Note to readers: Many of the yields and indicators referenced below can be viewed in chart form at the new site - thecreditbubblebulletin.com – in the “Timely Charts” on the home page and the “Financial Conditions” section within the “Charts” page.
Crude (WTI) surged another $6.82 this week to $89.31 – the high back to May, while boosting y-t-d gains to 55%. At this point, only a miracle would bring this war to a timely resolution. Iran remains defiant. Indeed, they directed the Houthis to activate in the Red Sea, specifically targeting Saudi trade - and establishing a critical second chokepoint at the Bab el-Mandeb Strait. The Iranians show no sign of retreating from their demand to control the Strait of Hormuz.
“Trump Seethes as Iran War Spirals Anew With No End in Sight.” The President is back to threatening bridges and power plants. Iran endangers U.S. troops and regional infrastructure, such as power and desalination plants. Trump: “I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it.”
Markets increasingly question whether TACO is still on the menu. Instead, talk is growing louder about the war consuming the Trump presidency. The Iranians are notorious for patience and perseverance. President Trump faces a midterm election clock signaling just over three months.
The new Fed Chair faces a rapidly ticking inflation clock – with increasingly unstable bond markets. The rates market ended the week pricing 38% probability of a hike at next week’s FOMC meeting, with more than 100% (110%) for a 25 bps rate increase by the September 16th meeting. With near-term prospects for war resolution appearing bleak, the hawkish committee contingent will push back against doing nothing until mid-September.
July 24 – Bloomberg (Jeffrey B. Sparshott): “US business activity expanded at the fastest pace in eight months as strong domestic demand for services offset cooling factory production, growing supply chain delays and rising costs. The S&P Global flash composite purchasing managers index rose to 53.6 in July… Activity at service providers climbed to 53.6, the highest since November 2025… “July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand,’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said…”
I remember market “government support” chatter in 1990. The S&P500 had sunk 17% from July 16 to August 23 of that year. The banking system was in trouble and the economy was vulnerable. Saddam Hussein had invaded Kuwait that August, with President Bush immediately moving to build his coalition to confront the Iraqi invaders.
During the 1994 bond crisis, the government-sponsored enterprises provided powerful liquidity support. The next year, President Clinton called on the Exchange Stabilization Fund to finance $20 billion of support during the Mexico crisis. The IMF later joined for a $58bn bailout package. The term “plunge protection team” (PPT) surfaced during the 1997 Asian crisis and took hold during the 1998 LTCM bailout period. The “PPT” was an important part of the market narrative after the bursting of the late-nineties tech Bubble. It became accepted market dogma that “Washington would never tolerate a bursting housing Bubble.” From 2008 to the pandemic, “government support” inflated to previously unimaginable extremes.
Maybe President Trump is actually considering a “massive attack,” which would surely trigger a major Iranian response – jeopardizing the region’s energy infrastructure, desalination plants, oil tankers, and such. A spike to $150 and even $200 crude would be possible, unleashing a global inflation scare and collapsing bond prices. A global market panic and crash would be a distinct possibility.
The VIX (equities volatility) Index was down slightly this week to 18.58. Considering the possibility of Middle East/global mayhem, a 30 to 40 VIX level would be more reasonable. The MOVE (bond volatility) Index rose six this week to 76.8 – a somewhat nonsensical level considering the backdrop (5-yr avg. 99). There was some notable movement this week in corporate Credit indicators. High yield CDS gained six to a two-month high of 316 bps (vs. 5yr avg. 378/March spike to 406). High yield spreads (to Treasuries) jumped 12 to a one-month high of 280 bps (vs. 5yr avg. 343/March spike to 335).
Markets seemingly trade with the view that Secretary Bessent and Chair Warsh have the old “PPT” locked and loaded.
This is such an extraordinary backdrop. We’re at war, and there’s nothing our adversary would rather do than trigger market and economic mayhem. Markets have been quite comfortable with the notion of a Trump war “put.” The White House surely views faltering markets as a threat to national security (along with political “security”). And with only about 100 days to go, faith in the administration’s capacity to sustain strong markets through the midterms has yet to waver. What’s more, there is a general view that the Treasury and Fed won’t tolerate bond or repo market instability – especially for such an over-indebted and levered world during acute geopolitical uncertainty.
It’s not uncommon late in major Bubble markets for perceptions to take hold that market manipulation and various shenanigans ensure ongoing market gains. The powerful players and institutions essentially have the market “cornered” or “rigged.” In 1929, it was the “stock pool” operators and investment trusts that were to keep prices levitated. Such Bubble schemes work until they don’t.
Tesla sank 14.5% Thursday and was down 17.8% this week – the largest weekly decline since the week ended December 23, 2022 (down 18.0%). I’ve long viewed elements of Tesla consistent with a “rigged” “cult stock.” With much of the float closely held and a CEO keen to hype future innovations, it’s a stock ripe for fun and games. Myriad issues and crazy valuation metrics have repeatedly enticed outsized short positions, ensuring bloody short squeezes and intoxicating trading profits for the bulls. It works wonderfully until it doesn’t – and for some reason it suddenly didn’t work this week.
It would be easy to dismiss Tesla’s dive if it weren’t for other market warnings. The MAG7 Index sank another 5.7% this week – with Meta Platforms down 7.9%, Alphabet/Google 7.8%, Amazon 6.1%, and Microsoft 3.1%. MAG7 was down 8.6% over the past seven sessions. Tesla ended the week about 30% below highs from May 14th. Microsoft is down 18% from June 1st highs, with Google 20% below May 13th highs.
Oracle was hammered another 9.0% this week, having now lost more than half its value (53%) since June 1st. Alarmingly, Oracle bond (5.7%, ’36) yields surged 46 bps this week to 6.98%, with yields now up a blistering 83 bps in 14 sessions. Oracle CDS jumped 17 to a record 216 bps, after beginning 2026 at 54 bps.
Elsewhere, CoreWeave (8.5%, ’32) yields surged 48 bps this week to a record 10.35% - with yields up 112 bps in 11 sessions.
July 22 – Reuters (Patturaja Murugaboopathy and Gaurav Dogra): “U.S. hyperscalers are starting to show returns on their artificial intelligence investments, but the rising cost of the buildout is taking a bite out of their free cash flow, and investors are noticing. At their current trajectory, the so-called ‘hyperscalers’ -- Microsoft, Alphabet, Amazon, Meta Platforms and Oracle -- are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, according to a Reuters analysis of LSEG consensus estimates. The data shows the companies will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, but capex is expected to rise by roughly $534 billion, equivalent to about $1.57 of additional investment for every $1 of additional cash flow.”
July 23 – Bloomberg (Tasos Vossos): “A 100-year bond that Alphabet Inc. issued earlier this year in the sterling market as it gorged on debt around the world has dropped below 90 pence on the pound for the first time. The £1 billion ($1.34bn) bond due in 2126 that the tech giant sold in February at just under par was indicated at 89.978 pence on Thursday…”
Amazon’s 5.3% 2036 bond has struggled mightily in its initial 13 trading sessions. Yields surged 27 bps this week to 5.58%, with the bond now trading at 97.9. Microsoft (3.45%, ’36) yields spiked 27 bps this week to 5.27% - after trading at 4.36% on February 27th (pre-war). Meta Platforms’ long-term yields (6.3%, ’56) surged 31 bps this week to 6.92%. If confidence in big tech bonds doesn’t return in a hurry, this spectacular, historic, and uber manic AI arms race party will face a premature ending (with dreadful hangover).
July 24 – Bloomberg (Michael Gambale, Davide Barbuscia and Caleb Mutua): “BlackRock Inc. has seen weaker-than-usual demand for a corporate bond sale tied to a Meta Platforms Inc. data center project in Texas, as investors grapple with concerns about excessive AI infrastructure spending. Final demand reached $20 billion by late Friday afternoon, or about 1.6 times the amount of bonds for sale… The $12.3 billion bond is expected to be priced on Monday, the people said.”
“At long last, we have peace in the Middle East, and it’s a very simple expression, peace in the Middle East… We’ve heard it for many years, but nobody thought it could ever get there. And now we’re there.” President Donald Trump, October 13, 2025, after the signing of the Gaza ceasefire declaration in Sharm el-Sheikh, Egypt.
A sampling of Friday headlines
“The U.S. and Iran Are Stuck in a Cycle of Military Escalation.” “Iran Targets American Strongholds Around the Gulf While US Hits More Iranian Military Sites.” “Saudi Arabia Strikes the Port City of Hodeida in Yemen.” “Houthis Claim Missile Attack on Southern Saudi Arabia.” “Another Saudi Tanker Attacked in the Red Sea.” “Bab El-Mandeb Blockage May Add ‘Unprecedented’ Supply Constraints, Sources Say.” “Ship Insurers Restrict War Coverage for Saudi Arabian Cargoes in Red Sea.” “Kuwait and Bahrain Launch First Direct Attack on Iran Amid Escalating War.” “Settlers Rampage Across West Bank Amid Burial of Civil Security Guard Shot by Palestinian.” “Israel Pours Troops into West Bank After Deadly Shooting.” “Palestinian Authority Condemns Israeli Settlement ‘Terrorism’ After West Bank Clashes.” “Israel Steps Up Deadly Strikes and Expands Physical Barrier in Gaza Despite Truce”
This would be a horrible time for Middle East conflict to spiral out of control. Unprecedented global debt and speculative leverage ensure acute fragilities. Global bond yields have begun to break to the upside. Unless there’s war resolution and a return of crude flows through the Strait of Hormuz and Bab El-Mandeb Strait, preparation for global de-risking/deleveraging dynamics is of the essence.
“The Bloomberg Global Treasury Index — which tracks government bonds of investment-grade countries — has surged to 3.68%, surpassing a peak from three years ago to reach the highest since the global financial crisis in 2008.” (Bloomberg’s Greg Ritchie and Cameron Fozi)
While things stabilized somewhat Friday, Thursday trading was alarming. 30-year Treasury yields jumped to 5.18%, matching the May 19th closing high, which was the highest close since July 11, 2007. Ten-year Treasury yields jumped to a Thursday intraday high of 4.71% - the high back to January 2025 – and within eight bps of highs since the October 2023 yield spike. Benchmark MBS yields traded to a 13-month high of 5.73% in Thursday trading.
“Bund Yields Hit 15-year High as $100 Oil Fans Inflation Concerns.”
“Japan 5-Year Yield Rises to 2.045%, Highest Since 2000 Debut.” “Japan 40-Year Yield Rises 10bp to 4.01%.” Forty-year JGB yields surged 14 bps this week to 4.01%, within two bps of the July 9th record high.
French yields traded to 4.04% Thursday, with the first close above 4% since November 2008. UK gilt yields traded to 5.12%, within five bps of the May 15th closing high (highest yield since June 2008) and the “longest period of daily closes above 5% in almost two decades” (Bloomberg).
Australian yields jumped 19 bps this week to 5.09%, within three bps of the high back to July 2011. New Zealand yields rose 14 bps to 4.79% - within nine bps of the high since August 2011. South Korean yields rose eight bps to 4.42%, the high since the October 2022 global bond tumult. Curiously, Singapore yields spiked 23 bps to a 13-month high of 2.44%.
There were few places to hide this week. Some key EM bond markets were slammed. Yields in Turkey surged 68 bps this week to 32.60%. South African yields jumped 20 bps to 8.87%. Yields were up 20 bps in Poland (5.76%) and 16 bps in Hungary (5.63%). Czech yields traded to 5.05% Thursday, the high back to March 2023 – ending the week up 15 bps to 5.01%. Brazilian yields traded above 15% in Thursday trading for the first time in 15 months, ending the week with yields up 11 bps to 14.83%. Mexico yields traded up to 9.34% before ending the week 14 bps higher at 9.26%.
EM dollar-denominated yields were also under notable pressure. Argentine yields surged 38 bps this week to 9.11%. Philippines yields were 23 bps higher at 5.66%, closing the week at the highest yield since November 2023. Indonesia yields jumped 19 bps to 5.70%, also the high back to November 2023. Qatar saw yields jump16 bps to 4.96% - a new multi-decade high. Mexico’s dollar yields rose 13 bps to 6.50%, trading this week to a 14-month high, while Brazil’s yields rose to 6.36% Thursday, within six bps of a two-year closing high.
In EM currencies this week, the South African rand declined 1.8%, the Argentine peso 1.2%, and the Chilean peso 1.1%.
July 23 – Bloomberg (Greg Ritchie): “Hedge funds’ most popular trade in the US bond market is showing signs of maxing out. Known as the basis trade, the strategy involves wagering on the small price difference between Treasury bond futures and the underlying securities, using heaps of borrowed cash to scale up the bet. But now those gaps are narrowing, and the trade is losing steam. Early evidence of a pullback can be seen in reduced activity in some of the repo funding markets commonly used by hedge funds to obtain leverage, combined with a decline in their short futures positions. Morgan Stanley estimates the amount of money locked up in leveraged investors’ basis trades has declined by more than $200 billion to $1 trillion in recent months.”
It’s interesting to read analysis that suggests hedge funds have reduced basis trade leverage. And it’s worth noting that money market fund assets have dropped $82 billion over the past two weeks – a contraction indicative of the unwind of “repo” financed leverage.
There’s a solid case that a deleveraging cycle has commenced. I won’t yet make a big deal out of a smaller hedge fund basis trade, not after the huge growth in Treasury holdings at the banks and Wall Street firms. Still, there has been meaningful deleveraging in bitcoin and crypto more generally. The pullback in some big technology stocks is likely associated with initial deleveraging in individual stocks, sector ETFs, and in options/derivatives. And some recent spikes in big tech bond yields suggest incipient de-risking/deleveraging.
July 21 – Bloomberg (Carter Johnson and Vinícius Andrade): “One of the most enduring foreign-exchange bets is off to its best run in decades as surprisingly muted volatility across asset classes has investors piling into carry trades. The strategy, which involves borrowing in low-yielding currencies to invest where returns are higher, has proven a winner in 2026 as the global economy remains unexpectedly resilient in the face of the oil shock spurred by the Iran war. That backdrop is suppressing market swings and buoying risk appetite among traders seeking out lofty yields in developing nations. One version that strategists at Citigroup Inc. and other banks have been citing lately involves borrowing in euros to buy a basket comprising the Brazilian real, Colombian peso and Turkish lira. It’s up roughly 18% this year through last week, the most year-to-date since 2005…”
Until recently, speculative leveraging was firing on all cylinders – global “carry trades,” Treasury “basis trades,” corporate Credit, Wall Street “structured finance,” the big tech stocks and indices, margin debt, crypto, derivatives and likely even the precious metals. It’s been an historic global phenomenon, one that masked myriad serious issues and festering problems.
Key facets of this historic Bubble have begun to falter, including crypto and big tech. I suspect that “carry trade” leverage evolved into the greatest contributor to destabilizing global liquidity overabundance. Dollar strength – and associated weakness in the yen, euro and Swiss franc (in particular) – provided a favorable “carry trade” backdrop. Excessively loose monetary policy/low rates in Switzerland, the Eurozone, and Japan stoked “carry” returns. Additionally, relatively low currency market volatility promoted aggressive leveraging.
Now, with the AI Bubble increasingly vulnerable, so much is riding on the sustainability of global “carry trade” leverage. With this in mind, it was not a comforting week. Global yields broke to the upside, while incipient instability began to seep into various markets.
“Yen’s Worst Week Since May Brings It Close to 165 Per Dollar.” The market will force Japan’s Ministry of Finance to aggressively intervene to support the yen. The Bank of Japan must get its act together and meaningfully raise rates – or risk a bond market crash. Such an unsettled backdrop suggests markets might be overdue for a replay of the August 2024 “carry trade” flash crash. It’s reasonable to assume that “carry trade” crowding has only intensified over the past two years (like everything speculative leverage).
For Posterity
July 21 – Wall Street Journal (Robert McMillan and Amrith Ramkumar): “It’s the stuff of cybersecurity nightmares. On Tuesday, OpenAI said two artificial intelligence systems it was testing broke out of their test environment, hacked their way onto the internet and broke into another company. The victim was Hugging Face, a provider of open-source AI tools. The cause was a cybersecurity benchmarking test that went very, very wrong. Hugging Face discovered the break-in early last week, saying there had been unauthorized access to internal data sets and company credentials. The company wasn’t sure whether customer or partner data had been compromised. At the time, the company also didn’t know who was responsible, but the attack was so sophisticated that Hugging Face employees suspected it required a top-of-the line ‘frontier’ AI model, Hugging Face Chief Executive Clement Delangue said in an X message, posted Tuesday. ‘Turns out it did!’ he added. In a blog post on Tuesday, OpenAI said the culprits were a pair of its models.”
For the Week
The S&P500 slipped 0.6% (up 8.3% y-t-d), and the Dow dipped 0.4% (up 8.1%). The Utilities rallied 2.5% (up 9.1%). The Banks slipped 0.3% (up 14.7%), while the Broker/Dealers recovered 1.4% (up 13.5%). The Transports declined 1.1% (up 29.5%). The S&P 400 Midcaps added 0.2% (up 14.5%), while the small cap Russell 2000 retreated 1.1% (up 18.1%). The Nasdaq100 fell 1.6% (up 11.4%). The Semiconductors recovered 1.2% (up 66.9%). The Biotechs dipped 0.3% (up 20.5%). With bullion recovering $35, the HUI gold index rallied 5.7% (down 10.8%).
Three-month Treasury bill rates ended the week at 3.8090%. Two-year government yields surged 15 bps to 4.33% (up 86bps y-t-d). Five-year T-note yields jumped 15 bps to 4.43% (up 70bps). Ten-year Treasury yields rose 13 bps to 4.68% (up 51bps). Long bond yields gained nine bps to 5.16% (up 31bps). Benchmark Fannie Mae MBS yields surged 19 bps to 5.71% (up 67bps).
Italian 10-year yields gained five bps to 4.00% (up 45bps y-t-d). Greek 10-year yields increased five bps to 3.89% (up 45bps). Spain's 10-year yields added four bps to 3.63% (up 34bps). German bund yields rose five bps to 3.17% (up 32bps). French yields increased four bps to 3.97% (up 41bps). The French to German 10-year bond spread was little changed at 80 bps. U.K. 10-year gilt yields jumped eight bps to 5.03% (up 55bps). U.K.’s FTSE equities index gained 1.3% (up 8.0% y-t-d).
Japan’s Nikkei 225 Equities Index recovered 0.7% (up 28.4% y-t-d). Japan’s 10-year “JGB” yields surged 12 bps to 2.82% (up 75bps y-t-d). France’s CAC40 increased 0.4% (up 2.7%). The German DAX equities index gained 1.1% (up 2.5%). Spain’s IBEX 35 equities index rose 1.9% (up 13.2%). Italy’s FTSE MIB index slipped 0.2% (up 15.3%). EM equities were mixed. Brazil’s Bovespa index added 0.2% (up 8.0%), while Mexico’s Bolsa index slipped 0.4% (up 3.1%). South Korea’s Kospi fell 1.9% (up 58.8%). India’s Sensex equities index dropped 2.7% (down 10.7%). China’s Shanghai Exchange Index recovered 1.3% (down 3.9%). Turkey’s Borsa Istanbul National 100 index slipped 0.3% (up 23.8%).
Federal Reserve Credit jumped $16.5 billion last week to a 16-month high $6.698 TN, with a 32-week expansion of $208 billion. Fed Credit was down $2.192 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.971 TN, or 80%. Fed Credit inflated $3.887 TN, or 138%, since November 7, 2012 (715 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt recovered $11.2 billion last week to $2.885 TN - off the low back to August 2010. “Custody holdings” were down an extraordinary $334 billion y-o-y, or 10.4%.
Total money market fund assets (MMFA) fell $22.6 billion to $7.891 TN. MMFA were up $786 billion, or 11.1%, y-o-y - having ballooned a historic $3.276 TN, or 72%, since October 26, 2022.
Total Commercial Paper increased $2.8 billion to $1.392 TN. CP declined $3 billion, or 0.2%, y-o-y.
Freddie Mac 30-year fixed mortgage rates added three bps to 6.58% (down 16bps y-o-y). Fifteen-year rates increased three bps to 5.96% (up 9bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up five bps to 6.71% (down 12bps).
Currency Watch
July 21 – Financial Times (Leo Lewis and William Sandlund): “Japan’s finance minister warned markets that authorities stood ready to take ‘appropriate and bold action’ as the latest flare-up in the Iran war pushed the yen under ¥163 to the dollar for the first time in almost 40 years… Satsuki Katayama said that Japan’s policy on potential intervention remained unchanged and that it would take action if necessary… ‘The situation between the US and Iran has taken a sudden turn for the worse — a deterioration that the world did not foresee — creating a very difficult environment,’ Katayama said…”
For the week, the U.S. Dollar Index increased 0.7% to 101.465 (up 3.2% y-t-d). On the upside, the South Korean won increased 1.9%, the Norwegian krone 0.7%, the Brazilian real 0.6%, the Mexican peso 0.3%, and the Singapore dollar 0.1%. On the downside, the South African rand declined 1.9%, the Swiss franc 1.3%, the British pound 0.9%, the Japanese yen 0.9%, the Swedish krona 0.9%, the New Zealand dollar 0.9%, the euro 0.6%, the Canadian dollar 0.5%, and the Australian dollar 0.1%. China's (onshore) renminbi added 0.08% versus the dollar (up 3.20% y-t-d).
Commodities Watch
The Bloomberg Commodities Index jumped 2.7% (up 23.0% y-t-d). Spot Gold recovered 0.9% to $4,053 (down 6.2%). Silver rallied 4.0% to $58.1748 (down 18.8%). WTI Crude surged $6.82, or 8.3%, to $89.31 (up 56%). Gasoline was little changed (up 98%), while Natural Gas declined 1.4% to $2.871 (down 22%). Copper gained 1.1% (up 12%). Wheat slipped 0.7% (up 34%), while Corn jumped 4.4% (up 6%). Bitcoin added $250, or 0.4%, to $64,150 (down 26.8%).
Market Instability Watch
July 23 – Reuters (Aditya Soni and Deborah Mary Sophia): “Alphabet's first cash burn on record has jolted investors awaiting more Big Tech results next week as soaring AI spending strains one of the world's most profitable companies, and the pain is only expected to increase. The Google parent burned $5.9 billion in the second quarter, even as the cloud unit that rents out AI computing power notched a record 82% growth. With Alphabet now expected to spend $15 billion more in 2026 and predicting another increase next year, the outlays behind the cash burn will only rise.”
July 24 – Bloomberg (Natalia Kniazhevich): “A rapid selloff in the high-flying momentum trade is wrecking the strategy’s staunchest bulls: Retail traders. A basket of 50 stocks favored by amateur investors… has plunged 13% so far in July and is on track for the worst month since 2022. A Jefferies basket of Russell 1000 firms with the highest retail participation has lost more than a quarter of its value since June. Retail traders’ obsession with whatever is the next hot thing in the market — often associated with the acronym YOLO for ‘you only live once’ — is misfiring in a month when momentum went from the market’s darling to its punching bag.”
July 22 – Bloomberg (Michael MacKenzie and Ye Xie): “The US 30-year bond yield is trading above 5% for the longest stretch since the dawn of the financial crisis, echoing investor concerns about a growing debt pile and sticky inflation. So far this year, the 30-year has traded beyond 5% for 27 days — or about 19% of all sessions, the most since 2007…”
July 23 – Bloomberg (Simon White): “Rising inflation volatility is set to trigger earnings disappointments, wider credit spreads and more variability in stock and bond prices. Inflation is on the cusp of reigniting, as the incessant conflict in the Middle East takes Brent crude prices back to around $100. That’s not good news, but more troubling for markets is that the volatility of inflation is also sharply rising again. It is the ultimate macro risk, as everything – goods prices, borrowing rates, Federal Reserve policy and cash flows – becomes more uncertain when the purchasing power of money itself becomes unstable… The pick-up in inflation vol is becoming increasingly apparent at the top level, but it is unmistakable under the surface. The average volatility across US CPI components is close to revisiting the highs of the pandemic price surge.”
July 19 – Bloomberg (Michael Msika): “Index volatility is creeping higher as investors confront a growing list of worries that challenge the overall bullish view. The unwinding of crowded AI-related trades is triggering powerful rotation. And, while markets are currently calm about simmering geopolitical tensions, further escalation would strain the broadly dovish view on monetary policy. Demand for hedging is rising fast. The Nations SkewDex, which compares the cost of out-of-the-money put options to the cost of precisely at-the-money options on the S&P 500 Index’s most liquid exchange-traded fund, a measure of Skew, jumped to its highest level since April. That threatens to pull other volatility measures higher.”
July 20 – CNBC (Hugh Son): “JPMorgan… CEO Jamie Dimon said investors are underestimating the risks facing the global economy and that he wouldn’t buy either equities or long-dated U.S. Treasurys at their current prices… Dimon said markets aren’t fully accounting for a growing list of geopolitical and fiscal threats. ‘I do think those risks are probably bigger than other people think,’ Dimon said…”
U.S. Credit Trouble Watch
July 21 – Bloomberg (Paul J. Davies): “It’s easy to dismiss comparisons between finance today and the build up to the 2008 meltdown as exaggerated or overwrought. But right now, it’s hard to ignore evidence that we’ve entered a fresh golden age of financial engineering — and it should be impossible to forget that the products of this alchemy can tarnish easily or, worse, turn out to be iron pyrite. The most recent example is almost too perfect: An insurance company, Nationwide Mutual Insurance Co., has been tapped to protect investors against losses from bonds linked to private credit funds… Back in the global crisis, bond insurers that had promised to cover defaults of mortgage-linked bonds became super-spreaders of the sickness that nearly took down the world’s financial system.”
July 19 – Bloomberg (Scott Carpenter, Davide Scigliuzzo, and Esteban Duarte): “The pitch from UBS Group AG was worthy of a double take. In a blast message to sophisticated investors, the bank sketched a product that initially looked familiar: a bundle of stakes in private credit funds to be repackaged into a bond. Yet potential buyers needed only a few moments to flip through the presentation and realize it was no routine deal. The instrument, with features outside the scope of most credit ratings, would be stamped with a target grade of A2 from Moody’s, analogous to the level of risk awarded to multibillion-dollar companies such as Nike Inc. and Home Depot Inc. But what kind of financial alchemy could turn perpetual funding for private credit… into something that looked rock solid? The answer: a rare kind of insurance provided by Nationwide Mutual Insurance Co., known to American buyers of cars and houses for its ear-worm jingle ‘Nationwide is on your side.’”
July 18 – Bloomberg (Scott Carpenter): “A type of investment that once generated some of Wall Street’s juiciest fixed-income returns has deteriorated so badly that investors are heading for the exits and arguing about who’s to blame. The tussle concerns collateralized loan obligations, investment vehicles that package corporate loans into pieces of varying size and risk. The $1.3 trillion market is a perennial favorite with institutional buyers like pensions and hedge funds. Lately, though, the returns on the riskiest portions of CLOs have plunged well below zero, and the damage to the so-called equity tranches is spilling over into some investment firms that court individual investors.”
July 20 – Wall Street Journal (Heather Gillers): “Insurance regulators this month approved rules that aim to protect policyholders against big losses on a $314 billion slice of structured debt held in insurers’ portfolios. But by the time they completed the four-year rule-making process, the insurance industry had found ways around those rules. The regulations govern collateralized loan obligations, funds backed by pools of corporate debt from junk-rated companies. They were all the rage until just a few years ago… Insurer holdings doubled from 2018 to 2022. Then regulators started talking about making insurers with CLOs hold a lot more money in reserve to protect against the risk of loss. Around the same time, CLO interest rates also grew less appealing. Insurers started favoring other debt instruments that featured the same potential (and potential risks) as CLOs, but wouldn’t be subject to the new rules.”
Global Credit Bubble and Boom Watch
July 21 – Reuters (Marc Jones): “Government debt across developed economies is set to climb to a record $75.8 trillion by the end of 2026 as countries struggle with persistent budget deficits, geopolitical tensions and rising spending demands, Fitch Ratings said... The ratings agency said debt in developed markets would increase by $4.2 trillion this year alone, taking the total to the equivalent of 104% of gross domestic product, up sharply from $26 trillion, or 68% of GDP, two decades ago. Fitch expects the 10 largest developed economies to account for $69 trillion of that total, equivalent to 114.5% of GDP, highlighting the outsized role of the United States and several other large borrowers in driving global debt accumulation. The agency forecast the U.S. would record the largest government budget deficit among major developed economies this year at 7.8% of GDP, or roughly $2.5 trillion. France is expected to post a deficit of 5% of GDP, followed by Britain at 4.8%, Germany at 3.7% and Japan at 3.1%.”
July 23 – Bloomberg (Preeti Singh, Olivia Fishlow and Laura Benitez): “Not long ago, wealth managers were pitching their clients on an alluring prospect: access to private markets with the option to easily exit. Now, they’re changing their tune, or at least their wording, as clients question why it’s taking so long to get their money back. Some wealth managers are abandoning the term ‘semi-liquid’ to describe funds investing in private credit and private equity… Some are simply phrasing them as funds with ‘conditional’ or ‘periodic’ liquidity.”
Leveraged Speculation Watch
July 23 – Financial Times (Costas Mourselas): “Hedge fund assets grew by the largest amount in history last quarter because of the AI-driven boom in share prices and investors shifting away from private equity and credit funds. Total assets under management grew by $409bn to $5.6tn last quarter…, according to specialist data provider HFR. Hedge funds lost money in a bumpy March after the outbreak of the Iran war. Since then, they have benefited from a huge equity rally led by chip stocks such as Samsung, AMD and SK Hynix. ‘I think this is going to be a golden era for hedge funds after a long, long time,’ said Shenan Dhanani, co-chief executive at Trium Capital, which manages $5.1bn in assets.”
July 22 – Bloomberg (Bei Hu and David Ramli): “Asia-focused hedge funds have been caught up in the July selloff after the fervor for artificial intelligence and technology hardware propelled double- or even triple-digit returns in the first half. WT China Fund… lost 17% this month before fees through July 17, having soared 120% in the first six months… Keystone Investors Pte’s hedge fund retreated 12% through the same day, after surging 63% in the previous six months…”
July 20 – CNBC (Lee Ying Shan and Blair Baek): “South Korean retail investors who piled into leveraged bets on the country’s AI champions are nursing steep losses after a sharp reversal, exposing the risks of the speculative trading boom that helped fuel one of the world’s hottest equity markets. The pain has been especially acute for holders of single-stock leveraged exchange-traded funds tied to chip giants Samsung Electronics and SK Hynix, which had surged alongside the AI-driven semiconductor rally, and have now tumbled.”
July 19 – Financial Times (George Steer and Nolan Shaffer): “Retail traders are piling into so-called perpetual futures that were only cleared to trade in the US in May despite consumer advocates branding them ‘the most dangerous product in crypto’. On certain corners of TikTok, baby-faced investors flaunt the sports cars and villas they claim to have bought with their winnings on these highly leveraged derivatives, which trade all day every day of the year and allow big bets with only a small cash stake. ‘High leverage is awesome… You see a kind of unbelievable amount of returns in a short period of time,’ said Shikhar Sehgal, a 19-year-old college student who pulled his money from prediction markets to trade perpetuals on Singapore-based exchange Hyperliquid last year.”
July 21 – Financial Times (Stephen Foley, Amelia Pollard and Claire Jones): “The US Treasury… said it would examine the explosive growth of strategies used by hedge funds to help clients lower their tax bills, warning that it would not turn a ‘blind eye to aggressive planning’. The shot across the bows led to a 7% fall in shares of Affiliated Managers Group, which owns a stake in AQR, one of the largest purveyors of so-called tax-aware investment strategies. More than $90bn flowed into hedge funds offering ‘tax alpha’ strategies between the start of 2025 and April this year…, as investors sought a new twist on the age-old practice of tax-loss harvesting. AQR and Quantinno, another hedge fund group set up by former AQR traders in 2018, have pioneered an approach that uses leverage and algorithmic trading to buy and short securities at scale, systematically realising losses on positions that can be offset against profits elsewhere.”
Iran War Watch
July 23 – Axios (Barak Ravid): “President Trump told Axios… he’s seriously considering restarting major combat operations in Iran — including strikes that would be bigger than the ones carried out during Operation Epic Fury… Trump acknowledged that such a decision would have consequences and stressed he hasn’t made a determination yet… A return to all-out war is highly unpopular in the U.S. ‘I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it,’ the president said.”
July 21 – Axios (Barak Ravid): “President Trump said Tuesday that the U.S. military will bomb Iran’s Pickaxe Mountain, a deep underground site that the U.S. and Israel suspect could be used for nuclear activity... ‘We'll be hitting that area very probably pretty soon. There’s not a thing they can do about it. You know, normally I wouldn’t say that. If I thought they could do something about it, I would never say that. But we’ll be hitting that area pretty soon, and very heavily,’ Trump said. Trump said the U.S. thinks Iran ‘may have’ stored centrifuges at the site but added, ‘We don’t have it on record.’ Even if Iran did, ‘it doesn’t mean anything unless they have the [nuclear] material.’ He said Iran does not. The Wall Street Journal reported… Israel provided the U.S. with intelligence suggesting that Iran has moved thousands of centrifuges into Pickaxe Mountain.”
July 22 – Wall Street Journal (David S. Cloud, Anat Peled and Milàn Czerny): “With deadly attacks on an air base in Jordan, Iran has proved that it retains a significant missile and drone arsenal that still threatens American forces and the U.S.’s regional allies, despite President Trump’s claim to have ‘totally destroyed’ Iran’s military. The strike on Muwaffaq Salti Air Base on Friday that killed three U.S. servicemembers was likely carried out by Tehran’s most effective missiles, including the Kheibar Shekan medium-range system… That missile system and others were housed in vast underground facilities that the U.S. and Israel spent weeks pounding in March and April. Since then, Iran has dug out the openings and resumed firing from some of the bases, analysts said.”
July 20 – Wall Street Journal (Michael R. Gordon, Lara Seligman and Robbie Gramer): “The Iranian ballistic missile attack on a Jordanian air base that killed two U.S. servicemembers struck prefabricated housing units where troops lived and slept, according to U.S. officials familiar... The attack on Muwaffaq Salti Air Base was one of three separate missile strikes on the base in 24 hours last week, which killed two soldiers from Army air and missile defense units… The remains of a third person have been found at the location and are being examined. That three missiles were able to slip through U.S. air defenses points to the challenges in protecting the estimated 50,000 troops stationed in the region against an Iranian military that is still equipped with a substantial number of ballistic missiles and drones.”
July 23 – Associated Press (Fatma Khaled and Ahmed Al-Haj): “The Houthi rebels’ threat to blockade Saudi Arabia has the potential to widen the Iran war and further disrupt global oil supplies and international trade. The Iran-backed rebels say they have closed the Bab el-Mandeb Strait to Saudi-linked shipping in retaliation for the kingdom’s blockade on Yemen and a recent attack on the international airport in Yemen’s rebel-held capital, Sanaa. The Houthis said… they had attacked two Saudi oil tankers in the Red Sea, causing fires to break out on both… Bab el-Mandeb, at the southern tip of the Arabian Peninsula, is a vital shipping chokepoint, connecting the Red Sea to the Gulf of Aden. Around 12% of the world’s trade, including a fourth of global container traffic, passes through the narrows.”
July 21 – Bloomberg (Alex Longley, Salma El Wardany, and Weilun Soon): “A message from Yemen’s Houthi rebels to shipowners warned all vessels against calling at Saudi Arabian ports, shedding light on the scope of a threat that puts millions of barrels of exports from the kingdom at risk. In an email to shipowners, the Iran-backed group makes clear that its blockade doesn’t just apply to Saudi vessels, but to all ships coming to and from Saudi ports… It has been months since the Houthis attacked vessels, but they reprised the threat to do so on Monday as the conflict in the Middle East escalated.”
July 23 – Reuters (Maggie Michael and Parisa Hafezi): “Iran flew Islamic Revolutionary Guard Corps (IRGC) commanders, military advisers and missile- and drone-related equipment into Yemen this month…, in a move that suggests Tehran is seeking to strengthen the ability of its Houthi allies to threaten Red Sea shipping. Four sources familiar… said Iran transferred the IRGC personnel and military-related equipment on a flight from Tehran to Yemen on July 13…”
July 22 – Wall Street Journal (Shelby Holliday, Lara Seligman and Stephen Kalin): “The U.S. is surging forces, medics and weaponry to the Middle East to give President Trump more muscular military options as he considers expanding the conflict against Iran, according to people familiar… In the past week, special-operations forces have deployed to the region from their U.S. bases… Squadrons of jet fighters have been staged across the Middle East, and bomber aircraft at bases in the U.S. and U.K. are on high alert to ramp up operations… Additionally, more than 150 medics have arrived at the Landstuhl Regional Medical Center in Germany in recent days… The hospital is the primary location for treating troops injured in combat in the Middle East.”
Iran War Ramifications Watch
July 23 – Wall Street Journal (Rebecca Feng and Costas Paris): “The global economy suddenly finds its energy supplies threatened on three fronts simultaneously: the Persian Gulf, the Red Sea and the Black Sea. The world goes into these disruptions with the lowest levels of oil reserves in years. Conflict in the Middle East broadened Wednesday after Tehran-backed Houthi militants said it attacked two Saudi tankers heading toward the Bab al-Mandeb Strait. The Red Sea maritime chokepoint, which has become the biggest export route for Saudi Arabia’s crude following the Strait of Hormuz closure, accounted for roughly 12% of the world’s seaborne oil flows before the war. Another disruption: Ukraine has mounted sustained attacks on Russian energy infrastructure and ships in the Black Sea.”
July 21 – Bloomberg (Weilun Soon, Grant Smith, Nicholas Lua, Julian Lee, and Alex Longley): “Ships continue to turn away from the southern end of the Red Sea, after Yemen’s Iran-backed Houthi rebels announced an embargo on Saudi exports through the Bab el-Mandeb Strait, a narrow channel that has become a lifeline for oil exports since the beginning of the US-Israeli war with Iran… No crude oil tankers have been seen transiting Bab el-Mandeb since the Houthis emailed shipowners earlier this week to tell them not to cross, although it’s possible some have done so with their transponders turned off.”
July 21 – Financial Times (Verity Ratcliffe): “The International Energy Agency has warned of a growing risk to energy supplies following the escalation of the war in the Middle East, with the renewed shutdown of the Strait of Hormuz once again severely restricting shipments from the Gulf. The intergovernmental agency said in a rare statement… that while the crude market was benefiting from some ‘cushioning factors’, such as the continuation of an emergency oil stock release by member governments, it was ‘closely monitoring the situation’ in markets. ‘The escalation in hostilities affecting the Strait of Hormuz and energy infrastructure in the region increases security of supply concerns and uncertainty over the market outlook,’ said IEA executive director Fatih Birol.”
July 22 – Financial Times (Stephanie Findlay): “US oil refineries are running at full tilt as wars in the Middle East and Ukraine choke global supplies of fuels, increasing the risk of outages at a time when prices are already rising sharply. Refineries across the US are running at 96% of their capacity, with those in the Midwest and Rocky Mountains regions operating at 100%, according to the US Energy Information Administration.”
July 23 – New York Times (Peter S. Goodman): “As the war in the Middle East limits the supply of energy worldwide, millions of farmers are contending with scarcity and higher prices for fuel, threatening their access to irrigation and menacing the food supply. Faced with depleted harvests, many rural households in Asia and Africa are borrowing to cover the costs of cultivation, challenging their ability to produce future crops. In much of the world, the closure of the strait has blocked shipments of food and fertilizer, making prices much higher.”
July 20 – Bloomberg (Rong Wei Neo): “A diesel squeeze is playing out across Europe as a slew of major supply challenges coincide, according to Morgan Stanley… ‘The picture is genuinely tight,’ analysts including Martijn Rats said... ‘Our supply/demand modeling points toward European diesel inventories falling to multi-year lows toward year-end,’ they added.”
Trump Administration Watch
July 22 – Axios (Barak Ravid): “President Trump threatened Wednesday to destroy an Iranian bridge or power plant, including in Tehran, each time Iran attacks a ship in the Strait of Hormuz. Trump sent the new threat as he considers both a ceasefire and a significant military escalation. His key condition for a ceasefire is for Iran to stop its attacks on ships and reopen the Strait of Hormuz. U.S. Central Command said Iran has attacked more than 30 commercial vessels over the past three months. Several attacks came after the U.S. and Iran signed a June memorandum of understanding calling for a ceasefire. ‘From this point forward, any time the Islamic Republic of Iran shoots at a ship in the Strait of Hormuz, whether it be by Missile, Rocket, Drone, or any other device or weapon, the United States will bomb and destroy ONE BRIDGE OR POWER PLANT, including those located next to, or in, the Capital City of Tehran,’ Trump wrote… The U.S. has already bombed bridges in southern Iran over the last 11 days of fighting. Targeting power plants and striking Tehran would mark another escalation.”
July 21 – Reuters (Idrees Ali and Phil Stewart): “A Houthi threat to impose a naval blockade against Saudi Arabia in the Red Sea could significantly widen the Iran war and strain a U.S. military already focused on stopping Tehran’s attacks across the region, current and former U.S. officials said. Yemen’s Iran-aligned Houthis said on Monday they would not allow ships to load or unload at Saudi ports, potentially blocking Saudi oil exports and choking off an additional 7% of global oil supply… ‘If something like that happens, we’ll take care of it. We’ve done that with the Houthis before,’ Trump told reporters… For the U.S. military, it may not be so simple. The Houthis have earned a reputation as hardened, nimble fighters who have successfully resisted earlier Saudi and U.S. bombing campaigns. Taking them on would mean stretching American resources already focused on fighting Iran and maintaining the United States' own blockade of Iranian ports in the Gulf.”
July 23 – Financial Times (Editorial Board): “Donald Trump has insisted the overriding goal of his ill-starred war with Iran is to prevent it from gaining a nuclear weapon. Yet he has now done a deal with a rival Middle Eastern power, Saudi Arabia, that could reportedly put the kingdom on a path to enriching its own fuel for nuclear reactors. The president insisted on Thursday the deal would only proceed if Riyadh normalised relations with Israel. But suggestions from officials that it did not contain safeguards the US has traditionally required around enrichment — which can provide a route to a weapon — will be noted in Tehran, and entail worrying proliferation risks across the Middle East and beyond.”
July 21 – Bloomberg (Daniel Flatley): “Treasury Secretary Scott Bessent said the US will carefully examine open source artificial intelligence models from China for signs of intellectual property theft, amid concerns that a new wave of lower-cost Chinese competitors may sweep aside the top American models. ‘We’ve seen a lot of talk about open source models coming and threatening the large language models in the US,’ Bessent said… ‘This administration supports open source models, but what we do not support is IP theft. If we see, especially, that overseas models are stealing from our great companies, we have the ability to sanction them.’”
July 21 – Bloomberg (Steven T. Dennis): “Senators in both parties are questioning a plan by President Donald Trump’s media company to sell real-time access to Truth Social posts to Wall Street firms. The sharpest criticisms have come from Senate Democratic leader Chuck Schumer, who… blasted the move as ‘the exact definition of insider trading.’ But even within the president’s own party, several key senators raised concerns about the propriety of the move.”
July 23 – Reuters (Gertrude Chavez-Dreyfuss): “The U.S. Treasury has ramped up sales of short-term bills this month as the government borrows more money, a strategy that has found plenty of willing buyers but has sparked debate about the risks of relying too heavily on near-term financing. Growing federal deficits and higher interest payments have pushed U.S. borrowing needs sharply higher, leading Treasury to increase issuance of short-term debt that has been absorbed quickly by money market funds, the biggest buyer of bills.”
July 22 – Bloomberg (Saleha Mohsin, Joshua Green, and Katanga Johnson): “As President Donald Trump seeks more sway over the Federal Reserve, an external review of the 2023 failure of Silicon Valley Bank is turning into a high-stakes political fight. Some Trump administration officials and allies have privately discussed whether the report could provide a legal basis to remove Fed Governor Michael Barr from the central bank’s board, according to people familiar… Barr was vice chair for supervision — the Fed’s top job in banking oversight — when SVB collapsed after a bank run triggered by a heavy concentration of uninsured deposits and poor management of interest-rate risk.”
July 21 – Wall Street Journal (Amrith Ramkumar): “The Trump administration plans to accelerate its overhaul of federal research by supporting more individual scientists and the use of artificial intelligence rather than universities… In a new report and memo…, the White House Office of Science and Technology Policy argues individual scientists can help the nation move faster to use AI in scientific research. The directives from the office will help shape a roughly $200 billion annual federal research and development budget across the government for the rest of President Trump’s second term. The new guidance could further hurt large universities that rely on federal research funding.”
July 21 – New York Times (Brad Plumer): “The Trump administration is dismantling a wide array of federal energy-efficiency programs at the same time that war in Iran is raising oil prices, climate change is fueling record heat that is driving up demand for air conditioning and new data centers are straining America’s electricity supply. ‘The turn away from efficiency has been oddly timed,’ said Christine Egan, chief executive of CLASP, a nonprofit group that works on efficiency policies worldwide. ‘Energy prices are going up, demand is going up, and you’d think we would want our products to be as efficient as possible.’”
July 21 – Financial Times (Geoff Dyer, Chris Cook and Ana Rodríguez Brazón): “The Trump administration has collected more than $13bn in revenues from Venezuelan oil sales this year…, but has said almost nothing about what has happened to the money. The US took control of Venezuela’s oil exports and suspended some sanctions after capturing President Nicolás Maduro in January and installing vice-president Delcy Rodríguez as leader. Oil revenues make up around a quarter of Venezuela’s GDP, and the sanctions relief was expected to provide a major boost to the economy, which was in crisis even before last month’s devastating earthquakes.”
July 19 – Wall Street Journal (Kejal Vyas and Ryan Dubé): “Since the start of this year, the U.S. was preparing to reap the benefits of its unlikely alliance with Venezuela as the world’s biggest oil reserves and vast mineral deposits opened up to American investors. Now, the Trump administration is facing a daunting multibillion-dollar cleanup after twin earthquakes last month… Venezuelans are looking for help from a U.S. administration that says it is running the country. ‘We’re in the hands of God, as well as the Americans,’ said Danny Muñoz, a bricklayer who pulled the lifeless body of his pregnant stepdaughter out from underneath debris after their apartment… collapsed. ‘No one else can save us now.’ The United Nations says the damage to the infrastructure is about $37 billion, equivalent to roughly a third of Venezuela’s annual economic output.”
July 22 – Financial Times (Humza Jilani and Claire Jones): “Pakistan has requested a $10bn facility from Washington to shore up its foreign exchange reserves, as the cash-strapped country of 250mn people seeks to capitalise on its role mediating between the US and Iran. Finance minister Muhammad Aurangzeb made the request directly to US Treasury secretary Scott Bessent…”
Trade War Watch
July 23 – New York Times (Ana Swanson): “The Trump administration will impose tariffs of around 10% on goods from more than 80 countries on Friday… The tariffs will range from 10% to 12.5% and take effect at 12:01 a.m. on Friday, replacing a global 10% duty set to lapse at the same time. Mr. Trump issued that earlier tariff in February, after the Supreme Court struck down duties he imposed last year. The move provides fresh evidence of Mr. Trump’s intention to transform global trade, despite numerous court challenges and the protests of U.S. consumers and businesses that have been stuck with higher tax bills.”
July 20 – Wall Street Journal (Marianne LeVine, Gavin Bade and Amanda Coletta): “President Trump imposed an additional 50% tariff on certain goods from Canada, including wine, hockey sticks and cement… The White House said that the tariffs were a response to the country’s ‘discriminatory treatment of American products.’ Some sectors and goods, including energy, potash and fish or critical minerals, will be exempt from the new tariffs, the White House said. The tariffs will take effect 30 days after they are signed and affect about $20 billion worth of Canadian goods.”
July 23 – Reuters (David Lawder and Emily Green): “U.S. Trade Representative Jamieson Greer… said he hopes to strike some interim trade agreements with Mexico and Canada this year while tackling thornier changes to the U.S.-Mexico-Canada Agreement such as stricter rules of origin in 2027.”
July 19 – Bloomberg: “China’s shipments of rare-earth magnets to the US remain well below pre-trade war levels despite last year's truce, underscoring concerns in the Trump administration about Beijing’s adherence to that agreement. Customs data show US-bound exports of the crucial industrial components in the first half were about 20% below the average level seen between 2022 and 2024, before Beijing tightened supplies in response to President Donald Trump’s tariff war.”
July 19 – Financial Times (Camilla Hodgson): “Europe is facing an even tighter squeeze on helium supplies as China cuts off exports of the industrial gas that is vital for manufacturing microchips and the functioning of medical devices including MRI scanners. Beijing earlier this month announced export controls on the natural gas byproduct, which has been in scarcer supply since the conflict in the Middle East cut off exports from the Gulf.”
Deficit Watch
July 22 – Reuters (Patricia Zengerle): “The U.S. House of Representatives narrowly passed its version of a massive defense policy bill on Wednesday, despite Democrats’ concerns about its huge price tag, the Iran war and a provision that would boost Pentagon ties to Israel. The fiscal 2027 National Defense Authorization Act, or NDAA, which authorizes an unprecedented $1.15 trillion in spending for the military, passed the House by 216 to 212.”
Constitution Watch
July 23 – Reuters (Jack Queen): “The Trump administration will withdraw subpoenas issued to New York Times’ journalists who reported on security concerns about the president flying on a Qatari-donated Air Force One, a prosecutor said… The subpoenas… were the latest instance of the Trump administration seeking to compel journalists to divulge confidential sources in leak investigations, a practice press-freedom advocates say can chill reporting.”
July 18 – Financial Times (Kaye Wiggins, James Fontanella-Khan and Ella Lee): “Law firms that struck deals with Donald Trump are heading for a second high-stakes conflict with the US president after the government demanded their leaders sit for depositions and hand over internal communications about the deals. In a move that one administration insider said was designed to show a ‘middle finger’ to the legal industry, the Department of Justice has issued subpoenas and deposition demands to the law firms it targeted or threatened with executive orders at the start of Trump’s second term. It did so in response to requests by the American Bar Association… for documents about the deals in a lawsuit in which it accuses the president’s office and the DoJ of operating an unlawful ‘law firm intimidation policy’.”
U.S./Russia/China/Europe/Iran Watch
July 22 – Reuters (Jonathan Landay, Gram Slattery and Timour Azhari): “Iranian drone attacks on CIA facilities in the Gulf have prompted U.S. intelligence analysts to investigate whether Russia assisted by providing targeting information or advanced drone technology, said four people familiar with U.S. intelligence. These people… said U.S. intelligence officials have not yet reached firm conclusions about the possible Russian involvement in the attacks on CIA facilities. But they cited the strikes’ effectiveness and apparent precision, as well as Russia's broader technical support for Iran, as possible evidence.”
July 20 – Reuters (Kyu-seok Shim): “North Korean Foreign Minister Choe Son Hui and Russian Foreign Minister Sergei Lavrov held their third strategic dialogue in Moscow on Monday… The two sides ‘reached a consensus on all the issues brought up for discussion’, the report said, with talks focusing on implementing their comprehensive strategic partnership treaty signed in June 2024.”
Ukraine War Watch
July 20 – Bloomberg (Eleanor Thornber): “Russia and Ukraine have stepped up attacks on each other’s commercial ships and ports in the Black Sea and the Sea of Azov, threatening grain exports and sending international wheat prices to a two-year high. Other key foods such as corn and rapeseed have also rallied. The disruption isn’t yet on the scale of 2022… But it comes at a difficult moment for the food industry. The throttling of the Strait of Hormuz due to the Iran war has imperiled flows of fertilizer and other key inputs used by arable farmers. Heat waves are shriveling crops in Europe. And a developing El Niño weather pattern threatens further damage to farm yields.”
July 21 – Bloomberg: “Russia is no longer willing to return some occupied territories to Ukraine as part of any deal to end the war and plans to retain them as buffer zones, according to people close to the Kremlin. Russian President Vladimir Putin remains committed to taking full control of Ukraine’s eastern Donetsk region by force and will now retain areas of Sumy and Kharkiv regions near the border with Russia as buffer zones, three people said... Putin has abandoned territorial concessions because Russia views increasingly confrontational statements from the US as evidence that informal understandings reached at his Alaska summit with President Donald Trump have collapsed, the people said.”
Taiwan Watch
July 22 – Reuters (Liz Lee): “China began two days of live-fire drills… in some parts of the Taiwan Strait near the shores of its southeastern province of Fujian. The news comes a day after talks between U.S. Secretary of State Marco Rubio and Chinese Foreign Minister Wang Yi on a range of issues, including democratically governed Taiwan, which China claims as its own territory.”
July 19 – Reuters (Yimou Lee): “Taiwan detected a sharp rise in Chinese coast guard and research vessel activity around the island in June, prompting Taipei to plan drills simulating Chinese escalations off its Pacific coast, according to Taiwan Coast Guard data and officials. Taiwan reported 55 Chinese government vessel sightings, including coast guard and research boats, around the island in June, up from 30 in May…”
AI Bubble/Arms Race Watch
July 23 – Bloomberg (Dave Lee): “Alphabet Inc.’s impressive second-quarter earnings release… seemed on course to go down mostly well with investors. Until the earnings call, the Google parent’s share price was up marginally in after-hours trading, buoyed by cloud growth that smashed estimates. Then executives disclosed their projection that capital expenditures would increase again, sending the stock down by as much as 4.6%. Let it be a warning to the other hyperscalers preparing to report next week: Even with a quarter as good as this one, you’ll still be punished if you announce yet more spending in pursuit of artificial intelligence.”
July 23 – Axios (Sam Sabin): “Frontier AI models are getting scary good at breaking rules in ways their creators didn’t anticipate. Forget AGI and superintelligence timelines. Today’s models are already slipping past guardrails, carrying out sophisticated, multistep cyberattacks and — in at least one case — compromising real-world infrastructure, sometimes before their creators know what happened. OpenAI said Tuesday that GPT-5.6 Sol and ‘an even more capable pre-release model’ carried out last week’s AI-led cyberattack on Hugging Face. OpenAI says its models were asked to solve a hacking challenge during pre-deployment testing and went to extreme lengths to win. The models decided on their own to break out of their walled testing environment, inferring that Hugging Face — a popular platform for hosting AI models and datasets — might hold the test’s answers. The models used stolen credentials and additional vulnerabilities to gain access to part of Hugging Face’s production infrastructure.”
July 20 – Wall Street Journal (Amrith Ramkumar and Tina Li): “Silicon Valley and Washington are debating a multibillion-dollar question: Should American companies be able to use Chinese artificial-intelligence models? OpenAI and Anthropic executives are sounding the alarm about the rise of cheap AI, particularly powerful new models produced in China, suggesting they will lead to a ‘dystopian’ AI future and present unacceptable security risks without regulation. Some analysts who study the AI industry say the two companies, which are preparing for public listings in the next year, just want to eliminate the competition. The emergence of highly capable, open autonomous AI systems—including Moonshot AI’s Kimi K3 model and Alibaba’s Qwen 3.8 Max, which were released in recent days and viewed favorably by investors and users—has turned the AI race on its head once again.”
July 22 – Wall Street Journal (Anissa Gardizy): “OpenAI is scaling up its data-center ambitions—and its budget for spending on them. The artificial-intelligence company has raised its projected spending on computing power to around $750 billion through 2030, up from a projection of roughly $600 billion earlier this year… The increase reflects new agreements with cloud-computing providers as OpenAI races to lock up the enormous amounts of computing capacity it needs to develop and run its AI models.”
July 20 – Financial Times (Martha Muir and Michelle Chan): “Oracle could face more than $7bn in collateral requirements for a massive data centre in Wisconsin, after the state’s power regulator tightened credit requirements to protect households from rising electricity costs. The Public Service Commission of Wisconsin… has declined to reconsider rules it imposed on utility We Energies, which would require Oracle to provide a $7bn letter of security at a yearly cost of more than $100mn. The nearly one-gigawatt data centre located in Port Washington, Wisconsin, is a crucial investment by Oracle to fulfil its $300bn contract with OpenAI to provide computing power. The increased costs to secure local power add to the challenges facing the tech giant’s AI ambition, including mounting debt and rapid cash burn.”
July 20 – Wall Street Journal (Asa Fitch): “Contracts worth billions of dollars have become the commercial glue holding the AI boom together. But investors shouldn’t rely on them sticking if the boom fades. Contracts to supply computing power for artificial-intelligence calculations have become such a fixture of the craze that whole industries have begun reorganizing around them. AI suppliers say these arrangements give them unprecedented visibility into their future revenue, allowing them to wow investors with promises of bumper sales and profits ahead. The computer-memory business may be the most extreme example. Memory suppliers and their customers have sought out longer-dated deals in recent months.”
July 19 – Financial Times (Ryan McMorrow and Joshua Franklin): “Morgan Stanley has emerged as Wall Street’s chief architect of the financing structures underpinning the AI boom, devising new debt and equity models that are funnelling tens of billions of dollars into the massive build-out of data centres. According to industry executives, the bank has become the dominant adviser putting together the biggest and most inventive AI infrastructure financings since last year. This includes a $3.2bn bond for data centre developer TeraWulf backed by Google, a $27bn debt package for Meta’s Hyperion data centre tie-up with Blue Owl and, more recently, advising Broadcom on a $35bn chip financing deal.”
July 21 – Wall Street Journal (Raffaele Huang and Tracy Qu): “Chinese artificial-intelligence developers are racing to raise money through share offerings or loans, believing they need a bigger war chest to keep up with U.S. competitors. At least six startups that develop AI models are preparing for initial public offerings in Shanghai or Hong Kong through 2027. They are joined by China’s two largest memory-chip makers and three humanoid-robot developers. A flurry of new releases from China has brought local AI models closer to cutting-edge U.S. systems… ‘The primary driver’ of the fundraising rush ‘is the substantial capital required to fund AI-model development, computing infrastructure and talent acquisition,’ said Gary Tan, a Singapore-based portfolio manager at Allspring Global Investments.”
July 18 – Reuters (Valerie Volcovici and Lisa Baertlein): “Opponents of the rapid buildout of data centers held 142 protests across 42 states on Saturday in the first nationwide effort to channel anger at the AI infrastructure expansion that has ramped up over the past year and roiled local politics. The protests were coordinated by HumansFirst…”
Bubble Watch
July 23 – Wall Street Journal (Becky Peterson and Micah Maidenberg): “A month ago, Elon Musk was crowned the world’s first trillionaire after a record public offering for SpaceX. Now investors are growing impatient with the pioneering businessman as the bills come due on his most ambitious promises for SpaceX and Tesla. Tesla shares fell 14.5% on Thursday… after the electric vehicle maker missed earnings targets and had negative cash flow for the first time in two years… On an earnings call, Musk walked back earlier guidance on the rollout of its Robotaxi ride-hailing service, Optimus humanoid robots and an electric semi truck that has been in development for years. Shares of SpaceX, which went public at $135 and traded above $225 in the days after its debut, are down nearly 50% from those highs. The stock broke below its initial-public-offering price within weeks and has lost more than $1 trillion in value from its peak.”
July 21 – Bloomberg (Paige Smith): “Charles Schwab Corp. reported earnings that topped estimates as retail investors continued to jump in and out of the market amid volatility sparked by geopolitical uncertainty. Schwab reported a record 11.9 million daily average revenue trades in the second quarter, a 57% increase from a year earlier. Trading revenue also rose, climbing 28% to $1.2 billion. ‘During the second quarter, strong client engagement helped drive year-over-year revenue growth,’ Chief Financial Officer Mike Verdeschi said…”
July 21 – Wall Street Journal (Mark Maurer): “A record level of private-equity investments are stuck in funds limping along past their intended lifespans. Often known as zombie funds, these funds are no longer raising money or making new acquisitions, in part because fund managers haven’t been able to sell their remaining assets. The net asset value of U.S. private-equity assets stuck in funds at least a decade old reached an all-time high of $348.5 billion at the end of 2025, according to PitchBook... That is 3.5 times the amount in 2015 and more than 100 times that of 2005. The slowdown in private-equity sales has fueled frustration among investors eager to cash out.”
July 20 – Bloomberg (Ben Steverman and Paulina Cachero): “For well-paid professionals grinding it out in Manhattan, the math used to be simple: Real estate, taxes, schools and almost everything else were cheaper in sunny Florida. Now that Miami has become one of the most expensive cities in the US, the New York-to-Florida arbitrage is a tougher calculation. For the first time on record, the Miami metropolitan area is more expensive than greater New York City. South Florida’s consumer price index has jumped 36% since 2019…, more than any of the other metropolitan areas tracked by the US Bureau of Labor Statistics with the exception of Tampa, Florida, four hours away. And Miami’s cost of living has surpassed New York’s…”
Inflation Watch
July 22 – Bloomberg (Eleanor Thornber, Sabrina Nelson Garcinuño, and Pyotr Kozlov): “Europe is set to suffer one of its sharpest ever declines in grain production as extreme weather and geopolitical tensions converge to pile pressure on farmers. Searing temperatures have hit wheat yields and are expected to cut the region’s corn crop to the smallest in 19 years... At the same time, the Middle East conflict has pushed up fuel and fertilizer costs, slashing plantings across the continent earlier this year. As a result, the European Union’s total grains output may shrink by more than 9% this year, according to… Coceral.”
July 22 – Bloomberg (Suzanne Woolley): “People retiring this year can expect medical expenses to take a significantly bigger bite of their savings, according to a new report from Fidelity Investments. Healthcare costs for retirees are accelerating fast. Average lifetime healthcare expenses for a 65-year-old retiring in 2026 are projected to rise 7.5%, following increases of 5% last year and 4% in 2024, Fidelity said... That means the average retiree will pay $185,500 and $371,000 for couples.”
July 21 – Bloomberg (Emily Forgash): “Data centers in the US will account for about 20% of the nation’s electricity consumption in 2035, up from 5.9% today, according to BloombergNEF. That compares with an estimated 12% in 2030… In states such as Virginia and Texas where data centers are concentrated, their share of electricity use will be even higher. Given the speed at which soaring demand from artificial intelligence is increasing, BNEF projects data center power needs to reach 194 gigawatts in the country by 2035. That’s a jump of 83% from its December forecast.”
Federal Reserve Watch
July 23 – Wall Street Journal (Nick Timiraos): “Next week’s Federal Reserve meeting is shaping up as one of the least predictable in years. A renewed oil shock and a hawkish faction pressing to raise rates have collided with cooler inflation data that helps the case for a hold. Presiding over it is a new chairman who has revealed nothing about which way he leans. Warsh has vowed repeatedly over the last two months to restore price stability, to disabuse investors of the idea the Fed has implicitly accepted higher inflation. He hasn’t spelled out how current interest rates will accomplish that. The officials pressing to raise rates are the more insistent, and a few of them are candidates to dissent if rates stay on hold.”
U.S. Economic Bubble Watch
July 23 – Associated Press (Matt Ott): “U.S. applications for jobless benefits tumbled to the lowest level in more than five decades last week… The number of Americans applying for unemployment benefits in the week ending July 18 declined by 22,000 to 187,000… That’s the fewest number of weekly applications since the week ending Sept. 6, 1969… The total number of Americans filing for unemployment benefits for the previous week ending July 11 was down by 2,000 to just under 1.8 million, also a historically healthy figure.”
July 23 – Associated Press (Alex Veiga): “The average long-term U.S. mortgage rate climbed this week to its highest level in nearly 12 months… The benchmark 30-year fixed rate mortgage rate rose to 6.58% from 6.55% last week, mortgage buyer Freddie Mac said Thursday. One year ago, the average rate was 6.74%.”
July 22 – CNBC (Diana Olick): “Mortgage rates continued their climb last week, but homebuyers trickled back into the market, perhaps taking advantage of less competition and some price cuts… Applications for a mortgage to purchase a home rose 6% for the week and were 0.2% higher year over year -- basically flat. Potential buyers are starting to get a little break, as the market settles into its historically slower summer months.”
July 20 – Reuters (Michael S. Derby): “Americans’ application rate for new credit over the last year hit its highest level in nearly five years in June, new data from the Federal Reserve Bank of New York… said… The bank said that the rate of applying for new credit of any type was at its highest level since October 2021, based on findings from its latest Survey…”
July 20 – Associated Press (Heather Hollingsworth and Nicky Forster): “Across the country, the number of borrowers with defaulted student loans jumped by more than 4.2 million from April 2025 to March 2026… The surge includes many who went off track in 2024, when loan payments started coming due again after a pandemic-era freeze. Hundreds of thousands more are months behind on payments, and another surge in defaults could be on the way. Millions of borrowers are facing higher monthly payments as the government dismantles its most affordable income-driven repayment option, the SAVE plan…”
China Watch
July 20 – Bloomberg: “China’s cabinet pledged to ensure the country will meet its full-year economic goal and to forge ahead with implementing policies, after growth slipped below the official target range in the second quarter. A State Council executive meeting chaired by Premier Li Qiang said ‘the efficient use of fiscal funds should be maximized,’ according to a Xinhua News Agency readout…”
July 20 – Financial Times (Zijing Wu and Ryan McMorrow): “Chinese regulators are considering tightening export controls on artificial intelligence and semiconductor technologies, as the US-China rivalry intensifies in cutting-edge AI. Regulators led by the Ministry of Commerce (MofCom) have been consulting leading domestic AI and chipmaking groups on how to prevent China’s advanced technologies and star start-ups from being acquired by the west, according to two people involved in the discussions.”
July 20 – Wall Street Journal (Sherry Qin and Megan Cheah): “Two Chinese state investment firms have deployed nearly $9 billion to prop up the stock market, after artificial-intelligence fears triggered a selloff in recent weeks. China Reform Holdings said… its unit tapped more than 50 billion yuan, equivalent to $7.38 billion, from the special relending facility and matching funds for share buybacks and stake increases to help stabilize the market… China Chengtong Holdings said its subsidiaries purchased nearly 10 billion yuan, or $1.48 billion, of Chinese equity assets.”
July 19 – Bloomberg: “Chinese stock traders unwound leveraged positions at the fastest pace since the 2015–2016 market crash on Friday, as fears that the AI-driven rally had become overstretched triggered a global equities rout. The outstanding balance of debt taken out for stock purchases in Shanghai and Shenzhen fell by 2.8% to 2.75 trillion yuan ($405bn) on Friday, the fastest pace of contraction since January 2016…”
July 21 – Bloomberg: “China’s unemployment among young people could be headed for levels last seen more than three years ago, as a record number of graduates prepare to enter the labor market… Surveyed unemployment in urban areas for those aged 16-24 came in at 14.9% last month, according to… the National Bureau of Statistics... While extending a pattern of seasonal decline, it was the highest for June since the government excluded university students from the sample more than two years ago after the rate surpassed 20%.”
Central Banker Watch
July 23 – Financial Times (Olaf Storbeck and Ian Smith): “The European Central Bank left interest rates unchanged at 2.25%... but policymakers discussed a further increase in borrowing costs in response to a renewed surge in oil prices. ECB president Christine Lagarde said the widely expected decision was unanimous but there were some members of the central bank’s governing council ‘who asked themselves whether we should not consider a hike’.”
July 23 – Reuters (Balazs Koranyi and Francesco Canepa): “The European Central Bank is considering several options to mitigate its financial losses, in a tense debate that is expected to come to a head in the autumn, four sources said. ECB President Christine Lagarde confirmed… that policymakers would discuss raising minimum reserve requirements… Alternative options include not paying interest to banks on some of their excess reserves… All these moves would ease the financial burden on national central banks, helping offset some losses resulting from the ECB's stimulus policies of the last decade.”
Europe/UK Watch
July 20 – Financial Times (George Parker, Lucy Fisher and Jim Pickard): “Andy Burnham has become Britain’s seventh prime minister since the 2016 Brexit vote, vowing to build a ‘new national sense of unity, of common purpose and positivity’. Burnham succeeded Sir Keir Starmer on Monday after being appointed by King Charles and immediately announced that he would refocus the Labour government on the needs of ordinary voters.”
July 20 – Bloomberg (Chloe Chaplain): “Andy Burnham pledged to end the UK’s political instability with a new economic model in his first speech after becoming prime minister on Monday. ‘I am acutely conscious that I am the sixth person in the last 10 years to walk up this street, the seventh prime minister since 2016… We will make this moment a circuit breaker for Britain, bringing forward the biggest changes in the last 40 years: a new political model and a new economic model.’”
July 21 – Bloomberg (Mark Schroers): “Euro-zone banks tightened corporate credit standards further as they see higher risks due to geopolitical events including the Iran war. Lenders also reported more rigid standards for mortgages, consumer credit and other lending to households, the European Central Bank said… ‘Perceived risks to the economic outlook and banks’ lower risk tolerance remained the main factors contributing to the tightening, as banks remain highly attentive to risks related to geopolitical and energy developments,’ it said.”
Japan Watch
July 22 – Bloomberg (Toru Fujioka and Sumio Ito): “Bank of Japan officials are open to raising interest rates at a faster pace than the consensus among economists, as the yen’s continued weakness adds to upside inflation risks, according to people familiar… The central bank is widely expected to hold its policy settings steady at a July 31 board meeting, with most BOJ watchers expecting another hike in December after policymakers last month raised the benchmark rate to 1%, the highest in 31 years. Central bank officials are aware that many BOJ watchers expect the bank to move roughly once every six months, but they’re open to moving earlier than that timeframe if needed…”
July 21 – Bloomberg (Takashi Umekawa): “Two senior Japanese officials warned that authorities are ready to take action in the currency market if necessary, in comments that did little to support the beleaguered yen. ‘The situation involving the US and Iran has taken a sudden turn for the worse — a deterioration that the world did not foresee — creating a very difficult environment,’ Minister of Finance Satsuki Katayama told reporters... ‘Our policy remains completely unchanged: We will take appropriate and bold action at any time, should the need arise.’”
July 21 – Bloomberg (Yoshiaki Nohara): “Japan’s trade deficit unexpectedly widened in June as the weak yen inflated the value of imports and the war in Iran made oil more expensive. The trade deficit expanded to ¥406.9 billion ($2.5bn)… from a revised ¥391.8 billion gap in May… Analysts had forecast a ¥120 billion deficit. The value of imports rose 25.4% in June from a year ago while the value of exports gained 19.3%.”
July 21 – Bloomberg (Yusuke Maekawa and Mary Hui): “A triple whammy of blistering heat, yen weakness and escalating fuel costs has pushed Japan’s spot electricity price to its highest in three and a half years. The nationwide day-ahead spot price surged to ¥24.78 (15 cents) a kilowatt-hour on Wednesday, up 24% this week and the highest since January 2023…”
EM Watch
July 24 – Bloomberg (Dan Strumpf, Vignesh Radhakrishnan, Atul Dev and Aryan Gupta): “On a sweltering Friday afternoon in May, India’s top judge had little idea he would spark New Delhi’s biggest protests in years when he compared unemployed youngsters to ‘cockroaches’ during a routine court hearing. Yet two months later, the Cockroach Janta Party — spawned on social media as a joke from an apartment in Boston — is testing Prime Minister Narendra Modi’s government far more than established opposition political groups. Tensions boiled over this week, with protests widening after police used batons and tear gas to prevent demonstrators from marching to the parliament.”
Social, Political, Environmental, Cybersecurity Instability Watch
July 21 – Bloomberg (John Ainger and Lauren Rosenthal): “Power use on the Texas grid appeared to break its all-time peak demand record… Preliminary grid data showed hourly average demand topped 87 gigawatts, according to a dashboard on the website of Electric Reliability Council of Texas… That would exceed the official record of 85.508 gigawatts set in August 2023. Searing heat and humidity over most of Texas is prompting homes and businesses to crank up their air conditioners, sending electricity demand higher.”
July 22 – Bloomberg (Ishika Mookerjee): “The scale of climate-related disruption to supply chains is being underestimated as global warming pushes the planet to the brink of environmental tipping points, according to Ravi Menon, Singapore’s former central bank chief. ‘The mother of all supply chain disruptions will be the climate, because that is the deepest form of entanglement that the global economy has,’ Menon, the city-state’s ambassador for climate action, said… ‘The impact of climate on livelihoods, labor and economic activities ‘will all have knock-on effects down supply chains.’”