Party Like It's 1999, 1996 and 2007

We’ve gone and really done it this time.

Down somewhat from Wednesday’s high, the rates market still ended the week pricing 95% probability of a 25 bps Fed rate hike in the next 11 months (57% by year end). If a rate cut – or even talk of higher rates - coincides with a problematic market downturn, disregard those who will be quick to blame rate policy.

I’m reminded of the debate surrounding Federal Reserve rate policy leading up to the 1929 stock market crash. Some argued that a misguided Fed, fixated on stock market speculation, had remained excessively tight despite mounting economic vulnerability. More rigorous analysis would recognize that historic late-cycle Credit, speculative and economic “Roaring Twenties” excesses perpetuated precariously loose financial conditions. Like nowadays, responsibility for the inevitable bubble bursting lies with protracted loose money accommodation throughout the boom.

May 27 – Financial Times (George Steer and Michael Acton): “Semiconductor stocks have made their best start to a year since the dotcom bubble at the turn of the millennium… A roughly 75% gain since the start of the year has left the Philadelphia Semiconductor Index, which tracks 30 of the world’s biggest US-listed chip manufacturers, on track for its largest annual return since 1999… The index has gained more than $5tn in market value over the past two months — about 1.5 times the value of the UK’s flagship FTSE 100 index — on the back of increasingly optimistic bets on chip manufacturers’ future earnings.”

When the definitive history of this period is written, the impact of the Fed’s 175 bps of rate reduction, which commenced on September 18, 2024, cannot be overstated. The Federal Reserve slashed rates despite excessively loose financial conditions and ongoing rapid system Credit growth. The Fed moved to bolster monetary stimulus despite sticky inflation, which had remained above target for going on four years. They significantly loosened monetary policy in the face of historic speculative leverage; rampant stock market speculation; booming high-risk lending markets (i.e., private Credit and leveraged lending); out of control federal deficit spending; and a rapidly intensifying AI mania/arms race.

Since that fateful September 18, 2024, the S&P500 has returned 37.7%, with the small cap Russell 2000 returning 35.4%. But, of course, the semiconductor and technology sectors have been the epicenter of historic Bubble excess. Since the Fed began cutting, the Nasdaq100 has returned 58.7% and the MAG7 Index 64.4%.

The Semiconductors (SOX Index) jumped another 5.1% this week, boosting y-t-d (5-months) gains to 81%. It has been an unbelievable run, one that really caught fire after the Fed began to slash rates. Since September 18, 2024, the SOX has returned an incredible 168%. Micron’s 27.4% gain this week boosted gains since 9/18/24 to over 1,000%. A few other notable post-easing gains include Intel (452%), Lam Research (327%), AMD (248%), and Broadcom 181%.

Dell’s 42.6% gain this week inflated post-easing gains to 274%, as Palantir’s 13.9% advance boosted post-easing returns to 138%. It’s worth noting that Ford’s remarkable 45% 12-day surge has inflated post-easing returns to 77% (Ford Energy!). Carvana’s stock is up 126% since 9/18/24.

The Fed had company in loosening monetary policy into notably loose global financial conditions. Since 9/18/24, South Korea’s benchmark KOSPI Index has inflated 240%, Taiwan’s TAIEX 113%, and Japan’s Nikkei 225 89%. This week’s 8.0% KOSPI’s surge pushed y-t-d gains to 101%. The major averages in Japan and Taiwan rose 4.7% and 5.8% this week, boosting 2026 gains to 31.8% and 54.5%. More big advances this week inflated post-easing gains to 1,500% for Samsung Electronics, 1,300% for South Korea’s SK Hynix, and 150% for Taiwan Semiconductor.

It's worth noting that major equities indices were down this week in China, India, Indonesia, Malaysia, Philippines, Vietnam, Turkey, and Brazil. Bitcoin dropped $2,000, or 2.7%, to 73,400. Has the AI mania begun to suck oxygen out of the room?

May 24 – Bloomberg (Abhishek Vishnoi): “The AI boom is giving momentum investors their best return in decades, as the world’s hottest stocks power ahead despite worries over potentially slower growth due to the Iran war. MSCI Inc.’s global momentum gauge has beaten the MSCI All Country World Index by 17 percentage points since the end of March, on track for its strongest two-month outperformance on record, in data… back to 1991.”

May 27 – Reuters (Jihoon Lee, Yena Park and Heekyong Yang): “SK Hynix topped $1 trillion in market value for the first time on Wednesday, joining its memory chip rivals Samsung Electronics and Micron Technology in reaching the milestone ‌on an AI-driven rally. Shares of SK Hynix closed the session up 9.3%... to take the South Korean chipmaker’s market value to a record 1,680 trillion won ($1.12 trillion) and propel the country’s benchmark KOSPI index to a record high.”

May 27 – Bloomberg (Jiyeun Lee): “The breathtaking rally in South Korean stocks took gains for 2026 to 100%, eclipsing even the historic run-ups seen before the dotcom bubble burst and during the nation’s industrial boom in the late 1980s. Supercharged by advances in memory makers SK Hynix Inc. and Samsung Electronics Co., the benchmark Kospi has shattered record after record — racing from 5,000 to 8,000 in a matter of months. The gauge jumped as much as 5.1% on Wednesday. Less than halfway through the year, the Kospi’s performance now rivals the Nasdaq 100 Index’s 102% surge in 1999 — right before the bubble burst.”

May 27 – Wall Street Journal (Jared Mitovich and Robbie Whelan): “The frenzied rally in chip stocks passed a new milestone on Wednesday, with the PHLX Semiconductor Index posting its best start to a year on record. Even by the standards of the artificial-intelligence boom, the gains have been extraordinary. Sandisk has soared 570% this year. Intel has more than tripled. Samsung, Micron and SK Hynix have all climbed into the ranks of $1 trillion companies. And Advanced Micro Devices now has a higher valuation than JPMorgan... The semiconductor index has climbed 82% so far in 2026, its best-ever performance over a year’s first 100 trading days.”

Understandably, comparisons of the current backdrop to 1999 have begun to proliferate. The intensity of the AI mania has surpassed even the “dot.com” Bubble period. Yet the bullish narrative scoffs at 1999 parallels, arguing that earnings and valuations are much more constructive these days.

May 27 – Bloomberg (Jonathan Ferro, Lisa Abramowicz and Annmarie Hordern): “Veteran market strategist Ed Yardeni of Yardeni Research dismissed concerns that US stocks are in a bubble, arguing the rally is driven by ‘fabulous earnings momentum’ rather than speculation. ‘The big difference is earnings,’ Yardeni said…, adding that the forward price-to-earnings ratio for the S&P 500, at 20 to 22, looks reasonable if the economy avoids recession over the next few years. He coined the term ‘FEMO’ — fabulous earnings momentum — to distinguish the current rally from ‘FOMO,’ or fear of missing out, which he said is based on hope and hype rather than fundamentals.”

“FEMO” notwithstanding, today’s “FOMO” exceeds even 1999 Bubble intensity. There are today similarities to 1999, as well as important differences. Arms race dynamics also dominated the late-nineties Bubble period, with massive industry spending driving industry earnings, along with what were perceived as “new paradigm” economy-wide productivity gains (that summarily dissolved with the bursting Bubble).

But today’s “hyperscaler” dynamics are unique. Extraordinarily protracted innovation and monetary inflation boom cycles generated miraculous cash-flows and cash hoards. The tech oligarchy can these days literally marshal their unprecedented cash positions and borrowing capacities to finance Trillions of expenditures, arms race spending that inflates industry and system earnings. Today’s earnings are indeed “fabulous”; they are also symptomatic of historic late-cycle Bubble excess.

There are other important differences to 1999. Having fully and exuberantly adopted online trading, options, and ETFs, retail investors are exposed to today’s mania like never before. Also notable, the federal government actually ran a surplus of $123 billion in (fiscal) 1999 (following ‘98's $69bn surplus). This year’s deficit could exceed $2.0 Trillion, up from last year’s $1.8 TN.

Massive federal spending has become integral to sustaining inflated system incomes and earnings. Analysts should be cautious with valuation analysis and earnings growth extrapolation, unless they believe $2 TN annual deficits are the sustainable new normal.

I remember 1999 all too well. The Q4 ’98 LTCM bailout resuscitated aggressive leveraged speculation, while GSE balance sheet ballooning provided markets a powerful liquidity spigot. GSE assets inflated an unprecedented $305 billion during crisis-year 1998, only to return the following year with another $317 billion. As a key system liquidity intermediator, money market fund assets ballooned $293 billion, or 27.7%, in 1998, and another $261 billion, or 19.3%, in 1999.

Today’s leveraged speculation so dwarfs late-nineties excess. At $500 billion in 1999, hedge fund assets were about 10% of today’s level. System “repo” assets expanded $122 billion in 1999 to $1.76 TN. Last year, “repo” assets ballooned $1.064 TN (15%) to an unprecedented $8.168 TN. Moreover, leveraged speculation hadn’t yet taken the world by storm by 1999. Today, the amount of global leveraged speculation has surely inflated to many tens of Trillions. This is a serious and increasingly pressing issue.

May 28 – Bloomberg (Alice Atkins): “Hedge funds now control more than half of the electronically traded gilts market, Tradeweb data show, a shift that could be making UK government debt more vulnerable to bursts of volatility. Their share of trading volumes grew by about a third between 2021 and 2025, reaching 63%, according to Tradeweb… The proportion handled by traditional asset managers like pension funds and insurers has dropped to 26% from 45% in the period, it said.”

May 28 – Bloomberg (Greg Ritchie): “Banks may be providing generous leverage to hedge funds trading gilts due to competitive pressures, a senior Bank of England official said, a sign regulators intend to impose greater restrictions on the market. The bulk of gilt repurchase agreement transactions — which allow investors including hedge funds to borrow against gilts and lever up trades — are conducted at so-called zero haircuts, said Sarah Breeden, the British central bank’s deputy governor for financial stability… The BOE, which is considering ways to make the UK bond market more resilient, has floated imposing minimum haircuts to avoid this but has received widespread industry pushback.”

May 27 – Bloomberg (Greg Ritchie): “The European Central Bank warned that the growing role of highly-leveraged trades in the region’s bond markets poses a risk to financial stability. Hedge funds seeking to exploit small price differences between similar assets, such as bonds and equivalent futures contracts, typically rely on leverage ratios of around 25, according to the central bank’s twice-yearly Financial Stability Review. While such ‘basis trades’ can support liquidity, they risk exacerbating market swings in times of stress, officials said. ‘Their leveraged positions may have to be unwound quickly if bond prices react sharply to geopolitical or risk sentiment shocks, for instance,’ the ECB said… That could ‘erode the stable funding base of European governments’ by amplifying price movements and increasing volatility.”

The Kevin Warsh chairmanship raises many questions. How long until he pushes the FOMC in the direction of lower rates? Is he serious about reform? With all the talk of a smaller Fed balance sheet, does he attempt to at least build a consensus to halt the current expansion? How much has his independence been compromised?

Kevin Warsh has been working with hedge fund legend Stanley Druckenmiller for 15 years. Warsh is as well-versed in the issue of massive hedge fund leverage as Treasury Secretary Scott Bessent.

The Bank of England and the European Central Bank were out again this week with hedge fund leverage warnings. The ECB devoted particular attention to this issue in its May semiannual Financial Stability Report (“hedge funds” get 14 mentions, see "For Posterity" below).

How might Chair Warsh handle this critical issue? I view Scott Bessent as the hedge fund and market “whisperer.” For Warsh, will it be hear, speak and see no evil? In a sign of the times, the top two U.S. financial officials were recent hedge fund players. They now oversee the most enormous amount of speculative leverage in history. Knowing what he knows, does Warsh elevate hedge fund leveraging to a major concern, following the lead of the ECB and BOE? Or has he signed on to the administration’s gambit of pushing finance, economic growth, and excess to the (late-cycle) limit?

We’re at such a critical juncture for the markets, finance, and myriad Bubbles. Returning to the 1999 comparison, why not today extrapolate the boom for years to come? After all, policymakers have proven time and again – over decades - that they have the tools to resolve crises and resuscitate Bubbles. And Bessent and Warsh, more than most, know where the bodies are buried and have a plan.

There are today major problems with extrapolation. For one, Treasury debt has literally expanded 10-fold since 1999. The Fed’s balance sheet has inflated almost 10-fold. Government finance is at the end of the rope. There is no next source of massive Credit creation waiting to reflate system Credit when crisis of confidence dynamics unfold in Treasury debt and central bank Credit.

Moreover, it is a “global government finance Bubble” in every meaning of the phase. From my perspective, I see ominous Bubble parallels to 1999. But there are also global elements of 1996 “Asian Tiger” Bubble excess that ended in disaster in 1997. Worse yet are the unnerving similarities to 2007 Bubbles in high-risk lending and speculative leverage, which erupted into the “great financial crisis”.

The late-nineties Bubble was relatively contained within the technology arena. The mortgage finance Bubble was much more systemic and global in nature. Today’s global government finance Bubble is uniquely systemic – at home and abroad, throughout finance, markets and economies.

Global bond markets rallied this week in anticipation of the end of the war and the opening of the Strait of Hormuz. We can only hope… I doubt bonds are out of the woods.

For Posterity: Excerpts from the ECB’s Financial Stability Review, May 2026

“…The growing presence of more price-sensitive investors like hedge funds in euro area sovereign bond markets could amplify any abrupt repricing of sovereign risk. This could also raise the risk of spillovers to the funding costs of corporates and banks. A repricing of euro area sovereign risk could also be triggered by spillovers from global sovereign bond markets. US Treasuries have served as safe-haven assets since the outbreak of the war in the Middle East. Nonetheless, market concerns about US fiscal credibility as a result of persistently high fiscal deficits, expectations of higher debt service costs and high borrowing needs could lead to changing risk perceptions and a repricing of sovereign risk globally.”

“Inadequate liquidity buffers in times of heightened volatility and liquidity mismatch in open-ended investment funds, especially in corporate bond and private credit funds, could exacerbate market volatility in times of stress through procyclical selling. Pockets of elevated financial and synthetic leverage in some entities, notably global hedge funds, may exacerbate the risk of financial contagion and expose liquidity vulnerabilities through margin calls when market volatility spikes. Although hedge funds remain a comparatively small subsector of euro area investment funds, it is a segment with a high concentration of potential leverage-related risks. Additionally, global hedge funds are highly active in European sovereign bond markets and could amplify price swings in times of sudden and substantial bond price movements.”

“Changes in the investor base are shaping dynamics in sovereign markets, with global hedge funds increasing their presence in euro area sovereign bond markets. While supporting liquidity, their more price-sensitive and, in some cases, leveraged strategies may make market pricing more sensitive to changes in sentiment. At the same time, high sovereign financing needs related, among other things, to defence spending, the green transition and potential fiscal measures to cushion households and firms from rising energy prices, are likely to add to pressures over the medium term.”

“Leverage and strong interlinkages with the broader financial system are major financial stability risks posed by global hedge funds, which continue to lever up. In particular, the largest hedge funds maintain leverage ratios that are significantly above average. Relative value strategy funds tend to engage in highly leveraged basis trades, including in European sovereign bond markets, and have leverage ratios of around 25. Their leveraged positions may have to be unwound quickly if bond prices react sharply to geopolitical or risk sentiment shocks, for instance. In this way, hedge funds’ procyclical deleveraging could exacerbate ongoing price moves and, through increased volatility in bond markets, erode the stable funding base of European governments. Hedge funds domiciled in the euro area have also increased their financial leverage in the past few years, albeit with a slight decrease in the very recent past, but the level of their leverage remains below that of US hedge funds. Risks may be compounded by synthetic leverage in the form of derivatives, which can quickly translate into liquidity stress once market adjustments trigger margin or collateral calls.”

“A key issue is how best to address risks from complex leveraged strategies – this is a concern in the euro area given the growing presence of hedge funds in sovereign bond markets.”

For the Week

The S&P500 gained 1.4% (up 10.7% y-t-d), and the Dow increased 0.9% (up 6.2%). The Utilities fell 2.1% (up 4.5%). The Banks increased 0.7% (up 3.2%), and the Broker/Dealers added 0.3% (up 4.4%). The Transports advanced 3.1% (up 23.4%). The S&P 400 Midcaps gained 1.4% (up 12.7%), and the small cap Russell 2000 rose 1.7% (up 17.6%). The Nasdaq100 jumped 2.9% (up 20.1%). The Semiconductors surged 5.1% (up 81.1%). The Biotechs rose 4.6% (up 8.4%). With bullion increasing $31, the HUI gold index rallied 5.0% (up 8.9%).

Three-month Treasury bill rates ended the week at 3.5883%. Two-year government yields dropped 12 bps to 4.00% (up 53bps y-t-d). Five-year T-note yields fell 12 bps to 4.14% (up 42bps). Ten-year Treasury yields dropped 12 bps to 4.44% (up 27bps). Long bond yields declined nine bps to 4.97% (up 13bps). Benchmark Fannie Mae MBS yields dropped 17 bps to 5.38% (up 34bps).

Italian 10-year yields dropped 12 bps to 3.65% (up 10bps y-t-d). Greek 10-year yields fell 11 bps to 3.60% (up 16bps). Spain's 10-year yields fell 12 bps to 3.35% (up 7bps). German bund yields declined 10 bps to 2.94% (up 8bps). French yields dropped 12 bps to 3.55% (down 2bps). The French to German 10-year bond spread narrowed two to 61 bps. U.K. 10-year gilt yields declined nine bps to 4.81% (up 33bps). U.K.’s FTSE equities index slipped 0.5% (up 4.7% y-t-d).

Japan’s Nikkei 225 Equities Index surged 4.7% (up 31.8% y-t-d). Japan’s 10-year “JGB” yields fell 10 bps to 2.67% (up 60bps y-t-d). France’s CAC40 increased 0.8% (up 0.4%). The German DAX equities index gained 0.9% (up 2.5%). Spain’s IBEX 35 equities index rose 2.1% (up 6.1%). Italy’s FTSE MIB index gained 1.1% (up 11.3%). EM equities were mixed. Brazil’s Bovespa index fell 1.4% (up 7.9%), while the Mexico’s Bolsa index added 0.3% (up 6.6%). South Korea’s Kospi surged 8.0% (up 101.1%). India’s Sensex equities index declined 0.8% (down 12.3%). China’s Shanghai Exchange Index fell 1.1% (up 2.5%). Turkey’s Borsa Istanbul National 100 index lost 1.1% (up 21.3%).

Federal Reserve Credit was little changed last week at $6.667 TN, with a 24-week expansion of $177 billion. Fed Credit was down $2.223 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.970 TN, or 79%. Fed Credit inflated $3.856 TN, or 137%, since November 7, 2012 (707 weeks). Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt recovered $1.8 billion last week to $2.972 TN - just off the low back to October 2010. “Custody holdings” were down $287 billion y-o-y, or 8.8%.

Total money market fund assets (MMFA) increased $13.4 billion last week to $7.785 TN. MMFA were up $836 billion, or 12.0%, y-o-y - having ballooned a historic $3.201 TN, or 70%, since October 26, 2022.

Total Commercial Paper dropped $40 billion to $1.391 TN. CP declined $58 billion, or 4.0%, y-o-y.

Freddie Mac 30-year fixed mortgage rates added two bps to 6.53% (down 36bps y-o-y). Fifteen-year rates increased two bps to 5.87% (down 16bps). Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up one basis point to a nine-month high of 6.75% (down 27bps).

Currency Watch

May 28 – CNBC (Robert Frank): “Family offices are planning the biggest changes to their portfolios in years, with many moving money out of the U.S., according to a new survey. Fully 60% of family offices plan to make strategic changes to their investment allocation in the next year – about twice the level of the past five years, according to the UBS Global Family Office Report. Among those making changes, many are trimming their U.S. holdings and adding to emerging markets. Globally, North America is the only region where family offices plan to reduce their allocation in the next 12 months.”

For the week, the U.S. Dollar Index slipped 0.3% to 98.942 (up 0.6% y-t-d). On the upside, the New Zealand dollar increased 2.4%, the South African rand 1.5%, the Swedish krona 1.4%, the South Korean won 0.9%, the Australian dollar 0.8%, the Swiss franc 0.5%, the euro 0.5%, the Singapore dollar 0.3%, the Canadian dollar 0.2%, the British pound 0.2%, and the Norwegian krone 0.2%. On the downside, the Mexican peso and Japanese yen declined 0.1%. China's (onshore) renminbi increased 0.44% versus the dollar (up 3.28% y-t-d).

Commodities Watch

The Bloomberg Commodities Index slumped 2.6% (up 23.2% y-t-d). Spot Gold increased 0.7% to $4,540 (up 5.1%). Silver slipped 0.3% to $75.2975 (up 5.1%). WTI Crude sank $9.24, or 9.6%, to $87.36 (up 52%). Gasoline dropped 9.5% (up 82%), while Natural Gas rallied 13.2% to $3.29 (down 11%). Copper added 0.2% (up 12%). Wheat reversed 5.5% lower (up 20%), and Corn dropped 3.6% (up 2%). Bitcoin lost $2,000, or 2.7%, to $73,400 (down 16.3%).

Market Instability Watch

May 28 – Axios (Matt Phillips): “Investors are using a record amount of borrowed money to bet on stocks. Trading with borrowed money — known on Wall Street as ‘margin’ — can amplify both returns on the way up and losses if the market turns. Even investors who do not trade on margin should watch it: Borrowed money has played a key role in market crashes, from 1929 to the dot-com bust. Through the end of April, net margin debt hit more than 1.25% of U.S. market cap, near the highest level in records stretching back to 1997… Long-term measures of market valuation like Yale professor — and Nobel laureate — Robert Shiller’s Cyclically Adjusted Price-to-Earnings ratio (CAPE) are at highs not seen since just before the dot-com crash. The market’s valuation as a share of U.S. GDP… is the highest on record.”

May 24 – Bloomberg (Maria Elena Vizcaino, Zijia Song, and Nicolle Yapur): “Investors in emerging markets are getting slammed by a fresh wave of political turmoil that is derailing bets from Latin America to Eastern Europe. With just weeks to go until key presidential votes, markets in Colombia and Peru are selling off as traders recalculate odds of left-wing candidates prevailing. Bolivian bonds have tumbled as street protests against the government threaten supplies of food and medicine to the nation’s capital. In Turkey, heavy state intervention has prevented markets from falling more after a court removed the leader of the country’s main opposition party. The episodes are a fresh reminder of underlying risks that still plague the asset class…”

May 28 – Bloomberg (Malavika Kaur Makol and Marcus Wong): “Asian central banks are turning to ever more aggressive interest-rate hikes to shore up currencies, though there are few signs of success. The Sri Lankan rupee advanced more than 1% after a larger-than-expected 100-bps increase this week, but it has since surrendered those gains… Similarly, the Indonesian rupiah strengthened after a surprise 50-bps hike last week, only to fall thereafter to another record low. Pakistan’s rupee has remained stable after officials surprised with a hike of similar magnitude in April. ‘There’s only so much central banks can do to support currencies,’ said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore. ‘The real issue is Asia’s high reliance on imported oil. Global energy supply and prices cannot be influenced by central banks, so they’re in a bit of a bind.’”

May 29 – Bloomberg (Kevin Buckland): “Japanese authorities spent 11.7 trillion yen ($73.5bn) intervening in foreign exchange ‌markets over the past month to support the ‌yen, but with only limited effect as the currency hovers near the same levels that prompted Tokyo to act. Ministry of Finance data… confirmed traders’ suspicions that officials entered the market at the turn of the month, likely on ‌multiple occasions during ⁠Japan’s Golden Week holidays, when market liquidity was thin.”

May 24 – Bloomberg (Caleb Mutua and Tasos Vossos): “As big tech companies raise hundreds of billions of dollars to fund artificial intelligence investments, Wall Street banks are increasingly finding they have to trade more credit derivatives to keep doing business with the hyperscalers. The surge in activity is creating an opportunity for hedge funds to profit from banks’ growing demand for these instruments. Banks typically face limits on how much exposure they can have to a single company across loan portfolios and derivatives books. But so-called hyperscalers such as Meta Platforms Inc. and Alphabet Inc. are raising so much capital to fund their artificial-intelligence programs — they are estimated already to have borrowed more than $250 billion globally for AI — that banks may be starting to approach those limits.”

May 26 – Bloomberg (Editorial Board): “It’s been more than three years since Silicon Valley Bank lost a quarter of its deposits in a day, kicking off a string of bank rescues. The shocking speed of that run was attributed, in part, to the rapid spread of information on social media and the efficiency of digital banking. Future panics could unfold even faster. Policymakers ought to stop debating the risks and erect some common-sense guardrails. Advances in technology are only making it easier and more attractive for depositors to withdraw their funds from banks. Artificial intelligence tools may soon be able to shift money around automatically and instantaneously in response to negative news or changes in deposit rates. Meanwhile, the growing supply of stablecoins — a kind of digital cash meant to be backed by actual dollars — offers an alternative to deposits, one that has alarmed the banks.”

U.S. Credit Trouble Watch

May 26 – Wall Street Journal (Heather Gillers): “Insurance companies are increasingly investing policyholders’ money in private credit sold by parent firms or affiliated parties, an approach critics say sets up potential conflicts of interest. Wall Street’s biggest private asset managers have flocked to life insurance over the past decade, viewing insurers’ huge portfolios as a perfect match for their investment products. Now insurer portfolios are filling up with products created by related private-equity firms such as Apollo Asset Management and Brookfield Asset Management. So-called affiliated assets grew 22% to a combined $127 billion over the past year for six private-equity linked life insurers tracked... American Equity Investment Life Insurance’s affiliated asset portfolio grew to $6.5 billion last year from $450 million in 2023 after it was purchased by Brookfield Corporation’s Brookfield Wealth Solutions arm. Athene, owned by Apollo Global Management, last year reported the most affiliated assets of any insurer at $52 billion—$12 billion more than in 2024. More than a third of assets were deemed affiliated at Security Benefit Life, which is owned by billionaire sports investor Todd Boehly alongside private asset manager, Eldridge.”

May 28 – Wall Street Journal (Dan Frosch): “In the first quarter of this year, the percentage of credit-card balances that were at least 90 days delinquent rose to 13.12%, according to… the Federal Reserve Bank of New York. That’s the highest level in 15 years, and the most since the period following the 2008 financial crisis. America’s total credit-card balance stood at $1.25 trillion in the first quarter…, up from $1.18 trillion in that quarter last year. That’s the highest first-quarter balance since the New York Fed began recording the measurement in 1999.”

May 29 – Reuters (Patturaja Murugaboopathy): “Unrealised losses at U.S. private credit lenders deepened in the first quarter to their worst level since 2022, while the amount of interest income they received in kind, rather than cash, stayed high, filings and data reviewed by Reuters showed… A Reuters analysis of 51 business development companies, or BDCs, showed aggregate unrealised losses equalled 2.35% of net asset value in the first quarter of 2026, the steepest quarterly hit since the second quarter ⁠of 2022.”

May 28 – Bloomberg (Ellen DiMauro and Reshmi Basu): “Just last year, private credit firms were falling over themselves to lend to software borrowers like Sophos. Now, AI anxiety has snarled up the market so much that Thoma Bravo’s $2.5 billion refinancing for the cybersecurity firm is facing hesitant lenders. Despite the company dangling a steep increase in yield, several private credit firms are passing on the deal…”

May 27 – Bloomberg (Rachel Graf): “Blackstone Inc. and Guggenheim Investments are among investment firms reducing software exposure in some of their recent collateralized loan obligation deals out of growing caution over AI disruption. Blackstone, the biggest US manager of CLOs, is curbing software holdings in its new deals, which package leveraged loans for sale into tranches of varying risk and return… Guggenheim recently priced a roughly $560 million CLO it marketed as software-free…”

May 28 – Bloomberg (Dani Burger): “Pacific Investment Management Co.’s leveraged finance chief urged investors to be cautious with the high-yield debt that finances data centers, where winners and losers are starting to emerge as issuance booms. ‘There’s already been some nervousness when some of the deals have started coming out. If you think about it, a year ago the size of that part of the market was zero,’ Pimco’s David Forgash said… ‘And now we’re up about 4% in the high-yield market. And by the next two years the expectation is it will be 10%.’”

Global Credit Bubble Watch

May 26 – Axios (Neil Irwin): “For most of this century, rich countries have enjoyed a seemingly free lunch: They could spend money as needed, cut taxes at will and stimulate their way out of problems without paying a price in the form of higher borrowing costs or inflation. That era is over. The $145 trillion global bond market is flashing red signals that there’s now a price to be paid for governments that indulge their profligate impulses. It reflects a world where supply disruptions are colliding with massive government borrowing needs and the funds required for the AI buildout. Higher inflation and surging demand for capital add up to higher and more volatile interest rates.”

May 25 – Financial Times (Martin Arnold): “Regulatory loosening has allowed top American and British banks to expand their balance sheets by $1.3tn in the past two quarters, new research shows… Deregulation by Washington and London will enable big US and UK banks to grow their assets by a total of $2.9tn while greater capital requirements for seven of the EU’s biggest banks will squeeze their balance sheet capacity by €1.3tn, according to… consultancy Alvarez & Marsal. US regulators have ushered in a wave of bank deregulation since Donald Trump became president last year, watering down many of the rules imposed after the 2008 financial crash that forced banks to raise bigger loss-absorbing buffers. Reforms will free up capacity for eight of the biggest Wall Street lenders — JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley, BNY and State Street — to expand their balance sheets by $2.5tn, or 15%, roughly equivalent to adding another Citigroup.”

May 27 – New York Times (Stacy Cowley): “Crypto companies and financial technology upstarts have long cast themselves as challengers to traditional banks. But now, many are seeking licenses to enter the very industry they once sought to upend: That is, they want to become banks. Dozens of financial firms — established industry veterans and nascent start-ups — have applied for banking charters. The list includes the payments behemoth PayPal; the ‘buy now, pay later’ pioneer Affirm; all of Detroit’s Big Three automakers; World Liberty Financial, which is linked to the Trump family; and a wave of other cryptocurrency brokers and merchants. The firms are taking advantage of Trump administration policies aimed at creating more banks, after a lengthy period during which the number of new entrants stalled.”

May 27 – Bloomberg (Katanga Johnson): “Key metrics at US banks improved during the first quarter despite war and rising interest rates, even as the industry grappled with a modest increase in paper losses, the Federal Deposit Insurance Corp. reported. Lenders posted a 3.6% rise in net income from the fourth quarter to $80.5 billion… Total loan and lease balances rose 1.6% from the prior quarter and 7.1% from a year earlier, the fastest annual growth rate since the second quarter of 2023… The industry’s net interest margin narrowed to 3.31% and unrealized ‘paper’ losses on bank holdings advanced 6.2% from the prior quarter to $325.1 billion.”

May 25 – Bloomberg (Matthew Burgess and Masaki Kondo): “For all the hand-wringing over war-related inflation fears, there are signs that other drivers are having as much a bearing on longer-term borrowing costs. In the US, so-called real yields, which strip out inflation, have had a greater impact, indicating bond investors aren’t just worried about price pressures from the Iran war. Other culprits include signs already large public debt burdens will swell even further, fallout from the AI investment boom and the mounting chance central banks such as the Federal Reserve will raise rather than cut interest rates.”

May 25 – Bloomberg (Ruth Carson): “A key Treasury yield gap shrank to its tightest level in a year as traders ramped up bets the Federal Reserve may keep interest rates higher for longer under new chairman Kevin Warsh. The spread between five-year and 30-year yields… narrowed to 81 bps on Friday, the lowest since May 2025… The move is driven mainly by a selloff in shorter-dated Treasuries… The gap between two- and 30-year yields also narrowed to its tightest since July before widening slightly. Investors are increasingly expecting that the Fed will need to tighten monetary policy after the Iran war spurred the biggest inflation surge since 2023, prompting a number of officials to abandon their easing bias.”

May 24 – Bloomberg (Masaki Kondo): “A gauge of risk compensation for holding government bonds has risen fastest in Japan among major markets since the US-Iran war began, pointing to local factors that may continue to weigh on Japanese bonds even if energy prices retreat. Term premiums — the extra yield investors demand to hold longer-maturity debt instead of repeatedly rolling over short-term securities — on 10-year JGBs have jumped almost 70 bps since the war broke out… The increase is more than three times the rise in the equivalent measure for US Treasuries.”

May 28 – Bloomberg (Paula Seligson, Scott Carpenter and Silas Brown): “Apollo Global Management Inc. and Blackstone Inc. are working to bring additional investors into a roughly $36 billion debt financing deal to help Anthropic PBC build out its AI infrastructure. The debt will be used to purchase Google’s custom chips called TPUs, or tensor processing units, which Anthropic will then lease… Broadcom Inc., which helps Google develop the chips, is backstopping payments on the largest portions of the transaction… The move would mark one of the largest-ever private credit deals and also the biggest chip-financing debt transaction.”

May 29 – Wall Street Journal (Ben Glickman): “Big banks’ profit engines are humming along even as geopolitics keep threatening to gum up the works. Several of the nation’s largest lenders this week gave investors updates on how their businesses have fared in the second quarter, and the consensus was overwhelmingly positive. That is despite blockages in the Strait of Hormuz continuing during the period, and a succession of false starts on Iran peace talks that have whipsawed markets... ‘It’s gung ho,’ said JPMorgan Chase Chief Executive Jamie Dimon. ‘There’s a lot of exuberance out there.’”

May 25 – Bloomberg (Tasos Vossos and Esteban Duarte): “Banks are going big on a product that’s drawing ever-closer regulatory scrutiny. Lenders have stepped up their reliance on so-called significant risk transfer trades, complex deals in which banks offload some of the default risk from their loan books to hedge funds and other investors. SRTs are booming because they help banks free up capital and boost measures of profitability. But the fast expansion of the market is also prompting authorities to seek greater oversight — and to better understand what risks or contagion could emerge if bad loans surge… Data… shows that about 11.1%, or $509 billion, of corporate loans at Europe’s major banks were tied to SRT trades at the end of last year. This ratio has nearly doubled since 2022, when it stood at 6.2%.”

May 25 – Bloomberg (Ainsley Thomson and Prashant Gopal): “There’s an old joke in New Zealand: You know you’re at a Kiwi BBQ when someone brings up house prices before the sausages are cooked. For nearly three decades, talking about property values — which rose relentlessly and made a large slice of the population comfortably wealthy — was a national pastime. But these days, the jovial backyard chatter has turned to lamentation. New Zealand, once home to one of the world’s biggest housing booms, is now in the grip of a prolonged downturn, exposing how deeply the country’s economy depends on ever-rising home values. The slump, triggered by higher borrowing costs and weaker migration, is dragging on growth, hitting household wealth and reshaping how people think about property.”

Leveraged Speculation Watch

May 29 – Bloomberg (Katherine Doherty and Paula Seligson): “Citadel Securities posted a record $4.3 billion of trading revenue in the first quarter as the firm benefited from the volatility that’s spurred windfalls at market-making peers and Wall Street banks. The firm’s trading revenue rose 28% from the same period a year earlier, according to people familiar with knowledge of the results. Net income also climbed, increasing nearly 10% to $1.9 billion…”

May 25 – Financial Times (Robin Wigglesworth): “Goldman Sachs’ latest ‘Hedge Fund Trend Monitor’ came out last week, and as the title says, the masters of the universe are ‘all in on AI’… As a reminder, the report collects together the individual positioning data of over 1,000 US-registered hedge funds, with about $4.6tn of gross long and short holdings. The raw data comes with a big lag… but it’s a decent way of getting a rough idea of what the hot trades are. And AI is very hot now, even as hedge funds have aggressively ratcheted back exposure to software: Hedge funds entered Q2 2026 doubling down on the AI trade. Hedge funds lifted their net tilt to the Information Technology sector by +853 bp, the largest quarterly increase to the sector on record.”

May 27 – Bloomberg (Greg Ritchie): “A popular hedge-fund strategy in US Treasuries that has attracted scrutiny from regulators is shrinking, according to a Morgan Stanley analysis. The size of the cash-futures basis trade — which seeks to profit from small price differences between Treasuries and their corresponding futures contracts — has fallen to $1.35 trillion from a record of $1.5 trillion earlier this year, strategists led by Eli P Carter estimate.”

Iran War Watch

May 27 – Bloomberg (Courtney McBride and Magdalena Del Valle): “As President Donald Trump continues to suggest a deal with Iran is close, he finds himself caught between two extremes: Tehran’s demand for financial relief and an end to attacks, and pressure from Republican hawks to ‘finish the job’ — or at least not to sign a bad deal. The competing pressures have, so far, kept an agreement to end the war out of reach. And they have resulted in the administration’s swinging between promises of an imminent deal and threats to resume military operations. Adding to the challenge are his own comments over the years lambasting his predecessors for signing or considering deals similar to the one that has the best chance of success.”

May 25 – Associated Press (Konstantin Toropin, Lindsay Whitehurst and Munir Ahmed): “…Trump said any agreement to end the Iran war should include a requirement for several additional countries, including Saudi Arabia and Pakistan, to join the Abraham Accords, the U.S.-brokered agreements from Trump’s first term aimed at normalizing relations with Israel. The proposal came as the emerging Iran deal faced criticism from fellow Republicans who favor a harder line on Iran, and it could add new diplomatic complications to the negotiations. Trump pointed to Saudi Arabia and Qatar as countries that should ‘immediately’ sign on. Bahrain and the United Arab Emirates became the first countries to join in 2020… He wrote that ‘after all the work done by the United States to try and pull this very complex puzzle together, it should be mandatory that all of these Countries, at a minimum, simultaneously, sign onto the Abraham Accords.’”

May 27 – Associated Press (Aamer Madhani and Konstantin Toropin): “U.S. forces carried out new defensive strikes on Iran on Wednesday after President Donald Trump asserted that Iran is ‘negotiating on fumes’ and insisted that November’s midterm elections in the United States won’t make him rush into a deal to end the nearly three-month-old conflict. U.S. Central Command forces shot down four Iranian one-way attack drones that posed a threat around the Strait of Hormuz… The U.S. military also struck an Iranian ground control station in Bandar Abbas that was about to launch a fifth drone, the officials said.”

May 25 – Bloomberg (Michael Heath): “US and Israeli jets struck Iranian vessels in the Strait of Hormuz and other targets, hours after President Donald Trump had suggested negotiations with Tehran over an interim deal were progressing. The attack took place south of Larak Island in the Strait of Hormuz… Trump earlier said negotiations between the US and Iran over an agreement to extend their ceasefire and reopen the strait were ‘proceeding nicely.’”

May 26 – Bloomberg (Patrick Sykes): “Iran’s Supreme Leader Mojtaba Khamenei said US military bases in the Middle East will no longer be safe after the war, declaring victory and a new regional order even as talks to end the conflict continued. ‘The clock cannot be turned back; the nations and lands of the region will no longer be a shield for American bases,’ he said in a written statement marking the Islamic Hajj pilgrimage in Saudi Arabia, which he said had an important role in ‘narrating the victory’ of the war against the US-Israeli alliance.”

May 27 – Financial Times (Najmeh Bozorgmehr): “Iran’s ultra-hardliners have hit out at the country’s negotiators over a potential deal with the US, exposing divisions among lawmakers over how far Tehran should compromise with Washington in order to end the months-long conflict. Influential members of the ultra-conservative Paydari faction, who occupy seats in parliament and prominent positions at state broadcasters, have insisted Iran retain control over the Strait of Hormuz and refuse to make concessions over its nuclear programme, describing these as ‘red lines’. They have criticised parliamentary speaker Mohammad Bagher Ghalibaf, a longtime political rival who has been leading the negotiations, claiming that he has acted beyond the mandate given by new supreme leader Ayatollah Mojtaba Khamenei.”

Iran War Ramifications Watch

May 25 – Financial Times (Editorial Board): “Though stockpiles and other measures have partly offset the squeeze so far, JPMorgan had warned that, at current drawdown rates, without a deal commercial oil stocks could reach critically low levels by June. Yet even if the strait reopens, energy flows will take months to normalize… Whenever it starts to reopen, resuming supplies through the strait is not a case of flicking a switch. With no export ability, many oilfields were fully ‘shut in’; S&P Global estimates that some could take seven months to restart. Some resumed oil flows will have to go into rebuilding reserves. Some liquefied natural gas facilities, meanwhile, have been damaged and need repairing. Roughly 2,000 ships stranded in the Gulf will need to reposition and offload cargoes. Sultan al-Jaber, CEO of the Abu Dhabi National Oil Company, has said it will take at least four months for traffic volumes through the strait to recover to 80% of prewar levels, with full normalisation hard before the first half of 2027. Demining will take months.”

May 27 – Associated Press (Ben Finley): “U.S. military contractors need at least three years to replenish stockpiles of three key weapons systems used heavily in the Iran war, according to an analysis…, adding to concerns that American forces would have limited firepower in any future conflict with China. The weapons systems are Tomahawk cruise missiles, which are used to strike targets deep inside enemy territory, and Patriot and THAAD interceptors that defend against incoming missiles and drones.”

May 25 – Financial Times (Edward Luce): “When Russia invaded Ukraine in 2022, Donald Trump hailed the move as ‘genius’. In practice, Vladimir Putin’s war was our age’s costliest great power error until Trump launched Operation Epic Fury three months ago. Both men gambled on a weak adversary and assumed victory within days. Each is burdening their countries with costs that will persist many years after they have lost power. As case studies of how to throw away strong hands, Putin and Trump are without peer. As the lap into which most of their cards have fallen, China is the main beneficiary.”

Trump Administration Watch

May 27 – Bloomberg (Tyler Kendall, Eltaf Najafizada, and Golnar Motevalli): “President Donald Trump asserted that no one nation would control the vital Strait of Hormuz waterway, highlighting a key sticking point in resolving the war with Iran… ‘Nobody’s going to control it. It’s international waters,’ Trump said... ‘The strait’s going to be open to everybody” and the US will ‘watch over it.’”

May 26 – Bloomberg (Ye Xie and Chris Anstey): “Treasury Secretary Scott Bessent is facing what may become his biggest financial-market test yet, in the form of a steady increase in benchmark Treasury yields that’s generating economic headwinds and leaving him with few easy options. The former hedge fund manager has developed a reputation since taking office for tamping down sharp market moves… Vishal Khanduja at Morgan Stanley Investment Management is among those labeling him a ‘volatility seller.’ Bessent’s boss, President Donald Trump, put it more simply in October: ‘He soothes the markets.’ The $31 trillion Treasuries market has appeared less than soothed since Trump took the US to war against Iran 12 weeks ago, sending energy costs sharply higher and boosting inflation.”

May 24 – Bloomberg (María Paula Mijares Torres): “Kevin Hassett, President Donald Trump’s chief economic adviser at the White House, signaled he’s confident that an eventual drop in oil prices will create space for the Federal Reserve to lower interest rates… ‘Again, we expect energy prices, as soon as there’s a deal, to plummet,’ Hassett said. ‘And when that happens, then there will be a lot of room for the Fed to do the right thing at lower rates.’”

May 27 – Axios (Marc Caputo): “The Trump administration is bracing for the potential collapse of Cuba’s totalitarian government as early as this summer, and has war-gamed new military response plans in case the island descends into chaos, U.S. officials tell Axios. President Trump hasn’t authorized an invasion and prefers a peaceful transition to a free Cuba, so the administration will keep pushing economic sanctions to try to strangle the regime in Havana in a slow-motion constriction. ‘The best way to describe it is ‘accelerationism,’’ one senior administration official said, referring to the philosophy of hastening societal collapse. ‘But we don’t want to kill off the regime just yet. There’s a method to this. It’s in stages.’”

May 28 – New York Times (Alan Rappeport): “Treasury Secretary Scott Bessent said… his agency had been working on a mock-up of a $250 note bearing the face of President Trump in preparation for an addition to the nation’s paper currency that would for the first time include the portrait of a living president. Such a move would represent a dramatic remaking of American money, which currently is only allowed to bear the image of the deceased. Mr. Trump has also pushed for the creation of a $1 coin bearing his image and is having his signature added to U.S. currency this year... ‘I don’t think that there’s anything untoward about having the person who is president of United States on the 250th anniversary bill,’ Mr. Bessent said at the White House.”

May 24 – Reuters (Richard Cowan and Nolan D. McCaskill): “Republicans in the U.S. Congress have revolted over President Donald Trump's $1.776 billion fund for people he says were victims of government ‘weaponization,’ setting the stage for a searing battle less than six months before midterm elections. On Thursday, the Senate called timeout on a $72 billion spending bill on immigration enforcement, which ‌has become a battleground over the ‘anti-weaponization’ fund, after many Republican senators demanded that it either be killed or subjected to tough guardrails.”

Trade War Watch

May 27 – Reuters (David Lawder): “The Trump administration’s trade agency said… it will kick off the first of three negotiating rounds with Mexico this week to revamp the North American trade agreement, but made no mention of any talks with Canada. The U.S. Trade Representative’s office ‌said… Deputy U.S. Trade Representative Jeffrey Goettman will lead bilateral talks in Mexico City on Thursday and Friday focused on ‘economic security and ‌rules of origin for key industrial goods.’”

May 26 – Reuters (‌David Shepardson and David Lawder): “The Trump ‌administration’s top trade ‌official said… the U.S. plans tariffs on its North American free trade ‌partners and ⁠has significant trade issues with Canada. ‘We’re ⁠going to have tariffs as long as we have a giant trade ‌deficit,’ U.S. Trade Representative Jamieson Greer said... ‘The reality is we’ve spent ‌the past year and a half going to ‌countries telling them we have to have some level of tariff.’”

May 27 – Axios (Courtenay Brown): “For decades, Washington bet that trade and economic integration would push Beijing toward reform. President Trump’s top trade chief says that bet is all but over — a key insight into how the administration plans to engage with the world’s second-largest economy in a new global trade era. ‘We’ve just come to terms with the fact that there is not going to be some giant comprehensive reform of the way the Chinese political system works,’ U.S. Trade Representative Jamieson Greer said… Greer said that asking China to pivot from an export-driven economy would be like China asking the U.S. to dissolve the Republican Party: ‘Some of these things we’ve been asking them for decades are in fact part and parcel of their political system.’”

Constitution Watch

May 28 – Associated Press (Steven Sloan): “Local TV stations owned by ABC across the United States blasted the Federal Communications Commission… for launching an ‘unlawful, arbitrary and unconstitutional’ early review of their broadcast licenses as a dispute between the network and the Trump-controlled agency intensifies. ‘It is an extraordinary demonstration of power and coercion directed at disfavored editorial voices which sends a clear warning to every broadcaster in America,’ WABC in New York wrote in an objection that accompanied paperwork filed to comply with the FCC’s demand for early applications to renew licenses.”

May 28 – Financial Times (Anna Nicolaou): “Disney accused the US media regulator of using an unprecedented licence review to intimidate broadcasters and silence ‘disfavoured editorial voices’, as the company adopts a more confrontational stance towards the Trump administration… ‘Its true purpose and inescapable effect are to suppress speech… and cause the station and others to think twice before they say something the government might dislike,’ Disney said in the filings.”

Budget Watch

May 24 – Financial Times (Kate Duguid, Ian Smith and Claire Jones): “American taxpayers could be on the hook for billions of dollars in extra interest payments on the back of Donald Trump’s Iran war if US Treasury yields remain elevated, as investors’ fears over rising inflation add to the government’s debt burden. Government borrowing costs at some maturities have reached their highest levels since 2007 in the 12th week of the US-Israeli conflict against Iran, as investors have sold off state debt in anticipation of higher inflation. The yield for the benchmark 10-year US Treasury stands at 4.58%, up from 4% before the start of the war, and 0.45 percentage points higher than the 4.13% baseline set by the Congressional Budget Office… for this year in February 2026.”

May 26 – Bloomberg (Laura Curtis and Zoe Tillman): “Approximately $20.6 billion is on its way to importers who successfully filed claims using the new web portal developed by US Customs and Border Protection, the agency said Tuesday in a court filing.”

New World Order Watch

May 26 – Wall Street Journal (Michael R. Gordon and Robbie Gramer): “The Pentagon is substantially scaling back the forces it plans to send to Europe in a crisis, a fresh step by the Trump administration to shrink its military support for North Atlantic Treaty Organization allies. Alexander Velez-Green, a Defense Department official, notified NATO allies of the planned cutbacks in a closed-door meeting last week at the alliance’s headquarters in Brussels… The current and former officials who have been briefed on the meeting said the Trump administration aims to reduce by one-third to one-half the pool of various military capabilities it would devote to NATO in a conflict…”

May 27 – Wall Street Journal (Paul Vieira): “Canada unveiled a deal to sell liquefied natural gas to Germany, marking a significant step in Prime Minister Mark Carney’s effort to capitalize on its oil-and-gas reserves and position the country as an energy superpower… The deal is the result of geopolitical developments this decade — Germany attempting to reduce its reliance on Russian gas, and Canada trying to increase exports of its energy products to non-U.S. markets amid heightened trade tensions between Ottawa and Washington.”

U.S./Russia/China/Europe/Iran Watch

May 29 – Financial Times (Henry Foy): “A Russian drone struck an apartment building in Romania in what was condemned by Bucharest as a ‘serious and irresponsible escalation’ by Moscow and described by Nato as ‘reckless’. The incident in the south-eastern city of Galaţi, which injured two people, is the most serious military spillover in a Nato and EU member state resulting from Russia’s more than four-year-long war against neighbouring Ukraine.”

May 25 – Bloomberg: “Russian Foreign Minister Sergei Lavrov advised US Secretary of State Marco Rubio to evacuate US citizens and diplomats from Kyiv as the Kremlin plans to continue heavy strikes on the Ukrainian capital… Lavrov called his US counterpart at the request of President Vladimir Putin to tell him that Russia is launching systematic and consistent strikes against facilities in Kyiv as well as relevant ‘decision-making centers’…”

Ukraine War Watch

May 23 – Financial Times (Christopher Miller): “Russia attacked Ukraine overnight with hypersonic ‘Oreshnik’ missiles as it mounted one of the biggest aerial assaults of the war on the capital and surrounding region. One of the intermediate-range ballistic missiles, capable of carrying multiple conventional or nuclear warheads, targeted the area of Bila Tserkva 90km south of Kyiv…”

Taiwan Watch

May 27 – Axios (Colin Demarest): “A $14 billion weapons package for Taiwan already approved by U.S. lawmakers is stuck in Trump 2.0 purgatory. Officials here are sweating the circumstances. The Indo-Pacific is a tinderbox. Taiwan’s government argues arms deliveries help maintain regional peace. President Trump’s vacillation and acting Navy Secretary Hung Cao’s insistence that the Iran war has forced a reevaluation of available munitions are sparking concern in Washington and throughout the global defense community… ‘The Chinese military ambition goes way beyond Taiwan,’ Chen Ming-chi, a deputy foreign affairs minister, told Axios… ‘If you ask our Japanese friends, if you ask our friends in the Philippines, they also feel the China threat.’”

AI Bubble/Arms Race Watch

May 28 – Reuters (Juby Babu and Deepa Seetharaman): “Anthropic said… it has raised $65 billion at a post-money valuation of $965 billion, as it aims to bolster computing capacity to meet growing demand for chatbot Claude and ‌scale its products. The new valuation after the series H funding round puts Anthropic ahead of OpenAI, last valued at $852 billion post-money in March, intensifying a fierce battle between the two for dominance in the rapidly evolving AI sector.”

May 27 – Financial Times (Tim Bradshaw): “The extraordinary rally in semiconductor stocks has minted two new trillion-dollar companies in successive days, as Micron and SK Hynix reap the benefits of AI’s insatiable appetite for memory and storage technology. South Korea’s SK Hynix on Wednesday joined its local rival Samsung in the elite group of companies valued at more than $1tn, just hours after US-based Micron jumped 19% on Tuesday to cross the market capitalisation threshold… ‘The heat has returned to the tech market overnight… as memory chip fever continues,’ analysts at Deutsche Bank wrote…”

May 29 – Wall Street Journal (Dan Gallagher): “Memory is now worth more than oil. Staying that way will depend on how much the notoriously volatile industry can make recent changes stick. The world’s three largest memory-chip makers—Samsung Electronics, SK Hynix and Micron Technology—now carry market capitalizations of more than $1 trillion each. That puts them about 22% above the combined market cap of the world’s three most valuable oil companies, even with Saudi Aramco weighing in on its own at nearly $1.8 trillion.”

May 28 – Wall Street Journal (Bradley Olson): “Use of artificial intelligence by big companies is exploding—and the soaring cost has some of them pumping the brakes in a way that could complicate AI’s triumphal march across the economy. Executives across industries this year have urged employees to integrate AI tools into their work, spending freely to encourage experimentation and seeking to send a message to Wall Street that their companies won’t be left behind... All that enthusiasm has resulted in skyrocketing costs for so-called tokens, the basic unit of measurement for AI computing… Some enterprises have hit their annual budget in just three months or reported seeing their AI spending bills double or triple. Now corporate leaders are scrambling to bring down expenses by finding ways to ration AI use in their organizations…”

May 28 – Axios (Madison Mills): “Corporate leaders are starting to question whether soaring AI spending is delivering meaningful returns. Companies that rushed to embrace AI are now confronting ballooning IT costs, uncertain productivity gains and growing employee skepticism. Microsoft canceled most of its Claude Code licenses, in part over costs, according to The Verge, and Uber’s COO said AI costs are getting ‘harder to justify.’ An AI consultant tells Axios one of their clients recently spent half a billion dollars in a single month after failing to put usage limits on Claude licenses for employees.”

May 23 – Reuters (Abu Sultan): “Chinese artificial intelligence startup DeepSeek will make permanent a 75% price cut on ‌its flagship V4‑Pro artificial intelligence model, keeping ‌prices at a quarter of their original level, the company said…”

Bubble Watch

May 28 – Reuters (Saeed Azhar and Arasu Kannagi Basil): “Goldman Sachs expects merger and acquisition volumes for the industry this year are on course to approach a 2021 record, with corporate activity driving dealmaking, its president John ‌Waldron said... ‘We’re on track to be near the record, if not breaching the record of 2021. Our backlogs feel good. Activity is remaining strong,’ Waldron told a financial conference…”

May 26 – Bloomberg (Arvelisse Bonilla Ramos): “Space and satellite-related stocks soared Tuesday as investor enthusiasm around the industry intensified… Shares of space infrastructure company Redwire Corp. closed up 26% to $22.04…, and satellite broadband communication company AST SpaceMobile Inc. rose 13% to close at $119.70. Canadian satellite and robotics firm MDA Space Ltd. climbed 4.9% to end the trading session at C$61.82.”

May 27 – Bloomberg (Francesca Maglione): “San Francisco Rents Spike 22% in a Year… In San Francisco’s latest real estate boom, renters are paying cash up front, multimillion-dollar houses are selling auction-style and AI company stock can buy a sprawling hilltop estate. It’s a reflection of the new wave of wealth from the artificial intelligence industry, leaving even well-paid newcomers scrambling for a place to live… The city leads the US in annual rent growth, according to… Zumper. Prices for two-bedrooms are now tied with New York for the most expensive in the country, with a median monthly rent of $5,500… The median rent for a one-bedroom crossed $4,000 for the first time ever. Homebuyers also are facing soaring costs: The median price for a San Francisco house recently hit a record $2.15 million.”

May 27 – Wall Street Journal (Ryan Felton): “Ford Motor’s stock price has surged to its highest level in nearly three years, and the reason has little to do with cars or trucks. Over the past two weeks, Ford stock has risen 28% after the company announced a new energy-storage subsidiary, Ford Energy.”

May 26 – Financial Times (Steve Johnson): “An exchange traded fund investing in a narrow group of AI chipmakers has surged through $10bn in assets just 50 calendar days after its launch… The Roundhill Memory ETF, which has the stock market ticker DRAM, hit the figure on Friday after surging 87% since launch on April 2 and after $8.6bn of inflows, in the quickest rise to a $10bn valuation for any ETF on record…”

May 27 – Bloomberg (Jonathan Ferro, Lisa Abramowicz and Annmarie Hordern): “Veteran market strategist Ed Yardeni of Yardeni Research dismissed concerns that US stocks are in a bubble, arguing the rally is driven by ‘fabulous earnings momentum’ rather than speculation. ‘The big difference is earnings,’ Yardeni said…, adding that the forward price-to-earnings ratio for the S&P 500, at 20 to 22, looks reasonable if the economy avoids recession over the next few years. He coined the term ‘FEMO’ — fabulous earnings momentum — to distinguish the current rally from ‘FOMO,’ or fear of missing out, which he said is based on hope and hype rather than fundamentals.”

Inflation Watch

May 27 – Reuters (Michael S. Derby): “Food-related challenges are surging for America’s least well-off residents, and that likely explains the marked rise in a sour consumer mood despite data showing the economy is overall doing ‌pretty well, new research from the Federal Reserve Bank of New York says. ‘We find a remarkable increase in food ‌insecurity, particularly among lower-educated and lower-income households and households with young children,’ bank economists wrote… Mounting food-related issues also track a ‘contemporaneous increase in pessimism’ among lower-income households and a ‘sharp decline in job-finding expectations.’”

May 28 – New York Times (Colby Smith): “A measure of inflation closely watched by the Federal Reserve accelerated in April to a three-year high… The Personal Consumption Expenditures index rose 3.8% from the same time last year. It was the fastest annual pace since May 2023, when the Fed was in the midst of raising rates to tame a burst of inflation that had emerged in the wake of the pandemic. A measure of underlying inflation that strips out volatile food and energy prices also notched a multiyear high. That measure, ‘core’ inflation, increased at an annual pace of 3.3%, the fastest since November 2023.”

May 28 – Reuters (Lucia Mutikani): “U.S. inflation increased at its fastest pace in three years in April, driven by higher energy prices due to the Iran war and cementing economists’ views that the Federal Reserve would hold interest rates unchanged well into next year… ‘The inflation picture is becoming increasingly uncomfortable for the Fed,’ said Olu Sonola, head of U.S. economics at Fitch... ‘Price pressures are likely to persist over the next few months, and while the Fed cannot fix a supply shock, it cannot ignore one that is feeding into underlying inflation.’”

May 29 – Associated Press (Matt Sedensky): “Tomatoes, ubiquitous in everything from fast-food burgers to haute cuisine, are taking on a new role beyond the plate: A nagging reminder of rising costs… Tomato prices are up about 40% over a year ago, according to the latest Consumer Price Index, dwarfing increases for other groceries, including coffee (up 18.5%), beef roasts (up 17.8%) and frozen fish and seafood (up 12%), among other products that have become symbols of America’s affordability squeeze.”

May 27 – CNBC (Greg Iacurci): “Homeowners insurance costs have been rising fast in the U.S. — and policyholders are taking notice. About 71% of homeowners said the cost of their homeowners insurance has increased over the past few years, with 42% saying costs have gone up ‘a lot,’ according to a new survey by the Pew Research Center… Insurance premiums jumped by $648, or 24%, to $3,303 per year between 2021 and 2024, on average, according to… the Consumer Federation of America…”

May 26 – Bloomberg: “Aluminum jumped to the highest in more than four years as fears of output cuts in top producer China compounded continuing disruptions in the Middle East.”

May 27 – Bloomberg (Mark Niquette and Lauren Rosenthal): “As Americans confront a surge in prices at the pump, another inflation wave is headed for the grocery store. A combination of factors including bad weather, tariffs and a dwindling cattle herd are already pushing up grocery prices at an above-average pace. In April, they rose by the most in nearly four years, and economists say the impact of the Iran war and a potential El Niño weather pattern will only add to pressures into 2027.”

May 26 – Bloomberg (Swati Pandey): “Australia’s core inflation remained elevated in April just as signs emerge that rapid fire interest-rate hikes are beginning to weigh on economic activity, complicating the task of navigating a global energy shock. The closely-watched trimmed mean gauge of annual consumer-price growth, which shaves off volatile items, accelerated to 3.4%, in line with estimates. The RBA aims for inflation at the midpoint of its 2-3% target band.”

Federal Reserve Watch

May 25 – Wall Street Journal (Editorial Board): “Kevin Warsh took office as Chair of the Federal Reserve on Friday with a message of reform for the central bank. To get a sense of how hard this job will be, consider that two members of the ancien regime fired warning shots even before Mr. Warsh took the oath of office. First, Fed Governor Michael Barr openly declared his opposition to reducing the Fed’s $6.7 trillion balance sheet. ‘I think shrinking the balance sheet is the wrong objective, and many of the proposals to meet this objective would undermine bank resilience, impede money market functioning, and, ultimately, threaten financial stability,’ Mr. Barr said… Next up was… Christopher Waller, who said… the day of Mr. Warsh’s confirmation that he no longer favors cutting interest rates. ‘I can no longer rule out rate hikes further down the road if inflation does not abate soon,’ Mr. Waller said…”

May 26 – Bloomberg (Jonathan Levin): “Federal Reserve Chair Kevin Warsh heads into his first full week on the job facing an impossible situation. His campaign for the position strongly alluded to the possibility of lower interest rates, something President Donald Trump had been openly demanding of Fed leadership. He also committed to reforming Fed communications to give a lot less ‘forward guidance,’ a tool that has made the Fed less nimble in his reckoning. Warsh will have to backtrack on at least one of those stances as fixed-income markets drift in a decidedly hawkish direction.”

May 28 – Reuters (Ann Saphir): “St. Louis Federal Reserve President Alberto Musalem… offered a skeptical view of the expectation that artificial intelligence will ‌reduce inflation by fueling a surge in productivity, arguing it would be ‌a mistake for the U.S. central bank to count on that possibility by easing monetary policy. ‘With the real policy rate sitting below the (Fed's) notion of long-run neutral, inflation running meaningfully above target, longer-term inflation expectations drifting higher and the labor market remaining stable, I believe it would be risky to rely on the prospect of higher productivity growth in ‌the future to solve our ⁠inflation problem today,’ Musalem said… ‘A better approach, in my view, is to maintain a vigilant monetary policy focused on restoring price stability.’”

May 29 – Reuters (Michael S. Derby): “Federal Reserve Bank of Kansas City President Jeffrey Schmid said… already-hot levels of inflation make it harder to ‌assume the current energy shock will have only a temporary impact on pricing and can ‌be ignored by the central bank. ‘My primary concern is inflation, which is too hot and has been above target for too long,’ Schmid said… ‘I place little stock in assuming that the most recent runup in prices is transitory within an acceptable time horizon,’ and ‘as such, my focus remains on inflation in setting the correct course for policy.’ He added: ‘Now is not the ‌time to let down our guard,’ ⁠given how long inflation has been above the central bank’s 2% target.”

May 27 – CNBC (Lim Hui Jie): “Minneapolis Federal Reserve President Neel Kashkari said… bringing down inflation in the U.S. remains his top priority, warning that consumer prices are still ‘much too high’… ‘I am focusing heavily on inflation. I’m not ignoring at all the labor market. We need to pay attention to both sides, but the labor market is in decent shape right now, while inflation is simply much too high,’ he said. Kashkari added that the longer inflation remains elevated, the greater the risk that inflation expectations become unanchored and move higher. ‘If that were to happen, then we’d have to respond even more aggressively, so we’re much better off doing what we need to do to keep inflation expectations anchored.’”

May 27 – Bloomberg (Enda Curran): “While [Fed governor Lisa] Cook said she favors holding borrowing rates steady for now and that she expects price growth to cool again in coming months, her remarks bring her in line with a number of Fed officials who’ve signaled that accelerating inflation is now a bigger policy concern than the labor market. ‘I want to be clear about my risk assessment: The risks remain tilted toward higher inflation,’ Cook said… Cook said five years of inflation above the Fed’s 2% target poses the risk that price pressures will become embedded into price- and wage-setting behavior. ‘As such, I am prepared to raise rates, if the expected disinflation does not appear in a timely manner,’ she said.”

May 26 – Bloomberg (Jonathan Ferro, Lisa Abramowicz, and Annmarie Hordern): “Former New York Federal Reserve President Bill Dudley warned the US central bank is in danger of losing credibility as an inflation fighter after a longstanding failure to reach its 2% goal. ‘We have been above the Fed’s inflation target for more than five years,’ Dudley said… ‘And there is a risk that inflation expectations do finally become unanchored.’ His remarks underscored the challenge facing new Fed Chair Kevin Warsh, who is poised to preside next month over his first meeting of the rate-setting Federal Open Market Committee.”

May 26 – Bloomberg (Ye Xie): “The Federal Reserve should shift closer toward hiking interest rates as rising consumer prices become the dominant threat to the economy, according to Citadel Securities. ‘Inflation, not the labor market is the greater risk,’ Nohshad Shah, head of EMEA fixed-income sales. ‘The Fed should take note and adjust their stance soon, lest they get behind the curve.’ The warning comes after the jump in oil prices since the start of the US-Iran war caused the biggest surge of inflation since 2023. At the same time, US financial conditions have eased due to the stock market’s rally on the back of what Shah called a ‘once-in-a-generation AI transformation.’ The flood of investment spending on the technology is also adding fuel to the pace of growth.”

U.S. Economic Bubble Watch

May 27 – Axios (Neil Irwin): “America’s dependence on imported manufactured goods looks like a vulnerability in a world of widening geopolitical fractures. Fixing it won’t come cheap. New research from McKinsey… estimates that it would take $2 trillion, or about 6% of U.S. GDP, to build the industrial capacity needed to replace imports of key strategic goods. That’s the equivalent of two years’ worth of the current annual defense budget — and doesn’t even include the investment needed to cultivate the workers’ skills, infrastructure and energy needs. There is a particular dearth of American manufacturing capacity for advanced electronics, particularly AI servers, and key chemicals, the study finds. The U.S. imports $3 trillion in manufactured goods each year.”

May 28 – Associated Press (Paul Wiseman): “More Americans sought unemployment benefits last week, but layoffs remain low despite economic uncertainty caused by the Iran war… Jobless claims were up to 215,000, up from 210,000 the week before. The four-week moving average of claims, which smooths out week-to-week volatility, rose by nearly 6,300 to 209,000… The total number of people collecting jobless aid rose by 15,000 to 1.79 million the week that ended May 16.”

May 24 – Wall Street Journal (Ray A. Smith): “A popular ice-cream shop on Cape Cod had 50 jobs for hire for this summer. Hundreds of applications from teens started pouring in to Sundae School Homemade Ice Cream back in January, and the slots were quickly filled. Requests to work for New York City’s Summer Youth Employment Program this year have already blown away 2025’s record of 200,000 applications for 100,000 openings… All signs point to this summer being the worst for teen employment since 1948, when the federal government started tracking the data, as rising inflation and higher fuel prices squeeze the small businesses and restaurants that typically hire them, says Andy Challenger…”

May 28 – Wall Street Journal (Paulo Trevisani): “Orders for durable goods grew at a strong pace in April, a second consecutive monthly increase… New orders for long-lasting goods like televisions, appliances and cars were up by 7.9% in April to $346 billion, after a 1.3% increase in March. Analysts… were expecting a 3.5% growth rate… Excluding transportation equipment, durable-goods orders were up by a more modest 1.1% last month.”

May 27 – Bloomberg (Siddharth Philip and Lisa Abramowicz): “American Airlines... said it continues to see strong demand for travel, even as surging jet fuel drives up ticket prices and consumer confidence in the US edges down. Rival United Airlines Holdings Inc. also said demand continued to be robust. ‘People still want to travel and travel is still a bargain,’ Robert Isom, American’s chief executive officer, said... Isom said the airline continues to see demand across international and domestic travel, as well as for its premium offerings.”

May 27 – Associated Press: “The typical CEO compensation package rose nearly 6% in 2025 to $17.7 million… The median employee at companies in the S&P 500 earned $89,744, reflecting a 4.7% increase year over year. While that gain outpaced the rate of inflation in 2025, many workers were still feeling pinched by the accumulation of higher prices over the past few years and had to cut corners to make ends meet and run up credit card debt to pay for everyday necessities.”

May 26 – Associated Press (Christopher Rugaber): “U.S. consumer confidence declined slightly this month as gas prices stayed high and inflation remained elevated, a sharp contrast to soaring stock prices hover near record levels. The Conference Board’s consumer confidence index slipped 0.7 points to 93.1 in May, the first decline after three months of gains… Tuesday’s consumer confidence survey showed that confidence grew among households with incomes at or above $100,000, while it fell for most others. ‘The prospect of higher prices and faster inflation continues to loom over confidence readings with many households taking a more cautious approach to purchases this year,’ Ben Ayers, Nationwide senior economist, said.”

May 27 – Reuters (Ann Saphir): “The rate on the most popular U.S. residential real estate loan hit a nine-month high last week in another blow to home-ownership affordability… The average 30-year fixed-rate mortgage rose 9 bps to 6.65% in the week ended May 22… It was last higher in August 2025, before the Federal Reserve began a series of interest rate cuts…”

May 27 – CNBC (Diana Olick): “Mortgage rates continued their climb last week, making it harder for current homeowners to save on a refinance… Refinance demand took the hardest hit, with those applications down 18% for the week. They were still 19% higher than the same week one year ago… Applications for a mortgage to purchase a home fell 0.4% for the week and were just 5% higher than the same week one year ago.”

May 28 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes fell in April… New home sales dropped 6.2% to a seasonally adjusted annualized rate of ‌622,000 units last month… Sales were weighed down by winter storms in January before bouncing back in February and March as temperatures warmed up. Sales last month tumbled in the Northeast, South and Midwest, but rose in the West… They declined 11.3% on a year-over-year basis in April… At April's sales pace, it would take 9.4 months to clear the supply of new houses on the market, up from 8.7 months in March. The ‌median new house price increased 2.2% to $422,500…”

May 26 – Wall Street Journal (Jessica Coacci): “U.S. home-price growth slowed slightly in March… The S&P Cotality Case-Shiller National Home Price Index… rose 0.7% in the 12 months through March, compared with a 0.8% increase in February. For the 10th consecutive month, inflation outpaced national home price appreciation… Chicago reported the highest annual gain among the 20 cities with a 6.1% increase in March, followed by New York and Cleveland with annual increases of 4% and 3%, respectively. Seattle posted the lowest return in March, falling 2.5%.”

May 27 – Axios (Emily Peck): “Demand and prices for luxury homes are rising faster than for middle-market houses — which still feel increasingly out of reach to most people. This is the K-shaped economy in action, a thriving upper class and everyone else stagnating or falling. The rising stock market and AI boom are driving a lot of this. The median U.S. luxury home sale price rose 3.6%, to $1.39 million, in the three-month period ending April 30, per… Redfin... That’s double the increase for non-luxury homes, which gained just 1.4% to $377,734. Redfin defines ‘luxury’ as homes priced in the top 5% of a given metro area.”

May 26 – Wall Street Journal (Ryan Dezember): “Rising mortgage rates aren’t the housing market’s only problem. Higher prices for building materials are boosting construction costs and busting renovation budgets. The data-center boom and disruptions at the world’s second-largest copper mine have pushed the metal’s prices to records. Lumber prices are up because of import taxes and sawmill closures. The Iran war has shocked fuel and chemical markets and boosted prices for resins and plastics as well as the costs of delivering materials such as wallboard and cement to work sites. Taken together, these rising input costs are adding to an affordability problem that is pushing homeownership beyond reach for more Americans.”

May 28 – CNBC (Jessica Dickler): “Financial pressures pushed more savers to tap their retirement accounts in the first part of 2026… Amid severe market volatility earlier this year, the average 401(k) balance fell by 4% to $141,000, according to first-quarter data… from Fidelity Investments, the nation’s largest provider of 401(k) savings plans. The average individual retirement account balance was also down 4% to $131,380 in the first quarter…”

China Watch

May 24 – Financial Times (Demetri Sevastopulo, Joe Leahy and Leo Lewis): “President Xi Jinping castigated Japanese Prime Minister Sanae Takaichi for her country’s ‘remilitarisation’ in an intense diatribe during his summit with Donald Trump… Xi became vocal and agitated when discussing Japan, surprising US officials because the subject had not featured in talks with their Chinese counterparts before the summit. Several people said Xi’s verbal attack was the most heated part of the two-day summit between the leaders. After Xi lambasted Takaichi and Japan’s rising defence spending, Trump responded that Tokyo had to take a more assertive security stance because of the rising threat from North Korea.”

May 25 – Bloomberg: “Huawei Technologies Co. said it has come up with a new pathway to shorten its gap with industry leader Taiwan Semiconductor Manufacturing Co., potentially achieving a breakthrough in making advanced semiconductors without cutting-edge equipment.”

May 27 – Bloomberg: “Memory chip maker ChangXin Memory Technologies Inc. has received approval from the Shanghai Stock Exchange for an initial public offering that’s on track to be the biggest in mainland China since 2022, in a milestone for one of the key technologies of the artificial intelligence buildout.”

May 26 – CNBC (Evelyn Cheng): “China’s industrial profits surged by 24.7% in April from a year earlier…, despite broader signs of slowing economic momentum. The increase marked the fastest growth since November 2023…, and accelerated from a 15.8% rise in March. For the first four months of the year, industrial profits rose 18.2%, up from 15.5% growth in the first quarter. Computing and electronics equipment manufacturing, the largest sector by profit amount, saw earnings more than double from a year ago…”

May 27 – Bloomberg: “Chinese officials are intensifying efforts to tax offshore trusts that hold shares in some Hong Kong-listed companies, clamping down on a structure that the country’s mega-rich have used to invest billions of dollars overseas. Authorities in provinces and cities including Jiangsu and Shenzhen have demanded the owners of these trusts report detailed financial information including investment gains from dividends and share disposals…”

Central Banker Watch

May 28 – Wall Street Journal (Paul Hannon): “The independence of the Federal Reserve is still at risk, and safeguarding it will depend on continued support from voters and legislators, the head of the European Central Bank said… In a speech to central bankers from French-speaking countries delivered in Cambodia, Christine Lagarde said the capacity of policymakers to make decisions that might displease the government is under increasing threat as a series of shocks pushes prices higher even as they slow growth.”

May 25 – Financial Times (Martin Arnold): “An AI-fuelled investment boom increasingly financed by private credit would create a new threat to the euro area’s financial system, especially its insurers and pension funds, the European Central Bank has warned. The ECB said in a report… that if private credit continued to grow rapidly as a source of funding for AI companies and data centres, investors in the region could be left exposed to losses resulting from disappointment in the technology’s potential. ‘If exposures grew rapidly and expected AI-related cash flows disappointed, private credit could become a more material source of credit risk and a potential amplifier of stress for euro area financial institutions,’ the central bank said…”

May 27 – Wall Street Journal (Paul Hannon): “Investors underestimate the degree of risk they face as a result of the conflict in the Middle East and rising government debts, the European Central Bank said… In its twice-yearly report on the eurozone’s financial system, the ECB said market moves in response to the conflict had been ‘orderly,’ but continued to reflect complacency in the face of increased uncertainty about the economic outlook. ‘Despite initial declines, financial asset prices still look stretched by historical standards, all the more so when current geoeconomic stress and uncertainty are taken into account,’ said Luis de Guindos, the ECB’s vice president. ‘This leaves markets vulnerable to sharp repricing.’”

May 26 – Financial Times (Olaf Storbeck): “Two top European central bankers on Tuesday laid the groundwork for a likely interest rate rise in June as they warned that high oil prices are fuelling wider inflation. European Central Bank executive board member Isabel Schnabel warned that rising inflation meant that ‘looking through’ the energy shock caused by the conflict in the Middle East ‘is no longer an option in my view’ even as talks continue to extend a fragile ceasefire between Iran and the US. ‘From today’s perspective, I think a rate hike in June will be needed,’ she told Reuters… ECB chief economist Philip Lane separately told Nikkei… that the ECB’s ‘most benign scenario’, in which it could ignore a ‘temporary spike in energy prices’, becomes ‘less likely’ the longer the conflict in the Gulf continues.”

Europe Watch

May 23 – Politico (Nektaria Stamouli): “European Union’s public debt trajectory could become ‘explosive,’ hurting the bloc’s economy, if no action is taken to deal with fiscal pressures, the International Monetary Fund told EU finance ministers… ‘If left unchecked, public debt will be on an unsustainable path. Under unchanged policy, debt of the average European country would reach 130% of GDP by 2040 — roughly doubling from today,’ the IMF said in a paper… The Fund warned that EU governments will face increased spending pressure for defense, energy and pensions in the next 15 years.”

May 29 – Bloomberg (Cory Bennett and Max Ramsay): “The European Union cautioned that its economic relationship with China must change as the bloc begins considering tougher measures to counteract growing imbalances… ‘China is a critical partner, and engagement and dialogue will continue,’ the commission said…, following a meeting of EU commissioners. ‘At the same time the current state of the trade and investment relationship is not sustainable.’”

May 24 – Financial Times (Laith Al-Khalaf): “Bank lending to British businesses has fallen to its lowest level for nearly 30 years, as weak economic growth and tighter regulation on lenders sap credit for small companies in particular. British bank lending to non-financial companies fell to 59% of UK GDP in the third quarter of 2025, a level last seen in 1998, according to… Boston Consulting Group. At its peak in 2008, bank lending to businesses was about 90% of GDP.”

May 27 – Bloomberg (Jack Wittels): “Falling water levels on one of Europe’s most important rivers are restricting the amount of oil barges can carry, adding more pressure to the region’s fuel supply chains as the Iran war grinds on. Earlier on Wednesday, the level of the Rhine had declined enough that a 110-meter barge could only carry a little more than 1,000 tons of diesel through the key waypoint of Kaub in Germany… That’s about 40% of its total carrying capacity. The Rhine is a key part of Europe’s transport infrastructure, with more than 280 million tons of goods carried along it in 2024. Petroleum products made up more than 20% of that volume.”

Japan Watch

May 26 – Bloomberg (Toru Fujioka): “Bank of Japan Governor Kazuo Ueda indicated the need for vigilance over the impact of oil price spikes on the underlying inflation trend without dropping a clear hint on how that dynamic might influence the outcome at next month’s policy meeting. ‘Japan’s experience shows that oil price shocks are never just oil price shocks. They are tests of the entire inflation regime,’ Ueda said… The governor traced the impact of oil shocks dating back to the 1970s and noted, ‘we are actually facing a fifth oil price shock’… ‘The boundary between temporary and persistent inflation is not mechanical,’ Ueda said. ‘A temporary shock can become persistent if it changes wages, expectations and price-setting behavior.’”

Emerging Market Watch

May 27 – Bloomberg (Marcus Wong): “Southeast Asia’s two biggest economies are selling more short-term debt to cope with the stress from the US-Iran war, draining liquidity from broader markets. Indonesia’s central bank has stepped up issuance of rupiah bills to attract foreign inflows to support the rupiah, which has hit record lows and become Asia’s worst-performing currency this quarter. In Thailand, the government is leaning more on short-term notes as it pushes ahead with a controversial emergency borrowing plan. The preference for shorter-dated securities comes as inflation concerns fueled by the energy shock have spurred a selloff in longer-maturity sovereign bonds globally.”

May 25 – Bloomberg (Heesu Lee): “Samsung Electronics Co.’s bonus deal with workers risks turning South Korea’s AI-driven chip boom into a new source of inflation and housing-market pressure that the Bank of Korea will have to address, according to Bloomberg Economics. Bonuses tied to operating profit at Samsung and SK Hynix Inc. are evolving from a firm-level labor issue into a broader macroeconomic transmission channel, funneling chip-sector profits into household liquidity, asset prices and wage growth, Hyosung Kwon, Korea and Taiwan economist for Bloomberg Economics, said… ‘For the Bank of Korea, this adds to both financial-stability and inflation risks,’ Kwon wrote…”

May 27 – Bloomberg (Andrew Rosati): “Brazil’s inflation accelerated more than expected in the first half of May, breaching the ceiling of the central bank’s target range as food and housing prices rose… Consumer prices gained 0.62% from a month earlier, above the 0.57% median estimate of analysts... From a year ago, inflation reached 4.64%, above the target of 3%...”

May 25 – Bloomberg (Rajesh Kumar Singh): “India’s gas power generation has plunged to the lowest level in at least six years, with the Iran war hitting fuel shipments, straining electricity supplies at a time when a scorching summer is pushing demand to record highs.”

Social, Political, Environmental, Cybersecurity Instability Watch

May 28 – Bloomberg (Laura Millan): “Global warming is likely to surpass 1.5C for the next five years, breaching a threshold that countries set in the 2015 Paris climate accord, and 2027 is set to be the next year of record-breaking heat, according to a report by the United Nations’ World Meteorological Organization. Average temperatures across the planet will continue at or near record-high levels through the end of the decade, said the report, produced by the UK’s Met Office and published on Thursday. There is an 86% chance that one year between 2026 and 2030 will surpass 2024 as the hottest observed.”

May 27 – Politico (Ferdinand Knapp and Zia Weise): “The record-smashing heat wave plaguing Western Europe is a ‘brutal’ reminder of the cost of global warming, the United Nations’ climate chief has warned… The scientific consensus is that heat waves are becoming hotter, longer and more frequent due to human-caused climate change, noted Simon Stiell, executive secretary of the U.N.’s climate body.”

May 26 – Reuters (Gavin Maguire): “Many of Asia’s largest cities are already gripped by above-normal temperatures that are prompting widespread use of power-hungry air conditioners weeks ahead of the usual peak in summer thermometer readings across the region. Temperatures in many parts of China, Japan, India, South Korea and Southeast Asia have climbed to well above their long-term averages recently, and look set to remain elevated for the next several weeks…”