.196 (down 13%). Copper added 0.8% (up 39%). Wheat was little changed (up 39%), while Corn rose 3.2% (up 20%). Bitcoin gained $2,600, or 3.2%, to $83,750 (down 4.5%).
Market Instability Watch:
September 25 – Bloomberg (James Hirai): “A measure of Treasury volatility is heading for its biggest jump in more than a year after bond yields rose to multi-decade highs, jolting the market out of its recent slumber. The ICE BofA MOVE Index, a gauge of bond-market volatility, has surged about 29.69% this week, the biggest increase since the so-called Liberation Day last April, when President Donald Trump’s sweeping import tariffs roiled global markets. It’s now at levels that were last reached in March, soon after the Iran war kicked off.”
September 23 – Bloomberg (Alexandra Harris): “Trading of the two- and five-year notes in the overnight market for repurchase agreements have swung sharply this week, a move that’s seen as unusual given that issues that trade at a premium tend to remain at those levels until the new notes settle, according to Curvature Securities.”
September 23 – Bloomberg (Aashna Shah and Nic Querolo): “Municipal bonds are tumbling and pushing yields on benchmark securities to the highest since at least 2011… Yields on 10-year state and local debt rose nine bps to 3.87%..., the highest since at least January 2011…”
September 21 – Telegraph (Hans van Leeuwen): “France’s public debt is on track to hit its highest level since at least 1978 as its huge budget deficit swells before next year’s presidential election. Public debt in Europe’s second-largest economy is forecast to reach 119.3% of GDP this year and 121.7% in 2027, finance ministry officials said, the highest level since records began. It will push France’s public debt to more than double the EU limit of 60% of GDP… The rise in national debt has become ‘automatic’ as ‘a consequence of a deficit that remains high’, ministry sources told French media…”
U.S. Credit Trouble Watch:
September 23 – Bloomberg (Jorgelina Do Rosario): “Apollo Global Management Inc. Chief Executive Officer Marc Rowan blasted insurance regulators in Delaware for their handling of Mark Walter’s insurance companies, which are now the subject of a federal probe. Rowan singled out the Delaware Department of Insurance for having allowed two of Walter’s insurers to label more than $20 billion in investments as unaffiliated when they weren’t. ‘If one was not aware of affiliate transactions relating to three high-profile sports teams that we can all name, what are you doing as a regulator?’ Rowan said… ‘This has been a wake-up moment for the US regulatory system.’”
September 21 – Wall Street Journal (Rebecca Picciotto): “Few investors are feeling more pain from rising interest rates than America’s apartment landlords. These property owners face a bill of more than $1.8 trillion in debt over the next decade. From this year to 2028, about $757 billion of those loans are coming due, according to the Mortgage Bankers Association. That is the most of any commercial real-estate sector. Nearly $300 billion of those loans are maturing in 2026 alone. This follows a record-setting 2025, when $310 billion in loans came due, the highest the sector had seen in a single year since the Mortgage Bankers Association started tracking. Another $223 billion is due next year.”
September 25 – Bloomberg (Eliza Ronalds-Hannon): “Pacific Investment Management Co. is facing severe losses on a commercial mortgage-backed security tied to a two-tower office complex in downtown Philadelphia. The money management giant is the largest holder of a $368 million CMBS backed by the Centre Square buildings, 43- and 36-story high-rises located at 1500 Market St., based on regulatory filings. Appraised for $471 million in 2019, a judge last month approved the sale of the complex for $70 million…”
September 24 – Bloomberg (Eliza Ronalds-Hannon): “Florida’s Brightline has filed for bankruptcy protection after years of lower-than-expected revenue left it unable to repay billions it borrowed to finance the Miami-to-Orlando private railroad. Fortress Investment Group-backed Brightline Holdings LLC and certain other parent entities filed for Chapter 11 on Thursday in New Jersey, listing assets and liabilities of between $1 billion and $10 billion in the petition. The filing excludes Brightline’s operating company, allowing it to continue running trains during the restructuring process. Brightline plans to keep in place its $4.4 billion in municipal debt throughout the restructuring, it said in a statement, leaving about $1.1 billion in corporate bonds to potentially be shaved from its heavy debt load.”
September 22 – Bloomberg (Olivia Fishlow and Laura Benitez): “Apollo Global Management Inc. is limiting redemptions from a private credit fund for the third straight quarter, as its investors join the rush to pull cash from the $1.8 trillion direct lending market. Apollo Debt Solutions BDC, which has about $26 billion in assets, told investors… it would again cap withdrawals at 5% of outstanding shares after 14.7% sought to pull their cash… Apollo’s results mirror those of its peers, including BlackRock Inc. and Cliffwater…”
Global Credit Bubble and Boom Watch:
September 24 – CNBC (Jenni Reid): “Ever-higher costs to service mounting debt loads pose a major risk to governments around the world, economists have warned. Global debt rose by $10 trillion in the first half of the year to top $365 trillion, according to… the Institute of International Finance… The Washington-based group found that advanced economies paid over $3.3 trillion in interest on internationally traded government bonds last year, more than global spending on AI ($2.6 trillion), defense ($3.1 trillion), or clean energy ($2.3 trillion). Debt has become a political issue, creating a ‘vicious cycle between elections and short-term quick fixes, and a long-term vulnerability as the marginal utility of higher debt diminishes,’ the IIF warned. ‘As benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed,’ it added.”
September 23 – Financial Times (Joseph Cotterill): “Governments in emerging markets are selling foreign currency bonds at a record pace this year despite rising global interest rates and a revival in the US dollar, as sovereigns shrug off the Iran war or borrow to fund the cost of its impact. A $10bn flurry of emerging-market borrowing this month has brought Saudi Arabia and Qatar back to public dollar bond markets for the first time since the start of the war and lifted total sales of EM sovereign debt to about $200bn so far in 2026. Turkey, Kazakhstan and the Dominican Republic are set to issue dollar and euro bonds this week. Governments issued a record $190bn in the eight months to August, eclipsing the $160bn sold in the same period last year…”
September 22 – Reuters (Gertrude Chavez-Dreyfuss): “The market for highly rated corporate credit has split in two: bonds issued by AI-related firms are being met with caution, while those sold by so-called traditional issuers such as financial and industrial firms are prompting spirited bidding. Portfolio managers say they are not concerned that hyperscalers and other AI-linked companies are in danger of defaulting. Rather, the sheer volume and unpredictability of borrowing needed to finance data centers, chips and AI infrastructure are prompting bond market shoppers to demand generous concessions and to rethink portfolio concentration limits. Gross debt issuance from hyperscalers is expected to hit a record $420 billion next year, up 60% from 2026 estimates, Goldman Sachs data show. In comparison, overall US corporate issuance through August was up 30% from a year earlier to $1.9 trillion…”
September 24 – Bloomberg (Claire Ruckin, Gowri Gurumurthy, Jeannine Amodeo and Kevin Kingsbury): “Paramount Skydance Corp. is looking to wrap up a massive $52 billion debt sale to fund its takeover of Warner Bros. Discovery Inc. within the next week, aligning with its compressed timeline to finalize the buyout before facing onerous penalties. The company kicked off a $7.5 billion loan sale on Thursday, with banks planning to sell an additional $32 billion of investment-grade bonds and $12.4 billion of second-lien secured bonds early next week…”
September 21 – Bloomberg (Jack Farchy, Arno Schuetze, and Thomas Biesheuvel): “Radiant World has disclosed $870 million outstanding to six creditors who financed its receivables, according to… a legal filing by the embattled commodity trader. The spreadsheet shows the two largest exposures as being held by Jefferies Financial Group Inc. and Intesa Sanpaolo SpA, followed by Deutsche Bank AG, Mizuho Financial Group Inc., Mariner Investment Group and Incomlend Pte.”
Leveraged Speculation Watch:
September 21 – Financial Times (Leo Lewis and David Keohane): “In early September, the top foreign exchange experts at Japan’s biggest banks started taking calls from investors and regulators with two big questions: how big is the yen carry trade, and how close is it to unwinding? The short answers from the Tokyo forex gurus — ‘nobody exactly knows’ and ‘a lot closer than we would like’ — were of little comfort to them. The yen carry trade is the term for when hedge funds and others use Japan’s currency to access low-cost financing to make bets in markets across the world. For almost 30 years, investors have borrowed the cheap, stable yen in order to fund higher-yielding investments elsewhere, exploiting differences in interest rates and, in particular, the fact that until this month the central bank benchmark rate had not risen above 1% since 1995.”
September 20 – Financial Times (Costas Mourselas, Martin Arnold and Jill R Shah): “The Bank of England and US Federal Reserve have stepped up scrutiny of bank exposures to large trading firms after turmoil at AI-focused hedge fund Situational Awareness caused large losses at Jane Street. The regulators are asking global banks about their exposure to trading firms and market makers including New York-based Jane Street and Ken Griffin’s Citadel Securities… The watchdogs had already made understanding banks’ exposure to so-called non-bank financial intermediaries — a broad category that incorporates private credit providers among others — a longer-term priority.”
Iran War Watch:
September 22 – Associated Press: “Iran’s Revolutionary Guard warned Monday that it would ‘change the geography of the war’ if the United States escalates the conflict… A spokesperson for Iran’s paramilitary Revolutionary Guard, Hossein Mohebbi, said… ‘the war is not over’ and warned that Iran would change its weapons, military tactics and targets if the conflict with the U.S. escalates. ‘We will certainly change the geography of the war,’ Mohebbi said… ‘We will certainly bring new weapons with new capabilities into the battle.’ He said the Guard had prepared for a long-term war. ‘Our targets will no longer necessarily be the same as before,’ he said…”
September 25 – New York Times (Farnaz Fassihi and Pranav Baskar): “Iran’s foreign minister said Thursday that Tehran had proposed to Washington a seven-day plan to cease hostilities, reopen the Strait of Hormuz and then begin comprehensive talks on his country’s nuclear program. Abbas Araghchi, the foreign minister, told reporters at a press briefing at the United Nations General Assembly that the proposal closely mirrored the commitments laid out in a so-called memorandum of understanding that was struck between the United States and Iran in June but quickly unraveled. He said Iran was ready to begin putting the plan into effect as soon as Washington agreed to it.”
September 21 – Reuters (Mohammed Ghobari, Timour Azhari and Jana Choukeir): “Houthi fighters pushed to seize strategic heights in Yemen on Monday to cut off the Red Sea coast from remaining areas held by Saudi-backed forces, after a report that US President Donald Trump had called off American strikes on the group at the last minute. A lightning advance by the Iran-backed group this month has extended the wider Middle East conflict to a new theatre and further threatened global energy supplies. The US has so far rebuffed repeated pleas from Saudi Arabia’s Crown Prince Mohammed bin Salman to join the fight in Yemen.”
September 19 – Associated Press (Toqa Ezzidin and Cara Anna): “Saudi Arabia on Saturday confirmed that Yemen’s Houthi rebels tried to attack its capital with a ballistic missile, the first targeting of Riyadh since the escalation in fighting with the Tehran-backed rebels that has opened a new front in the Iran war.”
September 22 – Financial Times (James Politi, Steff Chávez and Andrew England): “Donald Trump’s reluctance to join Saudi Arabia’s conflict with Houthi rebels in Yemen has added new strain to Washington’s relationship with Riyadh, one already shaken by the US’s conduct of its war with Iran. Under pressure due to high petrol prices and the unpopularity of the conflict with Tehran, the US president has so far resisted new military action to help Saudi Arabia’s effort to quash the Houthi offensive and its attacks on the kingdom’s infrastructure... ‘The US is wavering, and ultimately its decision, at least for now, not to join the Saudis is simply injecting more tension into the bilateral relationship,’ said Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies…”
September 23 – Wall Street Journal (Rory Jones, Jon Emont, Vera Bergengruen and Summer Said): “This summer, when the U.S. and Iran signed a temporary truce, China touted its role in easing tensions in the Middle East. It said its foreign ministry made dozens of calls to nudge peace along, and that President Xi Jinping himself had intervened with suggestions to end the fighting. That same day, a plane from China landed in Tehran. It carried a shipment for Iran’s Ministry of Defense that included electronics components that can be used to make parts for drones and missile guidance systems, according to Iranian customs data… It was one of around 1,300 shipments that included ‘dual use’ components from China to Iran’s defense ministry this year through the end of June... Two days after the electronics components shipment, there were more than a dozen other shipments carrying parts worth more than $6 million that can be used in drones.”
Iran War Ramifications Watch:
September 22 – Financial Times (Alice Hancock and Malcolm Moore): “The cost of hiring an oil supertanker has passed $1.2mn a day for the first time on routes between the Middle East and Asia, adding to the spiralling pressure on global energy markets triggered by the war in Iran. The conflict has caused a severe shortage of some of the world’s largest tankers, known as Very Large Crude Carriers (VLCCs), because ships are having to redraw their routes… Rates between the Middle East and China have more than doubled since late August for the class of carrier, which holds about 2mn barrels…”
September 23 – Bloomberg (Will Kubzansky): “A proposed US diesel export ban touted by President Donald Trump would leave countries including Brazil and the UK racing to secure the fuel, pressuring near-record prices even higher as the Iran war chokes global supply. If the measure goes into effect, Latin America would feel the tightest squeeze in the near term. So far in September, agricultural powerhouse Brazil is the top buyer of US-made diesel and similar fuels, according to… Kpler and Vortexa Ltd.”
September 20 – Bloomberg (Yongchang Chin, Sherry Su, Nathan Risser and Alex Longley): “The soaring cost of moving oil around the world is making some long-distance crude trades uneconomical, threatening to disrupt flows at a time when fuel markets have never been tighter. The jump is being driven by a shortage of available supertankers. In some parts of the world, there are barely any of the ships… left for hire. The squeeze is making faraway barrels less attractive and encouraging refiners to snap up supplies closer to home if they can find them. Moving a cargo from Houston to Asia now adds about $26 a barrel — $52 million a cargo — to the cost of supplying the world's largest crude-importing region.”
September 20 – Wall Street Journal (Rebecca Feng, Georgi Kantchev and Summer Said): “The Iran war has created a new shortage on the oil market. This time the scarce commodity isn’t just crude—it is the ships that carry it. Drone attacks that shut Saudi Arabia’s bypass pipeline earlier this month have forced more crude back through the Strait of Hormuz and onto a tanker fleet already stretched thin. The impact has spread worldwide, as longer voyages and shuttle runs around Hormuz tie up ships and push the daily rate of hiring oil tankers to records. The squeeze adds another cost to a war that has been disrupting energy supplies across the globe.”
Trump Administration Watch:
September 22 – Axios (Avery Lotz): “President Trump predicted Tuesday at the UN General Assembly that Iran and the U.S. will strike a deal after the midterms — his latest prediction after repeatedly claiming throughout the war that it was nearly over. The shadow of his Iran war… loomed large over Trump’s speech to adversaries and allies alike. The ties with those allies are historically strained, taut from the pull of tariffs, conflict and Trump’s threats. ‘I have a big decision to make: Will a deal be made with Iran that lets them rebuild and create a far greater country than it ever was before… or do I annihilate the Islamic Republic, and do it quickly?’ Trump said…”
September 25 – Wall Street Journal (Lingling Wei): “Among the first ‘readouts’—the official accounts—that Beijing put out about the just-concluded summit between President Trump and Chinese leader Xi Jinping was a single line about Taiwan. During the meeting, the official Xinhua News Agency said, Xi urged the U.S. to hold to the ‘correct position of opposing Taiwan independence.’ One sentence, easy to lose amid the pageantry. But it laid bare the issue the Chinese leader cares about most—and the prize he really came to Washington chasing… For all the talk of trade and steadier ties with Washington, Taiwan is the through-line of Xi’s ambitions.”
September 22 – Bloomberg (Ben Sills): “Donald Trump dismissed calls for an international agreement to put guardrails around the development of artificial intelligence, brushing off concerns about the dangers of frontier models going rogue. Despite warnings from the UN Secretary General Antonio Guterres, the leader of the UK, France and Canada, and even the leading AI labs, the US president said that his country’s existing institutions will be able to mitigate any risks. ‘The United States also totally rejects any attempt to construct a globalist scheme to control for the artificial intelligence,’ Trump said… to the United Nations General Assembly… ‘I’m not going to stifle growth of something that will be bigger than the industrial revolution.’”
September 22 – Financial Times (George Parker, Lucy Fisher and Jim Pickard): “Donald Trump has rejected a ‘globalist scheme’ to control AI, delivering a blow to UK premier Andy Burnham’s plan to develop new G20 global guidelines for the technology. Trump said in a speech to the UN on Tuesday that ‘the US totally rejects any attempt to construct a globalist scheme to control artificial intelligence’, adding that his administration would in future refer to AI as ‘super intelligence’. His comments came shortly before his first face-to-face meeting with Burnham, who has said the UK wants to use its G20 presidency next year to focus on the potential AI risks.”
September 23 – Bloomberg (Greg Ritchie): “The US Treasury said it will purchase up to $6 billion of longer-dated government debt on Thursday, in line with the first such operation under Secretary Scott Bessent’s expanded program to stem the recent rise in borrowing costs. The maximum size is triple the amount initially communicated to investors back in early August of $2 billion.”
September 22 – Bloomberg (Mumbi Gitau): “The US has a complete lack of fiscal discipline, and efforts to push down long-term borrowing costs are unlikely to work unless the government addresses the country’s mounting deficit, according to Oaktree Capital Management co-founder Howard Marks. While Treasury Secretary Scott Bessent’s buyback program for longer-dated debt may temporarily push bond prices higher and yields lower, it won’t address the forces that drove borrowing costs higher in the first place, Marks wrote… ‘Forcing rates down by buying bonds is like a doctor applying an ice pack to a patient with a fever,’ he said. ‘The ice pack may lower the patient's temperature, but the patient isn’t likely to get healthy until the underlying cause of the fever has been dealt with.’”
September 23 – Bloomberg (Jorgelina Do Rosario): “A senior White House official… criticized Federal Reserve policymakers who haven’t been appointed by President Donald Trump seeking to tighten monetary policy in the face of inflation he characterized as subdued. ‘Why are they hiking’ against a backdrop where the recent annualized core inflation rate is 2%, National Economic Council Director Kevin Hassett said… Chairman Kevin Warsh is ‘managing an unusually partisan Fed,’ he said… Warsh, Powell, Barr and all other voters on the Fed’s rate-setting Federal Open Market Committee voted to raise the benchmark rate last week. ‘I’m worried about why they did that,’ Hassett said…”
September 21 – Financial Times (Myles McCormick and Jamie Smyth): “Republican lawmakers are ratcheting up pressure on Donald Trump to ban diesel exports as surging prices squeeze American farmers and truckers just weeks ahead of pivotal midterm elections. There was a rising clamour for an intervention on Monday from politicians representing agricultural districts as the price of diesel, the lifeblood of American industry and its farming heartlands, jumped to a fresh record of $6.51 a gallon. ‘If our [government] can embargo chips to China it can embargo diesel to help American farmers [and] truckers,’ Iowa senator Chuck Grassley posted on X. Grassley called directly on the president to suspend exports of the fuel. ‘High diesel prices ARE KILLING FARMERS INCOME,’ he said.”
September 24 – CNBC (Spencer Kimball): “The biggest business groups in the U.S. warned President Trump against a diesel export ban this week, saying in a joint letter that such an action would prove counterproductive and raise fuel prices rather than lower them. The U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers, American Petroleum Institute and dozens of other groups told Trump that an export ban would ‘lead to less fuel production, tighter supplies and rising costs for American families, farmers and truckers.’ ‘You have been asked by some to ban or limit the export of diesel to help lower prices, when in fact the opposite would occur,’ the groups warned…”
September 25 – Reuters (Makiko Yamazaki): “US President Donald Trump raised concerns about yen weakness at a summit with Japanese Prime Minister Sanae Takaichi, Japan’s Finance Minister Satsuki Katayama said…, offering an unusually detailed account of the leaders’ talks on currencies. ‘At the recent Japan-US summit meeting, President Trump expressed concern about the yen's weakness,’ Katayama said…, adding that she was disclosing the exchange for the first time after consulting with the Prime Minister’s Office.”
Trade War Watch:
September 21 – New York Times (Keith Bradsher): “China’s restrictions on exports of crucial rare-earth metals and rare-earth magnets remain one of the most difficult unresolved issues as President Trump and Xi Jinping prepare to meet this week. For months, manufacturers in the United States, Europe, Japan and India have complained about difficulties in obtaining enough rare-earth metals from China, which dominates global production. The materials are essential for making products ranging from cars and wind turbines to semiconductors, computer displays and military equipment. China imposed export controls in April 2025 on seven kinds of rare earths and magnets made from them. It later announced a broader set of restrictions, now scheduled to take effect Nov. 10.”
September 21 – New York Times (Sui-Lee Wee): “When President Trump met with the Chinese leader Xi Jinping in Beijing in May, the United States announced that China had agreed to sharply increase its purchases of American agricultural products. The pledge, one of China’s major commitments after the high-profile meeting, appeared to offer relief to U.S. farmers battered by the trade war between the two countries. Four months later, there is little sign of a broad Chinese buying spree.”
Constitution Watch:
September 24 – New York Times (Michael M. Grynbaum): “Journalists from CNN, MS NOW and Politico were allowed back into the White House around noon on Thursday. Their return came after a chaotic morning in which the Trump administration had blocked them from entering, despite an overnight order from a federal judge that required the immediate restoration of their access… Mr. Trump abruptly barred the outlets from the White House last week, citing coverage he deemed ‘fake.’ In response, the major TV networks suspended the White House television pool, which provides video footage for daily presidential events.”
U.S./Russia/China/Europe/Iran Watch:
September 23 – Financial Times (Laura Dubois): “Belgium’s foreign ministry has warned internally that the US under Donald Trump is no longer a reliable ally and urged officials to cultivate ties with his opponents to protect the country’s interests… As alarm mounted in Europe about Trump’s apparent hostility to traditional allies in the region, the ministry set out a strategy to ‘calibrate’ engagement with Washington to protect Belgian interests while avoiding being seen as ‘hostile’… ‘It is now clear that the American partner is no longer the ally it has been in the past,’ says the strategy document, produced… in late 2025.”
Ukraine War Watch:
September 20 – Bloomberg (Anthony Halpin): “The Moscow Oil Refinery was hit during drone attacks that were part of the largest overnight Ukrainian barrage this year, as Russia entered the final day of voting in its parliamentary elections. Russia’s Defense Ministry said it downed 1,110 Ukrainian drones across 19 regions of Russia as well as in Crimea… That’s the largest overnight total reported so far this year, eclipsing the previous high of 822 in August.”
September 20 – Bloomberg (Volodymyr Verbianyi and Olesia Safronova): “Ukrainians are already drawing up contingency plans for what threatens to be the worst wartime winter yet. Under near-constant attack since Russia’s invasion of February 2022, residents are well-versed in getting through cold periods during airstrikes and regular blackouts. But last winter’s prolonged sub-zero temperatures brought a new level of hardship as a result of weeks-long disruptions to heating, water and sewage services in major cities including Kyiv.”
Taiwan Watch:
September 24 – Bloomberg (Nectar Gan): “Chinese leader Xi Jinping urged the US to ‘oppose’ Taiwan independence, marking his most explicit call for President Donald Trump to change his stance on the self-ruled island. During the two men’s first White House summit…, Xi asked the US to ‘adhere to the correct position of opposing Taiwan independence and handle the Taiwan issue with prudence,’ according to the official Xinhua News Agency.”
AI Bubble/Arms Race Watch:
September 23 – Axios (Avery Lotz): “Executives from leading artificial intelligence organizations urged global cooperation… to address risks from increasingly autonomous AI systems during a UN Security Council meeting. AI capabilities are advancing faster than governments are developing safeguards, raising concerns about whether humans can maintain control over increasingly autonomous systems. OpenAI CEO Sam Altman appeared in person at the meeting, while Anthropic's Dario Amodei and Hugging Face CEO Clem Delangue joined by video... ‘We have a choice in front of us,’ Altman said. ‘AI can either be more like a new renaissance of creativity and discovery, or more like a new industrial revolution of upheaval and disarray.’”
September 22 – Financial Times (George Hammond): “Anthropic and OpenAI both released cheaper versions of their leading models on Tuesday, as the price war between the two leading US labs and their low-cost Chinese rivals intensifies. The latest Claude model from Anthropic, Opus 5.5, is roughly 40% cheaper to use than its precursor and was the first of a new ‘family’ of models that will be more cost-efficient than previous generations… OpenAI… released lower-cost versions of ChatGPT-6, known as Sol and Luna, following the release of its most advanced ChatGPT-6 Astra model at the start of the month. It said the models will be 50% cheaper than their predecessors in the ChatGPT-5.6 slate.”
September 22 – Axios (Madison Mills): “AI companies have competed on having the best and often most dangerous models for years. Now, they’re pivoting to a new focus: cost. The biggest risk to the AI boom is demand, and recent innovations to make models cheaper while maintaining powerful levels of intelligence have offered a bullish signal. As the prices of top models from OpenAI, Anthropic and others come down, usage is increasing dramatically, a trend that points to the kind of demand that will be necessary to justify trillions of dollars in spending. It’s modelpalooza in the AI world this week, with OpenAI, Anthropic, SpaceX and some Chinese model providers all offering new releases. Most of them are offering shocking levels of intelligence at prices that would've been unthinkable just a few months ago.”
September 23 – Wall Street Journal (Konrad Putzier and Justin Lahart): “The AI build-out is on track to become the biggest economic bet in U.S. history, dwarfing the investments made to fund other huge U.S. infrastructure projects such as the railroads, the highway system and the plumbing for the internet. Total investment in data centers and related artificial-intelligence infrastructure is projected to total $10.3 trillion from 2025 to 2032, according to new estimates by economist Stijn van Nieuwerburgh published by the Brookings Institution. That is a staggering 3.6% of gross domestic product a year, on average. Never before has the U.S. economy been so dependent on the build-out of a single industry. The investment is transforming every corner of the economy, creating hundreds of thousands of jobs and minting new billionaires.”
September 21 – CNBC (Jenny Lee): “The artificial intelligence spending boom is showing little sign of slowing, with investment across the hyperscaler ecosystem potentially reaching $1 trillion next year, according to JPMorgan… CEO Jamie Dimon. Spending across the hyperscaler ecosystem has more than doubled from about $300 billion last year to around $700 billion this year, a surge Dimon said is boosting economic growth while potentially adding to inflation. ‘That’s like 1% increase to GDP each year,’ Dimon told CNBC-TV18…, adding that the spending ‘may add a little bit to inflation’ as companies hire workers, build factories and power plants, and buy equipment and materials.”
September 24 – Reuters (Renju Jose and Chris Thomas): “Australia said… an OpenAI agent breached a government health data portal in June, gaining unauthorised access to files, in what could be the first known instance of an AI agent hacking a government website. The breach is one of the highest-profile incidents of AI agents accessing external systems outside the United States, coming on top of several recent breaches globally by rogue AI agents that have alarmed governments and companies.”
September 25 – Bloomberg (Zahra Tayeb): “Goldman Sachs Group Inc.’s Lindsay Rosner says the bank’s asset management arm is underweight on the biggest artificial intelligence borrowers as a flood of issuance washes over the market. ‘We believe there will be a lot of hyperscaler issuance,’ Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said... ‘For that sector at large we are underweight knowing more issuance will come.’”
September 18 – Bloomberg (Samantha Oltman): “OpenAI expects that its negative free cash flow will reach $278 billion from 2026 to the end of 2030, according to a person familiar… Though the company projects its revenue will increase from $36 billion this year to $350 billion in 2030, it is investing heavily in computing power and expects expenses to vastly outpace those gains…”
September 21 – Financial Times (Martha Muir): “US utility profits are coming under fire as soaring electricity bills fuel an affordability backlash and pile pressure on politicians and regulators ahead of November’s midterm elections. Governors in more than a dozen states are trying to force down utility bills and earnings, while lawmakers in 15 have introduced measures to restrain utilities’ returns. Regulators are ordering bigger haircuts from those facilities’ requests for higher returns. That pressure matters because utilities do not set prices freely: state regulators approve what they can charge customers and the returns they can earn. Political scrutiny can therefore directly impact profits.”
September 21 – Financial Times (Bryce Elder): “Not everything that Elon Musk says is stupid. Sometimes it’s just obvious. Here he is, speaking about AI data centres at the G20 Innovation Ministerial Summit…: ‘There’s quite a crisis of power… The consensus at this point is that there will be a significant power shortfall next year. So, not like distant future. I believe the consensus estimate among analysts who follow the AI space very closely is that there will be at least a 15-gigawatt shortfall of power in 2027 for AI chips. The rate at which AI chips [are] being produced has been rising incredibly rapidly. They’re rising on the order of 40 to 50% a year. But power available outside of China has been rising at 10% to 20% a year. Obviously, the faster-rising thing will eventually overwhelm the slower-rising thing.”
Bubble Watch:
September 22 – Bloomberg (Layan Odeh, Preeti Singh, and Laura Benitez): “It started out as a typical private equity bet: Hellman & Friedman and JMI Equity took human resources provider Kronos Inc. private in 2007. The plan was to grow the business for at least a few years, then sell it or take it public. But after 19 years of cycling through different funds, Hellman & Friedman still owns Kronos… And there are no imminent plans for a sale or IPO. Across the industry, buyout firms have been clinging to both prized and hard-to-sell assets for longer. The traditional 10-year fund that was the backbone of the buyout model is vanishing. ‘Exits’ — as they are known in industry parlance — are often pushed far into the future, leaving investments trapped in portfolios indefinitely. Welcome to private equity’s version of Hotel California. Assets can check in. They rarely leave.”
Inflation Watch:
September 20 – Bloomberg (Will Kubzansky): “US retail diesel prices topped $6.50 a gallon for the first time… Average nationwide prices rose to $6.51 a gallon… The pace of increases has accelerated in September — gaining more than 87 cents so far this month — with prices rising almost every day and surging beyond the peak set in 2022.”
September 21 – Reuters (Shariq Khan and Siddharth Cavale): “A global diesel shortage fueled by wars in Iran and Ukraine is unlikely to ease before next year, according to storage market indicators and industry participants… Another sign of persistent tightness is emerging in the storage market. Refiners and traders across North America are declining to renew diesel storage leases because there is little fuel available to store, data from storage broker The Tank Tiger showed. Diesel storage capacity available for leasing in North America and the Caribbean Islands, a major trading hub, has climbed to a four-year high of 13 million barrels for October…”
September 22 – Axios (Emily Peck): “In a new survey, homebuilders around the country say ramped-up Immigration and Customs Enforcement crackdowns are creating huge headaches for their businesses. The labor strain comes on top of other challenges for the industry: rising mortgage rates, higher prices for key inputs driven by tariffs and the Iran war, as well as growing competition for resources with builders of data centers. ‘ICE is becoming a very large issue and causing labor shortages,’ says a Houston builder in a survey conducted earlier this month by John Burns Research and Consulting… A builder in Richmond, Virginia, says: ‘ICE has had significant impacts to vendors throughout Virginia/Maryland in the last 90 days… This has had a major impact on cycle times and the ability to start new houses.’”
September 23 – CNBC (Amelia Lucas): “McDonald’s is predicting that flat traffic and higher inflation will continue to weigh on the restaurant industry, CEO Chris Kempczinski said… ‘One of the things I’ve talked to our team about is we need to stop talking about that being a difficult environment, and just say that is the environment,’ Kempczinski said… ‘Because I think, as we look out forward, we’re not expecting things to change.’”
Federal Reserve Watch:
September 21 – Reuters (Howard Schneider): “Suggestions that the Federal Reserve could lower borrowing costs to help the US government finance its current debt and deficits are the very reason the central bank needs to be independent in setting monetary policy, Chicago Fed President Austan Goolsbee said… Fiscal policy and deficit levels need to be treated as ‘the background weather’ by the Fed, relevant to the degree that they influence inflation, but otherwise are a matter for elected officials to decide, Goolsbee told reporters… ‘Should the Fed try to reduce the rates to make the deficit smaller or to make it less costly to increase the debt?’ Goolsbee asked. ‘Let’s be a little careful with that. ... Because I think that is the canonical argument’ for central bank independence. ‘That is the ‘monetize the debt’ argument. You say let’s try to force rates lower because the debt is getting bigger,’ Goolsbee said, describing a situation most economists think would lead to higher inflation and likely backfire, as market borrowing rates got bid higher to adjust for rising inflation expectations.”
September 21 – Financial Times (Myles McCormick): “The Federal Reserve would need to adopt an ‘aggressive’ and ‘frontloaded’ policy response if the current burst of inflation turned out to be fuelled by more enduring factors than the oil price shock, according to one of the central bank’s top officials. Austan Goolsbee, president of the Chicago Fed, said that an additional quarter-point increase in interest rates ‘likely would not be enough’ if price rises were being driven by ‘overheating demand’ — from the services sector and the AI boom — rather than just the supply shock from the Iran war. ‘We’ve been getting a little more sense… that some of [the inflation] maybe is coming from overheating demand — and the services inflation, maybe, isn’t going away… If the through line is that it’s coming from overheating demand, I think the implication is the rate response is more aggressive and more frontloaded than if it’s coming from supply shocks.”
September 21 – Reuters (Howard Schneider): “US inflation may have moved beyond the tariff and energy prices shocks of the last 18 months and is now being driven by strong demand as well, potentially requiring a faster pace of Federal Reserve interest rate hikes, Chicago Fed President Austan Goolsbee said… ‘If the through line is that it’s coming from overheating demand, I think the implication is the rate response is more aggressive and more and more front-loaded,’ he said. In recent data and in conversations with business contacts ‘we’ve been getting a little more sense ... that some of it maybe is coming from overheating demand.’”
September 21 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Chicago President Austan Goolsbee warned the central bank cannot ignore repeated and persistent supply shocks, and must respond in a way that may cause economic hardship. ‘Supply shocks have come more frequently, hit harder and lasted longer… And once supply shocks to inflation become persistent, some of the logic behind ‘looking through’ no longer holds.’ He added that while the Fed’s response to these shocks, and the inflation they’re generating, doesn’t have to be as aggressive as a response to overheating demand, it still won’t be painless. ‘This is exactly the painful trade-off between employment and inflation that stagflationary shocks always impose on a central bank… Unfortunately, in environments like that, the only way back is the hard way.’”
September 22 – Wall Street Journal (Dean Seal): “Richmond Fed President Thomas Barkin suggested more rate hikes could be coming as the central bank focuses all of its attention on taming inflation… Barkin compared the Federal Reserve’s dual mandate of price stability and maximum employment to raising two ‘very different kids.’ The Federal Reserve chose last week to raise rates for the first time in three years because inflation has become a ‘troublemaker’ that the central bank needs to address while the labor market ‘continues to get good grades,’ Barkin said… Barkin warned that temporary shocks spurring inflation this year could drag on and new cost pressures could develop. ‘Like in child rearing, one ‘talking-to’ might not be enough,’ he said, referring to last week’s rate hike.”
September 22 – Yahoo Finance (Jennifer Schonberger): “Richmond Federal Reserve president Tom Barkin said… stubborn inflation, recently fueled by higher oil prices and tariffs, drove the central bank's decision to raise interest rates last week and leave the door open to further hikes. ‘There was an argument that inflation would return to target on its own, without any additional help from the Fed,’ Barkin said... ‘One problem with that argument, of course, is that the ‘passing’ shocks aren’t proving to be short-lived, or one-off events.’”
September 22 – Reuters (Howard Schneider): “US economic conditions ‘are, if anything, firming,’ with continued consumer spending and strength beyond the boom in artificial intelligence keeping the Federal Reserve's focus on inflation, Richmond Fed President Tom Barkin said… ‘The risks to inflation outweigh the risks to maximum employment. That’s why we raised rates,’ at last week’s meeting, Barkin said…, adding that the quarter-percentage-point hike ‘will help’ restore inflation to the Fed's 2% target.”
September 20 – Reuters (Doina Chiacu): “Minneapolis Federal Reserve President Neel Kashkari said… inflation is too high across all sectors of the US economy, not just in rising oil prices. ‘So even if we strip out energy, which is really volatile, and strip out food — they matter a lot — but in terms of where the economy is going, inflation is still too high,’ Kashkari told Fox News… ‘The inflation that the American people are feeling every day is much beyond just oil prices. It’s in all aspects of the economy. It’s in the services sector, for example, widely. So we have tools to bring that back down… Hopefully, we’ll get some help from other parts of government or other parts of the real economy.’”
September 24 – Reuters (Michael S. Derby): “The U.S. central bank will likely need to raise interest rates again to curb unacceptably high inflation, two Federal Reserve policymakers said… ‘Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,’ Philadelphia Fed President Anna Paulson told a conference…”
September 24 – Reuters (Michael S. Derby): “Federal Reserve Bank of Cleveland President Beth Hammack said… inflation pressures remain elevated and the longer this situation persists, the harder it will be to bring price pressures back to target. ‘Current conditions in the United States indicate that output is growing at a solid pace and the labor market remains close to my definition of maximum employment, but inflation remains elevated’… The inflation outlook continues to be highly uncertain, with risks tilted to the upside’ and ‘the longer that high inflation persists, the more challenging and costly it can be to bring it back down,’ she said.”
September 21 – Reuters (Howard Schneider): “The Federal Reserve will likely need to hike interest rates further to lower inflation resulting from strong demand as well as a commodity price shock that has moved beyond oil, St. Louis Fed President Alberto Musalem said…, adding that it would be better for the US central bank to act sooner than wait. ‘Both persistent demand and recurring supply forces are continuing to contribute to keeping inflation risks elevated, and I judge that without further policy restraint on inflation it is more likely to be substantially above our 2% target in 18 months than at target,’ Musalem said…”
September 23 – Yahoo Finance (Jennifer Schonberger): “Federal Reserve governor Michael Barr said… additional interest rate hikes are needed to bring down sticky inflation. ‘Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion… Inflation is above our 2% target and not clearly trending toward target in a timely way. Moreover, risks to achieving our inflation target have increased, while risks to the labor market have receded.’”
September 24 – Reuters (David Milliken): “New York Federal Reserve President John Williams said… it was reasonable to think that the U.S. central bank might need to raise interest rates again before the end of the year to help bring down inflation risks. Forecasts among market participants showed investors thought ‘it’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it,’ Williams said.”
September 22 – Reuters (Michael S. Derby): “New York Federal Reserve President John Williams defended the US central bank’s monetary policy implementation system on Tuesday, while saying it can be adjusted and tweaked in line with changes in financial markets. Supplying ‘ample’ reserves to the financial system with the current suite of tools to manage short-term interest rates ‘has proven to be highly effective at delivering interest rate control and supporting the smooth functioning of core financial markets,’ Williams said… ‘As markets evolve over time, we must ensure that policy tools are fit for purpose to carry out their necessary functions… Put simply, the evolution of financial market structure leads to the evolution of how we carry out monetary policy effectively.’”
September 21 – Associated Press (Christopher Rugaber): “A top Federal Reserve official said… stubbornly high inflation and the renewal of combat in the Middle East in August were key reasons she supported raising borrowing costs last week… Susan Collins, president of the Federal Reserve Bank of Boston, said… she agreed with the Fed’s decision… to lift its benchmark interest rate by a quarter-point... She also expects that the Fed will keep rates unchanged next year, she added. ‘I did not see the inflation progress I was hoping to see… Geopolitical developments suggest that we could continue to see additional pressures push on the energy side. There were reasons to see an increased likelihood of some of the scenarios in which inflation gets stuck above 2%,’ she added…”
U.S. Economic Bubble Watch:
September 24 – Reuters (Lucia Mutikani): “The US current account deficit widened sharply in the second quarter amid a surge in imports of goods… The… current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $33.4 billion, or 15.7%, to $246.0 billion last quarter… The second-quarter current account deficit represented 3.0% of gross domestic product, up from 2.7% in the January-March quarter. It peaked at 6.3% in the third quarter of 2006… Goods imports shot up by $67.4 billion to $931.6 billion. That outpaced a $27.1 billion increase in exports of goods to $640.3 billion.”
September 23 – Bloomberg (Jeffrey Sparshott): “US business activity rose at the fastest pace in more than five years as robust demand pushed up new orders and employment at manufacturers and service providers. The S&P Global flash US composite purchasing managers index climbed to 58.4 in September… That was the highest since July 2021… Employment surged at a rate not seen in over four years, while input prices grew at the fastest pace since 2022… ‘Business is clearly booming now in both manufacturing and services,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said… ‘However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff,’ Williamson said. Activity at service providers increased to 58.7 in September, the highest since 2021. A gauge for employment was the strongest since June 2022.”
September 23 – Reuters (Lucia Mutikani): “US business activity raced to a more than five-year high in September, fueled by a surge in new orders, though strong demand strained supply chains and pushed prices higher. S&P Global said… its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 58.4 this month. That was the highest level since July 2021 and followed a reading of 56.0 in August… The PMI was consistent with the economy growing at around a 5% annualized rate, S&P Global said. It also noted a sharp rise in work backlogs and supply chain delays, ‘pointing to a lack of operating capacity which fed through to higher prices.’ The Atlanta Federal Reserve's gross domestic product tracking estimate is running at a 5.1% rate.”
September 25 – Reuters (Lucia Mutikani): “New orders for key US-manufactured capital goods increased more than expected in August and data for the prior month was revised sharply higher, pointing to another quarter of robust growth in business spending on equipment amid an artificial intelligence infrastructure buildout… Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, jumped 1.6% last month after an upwardly revised 0.6% increase in July…”
September 24 – Associated Press (Paul Wiseman): “Fewer people applied for U.S. unemployment benefits last week, as U.S. jobless claims remain at historically low levels and most Americans enjoy job security… 197,000 people applied for unemployment checks last week, the fewest since mid-July and down from a revised 198,000 the week before.”
September 23 – CNBC (Diana Olick): “Mortgage rates soared to the highest level since 2024 last week, causing loan demand to fall back again and more borrowers to opt for riskier loans… Applications to refinance a home loan dropped 3% for the week and were 62% lower than the same week one year ago… Applications for a mortgage to purchase a home fell 1% for the week and were 11% lower year over year.”
September 24 – Reuters (Lucia Mutikani): “Sales of new US single-family homes surged to an eight-month high in August… New home sales increased 6.4% to a seasonally adjusted annualized rate of 684,000 units last month, the highest level since December 2025… New home sales soared 84.9% in the Midwest and rose 6.9% in the South over the month, but they plunged 36.1% in the Northeast and by 15.2% in the West. Sales decreased 2.0% on a year-over-year basis in August.”
September 23 – Reuters (David Shepardson): “America’s aging air traffic control system — reliant on outdated telecom systems, decades-old Compaq computers and replacement parts bought on eBay — keeps failing. In the latest example, thousands of flights across the densely populated Northeast were delayed or canceled on Monday due to the dual failures of a circuit at a Philadelphia air traffic facility and the accidental cut of a fiber-optic cable near New Brunswick… ‘The architecture of our telecom is still a 40-year-old architecture, which means you could have a switch go down and a line be cut yesterday and the Northeast goes down,’ U.S. Transportation Secretary Sean Duffy said…”
China Watch:
September 23 – Reuters: “Chinese ports had their busiest week in history ahead of the approaching summit between Presidents Donald Trump and Xi Jinping, extending a boom in shipments abroad… A record 7.3 million containers passed through Chinese terminals in the seven days through Sept. 20, an increase of 9% from a year ago…”
Central Banker Watch:
September 21 – Bloomberg (Tom Rees and Irina Anghel): “Financial regulators are running out of time to tackle the risk of autonomous artificial intelligence agents causing a market meltdown, according to Bank of England Deputy Governor Sarah Breeden. She said… the UK central bank is looking at testing kill switches to prevent AI from causing chaos in financial markets, though she stressed officials don’t know yet how one could operate. ‘We need to get our skates on if we’re properly to understand these risks to make sure that by the time this sort of agentic trading is common in financial markets, we’re ready with a financial stability response,’ Breeden said... ‘I don’t think we’re behind, but I’m not sure that we’ve got terribly much time ahead of us.’”
September 25 – Reuters (Andy Bruce): “Bank of England Governor Andrew Bailey said on Friday that persistently high energy prices would make it harder for the central bank to leave interest rates on hold, underlining a recent shift in tone towards higher borrowing costs. The warning comes at a difficult time for Prime Minister Andy Burnham and his finance minister John Healey… ‘It’s going to get harder to maintain that stance the longer we have high energy prices,’ he told the Monetary Economics Conference…”
September 24 – Reuters (Stella Qiu and Wayne Cole): “Australia’s jobless rate unexpectedly rose to a five-year high in August even as employment enjoyed a solid rebound, a mixed report that left markets still wagering on an imminent rate hike to fight inflation. Markets imply a 95% probability that the Reserve Bank of Australia will raise interest rates a fourth time next Tuesday to 4.6%.”
Europe/UK Watch:
September 22 – Reuters (Andy Bruce): “Britain’s government borrowed more than expected in August, pushing the deficit for the financial year to date further above official forecasts and adding to a tough backdrop for finance minister John Healey’s first budget next month. Public sector net borrowing stood at £18.3 billion ($24.5bn) in August…, above all forecasts… which had pointed to a £15.5 billion deficit.”
September 23 – Bloomberg (Mark Schroers): “Private-sector activity in the euro area grew at the fastest pace in more than three years as the service sector unexpectedly improved. The Composite Purchasing Managers’ Index compiled by S&P Global increased to 53.1 from 52 in August… The region’s two largest economies both exceeded expectations, with activity in Germany growing at the fastest pace since October 2025 and France unexpectedly expanding at the quickest in more than two years.”
September 21 – Reuters (Andreas Rinke and Matthias Williams): “Chancellor Friedrich Merz was clinging to power on Monday after his conservative party tumbled to its worst regional election defeat in postwar Germany and members of his coalition clashed over his unpopular reform agenda. Merz himself described Sunday’s loss in the northeastern state of Mecklenburg-Western Pomerania as a ‘disaster’ after his Christian Democrats (CDU) missed the minimum threshold to enter the regional parliament.”
Japan Watch:
September 24 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is expected to raise interest rates roughly once every three months and push them up to 2% by around June next year to combat mounting inflationary pressures, former bank board member Makoto Sakurai said… In raising interest rates to a 31-year high of 1.25% in September, the central bank has shifted its policy approach to one increasingly focused on addressing broadening price pressures from surging fuel costs, he said.”
Emerging Markets Watch:
September 23 – Financial Times (John Paul Rathbone): “Turkey has arrested the founder of an investment brokerage at the centre of an $18bn alleged Ponzi scheme that has torched the savings of hundreds of thousands of investors and raised questions about why regulators did not act earlier to stop it. Emre Tezmen, chair of Tera Yatırım, was arrested… alongside Tera board members Kerem Alkin and Emre Alkin...”
September 25 – Bloomberg (Andrew Rosati): “Brazil’s inflation picked up more than expected in early September, compounding cost-of-living pressures on consumers ahead of elections… Consumer prices rose 4.47% from a year earlier, above all forecasts in a Bloomberg survey that had a 4.32% mediate estimate. On the month, inflation reached 0.7%, also topping all estimates.”
Social, Political, Environmental, Cybersecurity Instability Watch:
September 21 – Bloomberg (Lili Pike and Coco Liu): “With the world now set to barrel past a key global warming goal, the United Nations’ top climate official took aim at AI goliaths for their growing share of emissions as the UN General Assembly and Climate Week began in New York. ‘Energy guzzling artificial intelligence is driving up planet-heating pollution from coal, oil and gas, while ratcheting up energy costs for households and businesses,’ Simon Stiell, executive secretary of the United Nations Framework Convention on Climate Change, said…”
September 21 – Bloomberg (Brian K Sullivan and Lauren Rosenthal): “California has declared a state of emergency as a strengthening El Niño raises the threat of damaging storms, widespread flooding and mudslides across the state this fall and winter. Governor Gavin Newsom made the declaration… as the climate phenomenon continues to build in strength across the Pacific. In preparation, Newsom directed state agencies to assess infrastructure, including drainage systems, and speed up projects meant to protect highways and bridges from flooding and coastal erosion.”
September 22 – Financial Times (Alice Hancock and Malcolm Moore): “The cost of hiring an oil supertanker has passed $1.2mn a day for the first time on routes between the Middle East and Asia, adding to the spiralling pressure on global energy markets triggered by the war in Iran. The conflict has caused a severe shortage of some of the world’s largest tankers, known as Very Large Crude Carriers (VLCCs), because ships are having to redraw their routes… Rates between the Middle East and China have more than doubled since late August for the class of carrier, which holds about 2mn barrels…”
September 23 – Bloomberg (Will Kubzansky): “A proposed US diesel export ban touted by President Donald Trump would leave countries including Brazil and the UK racing to secure the fuel, pressuring near-record prices even higher as the Iran war chokes global supply. If the measure goes into effect, Latin America would feel the tightest squeeze in the near term. So far in September, agricultural powerhouse Brazil is the top buyer of US-made diesel and similar fuels, according to… Kpler and Vortexa Ltd.”
September 20 – Bloomberg (Yongchang Chin, Sherry Su, Nathan Risser and Alex Longley): “The soaring cost of moving oil around the world is making some long-distance crude trades uneconomical, threatening to disrupt flows at a time when fuel markets have never been tighter. The jump is being driven by a shortage of available supertankers. In some parts of the world, there are barely any of the ships… left for hire. The squeeze is making faraway barrels less attractive and encouraging refiners to snap up supplies closer to home if they can find them. Moving a cargo from Houston to Asia now adds about $26 a barrel — $52 million a cargo — to the cost of supplying the world's largest crude-importing region.”
September 20 – Wall Street Journal (Rebecca Feng, Georgi Kantchev and Summer Said): “The Iran war has created a new shortage on the oil market. This time the scarce commodity isn’t just crude—it is the ships that carry it. Drone attacks that shut Saudi Arabia’s bypass pipeline earlier this month have forced more crude back through the Strait of Hormuz and onto a tanker fleet already stretched thin. The impact has spread worldwide, as longer voyages and shuttle runs around Hormuz tie up ships and push the daily rate of hiring oil tankers to records. The squeeze adds another cost to a war that has been disrupting energy supplies across the globe.”
Trump Administration Watch:
September 22 – Axios (Avery Lotz): “President Trump predicted Tuesday at the UN General Assembly that Iran and the U.S. will strike a deal after the midterms — his latest prediction after repeatedly claiming throughout the war that it was nearly over. The shadow of his Iran war… loomed large over Trump’s speech to adversaries and allies alike. The ties with those allies are historically strained, taut from the pull of tariffs, conflict and Trump’s threats. ‘I have a big decision to make: Will a deal be made with Iran that lets them rebuild and create a far greater country than it ever was before… or do I annihilate the Islamic Republic, and do it quickly?’ Trump said…”
September 25 – Wall Street Journal (Lingling Wei): “Among the first ‘readouts’—the official accounts—that Beijing put out about the just-concluded summit between President Trump and Chinese leader Xi Jinping was a single line about Taiwan. During the meeting, the official Xinhua News Agency said, Xi urged the U.S. to hold to the ‘correct position of opposing Taiwan independence.’ One sentence, easy to lose amid the pageantry. But it laid bare the issue the Chinese leader cares about most—and the prize he really came to Washington chasing… For all the talk of trade and steadier ties with Washington, Taiwan is the through-line of Xi’s ambitions.”
September 22 – Bloomberg (Ben Sills): “Donald Trump dismissed calls for an international agreement to put guardrails around the development of artificial intelligence, brushing off concerns about the dangers of frontier models going rogue. Despite warnings from the UN Secretary General Antonio Guterres, the leader of the UK, France and Canada, and even the leading AI labs, the US president said that his country’s existing institutions will be able to mitigate any risks. ‘The United States also totally rejects any attempt to construct a globalist scheme to control for the artificial intelligence,’ Trump said… to the United Nations General Assembly… ‘I’m not going to stifle growth of something that will be bigger than the industrial revolution.’”
September 22 – Financial Times (George Parker, Lucy Fisher and Jim Pickard): “Donald Trump has rejected a ‘globalist scheme’ to control AI, delivering a blow to UK premier Andy Burnham’s plan to develop new G20 global guidelines for the technology. Trump said in a speech to the UN on Tuesday that ‘the US totally rejects any attempt to construct a globalist scheme to control artificial intelligence’, adding that his administration would in future refer to AI as ‘super intelligence’. His comments came shortly before his first face-to-face meeting with Burnham, who has said the UK wants to use its G20 presidency next year to focus on the potential AI risks.”
September 23 – Bloomberg (Greg Ritchie): “The US Treasury said it will purchase up to $6 billion of longer-dated government debt on Thursday, in line with the first such operation under Secretary Scott Bessent’s expanded program to stem the recent rise in borrowing costs. The maximum size is triple the amount initially communicated to investors back in early August of $2 billion.”
September 22 – Bloomberg (Mumbi Gitau): “The US has a complete lack of fiscal discipline, and efforts to push down long-term borrowing costs are unlikely to work unless the government addresses the country’s mounting deficit, according to Oaktree Capital Management co-founder Howard Marks. While Treasury Secretary Scott Bessent’s buyback program for longer-dated debt may temporarily push bond prices higher and yields lower, it won’t address the forces that drove borrowing costs higher in the first place, Marks wrote… ‘Forcing rates down by buying bonds is like a doctor applying an ice pack to a patient with a fever,’ he said. ‘The ice pack may lower the patient's temperature, but the patient isn’t likely to get healthy until the underlying cause of the fever has been dealt with.’”
September 23 – Bloomberg (Jorgelina Do Rosario): “A senior White House official… criticized Federal Reserve policymakers who haven’t been appointed by President Donald Trump seeking to tighten monetary policy in the face of inflation he characterized as subdued. ‘Why are they hiking’ against a backdrop where the recent annualized core inflation rate is 2%, National Economic Council Director Kevin Hassett said… Chairman Kevin Warsh is ‘managing an unusually partisan Fed,’ he said… Warsh, Powell, Barr and all other voters on the Fed’s rate-setting Federal Open Market Committee voted to raise the benchmark rate last week. ‘I’m worried about why they did that,’ Hassett said…”
September 21 – Financial Times (Myles McCormick and Jamie Smyth): “Republican lawmakers are ratcheting up pressure on Donald Trump to ban diesel exports as surging prices squeeze American farmers and truckers just weeks ahead of pivotal midterm elections. There was a rising clamour for an intervention on Monday from politicians representing agricultural districts as the price of diesel, the lifeblood of American industry and its farming heartlands, jumped to a fresh record of $6.51 a gallon. ‘If our [government] can embargo chips to China it can embargo diesel to help American farmers [and] truckers,’ Iowa senator Chuck Grassley posted on X. Grassley called directly on the president to suspend exports of the fuel. ‘High diesel prices ARE KILLING FARMERS INCOME,’ he said.”
September 24 – CNBC (Spencer Kimball): “The biggest business groups in the U.S. warned President Trump against a diesel export ban this week, saying in a joint letter that such an action would prove counterproductive and raise fuel prices rather than lower them. The U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers, American Petroleum Institute and dozens of other groups told Trump that an export ban would ‘lead to less fuel production, tighter supplies and rising costs for American families, farmers and truckers.’ ‘You have been asked by some to ban or limit the export of diesel to help lower prices, when in fact the opposite would occur,’ the groups warned…”
September 25 – Reuters (Makiko Yamazaki): “US President Donald Trump raised concerns about yen weakness at a summit with Japanese Prime Minister Sanae Takaichi, Japan’s Finance Minister Satsuki Katayama said…, offering an unusually detailed account of the leaders’ talks on currencies. ‘At the recent Japan-US summit meeting, President Trump expressed concern about the yen's weakness,’ Katayama said…, adding that she was disclosing the exchange for the first time after consulting with the Prime Minister’s Office.”
Trade War Watch:
September 21 – New York Times (Keith Bradsher): “China’s restrictions on exports of crucial rare-earth metals and rare-earth magnets remain one of the most difficult unresolved issues as President Trump and Xi Jinping prepare to meet this week. For months, manufacturers in the United States, Europe, Japan and India have complained about difficulties in obtaining enough rare-earth metals from China, which dominates global production. The materials are essential for making products ranging from cars and wind turbines to semiconductors, computer displays and military equipment. China imposed export controls in April 2025 on seven kinds of rare earths and magnets made from them. It later announced a broader set of restrictions, now scheduled to take effect Nov. 10.”
September 21 – New York Times (Sui-Lee Wee): “When President Trump met with the Chinese leader Xi Jinping in Beijing in May, the United States announced that China had agreed to sharply increase its purchases of American agricultural products. The pledge, one of China’s major commitments after the high-profile meeting, appeared to offer relief to U.S. farmers battered by the trade war between the two countries. Four months later, there is little sign of a broad Chinese buying spree.”
Constitution Watch:
September 24 – New York Times (Michael M. Grynbaum): “Journalists from CNN, MS NOW and Politico were allowed back into the White House around noon on Thursday. Their return came after a chaotic morning in which the Trump administration had blocked them from entering, despite an overnight order from a federal judge that required the immediate restoration of their access… Mr. Trump abruptly barred the outlets from the White House last week, citing coverage he deemed ‘fake.’ In response, the major TV networks suspended the White House television pool, which provides video footage for daily presidential events.”
U.S./Russia/China/Europe/Iran Watch:
September 23 – Financial Times (Laura Dubois): “Belgium’s foreign ministry has warned internally that the US under Donald Trump is no longer a reliable ally and urged officials to cultivate ties with his opponents to protect the country’s interests… As alarm mounted in Europe about Trump’s apparent hostility to traditional allies in the region, the ministry set out a strategy to ‘calibrate’ engagement with Washington to protect Belgian interests while avoiding being seen as ‘hostile’… ‘It is now clear that the American partner is no longer the ally it has been in the past,’ says the strategy document, produced… in late 2025.”
Ukraine War Watch:
September 20 – Bloomberg (Anthony Halpin): “The Moscow Oil Refinery was hit during drone attacks that were part of the largest overnight Ukrainian barrage this year, as Russia entered the final day of voting in its parliamentary elections. Russia’s Defense Ministry said it downed 1,110 Ukrainian drones across 19 regions of Russia as well as in Crimea… That’s the largest overnight total reported so far this year, eclipsing the previous high of 822 in August.”
September 20 – Bloomberg (Volodymyr Verbianyi and Olesia Safronova): “Ukrainians are already drawing up contingency plans for what threatens to be the worst wartime winter yet. Under near-constant attack since Russia’s invasion of February 2022, residents are well-versed in getting through cold periods during airstrikes and regular blackouts. But last winter’s prolonged sub-zero temperatures brought a new level of hardship as a result of weeks-long disruptions to heating, water and sewage services in major cities including Kyiv.”
Taiwan Watch:
September 24 – Bloomberg (Nectar Gan): “Chinese leader Xi Jinping urged the US to ‘oppose’ Taiwan independence, marking his most explicit call for President Donald Trump to change his stance on the self-ruled island. During the two men’s first White House summit…, Xi asked the US to ‘adhere to the correct position of opposing Taiwan independence and handle the Taiwan issue with prudence,’ according to the official Xinhua News Agency.”
AI Bubble/Arms Race Watch:
September 23 – Axios (Avery Lotz): “Executives from leading artificial intelligence organizations urged global cooperation… to address risks from increasingly autonomous AI systems during a UN Security Council meeting. AI capabilities are advancing faster than governments are developing safeguards, raising concerns about whether humans can maintain control over increasingly autonomous systems. OpenAI CEO Sam Altman appeared in person at the meeting, while Anthropic's Dario Amodei and Hugging Face CEO Clem Delangue joined by video... ‘We have a choice in front of us,’ Altman said. ‘AI can either be more like a new renaissance of creativity and discovery, or more like a new industrial revolution of upheaval and disarray.’”
September 22 – Financial Times (George Hammond): “Anthropic and OpenAI both released cheaper versions of their leading models on Tuesday, as the price war between the two leading US labs and their low-cost Chinese rivals intensifies. The latest Claude model from Anthropic, Opus 5.5, is roughly 40% cheaper to use than its precursor and was the first of a new ‘family’ of models that will be more cost-efficient than previous generations… OpenAI… released lower-cost versions of ChatGPT-6, known as Sol and Luna, following the release of its most advanced ChatGPT-6 Astra model at the start of the month. It said the models will be 50% cheaper than their predecessors in the ChatGPT-5.6 slate.”
September 22 – Axios (Madison Mills): “AI companies have competed on having the best and often most dangerous models for years. Now, they’re pivoting to a new focus: cost. The biggest risk to the AI boom is demand, and recent innovations to make models cheaper while maintaining powerful levels of intelligence have offered a bullish signal. As the prices of top models from OpenAI, Anthropic and others come down, usage is increasing dramatically, a trend that points to the kind of demand that will be necessary to justify trillions of dollars in spending. It’s modelpalooza in the AI world this week, with OpenAI, Anthropic, SpaceX and some Chinese model providers all offering new releases. Most of them are offering shocking levels of intelligence at prices that would've been unthinkable just a few months ago.”
September 23 – Wall Street Journal (Konrad Putzier and Justin Lahart): “The AI build-out is on track to become the biggest economic bet in U.S. history, dwarfing the investments made to fund other huge U.S. infrastructure projects such as the railroads, the highway system and the plumbing for the internet. Total investment in data centers and related artificial-intelligence infrastructure is projected to total $10.3 trillion from 2025 to 2032, according to new estimates by economist Stijn van Nieuwerburgh published by the Brookings Institution. That is a staggering 3.6% of gross domestic product a year, on average. Never before has the U.S. economy been so dependent on the build-out of a single industry. The investment is transforming every corner of the economy, creating hundreds of thousands of jobs and minting new billionaires.”
September 21 – CNBC (Jenny Lee): “The artificial intelligence spending boom is showing little sign of slowing, with investment across the hyperscaler ecosystem potentially reaching $1 trillion next year, according to JPMorgan… CEO Jamie Dimon. Spending across the hyperscaler ecosystem has more than doubled from about $300 billion last year to around $700 billion this year, a surge Dimon said is boosting economic growth while potentially adding to inflation. ‘That’s like 1% increase to GDP each year,’ Dimon told CNBC-TV18…, adding that the spending ‘may add a little bit to inflation’ as companies hire workers, build factories and power plants, and buy equipment and materials.”
September 24 – Reuters (Renju Jose and Chris Thomas): “Australia said… an OpenAI agent breached a government health data portal in June, gaining unauthorised access to files, in what could be the first known instance of an AI agent hacking a government website. The breach is one of the highest-profile incidents of AI agents accessing external systems outside the United States, coming on top of several recent breaches globally by rogue AI agents that have alarmed governments and companies.”
September 25 – Bloomberg (Zahra Tayeb): “Goldman Sachs Group Inc.’s Lindsay Rosner says the bank’s asset management arm is underweight on the biggest artificial intelligence borrowers as a flood of issuance washes over the market. ‘We believe there will be a lot of hyperscaler issuance,’ Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said... ‘For that sector at large we are underweight knowing more issuance will come.’”
September 18 – Bloomberg (Samantha Oltman): “OpenAI expects that its negative free cash flow will reach $278 billion from 2026 to the end of 2030, according to a person familiar… Though the company projects its revenue will increase from $36 billion this year to $350 billion in 2030, it is investing heavily in computing power and expects expenses to vastly outpace those gains…”
September 21 – Financial Times (Martha Muir): “US utility profits are coming under fire as soaring electricity bills fuel an affordability backlash and pile pressure on politicians and regulators ahead of November’s midterm elections. Governors in more than a dozen states are trying to force down utility bills and earnings, while lawmakers in 15 have introduced measures to restrain utilities’ returns. Regulators are ordering bigger haircuts from those facilities’ requests for higher returns. That pressure matters because utilities do not set prices freely: state regulators approve what they can charge customers and the returns they can earn. Political scrutiny can therefore directly impact profits.”
September 21 – Financial Times (Bryce Elder): “Not everything that Elon Musk says is stupid. Sometimes it’s just obvious. Here he is, speaking about AI data centres at the G20 Innovation Ministerial Summit…: ‘There’s quite a crisis of power… The consensus at this point is that there will be a significant power shortfall next year. So, not like distant future. I believe the consensus estimate among analysts who follow the AI space very closely is that there will be at least a 15-gigawatt shortfall of power in 2027 for AI chips. The rate at which AI chips [are] being produced has been rising incredibly rapidly. They’re rising on the order of 40 to 50% a year. But power available outside of China has been rising at 10% to 20% a year. Obviously, the faster-rising thing will eventually overwhelm the slower-rising thing.”
Bubble Watch:
September 22 – Bloomberg (Layan Odeh, Preeti Singh, and Laura Benitez): “It started out as a typical private equity bet: Hellman & Friedman and JMI Equity took human resources provider Kronos Inc. private in 2007. The plan was to grow the business for at least a few years, then sell it or take it public. But after 19 years of cycling through different funds, Hellman & Friedman still owns Kronos… And there are no imminent plans for a sale or IPO. Across the industry, buyout firms have been clinging to both prized and hard-to-sell assets for longer. The traditional 10-year fund that was the backbone of the buyout model is vanishing. ‘Exits’ — as they are known in industry parlance — are often pushed far into the future, leaving investments trapped in portfolios indefinitely. Welcome to private equity’s version of Hotel California. Assets can check in. They rarely leave.”
Inflation Watch:
September 20 – Bloomberg (Will Kubzansky): “US retail diesel prices topped $6.50 a gallon for the first time… Average nationwide prices rose to $6.51 a gallon… The pace of increases has accelerated in September — gaining more than 87 cents so far this month — with prices rising almost every day and surging beyond the peak set in 2022.”
September 21 – Reuters (Shariq Khan and Siddharth Cavale): “A global diesel shortage fueled by wars in Iran and Ukraine is unlikely to ease before next year, according to storage market indicators and industry participants… Another sign of persistent tightness is emerging in the storage market. Refiners and traders across North America are declining to renew diesel storage leases because there is little fuel available to store, data from storage broker The Tank Tiger showed. Diesel storage capacity available for leasing in North America and the Caribbean Islands, a major trading hub, has climbed to a four-year high of 13 million barrels for October…”
September 22 – Axios (Emily Peck): “In a new survey, homebuilders around the country say ramped-up Immigration and Customs Enforcement crackdowns are creating huge headaches for their businesses. The labor strain comes on top of other challenges for the industry: rising mortgage rates, higher prices for key inputs driven by tariffs and the Iran war, as well as growing competition for resources with builders of data centers. ‘ICE is becoming a very large issue and causing labor shortages,’ says a Houston builder in a survey conducted earlier this month by John Burns Research and Consulting… A builder in Richmond, Virginia, says: ‘ICE has had significant impacts to vendors throughout Virginia/Maryland in the last 90 days… This has had a major impact on cycle times and the ability to start new houses.’”
September 23 – CNBC (Amelia Lucas): “McDonald’s is predicting that flat traffic and higher inflation will continue to weigh on the restaurant industry, CEO Chris Kempczinski said… ‘One of the things I’ve talked to our team about is we need to stop talking about that being a difficult environment, and just say that is the environment,’ Kempczinski said… ‘Because I think, as we look out forward, we’re not expecting things to change.’”
Federal Reserve Watch:
September 21 – Reuters (Howard Schneider): “Suggestions that the Federal Reserve could lower borrowing costs to help the US government finance its current debt and deficits are the very reason the central bank needs to be independent in setting monetary policy, Chicago Fed President Austan Goolsbee said… Fiscal policy and deficit levels need to be treated as ‘the background weather’ by the Fed, relevant to the degree that they influence inflation, but otherwise are a matter for elected officials to decide, Goolsbee told reporters… ‘Should the Fed try to reduce the rates to make the deficit smaller or to make it less costly to increase the debt?’ Goolsbee asked. ‘Let’s be a little careful with that. ... Because I think that is the canonical argument’ for central bank independence. ‘That is the ‘monetize the debt’ argument. You say let’s try to force rates lower because the debt is getting bigger,’ Goolsbee said, describing a situation most economists think would lead to higher inflation and likely backfire, as market borrowing rates got bid higher to adjust for rising inflation expectations.”
September 21 – Financial Times (Myles McCormick): “The Federal Reserve would need to adopt an ‘aggressive’ and ‘frontloaded’ policy response if the current burst of inflation turned out to be fuelled by more enduring factors than the oil price shock, according to one of the central bank’s top officials. Austan Goolsbee, president of the Chicago Fed, said that an additional quarter-point increase in interest rates ‘likely would not be enough’ if price rises were being driven by ‘overheating demand’ — from the services sector and the AI boom — rather than just the supply shock from the Iran war. ‘We’ve been getting a little more sense… that some of [the inflation] maybe is coming from overheating demand — and the services inflation, maybe, isn’t going away… If the through line is that it’s coming from overheating demand, I think the implication is the rate response is more aggressive and more frontloaded than if it’s coming from supply shocks.”
September 21 – Reuters (Howard Schneider): “US inflation may have moved beyond the tariff and energy prices shocks of the last 18 months and is now being driven by strong demand as well, potentially requiring a faster pace of Federal Reserve interest rate hikes, Chicago Fed President Austan Goolsbee said… ‘If the through line is that it’s coming from overheating demand, I think the implication is the rate response is more aggressive and more and more front-loaded,’ he said. In recent data and in conversations with business contacts ‘we’ve been getting a little more sense ... that some of it maybe is coming from overheating demand.’”
September 21 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Chicago President Austan Goolsbee warned the central bank cannot ignore repeated and persistent supply shocks, and must respond in a way that may cause economic hardship. ‘Supply shocks have come more frequently, hit harder and lasted longer… And once supply shocks to inflation become persistent, some of the logic behind ‘looking through’ no longer holds.’ He added that while the Fed’s response to these shocks, and the inflation they’re generating, doesn’t have to be as aggressive as a response to overheating demand, it still won’t be painless. ‘This is exactly the painful trade-off between employment and inflation that stagflationary shocks always impose on a central bank… Unfortunately, in environments like that, the only way back is the hard way.’”
September 22 – Wall Street Journal (Dean Seal): “Richmond Fed President Thomas Barkin suggested more rate hikes could be coming as the central bank focuses all of its attention on taming inflation… Barkin compared the Federal Reserve’s dual mandate of price stability and maximum employment to raising two ‘very different kids.’ The Federal Reserve chose last week to raise rates for the first time in three years because inflation has become a ‘troublemaker’ that the central bank needs to address while the labor market ‘continues to get good grades,’ Barkin said… Barkin warned that temporary shocks spurring inflation this year could drag on and new cost pressures could develop. ‘Like in child rearing, one ‘talking-to’ might not be enough,’ he said, referring to last week’s rate hike.”
September 22 – Yahoo Finance (Jennifer Schonberger): “Richmond Federal Reserve president Tom Barkin said… stubborn inflation, recently fueled by higher oil prices and tariffs, drove the central bank's decision to raise interest rates last week and leave the door open to further hikes. ‘There was an argument that inflation would return to target on its own, without any additional help from the Fed,’ Barkin said... ‘One problem with that argument, of course, is that the ‘passing’ shocks aren’t proving to be short-lived, or one-off events.’”
September 22 – Reuters (Howard Schneider): “US economic conditions ‘are, if anything, firming,’ with continued consumer spending and strength beyond the boom in artificial intelligence keeping the Federal Reserve's focus on inflation, Richmond Fed President Tom Barkin said… ‘The risks to inflation outweigh the risks to maximum employment. That’s why we raised rates,’ at last week’s meeting, Barkin said…, adding that the quarter-percentage-point hike ‘will help’ restore inflation to the Fed's 2% target.”
September 20 – Reuters (Doina Chiacu): “Minneapolis Federal Reserve President Neel Kashkari said… inflation is too high across all sectors of the US economy, not just in rising oil prices. ‘So even if we strip out energy, which is really volatile, and strip out food — they matter a lot — but in terms of where the economy is going, inflation is still too high,’ Kashkari told Fox News… ‘The inflation that the American people are feeling every day is much beyond just oil prices. It’s in all aspects of the economy. It’s in the services sector, for example, widely. So we have tools to bring that back down… Hopefully, we’ll get some help from other parts of government or other parts of the real economy.’”
September 24 – Reuters (Michael S. Derby): “The U.S. central bank will likely need to raise interest rates again to curb unacceptably high inflation, two Federal Reserve policymakers said… ‘Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,’ Philadelphia Fed President Anna Paulson told a conference…”
September 24 – Reuters (Michael S. Derby): “Federal Reserve Bank of Cleveland President Beth Hammack said… inflation pressures remain elevated and the longer this situation persists, the harder it will be to bring price pressures back to target. ‘Current conditions in the United States indicate that output is growing at a solid pace and the labor market remains close to my definition of maximum employment, but inflation remains elevated’… The inflation outlook continues to be highly uncertain, with risks tilted to the upside’ and ‘the longer that high inflation persists, the more challenging and costly it can be to bring it back down,’ she said.”
September 21 – Reuters (Howard Schneider): “The Federal Reserve will likely need to hike interest rates further to lower inflation resulting from strong demand as well as a commodity price shock that has moved beyond oil, St. Louis Fed President Alberto Musalem said…, adding that it would be better for the US central bank to act sooner than wait. ‘Both persistent demand and recurring supply forces are continuing to contribute to keeping inflation risks elevated, and I judge that without further policy restraint on inflation it is more likely to be substantially above our 2% target in 18 months than at target,’ Musalem said…”
September 23 – Yahoo Finance (Jennifer Schonberger): “Federal Reserve governor Michael Barr said… additional interest rate hikes are needed to bring down sticky inflation. ‘Further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion… Inflation is above our 2% target and not clearly trending toward target in a timely way. Moreover, risks to achieving our inflation target have increased, while risks to the labor market have receded.’”
September 24 – Reuters (David Milliken): “New York Federal Reserve President John Williams said… it was reasonable to think that the U.S. central bank might need to raise interest rates again before the end of the year to help bring down inflation risks. Forecasts among market participants showed investors thought ‘it’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it,’ Williams said.”
September 22 – Reuters (Michael S. Derby): “New York Federal Reserve President John Williams defended the US central bank’s monetary policy implementation system on Tuesday, while saying it can be adjusted and tweaked in line with changes in financial markets. Supplying ‘ample’ reserves to the financial system with the current suite of tools to manage short-term interest rates ‘has proven to be highly effective at delivering interest rate control and supporting the smooth functioning of core financial markets,’ Williams said… ‘As markets evolve over time, we must ensure that policy tools are fit for purpose to carry out their necessary functions… Put simply, the evolution of financial market structure leads to the evolution of how we carry out monetary policy effectively.’”
September 21 – Associated Press (Christopher Rugaber): “A top Federal Reserve official said… stubbornly high inflation and the renewal of combat in the Middle East in August were key reasons she supported raising borrowing costs last week… Susan Collins, president of the Federal Reserve Bank of Boston, said… she agreed with the Fed’s decision… to lift its benchmark interest rate by a quarter-point... She also expects that the Fed will keep rates unchanged next year, she added. ‘I did not see the inflation progress I was hoping to see… Geopolitical developments suggest that we could continue to see additional pressures push on the energy side. There were reasons to see an increased likelihood of some of the scenarios in which inflation gets stuck above 2%,’ she added…”
U.S. Economic Bubble Watch:
September 24 – Reuters (Lucia Mutikani): “The US current account deficit widened sharply in the second quarter amid a surge in imports of goods… The… current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $33.4 billion, or 15.7%, to $246.0 billion last quarter… The second-quarter current account deficit represented 3.0% of gross domestic product, up from 2.7% in the January-March quarter. It peaked at 6.3% in the third quarter of 2006… Goods imports shot up by $67.4 billion to $931.6 billion. That outpaced a $27.1 billion increase in exports of goods to $640.3 billion.”
September 23 – Bloomberg (Jeffrey Sparshott): “US business activity rose at the fastest pace in more than five years as robust demand pushed up new orders and employment at manufacturers and service providers. The S&P Global flash US composite purchasing managers index climbed to 58.4 in September… That was the highest since July 2021… Employment surged at a rate not seen in over four years, while input prices grew at the fastest pace since 2022… ‘Business is clearly booming now in both manufacturing and services,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said… ‘However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff,’ Williamson said. Activity at service providers increased to 58.7 in September, the highest since 2021. A gauge for employment was the strongest since June 2022.”
September 23 – Reuters (Lucia Mutikani): “US business activity raced to a more than five-year high in September, fueled by a surge in new orders, though strong demand strained supply chains and pushed prices higher. S&P Global said… its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 58.4 this month. That was the highest level since July 2021 and followed a reading of 56.0 in August… The PMI was consistent with the economy growing at around a 5% annualized rate, S&P Global said. It also noted a sharp rise in work backlogs and supply chain delays, ‘pointing to a lack of operating capacity which fed through to higher prices.’ The Atlanta Federal Reserve's gross domestic product tracking estimate is running at a 5.1% rate.”
September 25 – Reuters (Lucia Mutikani): “New orders for key US-manufactured capital goods increased more than expected in August and data for the prior month was revised sharply higher, pointing to another quarter of robust growth in business spending on equipment amid an artificial intelligence infrastructure buildout… Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, jumped 1.6% last month after an upwardly revised 0.6% increase in July…”
September 24 – Associated Press (Paul Wiseman): “Fewer people applied for U.S. unemployment benefits last week, as U.S. jobless claims remain at historically low levels and most Americans enjoy job security… 197,000 people applied for unemployment checks last week, the fewest since mid-July and down from a revised 198,000 the week before.”
September 23 – CNBC (Diana Olick): “Mortgage rates soared to the highest level since 2024 last week, causing loan demand to fall back again and more borrowers to opt for riskier loans… Applications to refinance a home loan dropped 3% for the week and were 62% lower than the same week one year ago… Applications for a mortgage to purchase a home fell 1% for the week and were 11% lower year over year.”
September 24 – Reuters (Lucia Mutikani): “Sales of new US single-family homes surged to an eight-month high in August… New home sales increased 6.4% to a seasonally adjusted annualized rate of 684,000 units last month, the highest level since December 2025… New home sales soared 84.9% in the Midwest and rose 6.9% in the South over the month, but they plunged 36.1% in the Northeast and by 15.2% in the West. Sales decreased 2.0% on a year-over-year basis in August.”
September 23 – Reuters (David Shepardson): “America’s aging air traffic control system — reliant on outdated telecom systems, decades-old Compaq computers and replacement parts bought on eBay — keeps failing. In the latest example, thousands of flights across the densely populated Northeast were delayed or canceled on Monday due to the dual failures of a circuit at a Philadelphia air traffic facility and the accidental cut of a fiber-optic cable near New Brunswick… ‘The architecture of our telecom is still a 40-year-old architecture, which means you could have a switch go down and a line be cut yesterday and the Northeast goes down,’ U.S. Transportation Secretary Sean Duffy said…”
China Watch:
September 23 – Reuters: “Chinese ports had their busiest week in history ahead of the approaching summit between Presidents Donald Trump and Xi Jinping, extending a boom in shipments abroad… A record 7.3 million containers passed through Chinese terminals in the seven days through Sept. 20, an increase of 9% from a year ago…”
Central Banker Watch:
September 21 – Bloomberg (Tom Rees and Irina Anghel): “Financial regulators are running out of time to tackle the risk of autonomous artificial intelligence agents causing a market meltdown, according to Bank of England Deputy Governor Sarah Breeden. She said… the UK central bank is looking at testing kill switches to prevent AI from causing chaos in financial markets, though she stressed officials don’t know yet how one could operate. ‘We need to get our skates on if we’re properly to understand these risks to make sure that by the time this sort of agentic trading is common in financial markets, we’re ready with a financial stability response,’ Breeden said... ‘I don’t think we’re behind, but I’m not sure that we’ve got terribly much time ahead of us.’”
September 25 – Reuters (Andy Bruce): “Bank of England Governor Andrew Bailey said on Friday that persistently high energy prices would make it harder for the central bank to leave interest rates on hold, underlining a recent shift in tone towards higher borrowing costs. The warning comes at a difficult time for Prime Minister Andy Burnham and his finance minister John Healey… ‘It’s going to get harder to maintain that stance the longer we have high energy prices,’ he told the Monetary Economics Conference…”
September 24 – Reuters (Stella Qiu and Wayne Cole): “Australia’s jobless rate unexpectedly rose to a five-year high in August even as employment enjoyed a solid rebound, a mixed report that left markets still wagering on an imminent rate hike to fight inflation. Markets imply a 95% probability that the Reserve Bank of Australia will raise interest rates a fourth time next Tuesday to 4.6%.”
Europe/UK Watch:
September 22 – Reuters (Andy Bruce): “Britain’s government borrowed more than expected in August, pushing the deficit for the financial year to date further above official forecasts and adding to a tough backdrop for finance minister John Healey’s first budget next month. Public sector net borrowing stood at £18.3 billion ($24.5bn) in August…, above all forecasts… which had pointed to a £15.5 billion deficit.”
September 23 – Bloomberg (Mark Schroers): “Private-sector activity in the euro area grew at the fastest pace in more than three years as the service sector unexpectedly improved. The Composite Purchasing Managers’ Index compiled by S&P Global increased to 53.1 from 52 in August… The region’s two largest economies both exceeded expectations, with activity in Germany growing at the fastest pace since October 2025 and France unexpectedly expanding at the quickest in more than two years.”
September 21 – Reuters (Andreas Rinke and Matthias Williams): “Chancellor Friedrich Merz was clinging to power on Monday after his conservative party tumbled to its worst regional election defeat in postwar Germany and members of his coalition clashed over his unpopular reform agenda. Merz himself described Sunday’s loss in the northeastern state of Mecklenburg-Western Pomerania as a ‘disaster’ after his Christian Democrats (CDU) missed the minimum threshold to enter the regional parliament.”
Japan Watch:
September 24 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is expected to raise interest rates roughly once every three months and push them up to 2% by around June next year to combat mounting inflationary pressures, former bank board member Makoto Sakurai said… In raising interest rates to a 31-year high of 1.25% in September, the central bank has shifted its policy approach to one increasingly focused on addressing broadening price pressures from surging fuel costs, he said.”
Emerging Markets Watch:
September 23 – Financial Times (John Paul Rathbone): “Turkey has arrested the founder of an investment brokerage at the centre of an $18bn alleged Ponzi scheme that has torched the savings of hundreds of thousands of investors and raised questions about why regulators did not act earlier to stop it. Emre Tezmen, chair of Tera Yatırım, was arrested… alongside Tera board members Kerem Alkin and Emre Alkin...”
September 25 – Bloomberg (Andrew Rosati): “Brazil’s inflation picked up more than expected in early September, compounding cost-of-living pressures on consumers ahead of elections… Consumer prices rose 4.47% from a year earlier, above all forecasts in a Bloomberg survey that had a 4.32% mediate estimate. On the month, inflation reached 0.7%, also topping all estimates.”
Social, Political, Environmental, Cybersecurity Instability Watch:
September 21 – Bloomberg (Lili Pike and Coco Liu): “With the world now set to barrel past a key global warming goal, the United Nations’ top climate official took aim at AI goliaths for their growing share of emissions as the UN General Assembly and Climate Week began in New York. ‘Energy guzzling artificial intelligence is driving up planet-heating pollution from coal, oil and gas, while ratcheting up energy costs for households and businesses,’ Simon Stiell, executive secretary of the United Nations Framework Convention on Climate Change, said…”
September 21 – Bloomberg (Brian K Sullivan and Lauren Rosenthal): “California has declared a state of emergency as a strengthening El Niño raises the threat of damaging storms, widespread flooding and mudslides across the state this fall and winter. Governor Gavin Newsom made the declaration… as the climate phenomenon continues to build in strength across the Pacific. In preparation, Newsom directed state agencies to assess infrastructure, including drainage systems, and speed up projects meant to protect highways and bridges from flooding and coastal erosion.”
